[[Start here]] → [[manage the monkey mind|Mindset]] → Mistakes --- Our desire to be right is overwhelming. We want to prove to ourselves that every investment we make is a good decision, but the only way to do so is to sell for a gain. So we grab at profits but hang onto losers hoping they will recover. This is the exact opposite to the winning behaviour of *running winners and cutting losers*. What can we do about this? Well it starts with changing our beliefs about what it means to be wrong, and changing our understanding of mistakes. Dr Van K. Tharp was a brilliant author and trading coach who sadly passed away in 2022 after years of service to the trading community. In “Eight Edges You Must Have”[^1] he states: > [!QUOTE] Van K Tharp > A mistake is not following your rules. If you don’t have rules, everything you do is a mistake. These are incredibly powerful statements. The first reframes what it means to make a mistake, while the second inverts it in a way that forces reflection. Our subscribers at [Stockopedia.com](https://www.stockopedia.com) tell us again and again, about the transformation they make in their investing. They describe their research process before using the service as being “woolly”, “unstructured”, or “hit and miss”. This is the definition of a process lacking rules, where everything you do is a mistake. They then describe how the service has impacted their process - with terms like “more disciplined”, “rules based”, “structured”, “having a plan”, “knowing what works”. Of course, just because you don’t have rules, doesn’t mean you can’t make money. In every market cycle we see traders at the high risk end of the market making huge profits. We all know people who made lucked out in dotcoms, peak oil, crypto and meme stocks. Most gave those profits back, few hung onto them. Michael Mauboussin[^2], once discussed the difference between luck and skill through the interplay of process and outcomes. The matrix below illustrates the point. ![[a mistake is not following your rules.png]] In the short term, if you wing it, you can still get lucky. Dumb lucky. But over time, the odds will shift in favour of Poetic Justice. Similarly, with well structured rules, you can still have a Bad Break. But over time the odds shift in favour of Deserved Success. Therein lies the key. Redefine a mistake as *not following your rules*. Keep [[simple rules beat human judgement|simple rules]], base them on [[What works in stocks?|what works]] and [[maintain your discipline]]! [^1]: [[Tharp - Eight Edges You Must Have]] [^2]: [[Mauboussin - More Than You Know]]