Why Every Investor Needs to Fail: The Painful Truth About Becoming Profitable

Investing is a journey filled with excitement, challenges, and lessons that often come the hard way. While it’s tempting to imagine a path paved with unbroken success, the reality is that failure is often a critical ingredient in becoming a skilled investor. Charlie Munger, Warren Buffett's legendary partner, once quipped, "There are no value investors under the age of 40." This is more than a humorous remark—it's a profound commentary on how the wisdom required for disciplined investing often comes from hard-earned experience.

As someone who has traded through booms, busts, and everything in between, I’ve learned that failure isn’t just an inevitable part of the process—it’s a necessary one. Here’s why.

The Beginner’s Luck Trap

Many new investors enter the market during a bull run. Prices are rising, sentiment is euphoric, and almost every trade seems to pay off. This is the “beginner’s luck” phase, where early wins feel effortless. The danger? These successes can breed overconfidence.

I’ve seen it firsthand: novices with a few profitable trades suddenly believe they’ve unlocked a secret formula. They start chasing meme stocks, jumping on hype trains, or over-leveraging themselves in speculative bets. The result is often predictable—a market correction wipes out their gains, and sometimes much more.

One of my early failures came from this exact scenario. During my first year of trading, I made a series of profitable trades on tech stocks during a bull run. Flush with confidence, I bet big on a speculative biotech stock hyped by the media. It tanked, and I lost more in one trade than I had made in months. That failure stung, but it taught me invaluable lessons about risk management, the dangers of chasing hype, and the importance of doing thorough research.

Why Failure Is the Best Teacher

1. Emotional Lessons Stick Reading about risk management in a book is one thing; experiencing the sting of a bad trade is another. Losing money triggers an emotional response that embeds lessons deep in your psyche. After my biotech blunder, I never again risked more than I was willing to lose on speculative trades.

2. Failure Builds Discipline Without experiencing losses, many investors lack the discipline to stick to sound strategies. Failure forces you to confront your weaknesses—whether it’s impulsive decision-making, lack of research, or failure to diversify—and correct them.

3. It Shifts Your Focus to Fundamentals Beginner investors often focus on price movements, charts, or social media trends. A few hard losses push you to dig deeper into a company’s fundamentals, industry trends, and macroeconomic conditions. You start understanding why a stock might be worth buying, not just when.

4. Humility is Crucial for Growth Overconfidence can blind you to risks, but failure humbles even the most confident traders. This humility makes you more receptive to learning, whether from books, mentors, or your own mistakes.

Avoiding Failure Isn’t the Goal—Learning From It Is

Failure is inevitable in investing, but the key is learning the right lessons and avoiding catastrophic losses. Here’s how I’ve turned failures into stepping stones:

1. Start Small When you’re new, keep your position sizes small. Think of your initial investments as tuition in the school of the stock market. Losing small amounts early will hurt less and teach just as much.

2. Maintain a Learning Mindset After every loss, I analyse what went wrong. Was it poor research? Impatience? Ignoring my stop-loss rules? Treating every mistake as a learning opportunity has been a cornerstone of my success.

3. Embrace Risk Management After my early failures, I made risk management non-negotiable. I set clear stop-losses, diversify my portfolio, and never bet more than I’m willing to lose. This protects my capital and ensures I stay in the game long enough to capitalize on future opportunities.

4. Beware of Overconfidence Even now, after years of profitable trading, I remind myself that the market is unpredictable. Staying humble and disciplined has saved me from countless potential missteps.

Charlie Munger’s Wisdom: The Age Factor

Munger’s remark that “there are no value investors under 40” underscores how patience and experience are often acquired through years of trial and error. Younger investors tend to be drawn to high-risk, high-reward strategies, while older, seasoned investors gravitate toward value investing—a slower, more methodical approach.

The truth is, most of us need those early missteps to appreciate the wisdom of focusing on fundamentals, compounding, and long-term horizons. It’s hard to embrace these principles when quick gains seem tantalizingly within reach. But after enduring the sting of failure, the allure of chasing hype fades, replaced by a deeper respect for the market’s complexities.

Final Reflections

Do people need failures to learn investing? In my experience, yes. Failure is a harsh but effective teacher, shaping us into better, more disciplined investors. It forces us to confront our weaknesses, refine our strategies, and respect the market’s unpredictability.

If you’re new to investing, don’t fear failure—embrace it. Start small, reflect on your mistakes, and treat every loss as a lesson. Remember, even legends like Warren Buffett and Charlie Munger have faced setbacks along the way. What separates successful investors from the rest isn’t avoiding failure, but learning from it and coming back stronger.

The road to investing success is paved with missteps, but with every failure, you’re one step closer to becoming the kind of investor who thrives in any market condition. Stay disciplined, stay curious, and keep learning.