In investment learn to turn the painful losses into profitable lessons


Carrying lessons learnt from your life-moulding incidents of defeat is a win unto itself. PHOTO | SHUTTERSTOCK

During the Gulf War, Gen Colin Powell, chairman of the US Joint Chiefs of Staff, had advised President Bush that if America wished to use its military to liberate Kuwait, several conditions needed to be fulfilled.

The force employed must be overwhelming and utilised as a last resort, the goals must be clear and accompanied by a coherent exit strategy, and the operation must have broad domestic and international support.

In time these criteria would come to be known as the Powell Doctrine. Powell had served as a field-grade officer in Vietnam, the last major US conflict, and had witnessed the dangers of “mission creep”— that is, the growth of a military operation beyond its originally stated goals without a clear end.

The Powell Doctrine was intended to prevent a repeat of the Vietnam War, and, as it was implemented in the Persian Gulf War, it was wholly successful. Moral of the story: turn your losses into lessons.

Losing in financial markets can certainly lead to later prosperity if lessons are learned - just don’t lose too much. My first NSE trades took place in the fast half of 2007 with just Sh100,000 (money I couldn’t afford to lose), I placed my bets in one or two speculative names.

Five months later after the purchase and ensuing crash, I was down significantly. Lesson? Beware of overheating markets and non-diversification. Three years later came the ego-bruising 2011 shock drop.

I also recall twice getting wiped out trading online CFD markets circa 2010. Crushing! But lessons from these years of sub-par performance were good to me. I learnt my lessons.

Sometimes the blessing of losing early can lead to winning but then experience foretells that losing is just around the corner. So lose a little, win a little but then accept the inevitable decline.

But learning from past investment mistakes is not obvious for most people. The absence of someone around to criticise your quarterly or semiannual results, or to grill you as to why you bought Mumias Sugar at Sh10 in 2010 makes many unbothered.

Well, maybe there’s a spouse and perhaps a stockbroker with whom you are forced to converse, but a stockbroker will be quite sympathetic to your odd choices and certainly isn’t going to fire you for picking Home Afrika—as long as you’re paying the commissions.

And hasn’t the spouse (the one who doesn’t understand the serious business of money) already proven a faith in your investment schemes by allowing you to continue to make mistakes?

For those with financial-savvy partners, in the unlikely event they’re dismayed at your stock selections, I see you hiding broker statements - Disclaimer: I don’t endorse this practice.

You see winning isn’t everything nor is it “the only thing” as Vince Lombardi once said. You gain turning your losses into lessons.

Carrying lessons learnt from your life-moulding incidents of defeat is a win unto itself. When you accept everything and to expect anything, then the future tragedies disappear or at least lighten.

Mwanyasi is the managing director at Canaan Capital.

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Note: The results are not exact but very close to the actual.