Investor Lesson 15 - The Magic Of Mistakes

My real dad came from the world of academics, a world where mistakes are perceived as bad and to be avoided. In the world of education, the more mistakes a person makes, the less intelligent that person is thought to be.

My rich dad came from the streets. He had a different view on mistakes. To him, mistakes were opportunities to learn something new, something he did not know before. To him, the more mistakes a person made, the more the person learned. He often said, “There is a bit of magic hidden in every mistake. So the more mistakes I make and I take the time to learn from, the more magic I have in my life. ”

My rich dad constantly used the example of learning to ride a bicycle to reinforce the idea of the magic found inside of mistakes. He would say, “Just remember the frustration you went through as you struggled to learn how to ride a bicycle. All your friends are riding but all you are doing is climbing on the bike and immediately falling off. You make mistake after mistake. Then suddenly, you stop falling off , you begin to peddle, the bike begins rolling, and then suddenly like magic, a whole new world opens to you. That is the magic found in mistakes.”

Warren Buffet, America's richest investor, is known and respected for his company Berkshire Hathaway. Today, Berkshire Hathaway's share price is one of the highest priced company shares in the world. While many investors value Berkshire Hathaway's stock, few people realize that acquiring Berkshire Hathaway was one of Warren Buffet's biggest investment mistakes.

When he acquired the company, Berkshire Hathaway was a shirt-manufacturing company that was slowly going out of business. Warren Buffet thought his team could turn the company around. Well as most of us know, textile manufacturing was dying in America and moving to other countries. It was a trend that even Warren Buffet could not go against, and the company eventually failed as a manufacturing company, even with Warren Buffet behind it. Yet, inside of this company failure, Warren Buffet found the gems that ultimately made him extremely rich. For those who are interested in this story, the book The Warren Buffet Way, by Robert Hagstrom, is most enlightening, giving the reader insights into one of the greatest investor minds in the world.

Another company, Diamond Fields, was formed to look for diamonds, which were never found. The company's head geologist had made a mistake. Yet, instead of finding diamonds , they struck one of the largest nickel deposits in the world. Their stock price soared upon the discovery. Today, although the name remains Diamond Fields, they make their money in nickel.

Levi Strauss headed for the gold fields of California to strike it rich in mining. However , he was not a good miner, so he instead began sewing pants out of canvas for the miners who were successful. Today, I think most of the world has heard of Levi's jeans.

It is said that Thomas Edison would never have invented the light bulb if he had been an employee for the company he ultimately founded—General Electric. It is said that Edison failed over 10, 000 times before finally inventing the light bulb. If he had been an employee of a major corporation, he would most likely have been fired for making so many mistakes.

Christopher Columbus's big mistake was that he was looking for a trade route to China and accidentally bumped into America, the richest, most powerful country in the world.

My rich dad was so very successful financially for many reasons. At the top of the list was his attitude towards making mistakes. Like most of us, he hated making them, yet he was not afraid of making them. He would take risks simply to make a mistake. He would say, “When you come to the boundaries of what you know, it's time to make some mistakes.”

Several times, one of his businesses failed to get off the ground and he lost money. I have also seen him launch a new product only to have it be rejected by the marketplace. Yet each time he made a mistake, instead of being depressed, he often seemed happier, wiser, more determined, and even richer from the experience. He would say to his son and me, “Mistakes are how we learn. Every time I make a mistake, I always learn something about myself, I learn something new, and I often meet new people I would never have met.”

In one of his failed ventures, a plumbing distribution company, he met one of his future business partners . And from that failed plumbing business, they formed a friendship and partnership that went on to make tens of millions of dollars. He said, “If I had not taken the risk to form that business, I would never have met Jerry. And meeting Jerry is one of the most important events in my life. ”

My poor dad was an excellent student in school. He rarely made mistakes, which was why he had such high grades. The problem was that at age 50, he seemed to have made one of the biggest mistakes in his life and he could not recover from it.

