The Art of Losing Money

I think that most people will agree; losing hard earned money in a bad investment is a very painful experience.  There is a strong stigma that goes along with coming out on the wrong side of the equation so we tend to take it very personally and do everything possible to avoid a negative outcome.  Warren Buffett is quoted as saying "There are only two rules to investing: #1 Don't lose money; #2 Never forget rule #1.  While I absolutely agree with the principal that losing money is not an outcome to strive for and you should take extraordinary efforts to MAKE money, I think that is worth reconsidering our reaction to losing money.  If you are in the investing game long enough, you are bound to rack up some war stories of getting thumped and facing some financial setbacks.  The big difference between mega-successful investors and those that are flatlining along is how they react to these losses and continue to move forward.  Here are my recommendations on how to pick yourself up and actually improve yourself after suffering an unexpected loss.

1. Take 100% full responsibilty for the outcome.  You must start by admitting that what ever happened, you had a hand in determining the result.  Got screwed by a bad contractor? How well did you vet them before hiring?  Home prices take a downturn and you couldn't achieve your needed After Repair Value?  How much cushion did you leave as a safety net on the purchase?
2. Understand what you could have done different.  Once you have accepted responsibilty, the next step is to look back and say; what could I have done that would have altered the outcome in a more positive way?  It is easy to blame others and say that it was out of your hands but a true winner will dig deep enough to find where they went wrong.
3. Get over it!  Give yourself a reasonable amount of time to scream, rant, and kick yourself but then make a focused decision to move back into a positive state and look for the educational nuggets you just learned.
4. Document a process, system, or check/balance that will prevent the exact same mistake from happening again.  Making a mistake and losing money is a tough blow but probably not the end of the world.  Keep making the same mistake over and over and you may have some bigger issues.
5. Share your mistake with others.  If you have a good network, each person should be sharing their successes as well as their mistakes.  Maybe your mistake and learning moment can save your buddy from doing the same thing and his mistakes can save you some $$.  There is power in sharing knowledge and learning from your network.

I truly hope that no one reading this ever has to go through a losing investment experience but my guess is that if you are serious about this endeavor you will see a little red.  As long as the black far outweighs the red in the long run, you will be just fine.  Ask me how I know!!

---