Last week I made a $13,000 mistake (a tax ruling, not in my favor due to most impressive stupidity on my part). In Warren Buffett terms, that mistake cost me $226,842 ($13,000 compounded at 10% for 30 years – see boys, I do know how to do math).
I won’t sugar coat it. It sucked. Big time.
But I can guarantee that it won’t be my last mistake, nor my biggest (yeah, much to look forward to). Making mistakes is part of investing (or any financial decision for that matter).
I was once given some words of wisdom from an executive (after losing a million dollars, see full story here). He told me that mistakes happen, mistakes will continue to happen and the harder I played, the bigger the mistakes I would make.
And I do see myself moving along the mistake curve. I started with the small financial mistakes like thinking the stuffing envelopes for cash scam was legit. My learning there? Ask, ask, ask for opinions before shelling out hard earned money (in this case, $5, not much but I was dead broke at the time).
I progressed into mistakes like following hot investment fads (dot com, dot gone and ouch afterwards). That learning? Stocks that everyone is buying are usually overpriced (and ready for a correction).
My recent blooper taught me that I should never invest in something for tax savings reasons alone (complete dumbness). I was talking to an investment buddy of mine and he laughed. Seems that mistake is a rite of investing passage.
Do you see the trend here? Mistake, learning, different mistake, different learning, yet another mistake, yet another learning. Mistakes are fine (okay, they aren’t fine, they’re bloody painful) as long as we learn from them. Of course, it would be easier to learn from other people’s mistakes but who is smart enough to do that?
Some of us get stuck on one mistake (like following hot investment fads) and never move forward. As with school, the financial world forces us to sit through investment lessons until we finally learn what we’re meant to learn (or drop out). If I find myself continually losing money, I know that I haven’t learned an important lesson.
Of course, I don’t recommend deliberately making mistakes just so you can learn from them. Believe me, try for perfection and let the mistakes happen naturally. However, when they do happen, only mentally flog yourself for a day or two. Then chock it up as tuition fee, learn your lesson and move on.
Now that I’ve shared some of my idiotic moves with the world, why don’t you share some of yours? What have been some of your biggest, most creative mistakes (including scams fallen for)?