The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails

The Value of Errors

Should you sell and realize a loss, be strong and of good courage. The experience may be the best investment lesson you ever receive. That’s what happened to Stephen Schwarzman shortly after he founded The Blackstone Group. He had just raised his first investment fund. He bought a steel distribution company based on a partner’s advice. At the time, Blackstone had no investment process. The deal soured fast. Schwarzman minimized some of his losses, but he has never forgotten what it felt like to lose money. He even had a Lucite tombstone made to commemorate that first bad deal. He keeps it in his office. Every time he makes a decision, he says he thinks of that bad deal. His initial mistake changed his career.19 “How you manage failure is very important,” Schwarzman says. “Some people manage failure by making pretend it didn’t happen and they go about their jobs and people don’t pay attention. ‘Oh, we lost money on that one.’ I don’t believe in that. I like to learn. Sometimes you learn more from your failures than you do from your successes.”20

Blackstone, which is one of the world’s top investment firms, treats failure like a major event. All failures are studied. Exhaustively. “What we do when we fail is we spend enormous time thinking through, what did we do wrong; what should we have seen; are our processes good; did we misidentify a variable that got us or did we identify it and didn’t evaluate how bad that can be—we got that wrong,” Schwarzman says.