Most Expensive Mistake
Judge your process, not every result.
What This Means
Does a losing investment always mean it was a bad decision?
Not every investment is going to make you money. That’s investing.
If you had a reason for buying it, understood the risks, and it fit into your overall plan, it may have been a good decision even if it didn’t work out.
Where investors get into trouble is holding on simply because they don’t want to admit they were wrong.
The better approach is to keep asking one question: Would I buy this investment today knowing what I know now? If the answer is no, it may be time to move on.
Long-term investing isn’t about winning every time. It’s about making enough good decisions over a long enough period of time that the winners outweigh the losers.
Common Questions
Does a losing investment mean I made a bad decision?
Not necessarily. We can’t expect every investment to make us money, even though that’s always the goal. If you had a reason for owning it and made a thoughtful decision, a loss doesn’t automatically mean you were wrong. Sometimes the outcome is simply different than you hoped
Why do good companies sometimes become bad investments?
There are plenty of times when our investments are affected by things that have nothing to do with the investment itself. Markets move together. But when the investment itself changes—or the reason we owned it changes—we need to be willing to change too.
Remember This:
Not every investment will make you money. But every investment should have a reason for being in your portfolio.
Keep Learning:
What You Paid Doesn’t Matter: A good investment decision should be based on what you believe about the investment today—not the price you originally paid.
Follow The Earnings: When the fundamentals behind an investment change, your decision may need to change too. Earnings can help you evaluate whether the original reason for owning it is still intact.