As I watched my real dad struggle financially and professionally, my rich dad said, “To be successful in the real world of business , you have to be school smart as well as street smart. Your dad entered school at the age of 5. Because he had good grades, he stayed in school, eventually becoming the top man in the school system. Now at age 50, he is hitting the streets . . . and the streets are a very tough teacher. In school, you're given the lesson first. On the street, you're given the mistake first and then it's up to you to find the lesson, if you ever find it. Since most people have not been taught how to make mistakes and learn from them, they either avoid mistakes altogether , which is a bigger mistake, or they make a mistake but fail to find the lesson from the mistake. That is why you see so many people making the same mistake over and over again. They make the same mistake over and over again because they have never been taught how to learn from their mistakes. In school, you are considered smart if you don't make mistakes. On the street, you're smart only if you make mistakes and learn from them. ”

Rich dad said to Mike and me, “I am so rich because I 've made more financial mistakes than most people. Each time I made a mistake, I learned something new. In the business world, that something new is often called ‘experience.' But experience is not enough. Many people say they have a lot of experience because they keep making the same mistake over and over again. If a person truly learns from a mistake, his or her life changes forever, and what that person gains instead of experience is ‘wisdom. '” He went on to say, “People often avoid making

financial mistakes, and that is a mistake. They keep saying to themselves, ‘Play it safe. Don't take risks.' People may be struggling financially because they have already made mistakes and have not learned from the mistakes. So they get up every day, go to work, and repeat the mistake and avoid new mistakes, but they never find the lesson. These people often say to themselves, ‘I'm doing everything right, but for some reason, I'm not getting ahead financially.'” Rich dad's comment to that statement was, “They may be doing all the right things but the problem is that they are avoiding the wrong things —wrong things such as taking more risks. They are avoiding their weaknesses instead of confronting them. They are not doing something they may be afraid of doing, and consciously choosing to avoid making a mistake rather than make one. ” He also said, “Some of the biggest failures I know are people who have never failed.”

Instead of instructing his son and me to avoid mistakes, rich dad taught us the art of making a mistake and gaining wisdom from it.

During one of those lessons, rich dad said, “The first thing that happens after you make a mistake is that you become upset. Everyone I know gets upset. That is the first indication of a mistake,” said rich dad. “At this point of upset, you find out who you really are.”

“Well at a moment of upset, we become one of these characters, ” rich dad said, going on to describe the cast of characters who are brought to center stage when upsets from mistakes occur:

1. The Liar. The liar will say such things as: “I didn't do that. ” Or “No, no, no. It wasn't me. ” Or “I don't know how that happened. ” Or “Prove it. ”

2. The Blamer. The blamer will say such things as: “It's your fault, not mine.” Or “If my wife didn't spend so much money, I would be better off financially.” Or “I would be rich if I didn't have you kids. ” Or “The customers just don't care about my products.” Or “Employees just aren't loyal anymore.” Or “You weren't clear in your instructions.” Or “It's my boss's fault. ”

3. The Justifier. The justifier says things such as: “Well, I don't have a good education so that is why I don't get ahead.” Or “I would have made it if I had had more time.” Or “Oh, I really didn't want to be rich anyway.” Or “Well, everyone else was doing it.”

4. The Quitter. The quitter says things such as: “I told you that it would never work.” Or “This is too hard and it's not worth it. I'm going to do something else easier. ” Or “Why am I doing this? I don't need this hassle.”

5. The Denier. Rich dad often called this person “the cat in the litter box,” which means this person tends to bury his or her mistakes. The person who denies that he or she has made a mistake often says things such as: “No, there is nothing wrong. Things are fine. ” Or “Mistake? What mistake?” Or “Don't worry. Things will work out.”

Rich dad said, “When people are upset due to a mistake or accident, one or more of these characters will take over their mind and body. If you want to learn and gain wisdom from this priceless mistake, you have to let The Responsible You eventually take control of your thinking. The Responsible You will eventually say, “What priceless lesson can I learn from this mistake?”

Rich dad went on to say, “If a person says, ‘What I learned is that I'll never do this again,' he or she probably has not learned much. Too many people live in a diminishing world because they continue to say, ‘I 'll never do that again' instead of saying, ‘I 'm glad that happened because I learned this or that from the experience.' Besides people who avoid mistakes or waste mistakes never see the other side of the coin. ”

For example, after I lost my nylon and Velcro wallet business, I was upset for about a year . I slept like a baby during that year, which meant I woke up crying every two hours. I could hear my mind saying, “I should never have started the business. I knew it would fail. I'll never start a business again.” I also blamed a lot of people and found myself justifying my actions a lot, saying things such as, “It was Dan's fault” and “Well, I didn't really love the product.”

