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From setback to success: Embracing lessons in investment losses

Updated: Apr 9

Reflecting on my experience, losing 250 hours of tutoring worth $5000 at the age of 23 due to market fluctuations was a significant setback.


Back then, that sum meant a lot, especially for an undergraduate like me. It was disappointing and frustrating, to say the least.


Let's get real.


Throughout your investing journey, you will encounter some losses. However, what truly matters is how we learn from these setbacks to become better investors.


I vividly remember the pain of that loss, but rather than dwelling on it, I look for ways to help myself. I find these practical steps useful, and I want to share them with you today.


Change your perspective


Financial losses are often seen as an unfortunate event in investing. They are not. They are a fundamental part of the journey.


If you have diligently analysed and diversified your investments, many factors contributing to losses might be beyond your control. So don’t beat yourself up.


Even the most experienced investors like Warren Buffett make such financial losses. The most recent one was the sale of all Berkshire Hathaway airline stocks.


Acknowledge that setbacks are not just inevitable but are good learning experiences. In this way, you can cultivate a growth mindset with a resilience attitude.


Learn from setbacks


It is normal to panic when there is a huge negative sign in your brokerage account. I have reacted this way even now.


But before you do anything silly, it is important to pause (take a deep breath) and detach yourself from the immediacy of the loss. This distance is not about ignoring the problem; it's about achieving the clarity necessary to approach the situation with a calm and analytical mindset.


By stepping back, you provide yourself with the space to transition from a reactive to a proactive state. With a clear head, you can then engage in a critical assessment of the loss.


Some of the questions that helped me are:

  • Is this loss a symptom of wider market conditions or the result of an individual oversight?

  • Is my investment thesis and strategy sound?

  • Is there a flaw in my analysis? Or what have I missed out on when I am analysing the business?

  • Is there anything that I can improve on in my analysis?


If the loss was due to an unforeseen market event, it might be worth considering how well-diversified your portfolio is to withstand such shocks. If the loss was due to an error in your analysis, it is important to identify what was missed or overlooked.


This level of introspection may reveal uncomfortable truths about biases or blind spots in your decision-making process. However, such a review can enhance your analytical skills.


You must know that it is not about finding a quick solution for such a setback. It is about developing the patience and necessary wisdom for long-term success in the market.

Investors engaged in long-term strategic planning for overcoming financial losses.

Document the journey


I do not have a good memory, so I document all my learnings and reflections in my OneNote. Even if you have a strong memory, I will still advise you to keep a journal.


This is because writing down what you have learned forces you to articulate and rationalise your actions. Writing helps to think clearer too.


Keeping a journal of your investment journey serves as a historical record, offering hindsight insights. It becomes a personal learning resource, helping you to identify patterns that contribute to both losses and successes.


Stay on the course


If you adopt the investing philosophy, it means that you are in for the long haul. You look beyond the short-term fluctuations and maintain focus on the bigger picture.


To do that effectively, you need to define your long-term goals clearly. These goals act as your compass during turbulent times.


Embracing the market's nature


The volatility of the market is not a roadblock. It is part of investing. That is the characteristics of the financial market.


Since we cannot change the nature of the investing landscape, we must embrace it. Such volatility can sometimes provide opportunities. When the market is down, there could be undervalued gems to add to your portfolio.


I am glad to have approached my losses with the right mindset which helps my growth. Even now, I feel like I am always learning something new whenever I look through my notes.


Remember, view each setback as an opportunity for greater wisdom. As Charlie Munger said:

“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines."


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