Thursday, November 18th, 2010
into the stacks

What is research?  We could look up a formal definition, but the practical application would look different from job to job, even within the investment industry.

There are those, like quantitative analysts and portfolio managers, whose approach is scientific, or as scientific as something can be for a social science.  On the other end of the spectrum are those whose work could best be described as impressionistic, with anecdotes and observations providing important clues.  Good investment processes have elements of both; a soft feedback loop from one side of the ledger can illuminate the other.

A recent research project has gotten me thinking about how we do research today versus how we did it in the past.  Now, almost all of it is done in front of a screen.  We used to go to the library and dig.  For this project, I found myself doing some of each, since many of the sources I needed to tap weren’t digitized.

I first was faced with stacks of paper documents to be read, removed one by one from a file box.  Then I went “into the stacks” at a large university library, ultimately finding myself surrounded with stacks of books at a table therein, in the same chair I sat decades ago, doing the same sorts of things.

That is:  reading, taking notes, trying to make connections and piece together the story that the materials told.  In doing so, it was unavoidable to think about how our processes have changed and the implications for research.  In the analog world, it’s slower to get at the easy stuff, but often easier to stumble onto something important but little noticed by others.

The entire process is analogous to the differences I noted in one posting (“paper or plastic”) from an earlier seriesthe research puzzle | Here’s a guide to the series of four postings. on the tools we use to aid our decision making.  In thinking about online newspapers and magazines, I wrote:

The difference is that the small footprint and linked structure of a website lead to a narrower field of view and much less discovery than what you get from reading news in the traditional formats.  We are seduced into thinking that everything is at our fingertips online, yet the serendipity is mostly missing and the “aha” moments are less frequent.  For someone in the markets, the old adage applies:  The true opportunities are to be found by looking at the nuggets buried deep in the Journal or other publications, not on the front page.  Yet most of the heavily-read financial sites offer interchangeable headlines and common stories of discussion; the nuggets are harder to find online than they are in print.

Which is what I found to be true at the library as well.  The online sources are searchable, but the searches may be unmanageable in their size (“there are 132,045 results for that phrase”) and the search algorithms are designed to point me to the most obvious items.  (Which I need to see, of course, as part of my work.)  An analog search will take more time, yet, for a variety of reasons, bear some of the sweetest fruits.  In many situations, the research process should encompass both realms.

Which brings me to how you accumulate the information that you want to save.  I’m biased — I’m an inveterate note taker.  Yes, with pencil and paper, those lost tools of art.  But notes can be taken electronically as well, and I do that too.  I just haven’t found a good tool for doing so (and I’ve tried many).  Teaching classes (at that same university) showed me that note taking, in whatever form, has declined markedly.

Why should that be?  Those notes are the source material not only for today, but for the next time around.  Today, they help you synthesize the material, interpret it, compare it, and mash it up with other sources.  Plus, they form a base of knowledge that you can draw upon (and, if electronic, search easily) for years to come.  Some of the greatest benefits of those notes are longitudinal; you won’t see them for some time.  But in the light of history, you may derive more from them than you can possibly imagine now.

Wherever the stacks of information are that you find yourself in, make sure that your process is rich enough to encompass the obvious (since that’s what most of the discussion will be about) and the odd bit of discovery that is yours alone.  Don’t let today’s tools obscure the good methods and lessons of the past.