When it comes to investing, mistakes are unavoidable. Even the best investors get it wrong — a lot.
But here’s the thing: it’s okay to be wrong, as long as you handle it the right way. The trick is to make sure being wrong is rare, quickly admitted to, swiftly corrected, and (importantly) learned from.
Rare, Not Never
No investor can avoid mistakes entirely. But there’s a massive difference between being occasionally wrong and regularly wrong.
Acknowledging that you’ll be wrong from time to time doesn’t mean lowering your standards or ignoring due diligence. Quite the opposite — it’s about striving to make the best decisions possible while accepting that no amount of research or analysis can completely eliminate risk.
The goal isn’t perfection; it’s progress. Your job as an investor is to make sure your successes outweigh your failures, both in frequency and in magnitude.
Face the facts
Clinging to a losing position out of pride or stubbornness is one of the surest ways to underperform the market.
Sure, the original investment case may have been well thought out, and backed by loads of research, but sometimes — oftentimes, in fact — reality will unfold in unexpected ways.
Admitting you’re wrong is acknowledging reality over wishful thinking. It takes humility, but that usually saves you from much bigger mistakes.
Correct and Move On
As Buffett said, “The most important thing to do if you find yourself in a hole is to stop digging.”
Usually, that just means selling out or, at least, selling down. You can figure out what to do with the remaining capital later.
It is, however, important to distinguish between a genuine error of reasoning, and a temporary dip in the share price. You’re not right or wrong based on what the market is doing. What matters is that you’re aware of the salient facts and your thinking is sound.
Remember, capital preservation is the cornerstone of successful investing because it protects your ability to stay in the game, even when things turn against you.
Learn and Improve
It may sound like something you’d read on a motivational poster, but every mistake really is a lesson in disguise.
As it happens, the market is a relentless educator, and it charges a steep tuition. But the lessons are invaluable for those that are open to them.
As Ray Dalio says “pain + reflection = progress.”
TL;DR
Investing isn’t about getting it right all the time. It’s about getting it right enough of the time and, crucially, handling the inevitable mistakes with grace and discipline.
When being wrong is rare, quickly acknowledged, corrected, and then learned from, every mistake only serves to sharpen your edge.
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