💡Our Worst Money Moves Make for the Best Learning Experiences

Mistakes are uncomfortable. They’re awkward at best and downright embarrassing at worst. We’re taught to avoid them because avoidance means we’ll end up making 10x fewer errors and that means that our ego will be kept intact. 

This mindset is totally flawed. Mistakes mean we’ve reached higher and that we’ve pushed ourselves – and our boundaries. Failing to make any mistakes means you’re a) not trying hard enough or b) you’re not expanding your boundaries. Either way, not messing up means you won’t really learn much. You know what you know and that’s it. 

But it starts from a young age and how we’ve been brought up. In school, we’re not taught to embrace mistakes. In fact, just the opposite! We’re taught to see them as howlers. Things to keep away from. At all costs. My year 6 math teacher would highlight our incorrect answers and tell us to ignore all the ones we got right and focus our mistakes. For those are the areas that need most work. The ones we got right were, as she put it, totally irrelevant. It’s those pesky errors that’ll hold us back. 

You become what you focus on

Avoidance of failure means you’ll never try hard enough. And if you don’t ever try, I mean really try, then you’ll never reach your potential. I think we focus on our shortcomings way too much and place way more emphasis and headspace on the things we’ve done wrong than the things we’ve done right. And that can bring us down.

When in reality we need the courage to face our mistakes head-on. If we don’t, they might very well keep cropping up. Over and over again. Because the very thing that’s worse than making a mistake, is making the same one twice!

We’re human. Which means we’re fallible. Much as we’d like to think (and fool ourselves) that we aren’t. And this involves making mistakes; silly ones, costly ones and all the other ones. 

And if there’s one place we’ve all almost certainly messed up it’s in how we handle our money. Whether it’s how we invest (or don’t), what we spend our money on, how much we spend and so on, there’s always room for improvement. (Psst: read here about my top 10 learnings from my 2yr investment anniversary).

It helps to see how others have done it and where they’ve gone wrong. The smartest folk know they don’t know it all (because no one really does!) which means they’ll always be on the lookout for ways to learn from others’ mistakes. The smarter you are, the more you’ll do that. Sure, go out and make your own mistakes (that’s 100% inevitable) but if you can avoid losing money by seeing where others before you have tripped up then you’ll have money for your own mistakes!  

Mistakes show us our weaknesses, our shortcomings and our inabilities. They’re a signpost for things we could improve on and they most definitely are not to be shied away from.

Why do we cling to our losses but ditch our winners? 

A couple months ago, I submitted dissertation for uni which was all about the disposition effect: delving into why we hold onto our losses for longer but cut our winners. The answer lies, in part, to how we view losses and wins. I always say that we hate losses more than winning an equal amount. Our losses make us feel silly. They hurt our egos. It then makes total sense that when we make a profit (a win) we’ll want to realise it. How? By clicking sell.

But our losses? Ouch. Those sting. They force us to acknowledge and admit our mistakes. And that, my friend is 10x harder to do. So what does this mean we end up doing? We cling to our losses for dear life (even topping these loss-making positions up) while cutting the oxygen supply from our best-performing stocks. The very ones that we should be holding onto. Because if something’s winning, it’s for a reason. So let it win. After all, isn’t that why you came here? 

A while back, I noticed this very same behaviour within my personal investing. Every month I invest into my ISA – I automate this – and I highly recommend you do too as it means you look after your financial future before you spend the money on other (not-so-important) areas!

And when I decide where want my money to go to, I used to top up my most loss-making positions without really giving much thought into it. But now I know why. I tricked myself into thinking that if I’d add more to these positions (causing yet more money to haemorrhage), the losses will eventually correct themselves.

Oh, how wrong I was. Now, when my holdings have gone down, I make sure to analyse & see whether the market has overestimated the damage and whether (or not) they warrant a top-up. After all, there’s nothing I love more than buying solid stuff on the cheap. 

Cash is King – why i’ll never forget that 

Another investing mistake I’ve made was not keeping a stash of cash on the side for buying opportunities. When I started investing in 2019, I remember snapping up investment after investment like a hungry schoolkid. But then came March 2020. The mother-of-all-crashes and I was left with zero funds to deploy.

I had to wait till November 2020 to buy stuff. By which point many of those uber-discounts were removed. But if I had a stash of cash waiting patiently on the side for these kinds of things then my portfolio would be in a very different place!

Learn from your mistakes and don’t repeat the same mistake twice. That’d be like throwing away a perfectly fine pile of money. Sounds daft, right? But if we never analyse what went wrong (and why), we’ll never be able to correct ourselves.  

I’m in my early twenties so I bet I’ll make loads more mistakes but that won’t stop me from investing and from taking risks – with my money and myself. Because what I’ve found is that we tend to regret the things we don’t do rather than the things we do. Worst case you’ll learn; best case you’ll win. Nothing there to lose, my friend. 

Look, we’ve all messed. We’ve had our moments where we’ve not handled our money (and other things!) quite as well as we’d like to and we probably look back at these points and cringe. But this is normal. It means you’re trying – and learning. 

And remember, real-life ain’t the classroom. You’re allowed to make mistakes cause that’s how you’ll learn. 

Don’t be so afraid of failing. Fear of failure will hurt us more than our mistakes ever will. 

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.