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It is important to learn the right lessons from both mistakes [commission & ommission] & things that go well. I often find people focus their learning on mistakes & less on the latter or learn the wrong lessons or see patterns that don’t exist
Some thoughts on trying to learn...
Some thoughts on trying to learn...
1/ Missing out on something with a high optical valuation... the lesson is usually not ‘be willing to pay any price’ or ‘quality at any cost’ it is ‘why were your numbers / expectations too low’, ‘what did you miss about the business’
2/ When you lose money because something bad happens to the fundamentals, try to break things down:
- Was there a mistake of analysis before buying?
- Did you miss a change after you bought?
- Was it a portfolio mgmt error in not cutting & putting capital elsewhere?
- Bad luck?
- Was there a mistake of analysis before buying?
- Did you miss a change after you bought?
- Was it a portfolio mgmt error in not cutting & putting capital elsewhere?
- Bad luck?
3/ Separate out errors of fundamental analysis and psychological errors... don’t rationalise the latter, just recognise them for what they are and try to change your process to mitigate them in the future
4/ Being too conservative can sometimes be more costly than being too aggressive... whilst there is a tension between this and being analytically sceptical, being overly conservative can be the source of errors of ommission or selling too early
5/ Separate out errors of analysis from errors of weighting... eg it might be that all the risks have been identified, but that they were weighted incorrectly or that the weight that one should have been putting on something changed over time
6/ Don’t learn by blanket exclusion, be more specific... [the classic example being those who swore not to touch tech after the early 2000s, rather than deciding to not touch anything with an extreme / bubble valuation or a bad business model]
7/ Always try to isolate luck [good and bad] and skill [good and bad]
8/ When analysing winners, understand what went right so you can try to repeat. Was it luck [eg interest rates falling]? Was it behavioural? Did you understand the magnitude of a trend better than consensus? Was your quantitative analysis better? Was it your qualitative insight?
9/ Try not to ‘overlearn’, always reason from first principles and sense check / think again about your instinctive reaction to something
