All I Want to Know is Where I am Going to Die, So I Won't Go There... - Views on News from Equitymaster

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The Equitymaster Research Digest

All I Want to Know is Where I am Going to Die, So I Won't Go There...
Mar 7, 2017

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Consider a tennis match between two champions, Roger Federer and Rafael Nadal. The winner is usually the player who won the most crucial points or made the fewest errors.

Contrast this with a match between two young amateurs. Here, the winner is generally the player who makes the least mistakes. Either way, minimising your mistakes always gives you an edge.

Charles Ellis, author of Winning the Loser's Game, explores this analogy between tennis and investing. He says investing outcomes aren't determined by a particularly shrewd strategy or special insights. Rather, the loser's mistakes determine investing outcomes. The key to winning the investing game, then, is to make fewer mistakes than other investors.

Amateur investors should seek to avoid errors that could result in a permanent loss of capital. Find out which stocks will kill you...and then don't buy them!

It's an incredibly simple and totally underappreciated strategy.

So how do you reduce investing errors? Can you do it consistently?

Yes. With checklists.

Checklists help reduce errors because they force you to think before you make a decision. Here is a four-point checklist Warren Buffett uses to identify good businesses...

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