Others' mistakes

While reading an old interview with Mohnish Pabrai recently, I was struck by something he said about his investment philosophy. Rather than trying to reinvent the wheel, Pabrai has built his entire approach around what he calls “cloning”-- studying and replicating the strategies of successful investors, such as Warren Buffett and Charlie Munger. But what fascinated me more was his emphasis on learning from their mistakes, not just their successes.

This insight runs counter to how most of us approach learning about investing. We devour books about legendary stock picks, study case studies of spectacular returns, and seek out stories of investors who turned modest sums into fortunes. We're naturally drawn to success stories because they're inspiring and seem to offer a roadmap to riches.

Suggested read: The ugly, the bad and the good

Still, there's a fundamental problem with this approach: success stories often contain a dangerous dose of survivorship bias. For every investor who bought Amazon at a rock-bottom price and held on through multiple crashes, thousands bought other technology stocks at similar prices and still lost e1verything. The successful picks get written about extensively; the failures are quietly forgotten.

This is where studying mistakes becomes invaluable. Failures are far more instructive than successes because they reveal the specific behaviours and decisions that destroy wealth. More importantly, the patterns that lead to investment disasters are remarkably consistent and predictable, whilst the paths to extraordinary success often involve elements of luck that can't be easily replicated.

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Think of some of the most common investment mistakes that appear repeatedly across different markets and periods. The tendency to chase performance by buying last year's best-performing funds or stocks. The habit of selling in panic during market downturns. The attraction to complex financial products that promise extraordinary returns with minimal risk. The belief that this time is different when markets reach extremes.

These patterns have destroyed more wealth than any individual stock pick ever created. Yet because they're mundane and repetitive, they receive far less attention than the glamorous success stories. The beauty of learning from others' mistakes is that it's far more accessible than replicating their successes. Moreover, studying failures helps you develop what psychologists call “defensive pessimism”-- the ability to anticipate what could go wrong before it does. This isn't about becoming gloomy or avoiding all risks. It's about building systems and decision-making processes that protect you from predictable human errors.

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Take the dot-com bubble of the late 1990s. The specific companies that succeeded during that period – Amazon, Google, Apple – would have been nearly impossible to identify in advance. But the general signs of a bubble were quite obvious to anyone willing to look. The investors who avoided disaster during that period weren't necessarily smarter or more insightful than those who got caught up in the mania. They were simply more familiar with how previous bubbles had unfolded and more willing to learn from others' experiences rather than insisting on making their own mistakes.

This principle extends beyond major market events to everyday investment decisions. Before buying into a popular investment theme, study how similar themes played out in the past. Before following a “hot” fund manager, examine their long-term track record, including their worst years. Before investing in a complex product, ask yourself whether the people selling it to you have more financial expertise than you do.

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The most successful investors aren't those who never make mistakes; they're those who make fewer mistakes than average and avoid the costly ones altogether. They achieve this not through superior intelligence or market timing ability, but through the disciplined study of what hasn't worked for others.

Instead of finding the next big winner, the real edge comes from learning how not to lose. As Buffett himself once observed, the first rule of investing is to avoid losing money. The second rule is, don't forget the first rule. The best way to follow both rules is to study carefully how others have broken them.

Learn from every misstep and build a mistake-proof portfolio. As smart investors study mistakes so they don’t repeat them, Value Research Fund Advisor (VRFA) bakes that wisdom into every click.

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Once invested, VRFA monitors your portfolio 24/7, flags drift, and suggests fixes, helping you avoid classic errors like performance chasing or panic selling.

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Also read: The futility of market timing