Investing mistakes are unavoidable. Everyone makes them. So it’s not a matter of if, but when. The question is what will do once you realized you’ve made a mistake?
Peter Lynch has the answer. In a 1980 appearance on Wall Street Week, Lynch highlights mistakes he’s had first-hand experience with like not knowing what you own or trying to catch a falling knife while ignoring fundamentals.
But Lynch has a rule for dealing with his mistakes. The instant he realizes he’s made a mistake, he gets out.
Unfortunately, many investors turn one mistake into many. They compound the problem.
Our first reaction toward losses is to make the money back. So the next mistake starts with wanting to get back to even. Which rarely goes as planned. Instead, we turn a small loss into a bigger loss. But that’s compounded by the opportunity cost of putting those dollars to work somewhere else. Continue Reading…