You Can Be Wrong Half the Time and Still Make a Fortune
Morgan Housel, in Chapter 6 of Psychology of Money, discusses one of the most counterintuitive truths about success—whether in business, investing, or life—which is, that you can be wrong more often than not and still come out ahead. As Housel highlights, success is often driven by a small number of big wins that make up for many failures.
Consider the true story of an art dealer, Heinz Berggruen, who amassed a fortune of artwork. The majority of the artwork he collected turned out to be of little or no value. However, a handful of exceptional pieces appreciated astronomically in worth. Those rare, significant gains far outweighed the losses from the less successful acquisitions. His wealth wasn’t the result of perfection—it was built on patience, broad diversification, and the ability to endure failure while waiting for success.
Failure Is Normal, and Success Is Asymmetric
One reason we struggle to understand this concept is that we underestimate how normal it is for things to fail. As humans, we tend to overreact to setbacks, assuming failure signals a larger problem. But the truth is, failure is a natural part of the process. In investing, many companies will struggle, underperform, or even go bankrupt. And yet, historically, a small number of companies drive the majority of market returns. These outsized successes make up for the losses. You can look at any successful company, from Apple to Amazon to Coca-Cola. They all have produced major failures, but a few of their successes are what have made them highly successful companies.
Lessons for Personal Finance
Napoleon once said that a military genius is "the man who can do the average thing when all those around him are going crazy." This wisdom applies perfectly to personal finance and investing. Over the course of your life, most of your decisions won’t matter as much as what you do during the rare, critical moments—likely 1% of the time or less—when the world around you feels chaotic.
During market crashes, economic uncertainty, or sudden downturns, the temptation to panic is overwhelming. However, maintaining your composure and sticking to your long-term plan is what separates those who succeed from those who don’t. Diversification, patience, and the ability to avoid emotional reactions are key.
Key Takeaway
Expect failure, but don’t fear it. Whether you’re investing, starting a business, or making financial decisions, understand that most outcomes won’t be extraordinary. Some days, months, quarters, and years you will lose money when you invest. Diversify, stay patient, and, above all, remain steady when others are panicking, and you will increase the likelihood of long-term success.