An Investment Journal - A Catalogue and Analysis of Investment Mistakes

As budding investors, we will surely, at some point in our lives, encounter instances whereby our analysis of a company was less than perfect. Our assumptions may have been wrong or flawed, the industry could have changed drastically over a period of time, or maybe an unanticipated legal or political change may have precipitated a drastic deterioration in fundamentals for your companies.

All these mistakes (some avoidable and some not) should be meticulously catalogued into a journal in order for us to reflect and to avoid making the same mistake twice. Personally, I have my investment journal saved as a Word document, which I periodically review to see the mistakes I have made.

An important thing for a value investor to do is to admit that he makes mistakes, instead of shying away from or covering them up. Being candid, honest and frank can help an investor to reflect upon his principles and to avoid costly mistakes in the future. Warren Buffett himself never avoids stating the mistakes that he has made for the past year to his shareholders in his Annual Shareholder's Letters. By being honest and open with yourself, you go through a learning process and emerge much clearer and confident. Hiding mistakes does not make them go away, in fact, they will most likely come back to haunt you when you least expect it.

Most mistakes are of 2 types: mistake of commission, and mistakes of omission. The latter is a lot more common for Mr. Buffett because many times, he misses out on buying a great company at a fair price. But when he started out, he made several mistakes of commission as well, like selling too early, buying a company with low look-through earnings, and over-looking several critical factors which made the investments unattractive.

Similarly for the man on the street, they can analyze mistakes based on these 2 categories. For me, mistakes of commission generally occurred early in my investing life, and consisted of many examples of buying for the wrong reasons, selling under the influence of emotion and not fundamentals, as well as grossly over-estimating the future potential of a company. In the next few postings, I will cover part by part each investment mistake and how it contributed to me being a better investor. Readers should note that it is not the $ value of the loss which is important, but the lessons learned. I can proudly say that I have not repeated any of my past mistakes so far, and endeavour never to repeat them for the rest of my investing life !

As for mistakes of omission, these will be discussed candidly as well. Most instances, it consists of me doing detailed, thorough research into a company. However, the company does not fit my strict criteria and thus I did not buy it. Subsequently, I was proven to be mistaken. I will give a few examples of such cases, but I will also insert a paragraph to explain why I did not commit and why I think the company may or may not still be worth buying.

To conclude, all investors should have an investment mistakes journal, to remind them not to repeat their folly and to help give you a clear, concise objective when it comes to investing. I dare say I am a much wiser person now BECAUSE I had committed those mistakes. Sometimes, life's lessons can only be learnt through experience; no amount of reading can ever replicate the knowledge that experience can bring.