Mistakes
How to think about mistakes
Hi.
Reading room: About 4 minutes
Mistakes. Something we do not often speak about. I want to take some time and write this post as one of introspection. I saw a video where Mr Utpal Seth presented on mistakes in investing and I felt like it was a great time to introspect on these mistakes personally. I will share my notes on the video as a pdf in the end.
When we have to ask questions we ask people what are the best decisions you have made? It is similar to the thought of looking for people who succeed in business or sports. We ignore the bad stuff. But the learning is much more in what you should avoid than what you should do.
Reflecting on mistakes is something which is very important. It defines you as a person. How you learn from them, how you deal with them end up defining your character.
Mistakes are very dangerous you can make them now but see the repercussions after a long time. They end up compounding and you can see the effects of it later. For me something which I consider a mistake for myself is the fact that I ignore my diet a lot nowadays. Eating unhealthy regularly is something which may or may not affect your body immediately in a huge way but in the long term the effects are very bad. I feel like there are a lot of these small mistakes that people in my generation make which don’t seem to effect us in the near term in like a few years but I am sure that in the next 20-30 years we would have a lot of problems in comparison to the generations before us.
Let’s speak about something interesting that I found in the session conducted by Mr Seth. There are two types of mistakes that we speak about:
Type I error: Error of omission (not doing something you should have)
Type II error: Error commission. (doing something you should not have done)
There is another type of error which Utpal sir discussed which was Type 1.5 error. In this you did not do enough of something you should have done.
Let’s look at a situation that I can relate to:
A batsman:
Type I error: Not trying a risky shot like a sweep when there is no fielder there.
Type II error: Playing a risky shot when there is no need to.
Type 1.5 error: Not playing enough risky shots when the situation demands you to.
All three of these are mistakes but we only think of Type II errors. We rarely think about error of omissions or the Type 1.5 errors partly because you never really see them. But these mistakes happen at much higher frequencies than the Type II errors. If we look at it in the context of business.
Type I error: Not improving the culture of your company when you can see clear signs.
Type II error: Investing in a business which loses money and drains your energy and takes your focus away from your main business.
Type 1.5 error: Investing in something where you see signs of growth and potential but investing an insignificant amount.
The way I would think about the Type 1.5 error is something where you half ass it.
This thinking framework for errors is something that I think is helpful. If you are a business owner you should think like this and introspect and reflect on your capital allocation. Classifying mistakes in this manner helps you understand your mistakes better and that leads to understanding yourself better.
If your attribution of the mistake is wrong then your learning from the mistake will also be wrong. According to Utpal sir this is how you deal with mistakes :
Identify —> Rectify —> Attribute —> Learn
One more big insight that I took from the video is we should avoid mistake aversion. Making mistakes is something which cannot be avoided. It is the reality of life. In fact the biggest mistake would be not making any mistakes.
“Anyone who has never made a mistake has never tried anything new.”
― Albert Einstein
We should embrace mistakes and deal with them with a good state of mind, but expose ourselves to them only to an extent where they are not irreversible. Buffett and Munger had this insight as well. There are a few big mistakes in life which should be avoided.
The session from Mr Utpal Seth is very good and he relates it to investing in a brilliant way which is why I have not tried to write about investing. I suggest you hear his lecture.
“Making a mistake is not a crime, but repeating a mistake is a crime. Not learning from a mistake is the greatest crime.” - Rakesh Jhunjhunwala
Thank you for reading,
Samvit.