I
know you are disappointed with the answer dear readers. But please bear with
me. Just indulge me and read the above quote once again. What defines the magnitude of our mistake is not the nature of the
mistake itself, but its consequences! Looking back at all the mistakes I
have made in my investing lifetime (so far), I realize that I have been
extremely lucky! Actually, I can hardly believe how lucky I have been. If all
the mistakes that I have made had ended with the worst-case scenario, I doubt
if I would have ever had the opportunity to learn from them. Or I would have
learnt from them, but would certainly not have had the resources to implement
my “learnings”. After all, there are just so many times you can lose your
entire bankroll and start all over again.
So
many times, we make the mistake of attributing our good luck to skill. And we
attribute our bad luck to, well, bad luck. In fact, this phenomenon is so
common, that there is a whole mental model about it. Self-serving bias.
“A self-serving bias is any
cognitive or perceptual process that is distorted by the need to maintain and
enhance self-esteem, or the tendency to perceive oneself
in an overly favorable manner. It is the belief that individuals tend to
ascribe success to their own abilities and efforts, but ascribe failure to
external factors.” - Wikipedia
No
matter what investing school you belong to, fundamental or technical, value or
growth, there is a great amount of forecasting attached to it. Forecasting, by
its very nature, involves uncertainty. And uncertainty involves probability. The
easiest way to increase your odds of success is to reduce your odds of failure.
And the simplest way to reduce your odds of failure is to learn from your
mistakes and avoid repeating them in the future. Every little mistake ticked
off results in increasing the odds of success. But like we said in the
beginning, the magnitude of our mistakes
is not defined by the nature of the mistakes themselves, but by their
consequences. And this is exactly where luck comes in! What if the initial
few mistakes all had dire consequences!
I
believe I am becoming a smarter investor every year. Not because I am closer to
finding any secret stock picking formula, but because with passage of time, I
can now recognize mistakes that I have made in the past that I had never
noticed before. And that, I believe, holds the key to being a successful
investor.
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