Monday, September 28, 2015

Pay attention to mistakes of omission, but don't suffer over them.

From a learning perspective, paying attention to mistakes of omission is useful, but it's also important to keep the right attitude and not let "missing out" affect they way you do things going forward. I've recently re-read some excerpts from both Peter Lynch and Charlie Munger that say it about as well as it can be said... 

From Charlie Munger (via Tren Griffin):
"The most extreme mistakes in Berkshire’s history have been mistakes of omission. We saw it, but didn’t act on it. They’re huge mistakes — we’ve lost billions. And we keep doing it. We’re getting better at it. We never get over it. There are two types of mistakes [of omission]: 1) doing nothing; what Warren calls “sucking my thumb” and 2) buying with an eyedropper things we should be buying a lot of." 
"It’s important to review your past stupidities so you are less likely to repeat them, but I’m not gnashing my teeth over it or suffering or enduring it. I regard it as perfectly normal to fail and make bad decisions."
And one of Peter Lynch's "The Twelve Silliest (and Most Dangerous) Things People Say About Stock Prices" in One Up On Wall Street:
We’d all be much richer today if we’d put all our money into Crown, Cork, and Seal at 50 cents a share (split-adjusted)! But now that you know this, open your wallet and check your latest bank statement. You’ll notice the money’s still there. In fact, you aren’t a cent poorer than you were a second ago, when you found out about the great fortune you missed in Crown, Cork, and Seal.  
This may sound like a ridiculous thing to mention, but I know that some of my fellow investors torture themselves every day by perusing the “ten biggest winners on the New York Stock Exchange” and imagining how much money they’ve lost by not having owned them. The same thing happens with baseball cards, jewelry, furniture, and houses. 
Regarding somebody else’s gains as your own personal losses is not a productive attitude for investing in the stock market. In fact, it can only lead to total madness. The more stocks you learn about, the more winners you realize that you’ve missed, and soon enough you’re blaming yourself for losses in the billions and trillions. If you get out of stocks entirely and the market goes up 100 points in a day, you’ll be waking up and muttering: “I’ve just suffered a $110 billion setback.” 
The worst part about this kind of thinking is that it leads people to try to play catch up by buying stocks they shouldn’t buy, if only to protect themselves from losing more than they’ve already “lost.” This usually results in real losses.