Anticipate Errors & Be Prepared to Correct Them Quickly


My Sunday Washington Post Business Section column is out. This morning, we take an expanded look at my annual Mea Culpas, and why investors should expect to be wrong

Here’s an excerpt from the column:

“Why should you make a list of your mistakes? In the investment business, you must expect to be wrong. This ritual forces you to stop lying to yourself about what a great investor you are. In most fields, if you get 3 out of 5 things wrong, your career is in deep trouble. Imagine if a doctor had 60 percent of clients die on him, or an accountant with a 60 percent audit rate.

Investing is more comparable to baseball, where hitting the ball only two out of five times means you are batting .400 — making you one of the greatest batters of all time. (Congratulations — you are Ted Williams!) Understanding this strikeout ratio is just a small part of successful investing. It also helps to have a plan in place so you know what to do when you whiff.

I am frequently — and, on occasion, spectacularly — wrong. But I expect that to be the case. Pretending to divine what stocks will go up or down or where the market will be in three or six months is not only silly, it’s also counterproductive. Instead, I suggest you anticipate errors and be prepared to correct them, quickly.”>

I find this process to be somewhat uncomfortable, but a necessary part of improving as an investor. I was already doing it for a few years when I came across Ray Dalio’s manifesto — and I learned that decades earlier, he reached a very similar conclusion.


Here’s where I messed up. And this is what I learned.
Barry Ritholtz
Washington Post, February 10 2013



Print Friendly, PDF & Email

What's been said:

Discussions found on the web:

Posted Under