The Study of Mistakes

(Continuation of the wonderful compilation of Warren Buffett's sayings done by Bud Labitan called "The Warren Buffett Business Factors" but unfortunately the link I had recorded is broken.)

The Study of Mistakes

My pal Charlie has always emphasized the study of mistakes rather than successes, both in business and other aspects of life. He does so in the spirit of the man who said: “All I want to know is where I’m going to die so I’ll never go there.” You’ll immediately see why we make a good team: Charlie likes to study errors and I have generated ample material for him, particularly in our textile and insurance businesses. Irrespective of titles, Charlie and I work as partners in managing all controlled companies. We enjoy our work as managing partners. And we enjoy having you as our financial partners.

And one of the most quoted Buffett's saying:

To Win, first thing to do is not to lose. - Warren E. Buffett

Is the Study of Mistakes any different for traders? Take these famous quotes:

There is nothing like losing all you have in the world for teaching you what not to do. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn!

If a man didn't make mistakes he'd own the world in a month. But if he didn't profit by his mistakes he wouldn't own a blessed thing.

If i learned all this so slowly it was because i learned by my mistakes, and some time always elapses betweeen making a mistake and realizing it, and more time between realizing it and exactly determining it.

I was wrong; and the only thing to do when a man is wrong is to be right by ceasing to be wrong.

Losing money is the least of my troubles. A loss never bothes me after i take it. I forget it overnight. But being wrong - not taking the loss - that is what does the damage to the pocketbook and to the soul.

The recognition of our own mistakes should not benefit us any more than the study of our successes. But there is a natural tendency in all men to avoid punishment. When you associate certain mistakes with a liking, you do not hanker for a second dose, and, of course, all stock market mistakes wound you in two tender spots - your pocketbook and your vanity. But i will tell you something curious: A stock speculator sometimes make mistakes and knows that he is making them. And after he makes them; and after thinking over it cold bloodedly a long time after the pain of punishment is over he may learn how he make them, and when, and at what particular point of his trade; but not why. And he simply calls himself names and let it go at that.

Of course, if a man is both wise and lucky, he will not make the mistake twice. But he will make any of the ten thousand brothers or cousins of the original. The Mistake familiy is so large that there is always one of them around when you want to see what you can do in the fool-play line

-- Edwin Lefevre - Reminiscenes of a Stock Operator.

Or perhaps O'Neil's famous 19! (see Canslim: 19 )

I think this is the biggest thing for one to learn: Many people don’t admit even when they made a mistake(s).

When one does not admit that they have made the mistake in their stock selections, be it in investing or trading, then the mistake will just compound on itself, doesn't it?

The stubborn trader will most likely end up making the same mistake, over and over again, right?

And for the stubborn investor? Not admitting their mistake in their stock selection will turn their investment into a buy and hope.

Imagine one growing an mango tree. Once the mango bear nuthin' but sour mangoes, does it make sense to do nothing and hope the tree would one day bear sweet and juicy mangoes? Doesn't it make more sense to admit one's mistake? Perhaps it was in one's planting, care & maintenance of the tree. But what if fault simply lies in the initial mango seed?

And the classical investment teaching teaches us that investment takes time to bear fruit. But if the initial seed used was to plant our investment was poor, doesn't it make sense for us to admit the mistake? Be the man. Be the woman. Admit our mistake. And move on.

Else.... well simple. Say one is stubborn. Twenty years past. Couple of bull markets came and gone. And our end result? A miserable below average returns for a twenty year investment. How? Wait for another bull market?

So remember, one could easily make a mistake in one's stock selection. Recognising, admitting and then correcting the mistake is the only right thing to do!

Do remember this one famous teaching:

It takes a man a long time to learn all the lessons of all his mistakes!