For the free Special 250th Edition ebook, click on the link at the end of this article.
“Regrets, I’ve had a few, But then again, Too few to mention,
I did what I had to do, And saw it through without exemption,
I planned each charted course, Each careful step along the byway,
And more, much more than this, I did it my way.”
My Way, made famous by Frank Sinatra. © WARNER CHAPPELL MUSIC
Introduction to Special Edition
This Special 250th Edition includes over 30 market experts sharing a mistake that made them better investors.
Since Edition 1, we have focussed on independent financial journalism from finance market professionals to deliver useful insights to our community of readers, now approaching 40,000 strong.
It’s an important time to learn these lessons, as the 88-year-old founder of Vanguard, Jack Bogle, recently said in a CNBC interview:
“I have never seen a market this volatile to this extent in my career. Now that’s only 66 years, so I shouldn’t make too much of it.”
We have produced several Special Editions before, but something new happened this time. Disappointingly, some fund managers were prevented from contributing by their legal and compliance team. It’s a sad state of affairs when a fund manager is prevented from admitting a mistake, as we’re all supposed to learn from them. The question we asked was:
“What is an enduring investment lesson you learned from making a mistake?”
A couple of responses asked what a ‘mistake’ really is. Markets can hide many sins or punish good decisions, such as in this feedback:
“What is a mistake in investing? Too often managers admit to mistakes (that reveals their deep humility) that weren’t mistakes; rather the market went against them. As in bridge, you can make excellent decisions with rotten outcomes and rotten decisions with excellent outcomes.”
One famous local fund manager wrote that identifying a mistake can relieve stress:
“Insights from past failures can help boost performance on a new task – and this study is the first, as far as I know, to explain why. The researchers report that writing critically about past setbacks leads to lower levels of the ‘stress’ hormone, cortisol, and more careful choices when faced with a new stressful task, resulting in improved performance. The study, published in the journal Frontiers in Behavioral Neuroscience, is the first demonstration that writing and thinking deeply about a past failure improves the body’s response to stress and enhances performance on a new task.”
Another was more skeptical:
“The harsh truth is that I don’t believe any investor really learns from their mistakes in any meaningful way. By this I mean we can easily avoid investing in the same dud company, but that doesn’t stop us investing in other dud companies. We can then develop personal heuristics that steer us away from all companies that have similar traits to the dud one we lost money on, only to find out that some of them turn out to be great investments. The problem of course is that history never exactly repeats.
The reasons we make mistakes can usually find their roots in the human foibles we learn about in behavioural finance (anchoring, confirmation bias, recency bias, etc), and because we are human we keep making them. And the problem with the behavioural finance work is that its a very good descriptor of why we have stuffed up in the past, but offers little by way of prescription for future success.
Nevertheless I reckon the biggest mistakes we are likely to make comes from over-confidence. As Twain said (words to the effect): “It ain’t what you don’t know that gets you into trouble, it’s what you know for sure that just ain’t so.”
Investors become better by learning from experiences, whether or not they are considered mistakes, and sharing the lessons of market professionals may help some of our readers avoid the same mistakes.
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Special 250th Edition
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Thanks to the contributors to this Special Edition: