The Best Way to Learn As an Investor

The Best Way to Learn As an Investor

The biggest risk you face as an investor isn't that you'll fail to be Warren Buffett; it's that you'll end up as Lehman Brothers. So why wouldn't you try to learn more from the latter? ~ Morgan Housel

By Morgan Housel at the Motley Fool 

I made my worst investment seven years ago.

The housing market was crumbling, and a smart value investor I idolized began purchasing shares in a small, battered specialty lender. I didn't know anything about the company, but I followed him anyway, buying shares myself. It became my largest holding — which was unfortunate when the company went bankrupt less than a year later.

Only later did I learn the full story. As part of his investment, the guru I followed also controlled a large portion of the company's debt and and preferred stock, purchased at special terms that effectively gave him control over its assets when it went out of business. The company's stock also made up one-fifth the weighting in his portfolio as it did in mine. I lost everything. He made a decent investment.

The silver lining is that I learned my lesson. I will never make this mistake again. Experiencing it made me a better investor.

But so many other investors made this mistake before I did. There is a graveyard of investors like me who got burned by blindly following legendary investors without knowing why those legends invested in the first place. Wouldn't it have been great if I learned from their errors, rather than experiencing the loss myself? I made this mistake in my early 20s. Every dollar I lost is a dollar that won't compound for the rest of my life. By the time I retire, this blunder may easily cost me $1 million.

Keep reading The Best Way to Learn As an Investor.