{"id":356,"date":"2019-10-13T12:48:16","date_gmt":"2019-10-13T12:48:16","guid":{"rendered":"http:\/\/www.assetmultiplier.co.in\/blog\/?p=356"},"modified":"2019-10-13T12:48:19","modified_gmt":"2019-10-13T12:48:19","slug":"embracing-mistakes","status":"publish","type":"post","link":"https:\/\/www.assetmultiplier.co.in\/blog\/2019\/10\/13\/embracing-mistakes\/","title":{"rendered":"Embracing Mistakes"},"content":{"rendered":"\n

Jon writes about this on his blog https:\/\/novelinvestor.com\/<\/a>. He quotes Stan Druckenmiller \u201cEvery great money manager I\u2019ve ever met, all they want to talk about is their mistakes. There\u2019s great humility there.\u201d<\/p>\n\n\n\n

Investing is just a long series of decisions where some end in\ngains and others end in losses. If you\u2019re doing it right, the gains outweigh\nthe losses in the end, hopefully, by a large enough margin that your goals are\nreasonably satisfied. In other words, every investor makes mistakes. Those that\ndon\u2019t are lying. That\u2019s the uncomfortable truth. Those that go on to be great\ninvestors, learn this through experience\u2026and apparently love to talk about it. So\nwhat\u2019s the benefit of constantly talking about their mistakes? For one, they\nembrace the inevitable.<\/p>\n\n\n\n

Peter Bernstein writes about the importance of this realization\nand why it matters: The trick is not\nto be the hottest stock-picker, the winningest forecaster, or the developer of\nthe neatest model; such victories are transient. The trick is to survive!\nPerforming that trick requires a strong stomach for being wrong because we are\nall going to be wrong more often then we expect. The future is not ours to\nknow. But it helps to know that being wrong is inevitable and normal, not some\nterrible tragedy, not some awful failing in reasoning, not even bad luck in\nmost instances. Being wrong comes with the franchise of an activity whose outcome\ndepends on an unknown future. The nature of uncertainty in the process\nmakes being wrong inevitable because not only will you make mistakes, you can\nmake the right decision and still lose money. So are you prepared for it? Survival\nis about planning for the inevitable losses in advance. <\/p>\n\n\n\n

Following a few basic investing principles help with this.<\/p>\n\n\n\n

Ben Graham introduced the idea of margin of safety decades ago as a way to embrace mistakes from the start. It\u2019s as simple as\u00a0leave room for error<\/em>. He believed the possibility of being wrong should be factored into the price you pay for an investment. The idea is to pay a low enough price, so even if you\u2019re wrong, you only lose a little. In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches\u2026\u00a0The riskiest moment is when you\u2019re right. That\u2019s when you\u2019re in the most trouble because you tend to overstay the good decisions.<\/p>\n\n\n\n

When you combine it with diversification \u2014 spreading your money across multiple investments \u2014 if one turns out bad, it won\u2019t be devastating.\u00a0 That\u2019s what diversification is for. It\u2019s an explicit recognition of ignorance. And I view diversification not only as a survival strategy but as an aggressive strategy because the next windfall might come from a surprising place. You reap further benefits when you diversify. If some investments inevitably turn out worse than expected, the opposite could happen to others \u2014 some turn out better. In other words, you get unexpected opportunities. Not a bad consolation prize for survival.<\/p>\n","protected":false},"excerpt":{"rendered":"

Jon writes about this on his blog https:\/\/novelinvestor.com\/. He quotes Stan Druckenmiller \u201cEvery great money manager I\u2019ve ever met, all they want to talk about is their mistakes. There\u2019s great humility there.\u201d Investing is just a long series of decisions where some end in gains and others end in losses. If you\u2019re doing it right, […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[74],"tags":[],"_links":{"self":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/356"}],"collection":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/comments?post=356"}],"version-history":[{"count":1,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/356\/revisions"}],"predecessor-version":[{"id":357,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/posts\/356\/revisions\/357"}],"wp:attachment":[{"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/media?parent=356"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/categories?post=356"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.assetmultiplier.co.in\/blog\/wp-json\/wp\/v2\/tags?post=356"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}