We all make mistakes in our day to day life. I make them all the time. I bet you do too. For the most part, we don’t pay any special attention to them. But sometimes, when they get a bit bigger, we become very aware of them. We repeat some over time, and for most we’ve learnt over the years what we can and cannot do to minimize the effects.
I bet you’ve heard countless times what you should and shouldn’t do to avoid mistakes and how important they can be in not resulting in ruin. For example, in trading, people advise you shouldn’t risk more than x% of your capital per trade. Quite often they over generalize. They give this advice to both young folks, just starting their careers, and older guys and girls, already counting down the hours to retirement.
Why is this? Why do we think a piece of advice is good for some circumstances? Are they really equally effective in all circumstances?
Well no. Taking the example above, an older person, let’s call her Mary, is probably doing everything in her power to avoid and minimize making mistakes. In trading terms this means that in her pension account she is trying to minimize her drawdowns. Or in day to day life this could mean she doesn’t want to do anything that could result in injury.
In both cases she could have much more to lose than to learn from the experience. Say, a 30% draw down could ruin her retirement plan. Or a broken ankle could severely impact the quality of life in her later years. In the first case she doesn’t have that much time or available cash flow to replace the financial damage, and in the second her body might not recover fully anymore.
But a person in his 20s, let’s call him Jack… well, here we have a different story. I’d argue he should do everything in his power to get exposure to new experiences and learn from them. In order to do that, this means that he must engage in challenging (but carefully thought through) activities. And sometimes this will result in losing some money, or that he will break an ankle. However, h can always get a second job to earn that money back, and his body can recover much faster and much better than someone much more senior.
In life there are things a younger person could afford that a more senior just cannot. Should Jack decide to take the same actions as Mary, he will never progress fast enough. In order to learn he needs to make mistakes and without them he won’t be able to cope with the progress of those around him. But regardless his decisions must be smart.
We all make mistakes but I think that most people emphasize the avoidance of mistakes rather than focusing on keeping our mistakes equally affordable over time. There are periods in our life when we can afford to make mistakes but there are periods when we can’t afford not to make them.