Risk depends on the probability of making a mistake
For the definition of risk, I think Buffett’s statement is the most appropriate: “the possibility of loss or injury.”and “Risk comes from not knowing what you’re doing.” (from: BRK Annual Meeting 1994)
In order to accumulate wealth, you have to take risks; and risk often depends on your chances of making mistakes. But in the process of financial accumulation in a lifetime, we don’t have many chances to make fatal mistakes. Two or three fatal mistakes may ruin all your life’s hard work.
Do a few things right in your life and you can succeed
Buffett said: “You only have to do a very few things right in your life so long as you don’t do too many things wrong.” I have also repeatedly stated in many places that investors can make a fortune as long as they bet on two or three investments in their lifetime. Many successful investment masters have also mentioned similar views. Interested investors can refer to the following blog articles of mine:
- “Good companies are rare. Two or three will make you very rich. Take Texas Instruments as an example“
- “Why concentrated investment?“
- “Whether a successful investor can be sustained?“
Failure is not worth trying
Buffett once said: “When people tell me they’ve learned from experience, I tell them the trick is to learn from other people’s experience.” (from: Q&A session with Dartmouth MBA students) Many things in life need and are worth trying, but not failure. We cannot commit ourselves to the pain of trying and failing. After all, it is best not to experience many things ourselves and to learn from the experience of others is the best way.
“This passage is definitely suitable for investors. Some people are born stubborn gamblers. They obviously have so many warnings and wrong experiences from investors, but they still insist on “this time is different.” The mentality is desperate to take a gamble. The result, of course, is to lose the hard-earned money earned through hard work. In severe cases, there are so many people who are bankrupted and destroyed. The end of the game is really unbelievable.
Don’t play fire
John Templeton has a famous saying in the investment industry: “The four most expensive words in the English language are, ‘This time it’s different.’” He also emphasized: “The only way to avoid mistakes is not to invest—which is the biggest mistake of all. So forgive yourself for your errors. Don’t become discouraged, and certainly don’t try to recoup your losses by taking bigger risks. Instead, turn each mistake into a learning experience.”
How to avoid failure
Investors should avoid the above shortcomings, there is no other shortcut, only the following two methods:
- Face yourself honestly, and have the courage to admit your mistakes: This is very difficult, because people have inertia; paranoia is one of the fundamental reasons for investment failure. The older you are, the more difficult it is; even if you are willing, the higher the cost or price, the worse the effect.
- Continue to receive new knowledge: This is also very difficult. For example, according to research, human beings will not explore or listen to new music genres after they are twenty-five years old. After most people leave school, they hardly take the initiative to absorb new knowledge, which is fatal.
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