Mistakes are inevitable in investing.
You’ll make them. The person selecting your investments will make them.
And learning and moving on from them is imperative.
Oprah Winfrey said, “There is no such thing as failure. Failure is just life trying to move us in another direction . . . Learn from every mistake because every experience, encounter, and particularly your mistakes are there to teach you and force you into being who you are.
Failure instructs.
Success can deceive us into thinking we’re better than we are.
So we should celebrate failure; it humbles us, and makes us better.
Control
Focus on what you can control in investing: your behaviour.
Sometimes we are right, and sometimes we are wrong.
Peter Lynch, the greatest mutual fund manager ever, who averaged a 29.2 percent average annual rate of return running the Fidelity Magellan Fund from 1977 to 1990, said about investing in stocks: “If you’re terrific in this business, you’re right six times out of 10.”
Four times out of ten you’re wrong—and this is if you’re the best.
How you handle those 40 percent of decisions you’re wrong on will dictate your success in investing.
The best investors recognize and admit mistakes and move on from them.
Warren Buffett, at Berkshire Hathaway’s 2024 annual shareholder meeting, admitted he made a mistake on an investment in Paramount Global, the media company. In 2022 he invested $2.6 billion of Berkshire Hathaway’s money in Paramount’s stock. Since then, the stock is down by over 50 percent. Buffett has since sold the stock realizing a major loss for Berkshire Hathaway. He admitted the mistake, cut the chord, and moved on.
Even the best make mistakes.
The important thing is recognizing when you’ve made a mistake and moving on.
As Seneca said, “Disaster is virtues opportunity.”
It gives us the opportunity to do what is right.
But the first step is admitting the mistake. Which can be hard to do.
Moving On
Philosopher Will Durant put it like this: “Forget mistakes, forget failures, forget everything, except what you’re going to do now and do it. Today is your lucky day.”
What’s important is making the proper decision—today. Forget what decisions you may have made yesterday, which may not have been optimal. What’s important is making the best decision you can today with the information you have.
Learning
If you fail to learn from a mistake, you’ve failed to learn. Henry Ford said, “True education is gained through the discipline of life.” It’s not until you’ve experienced mistakes that you’ve truly learned.
You can and should try to learn from others to avoid mistakes. But when you make a mistake, it’s imperative that you recognize it and learn from it to avoid making the same mistake in the future.
James Clear, author of the best-selling book Atomic Habits, said:
Pain is an effective teacher. If a failure is painful, it gets fixed. If a failure is relatively painless, it gets ignored. The more immediate and more costly a mistake is, the faster you will learn from it.”
We learn more from our failures than from our successes.
Bill Gates put it like this: “Success is a lousy teacher. It seduces smart people into thinking they can’t lose.”
Seneca, in the same vein, said: “Unimpaired good fortune cannot withstand a single blow.”
Pain and mistakes harden us. Success softens us.
Be thankful for mistakes.
You Reach—I Teach
Michael Jordan didn’t win an NBA championship until he failed many times first. He went on to win six NBA championships. Losing made him one of the greatest champions ever in NBA history. As Jordan said, "I’ve missed more than 9,000 shots in my career. I’ve lost almost 300 games. Twenty-six times I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over and over again in my life. And that is why I succeed.”
The things which hurt, instruct—Ben Franklin
Failures in investing do the same—they teach, if you are open to learn.
Warren Buffett learned from his mistake in Paramount Global, as he did from previous mistakes he’s made throughout his career. They paved the way for future successes.
Successful investors learn from their mistakes; unsuccessful investors fail to learn.
Buffett’s late business partner Charlie Munger put it like this:
I like people admitting they were complete stupid horses’ asses. I know I’ll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn.
Some people are able to rub their noses in their mistakes. Some aren’t. Those that are are going to learn more and perform better.
Bottom Line
You don’t have to be perfect to do well in investing.
The best investors make mistakes—and learn from them.
Stay humble, open and willing to learn and you’ll be successful at investing.