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Can we afford to make mistakes in investing?
By Musicwhiz  •  September 8, 2009
[caption id="attachment_1605" align="alignright" width="150" caption="Photo by Anderson Mancini"]Photo by Anderson Mancini[/caption] Mistakes in life are one aspect of life which no one likes to talk about, and perhaps the one thing you don’t know well about your friends (and even your loved one) as most people are embarrassed to admit their faults. But it’s a fact of life that as human beings, we are fallible and less than perfect. We frequently make mistakes and it is a natural process of evolution that mankind learns from mistakes and avoid repeating them, or else repeats them to his own detriment. There is of course a saying that “History always repeats itself”, but in the world of investing, if history repeats itself too often with respect to mistakes, then one will end up a lot poorer. The big question I have posed is: can we afford to make mistakes and yet come out better from the experience? How many mistakes are investors “allowed” to make before one is made significantly poorer, or significantly wiser? I think the answer to this depends on the nature and severity of the mistake made, and how much of one’s capital was staked on that particular investment in question. Giving a recent example of mine: my investment in Swiber turned out to be a mistake due to the way the Company was managing its cash flows and also to the fact that its debt levels were too high – but fortunately due to sufficient margin of safety I avoided losses and even managed to book a small gain when I divested my shares. So the idea here is to keep your losses small and manageable by adopting proper techniques to determine margin of safety, and never over-paying for any investment. Making mistakes in investing is unavoidable, but it is the lessons we learn which are the most valuable. I personally feel that making a small number of minor mistakes is actually good for an investor as it tempers his ego, allows him to learn more about investing (as well as himself) and makes one more determined not to repeat the mistake. Of course, this is based on the assumption that one can be totally honest with oneself and admit that “it was my fault”, and not blame it on everything else like your broker, your friend who gave you the tip, the weather, Ben Bernanke and a host of other unrelated events. It is pretty easy to shift blame but ultimately one has to answer for one’s own actions as it is your money and no one else’s at stake here. Read more...
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By Musicwhiz
Musicwhiz who is in his 30s is educated in accounting and works in the investment line (but not in a bank, financial institution, brokerage or fund house). He has a have a full-time job and investing is his side-line as well as passion. Musicwhiz is a value investor and his technique is derived from the teachings of Warren Buffett, Benjamin Graham and Phil Fisher. He incorporate all aspects of their investing style, and modify his value investing style to the Singapore market.
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