Everyone makes mistakes when it comes to investing.
I have never met someone who hasn’t.
It just happens and is part of the game.
But here’s the deal: when it comes to investing, there is a big difference between how legendary investors make mistakes and how normal investors do.
The secret is what happens after the mistake is made.
That’s what separates them from the rest of the pack.
The best investors know their mistakes, study them, and create structures to avoid repeating them.
The Cost of Mistakes
Here is a quick story about what I am saying.
A few years back, I was in New York visiting a partner who runs a significant asset management company, think $25b +.
Huge.
They have been investing since the 1950s.
They’ve learned a thing or two about successful investing over those 70+ years.
And they take their mistakes seriously.
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The best investors know their mistakes, study them, and create structures to avoid repeating them.
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I’ve never seen or heard of someone taking this to this level, but these people, no joke, have a wall in their offices memorializing their mistakes – the missed opportunities, the “should have bought that,” should have sold that, or could have bought more.
It’s impossible to know the cost of these mistakes, but it’s a lot.
As they walk through their office, they see what happened, how much it cost, and internalize why they missed it and how to avoid it in the future.
It’s incredible, but they know how much this has cost them.
And here’s the deal: they are great investors because of this.
When we lose money, we must earn a lot to return to get back what we lost.
Example: You lose $10,000 on an investment you shouldn’t have. If you make $100,000 a year and save 10%, it’s going to take you a year to make that back.
The example above is simple. Obviously, the market could rebound, but the story’s moral remains: It takes a long time to earn back mistakes.
Time costs money.
Mistakes add time.
That means later retirements, less traveling down the road, having your kids leave college with debt, or simply constantly feeling stressed.
Three Ways to Handle Mistakes Better
Here are three ways to handle the next time you make a mistake, in order to learn from it as you move forward:
- Write them down—if you don’t know what they are, you will repeat them. Easy enough. Take a journey down memory lane and write down the big ones. You could figure out what that cost you, which I’ve done. It’s painful. But feeling the pain is good because it should help you become a better investor.
- Failproof your decision-making – Now that you know your biggest mistakes, figure out what the common thread is. You’ve consistently spent too much on cars. The fix could be as simple as, whenever you want a new vehicle, committing to driving it for one more year, with no questions asked. Whatever you end up finding, the next step will ensure you won’t screw up next time.
- Talk about it—you gotta talk about it. I have made some big mistakes over time, and I’ve made it a habit to speak with my CPA, attorney, wife, and Fjell team about them so they know. My team and wife know me like the back of their hand; they know my weak points. They help me make fewer mistakes. But this only happens because I’ve talked with them about them.
We cannot undo the past, wish we could at times, but we can commit to not repeating our past mistakes.
You and I will make many more mistakes in the future; it’s just going to happen.
But when we use this framework above, we’ll minimize their damage.
When we do that, our money will keep growing.
That means more vacations, earlier retirements, more income, and less stress.
It’s a good outcome.
