Winning is easy. Making money from stocks is easy. Anyone can do that. Even a ridiculous strategy like buying a lottery ticket comes up trumps from time to time.
What really counts is losing, and how you handle it.
The mastery to taking a loss is the most important skill you can learn as an investor. It’s not an easy skill to learn – I made an awful lot of mistakes before I thought I had a handle on losing.
But today I want to talk to you about how you can learn this skill. And how it will make you a better investor.
My mistakes laid bare
I was lucky enough to start losing money from a young age. Having amassed a decent fund during the Thatcher privatisations, I had the great benefit of having my portfolio smashed before I’d even reached my 16th birthday… the October crash of 1987 still resonates.
So by the millennium crash, I’d learned a valuable lesson – never get too greedy with your investments. In fact, I’d sold out of all my dotcom positions ahead of time. But of course, I went on to lose more money elsewhere.
I took my skills to the property development business.
As I write to you, I’m at Saelensminde Towers in France. For the first time, I’m here without the clan. Time to get all those jobs done that I never get around to avec les enfants. First job, clear out the woodshed.
And what a treasure trove of mistakes and losses – the legacy of my investments in property development. There’s the mis-measured oak worktop, the rotten floor that turned out to be solid, the remnants of the French doors that jumped off the trailer.
Truly I learned the hard way how to profit in property development. But for each of these mistakes I learned a lesson. And now I could talk to you about epoxy resin and floor wood until the sun went down.
It’s the same for investment too. You can’t learn how to be a successful investor from a book. The human mind just isn’t wired that way. If it was, then academics would make a killing on the stockmarket. But they don’t.
So here’s what I want you to do.
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Let the losses come to you
Now, you don’t have to go out there and actively look for losses in your quest for brilliance. If you trade, you’ll probably find that the losses come to you. And that’s when you’ve got to pay attention.
DO ‘cry over spilt milk’. Feel the hurt of a loss. Take time to work out why it happened. And start now.
Take the last three big losses that you made. And really get to the bottom of what went wrong.
Ask yourself: did I get too carried away by the story?
Did I ignore the state of the company’s balance sheet or place too much faith in the directors? Did I break a golden rule? Or did I just get greedy?
Lay bare the reasons where you went wrong.
It won’t be easy. It goes against our natural instincts to dwell on our losses. But you need to do it. If you can’t look a loss in the eye, then you’re unlikely to have the stomach be a great investor.
• This article was first published in the free investment email The Right side. Sign up to The Right Side here.
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