The Motley Fool

Why It’s Important To Document Your Investing Mistakes

Everyone makes mistakes – we are only human. However, I am probably right to say that not many would openly and frankly admit to their mistakes, both as a result of pride and also the desire to be seen as being smart. In investing, it is common to hear of people bragging about their gains and big wins, while playing down or conveniently forgetting about their equally large losses. This is selective amnesia at its best.

I would make the argument that it is helpful for an investor to admit and document the mistakes he has made in investing. Let me share on the reasons why, and also detailed an investor should go about doing so.

Firstly, maintaining an investment journal allows one to have a factual record of what you’ve done wrong. You can assess all past investment decisions made and also why each was taken. This helps the investor to avoid hindsight bias – the feeling that you knew what was going to happen due to the information you received after an event had occurred, even though you may have had no clue before the event.

Secondly, documenting allows you to crystallise your thoughts on why you had invested in the first place, what went wrong and any blind spots you may have had. This improves analytical rigour over time as you continually learn from your mistakes. Of course, there is always the propensity for us to make new mistakes, but at least you can avoid repeating the old ones.

Finally, the journal acts as a diary to track your progress as an investor, showing you how you have learnt and matured over time as an investor. Many professional investors make use of the journal to refine their techniques and modify them as they go along. Continuous improvement should be the goal as investors can never claim to know everything.

Creating an investment journal is easy. You can use a Word document or maintain a physical diary and jot down every single buy and sell decision and also the reasons for making them. Make it simple and quick by using bullet points – we are not looking for prize-winning essay quality writing here. As long as you can explain to yourself why you made the decision, it would be easy to check back now and then to ensure consistency of thought and also follow-through of your investment principles. Over time, you can only improve as an investor, but remember to be entirely honest with yourself. Otherwise, you would end up deceiving yourself instead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.