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I make a lot of mistakes. A lot. Sometimes mistakes are due to going too fast – trying to get something done and off my plate (I like to be efficient). Other times mistakes are because something is new to me, and I was ignorant of all the things I should have considered before making the decision. And other times I make mistakes simply because of the way things turn out – we can’t possibly account for everything that will happen.
Some mistakes hurt more than others, but they all hurt. I want to make the right decisions…all the time. Making a mistake not only hurts the ego, but it often results in suboptimal outcomes where the reminder of our mistake (and its pain) can last a while – whether we are talking about money, repairing a relationship, or something else.
Making mistakes is part of life. Everyone makes them, and we do it all the time. Here is the question I have been pondering:
Would you rather know about the mistakes you make or not?
Why I Don’t Want to Know
The main reason we may not want to know about mistakes we make is to avoid the pain of regret. We have a natural and strong aversion to regret. If we don’t know we made a mistake, there is no psychological pain. We keep living life.
I am sure there are mistakes I make in life that I don’t realize either in the moment or looking back at a past decision. And I’m OK with that, I think. But for every unrecognized mistake, we increase the odds of repeating that same mistake in the future. This is because we have already acted/responded in that way one time, and felt no pain or received no correction, so it is likely we will act again in a similar situation.
Why I Need to Know My Mistakes
Despite the natural aversion to regret and the desire to protect our sensitive egos, it can be very helpful and in our long-term interest to recognize our mistakes. Even if they provide embarrassment, pain, and regret in the short run. In fact, those negative feelings, and our desire to not repeat the experience, becomes the inspiration to make a change in the future.
If the pain or negative outcome is sufficient, we may do whatever it takes to ensure we don’t repeat the mistake. This is the essence of personal progression. Deciding and behaving better today than we did yesterday. That doesn’t come naturally. It is often the result of education and experience, especially sore and painful personal experience.
Reframing Mistakes Positively
We can choose to ignore the mistake by blaming another person or blaming a circumstance – you know, not being accountable. Or we can accept the mistake, admit that we are human and it happens, and then create a plan or personal commitment about how we want to decide/behave better in the future. Without such a plan, even if we feel pain for the prior mistake, we are likely to make it again.
Mistakes today help us choose better tomorrow. That is the positive reframing. Every single investor mistake can be learned from and become part of an investment plan. It is common for an investment plan to define an allocation and perhaps a buy/sell discipline. But it is even more important to include a decision-making and reaction plan in our investment plan. We update it over time as we learn more about ourselves (how we feel and react to things) and we learn more about how the markets work.
This is where a financial advisor, who is trained in the influences of psychology and decision-making under uncertainty, can be a significant value and resource. Most advisors aren’t and won’t. That means there is an opportunity for some advisors, those that want to up their game and improve their value, to differentiate themselves and not just provide better counsel to their clients, but grow their business at the same time.
Related: What To Do When a Spooked Investor Wants a Portfolio Review