Unfortunately, mistakes are just part of investing. Every investor will make mistakes throughout their career. Some will be big and some will be small.
What we've got to do is try to avoid making significant mistakes that could become terminal. We've also got to learn from our own mistakes so that there's no risk of repeating them.
Learning from others' mistakes
One of the best ways to learn from mistakes is to learn from the mistakes of others. Learning from others' mistakes is cost-free. Other investors lose money as well, so you don't have to learn the same lessons with your own money.
This is something Charlie Munger (Trades, Portfolio), billionaire investor and right-hand man of Warren Buffett (Trades, Portfolio), is all too aware of.
In one of his most recent interviews in April 2019 with the Wall Street Journal, Munger tried to emphasize this point. According to an edited transcript of the interview published in the Journal, when asked about the importance of benefiting from lessons paid for by others, Munger responded:
"I want to learn as much as I can vicariously. It's too painful to do it by personal hardship. Of course. I collect big calamities in my head and big stupidities. I do that so I can avoid them. Think of how little in the way of big calamity has ever come to Berkshire (BRK.A, Financial) (BRK.B, Financial). And it's not that we don't ever have reverses and disappointments in that or never have whole businesses disappear. But averaged out, we have less misfortune than others.
Another thing that really helps is people, a lot of people think that real selfishness, very extreme, is what works. But it doesn't...If you have a reputation for being decent to work with and unselfish, you make more money, not less. And at Berkshire, I can't tell you the things that we have bought where the people wanted a good home for something that they love, and they trusted us to take care of their loved one. That sounds ridiculous to talk about, in that language about businesses. But why wouldn't you love something you spent your life building up? It's very natural to love it – it's your own creation. Of course, you want it in good hands...
Good morals and a reputation for good morals are enormously valuable, and it's just so simple…. The right way to go through life is win-win. Just anything else is crazy. To be all take and no give is just an absolute disaster."
Approach to life away from investing
We spend a lot of time focusing on Munger's investment successes and advice on how to be a good investor, but we spend much less time analyzing his approach to life away from investing.
This seems to be an excellent summary of his mentality and approach to life. He wants to learn as much as possible from others while at the same time trying to give back and having plenty of humility. Investors can learn a lot from this approach, which doesn't seem particularly fruitful at first.
Nevertheless, as the billionaire investor explained in his interview last year, the majority of the time, it is better to be kind and open with a good reputation and morals rather than aggressive and self-centered. That approach will only get you so far in life. Without the approval and support of others, life is much harder, and lessons are more challenging to learn.
Investors working together and learning from each other can accomplish a lot more than working against each other or independently.
Investment ideas can be analyzed, mistakes discussed and lessons learned. Shutting off these learning experiences could be costly in the long run.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
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- Buffett: Every Investment Should Be Simple
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