Embracing Accountability

During my days as a private equity investor, I saw people making two kinds of mistakes:

Type 1 mistake: You make a bad investment, but when you realize it, you accept it and move on. You secretly curse yourself and try not to repeat it.

Type 2 mistake: You invest in a bad company but your ego doesn’t let you acknowledge the mistake. You rationalize it and end up investing even more money — often called ‘throwing good money after bad.’

Type 1 mistake is just a mistake. Type 2 mistakes are the blunders that ultimately kill you.

Half of what makes you a good investor is just skill — your understanding of businesses and industries, your ability to read a story from numbers and simplify complexity in your head.

The other half is character — humility to accept mistakes, stay the course in a storm, and not worry about what the fund-manager next door is doing.

And not just fund managers, we all need these qualities — from the CEOs of big corporations to fresh graduates.

Over time, as our skill goes up, our type 1 mistakes will go down, but not the type 2 mistakes — for that, we have to mold our character.

That is why it is hard to be a Warren Buffett. He has no problem saying, ‘I was wrong.’

– Rajan

Similar Posts