Instead of run from my mistake and get a job, rich dad had me face the mess I had made and begin to work my way out from under the pile of rubble that was once my business. Today, I say to people, “I learned more about business by failing than I ever did by being successful. Working through the wreckage and rebuilding the company made me a much better businessman.” Today, instead of saying, “I'll never do that again,” I say, “I'm glad I did fail and learn because I am grateful for the wisdom I gained.” And then I say, “Let's start another business. ” Instead of fear and resentment, there is excitement and fun. Instead of being afraid of failing, I now know that making mistakes is the way we were all designed to learn. If we fail to make mistakes, or make them and do not learn from them, the magic goes out of life. Life goes backward and gets smaller, instead of expansive and filled with magic.

I failed in high school twice because I could not write. To have my books on bestseller lists such as those of The New York Times, Sydney Morning Herald, and

The Wall Street Journal is magical. It is ironic that I am well known for subjects I initially failed at: writing, business, selling, speaking, accounting, and investing. I am not known for the subjects that were easy and enjoyable for me: surfing, economics, rugby, and painting.

Whenever I hear people saying, “Investing is too risky” or “I don't like taking risks with my money” or “What if I fail?” or “What if I lose my money?” I am often reminded of my poor dad because what he was really saying was “I don't want to make a mistake.” As I said, in his world, the world of academics, people who made mistakes were considered stupid.

In rich dad's world, he viewed risk, mistakes, and failure as an integral part of human development. So instead of avoiding risk and mistakes, he learned to manage risk and mistakes. His view on mistakes was that a mistake was simply a lesson with emotions attached to it. He said, “Whenever we make a mistake, we become upset. An upset is our maker 's way of telling us that we need to learn something. It is a tap on our shoulder saying, ‘Pay attention. You have something important to learn. If you lie, blame, justify, or deny the upset, you waste the upset and will waste a precious gem of wisdom.'”

Rich dad taught me to count to ten if I was angry or to a hundred if I was very angry. After cooling off, I simply say, “I apologize” and never blame the other person, no matter how angry I am. If I blame, I give power to the other person. If I take responsibility for whatever happened, I will learn a precious lesson that I obviously needed to learn. If I lie, blame, justify, or deny, I learn nothing.

Rich dad also said, “Unsuccessful people blame the other person. They often want the other person to change, and that is why they stay upset for so long. They are upset because they fail to learn their personal lesson. Instead of being upset, such people should be grateful for the other person being there to teach them something they needed to learn.

“People come together to teach each other lessons. The problem is, we often do not know what lesson we are teaching. To be upset or hold a grudge against the other person is like being upset with your bicycle because you fell off once or twice while trying to learn something new, ” rich dad would say.

As I write, the stock market and real estate markets are climbing. Individuals who have never invested before are climbing into the market, most saying the same things. They say things like, “I have made so much money in the market. ” Or “I'm in early and the price has gone up 20%.” Those are often enthusiastic words of new investors, investors who have never lost in a down market. I am afraid that in a short while, many of these new investors who are now winning will find out what it feels like to make a mistake in the market. At that moment, we will see who the real investors are. As rich dad said, “It's not how much your investment goes up that matters, it's how much it can come down that is most important. Real investors must be prepared to profit as well as learn when things do not go as they want them to in the market. The best thing a market can teach you is how to learn from your mistakes.”

For me, learning to control my temper has been a lifelong process. So has the process of being willing to take risks, make mistakes, and be grateful for the other person—even though I may no longer speak to or do business with that person. When I reflect back on my life, I would say that it is this mental attitude that has made me the most money, has brought me the most success, and has ultimately allowed me to have the most magic in my life.

I learned from both dads that both school smarts and street smarts are important. Being intelligent is recognizing the differences between the two, or as rich dad said, “School smarts are important but street smarts make you rich.”

5. And if you are upset with someone else or yourself, what lesson can you learn and be grateful for because you were courageous enough to have taken a risk and maybe learned something?

I always remember my rich dad saying, “I have so much money because I was willing to make more mistakes than most people and learn from them. Most people have not made enough mistakes or continue to make the same mistakes over and over again. Without mistakes and learning, there is no magic in life.”

This subject of the magic of mistakes is one of rich dad's most important lessons, especially in this brave new world we enter. It is the people who fear mistakes who will be left behind financially and professionally as the Information Age continues to pick up speed.

—I recently created an educational program on audiotape with Nightingale Conant titled “Rich Dad Secrets to Money, Business, and Investing,” which covers this very important lesson from rich dad. In my opinion, this educational product is for anyone wanting to learn how to overcome the fear of failing, the fear of making mistakes, or the fear of taking risks.

If you are interested in this product , you may order it from us or directly from Nightingale Conant . As Winston Churchill said, “Success is the ability to go from one failure to another with no loss of enthusiasm.”