LEARNING FROM INVESTMENT LOSSES
The sinking feeling of sadness, frustration and despair when you lose money can be traumatising, but here’s the truth you need to hear: no investor, no matter how experienced, has a 100 per cent win rate anyway.
We’ve all made mistakes. When it comes to investing, those mistakes can be particularly painful, not just because it is our money on the line.
Making the wrong investment choices can also hurt our confidence and make us question our beliefs in our decision-making.
Just ask the 700 investors who bought into a bogus cryptocurrency mining investment here, or the 947 investors who fell for the fraudulent nickel investment scheme – including venture capitalists and private bankers.
But what matters from here is not harping on the mistake; instead, it is what you do next.
With my SingPost experience, I took great pains to ask myself: “What is the lesson to be learnt here?”
Reflecting deeply on this question, I realised that I had put too much trust in “stock tips” from professionals and failed to do my own in-depth research and analysis before I made a decision. I learnt that I had to pay more attention to competitors in the same space, because SingPost clearly was no match for them.
I also realised that just because someone is licensed as a professional, it doesn’t mean that they cannot get it wrong sometimes.
The lessons I learnt from this mistake, as well as others I have made over the years, have helped me to become a better investor over time.
STOP LIVING IN THE PAST
In the aftermath of an investment gone wrong, it’s tempting to slip into a downward spiral of regret and beat ourselves up for losing money.
In trying to make sense of things, we can end up obsessing over all the “what-ifs”. We think over and over: “Why did I trust that advice? Why didn’t I exit sooner? How could I be so foolish?”
But hindsight is always 20-20. There is no point in always looking in the rear-view mirror. We have to focus on the road ahead to keep moving forward.
Our success will depend on our ability to invest for the future, while adapting and charting a new course of action whenever a failure occurs.
That’s why the far more productive approach is to extract the lessons from the losses. What does it reveal about ourselves as investors? Does it reveal biases and assumptions we didn’t know we had, for instance? Does it show any gaps in our thinking and reasoning?
In the wake of an investing mistake, here are some questions I now focus on:
- Was this a failure in due diligence?
- Did I blindly follow someone else’s advice without doing my homework?
- Was this something I could have predicted ahead of time, with the knowledge and information I had?
There are some investment losses that can only be attributed to bad luck or a black swan event that no one can predict. For these scenarios, there is no point in beating yourself up over it.
But when the loss occurred because of a gap in our process, then the onus is on us to learn to correct it.
YOU NEED ONLY A FEW BIG WINNERS
Remember: no one has a perfect track record in investing.
Not American hedge fund manager Ray Dalio. Not investment fund founder Cathie Wood.
Not even Warren Buffett. The investing legend has famously admitted to some big blunders, such as buying Dexter Shoe Company with Berkshire Hathaway shares, or losing hundreds of millions from holding onto computer giant IBM for too long, believing it would be able to reinvent itself.
Just like us, the greatest investors in the world have taken hits to their portfolios. But what sets them apart is their ability to learn, adapt and stay in the game.
Here’s a secret: What matters isn’t avoiding mistakes entirely but ensuring that your winners more than make up for your losers.
Even if a few of our investing positions go to zero, we still have other positions in our portfolio. And the gains from these other counters can often overshadow the losses incurred by the rest.
This was my own experience, as I watched stocks I own – including iFast, DBS and Meta – grow into multi-baggers over time.
These multi-baggers are investments that multiply in value, delivering returns of two times, five times, or even 10 times our original capital.
They are the outliers in our portfolio that can more than make up for past mistakes, and can significantly accelerate our wealth when held with conviction over the long term.
I’ve owned iFast since it was S$1 a share, and DBS at under S$14. Today, they have increased in value by more than 800 per cent and 300 per cent respectively – and are still growing as we speak.
These alone more than make up for what I lost with SingPost and other mistakes.
