How many times have we told our kids to learn from our miscues and errors in life so they don’t have to repeat them? We want to protect our kids from making the very same costly mistakes that we made in our youth. Needless to say, this is far easier said than done, since sometimes the advice we render to our kids goes in one ear and out the other. Some of this reluctance to learn from the miscues of others probably has to do with youthful overconfidence, and some with stubbornness or a “know it all” attitude (factors that are also negatives in the investment arena). True, if you make the mistake yourself, it will be more indelibly etched in your mind. But at what cost to learn? If it involves anything having to do with safety, that price is much too high. That’s why kids should be driving safe vehicles. That’s why we give baby sitters the relevant contact information when we go out. That’s why we have fire extinguishers and smoke detectors in our homes. Just in case.
I’ve already said that the business of investing is not one that you can learn by trial and error because by the time you become smart you can also be broke. It’s simply far too costly a lesson. What good is becoming learned, or at least better informed about investing, if the cost of that education is a loss of your hard-earned investment capital? That’s why you absolutely must be willing to learn from the mistakes of others, including seasoned professionals who endured some rough financial sledding at times in their careers.
Read some books written by or about successful money managers, as well as those who have erred badly despite years of investment experience. What were their key mistakes? Were they able to recover from them, and if so, how? What would they have done differently? What changes have they made in their investment strategy to avoid those very same costly financial errors in the future? No matter how much experience you have in this business, the market doesn’t know your résumé. Read accounts of the 1929 crash and ensuing bear market. Revisit the 1973–1974 bear market span. Read about the Long-Term Capital Management hedge fund failure in 1998. And others. If you can learn lessons from those investment blunders, for free, imagine the dollars and the worry that you’ll potentially save yourself!
Flexibility is a trademark of successful investing in the stock market, where hard work and losses are the only guarantees, and unexpected news can trigger sharp moves in both directions. Learning the hard way isn’t often the smart way, either in life or when investing in the stock market. Why have to endure that costly experience? I’d much rather follow the phrase “take my word for it” from someone whom I respect and can learn from.
Moral: There are times in life where learning something the hard way is simply too costly a lesson. The most important examples are those where that cost could endanger your health or safety. Stubbornness isn’t an asset if it means ignoring the advice of respected folks who’ve already learned important lessons and can impart that valuable knowledge to you. Why risk repeating their mistakes all over again on your own? This applies to the business of investing as well. The decisions you make can affect your financial life and that of your family.
(To be continued...)
This excerpt is taken from “Relationship Investing: Stock Market Therapy for Your Money” by Jeffrey S. Weiss. To read other articles of this book, click here. To buy this book, click here.
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