How to Tame Regret

THE ENGLISH POET Alfred Tennyson wrote that it is “better to have loved and lost than to have never loved at all.” When it comes to matters of the heart, maybe Tennyson was right. But when it comes to personal finance, I’m not sure that’s the case. If you’ve ever seen a gain slip through your fingers, you know the feeling of regret can be powerful.

Two conversations last week prompted me to take a closer look at this topic. First, a friend described how, back in 2004, shortly after Google went public, he’d purchased put options on the stock. A put option is a bet that a stock will go down. If the stock goes up—as Google’s did—the options become worthless.

In the second conversation, a fellow described how his father had been offered a plot of land on an undeveloped island off North Carolina. The purchase price would have been nominal. Still, his father declined. Today, the island is an elite getaway, with homes selling for $5 million and more.

Many people have stories along these lines. What struck me about these two cases, though, was how each described handling the associated regret—or, more to the point, how neither seemed to carry much regret at all.

In the first case, with the Google options, my friend acknowledged that there was a financial loss. But he’s not unhappy about it. To the contrary. “I am happy about this trade.” Why? “It taught me a good lesson when I was investing small amounts and probably saved me from big mistakes later on.”

The fellow whose father could have bought land on that now-exclusive island? He, too, doesn’t carry regret. That was more than 50 years ago, he says. Even if his father had purchased the land, there’s no guarantee he would’ve held onto it. If he’d seen its value start to appreciate, it’s likely he would have sold it at some point along the way. The son views it as an historical footnote—nothing more.

Over our investment lives, we all have missteps. But that doesn’t mean errors—even big ones—need to turn into permanent feelings of regret. I highlight these two cases, in fact, because they illustrate ways to successfully keep missteps in perspective. Below are six strategies I suggest to avoid carrying feelings of regret.

1. When looking back on financial decisions, it’s all too easy to see things in a binary, one-dimensional sort of way. “If I’d gotten just one more number on the Mega Millions, I’d be on a tropical island today.” But usually, these images of the way things might have been are oversimplified, plus they’re unrealistic, because they ignore what might have happened next.

I remember, for example, looking at Apple’s stock in 2004, when it was trading around $1, adjusting for splits. I had seen a colleague’s new iPod and was impressed. But I didn’t buy the stock. Today, it’s trading around $170. That makes the math easy. If I’d bought $2,500 of shares, they’d now be worth $425,000. Today, with my children starting college, those dollars would’ve been awfully helpful.

But I don’t regret it. Even if I’d bought the stock, I know how unlikely it is that I would have held every single share until today. It’s just not realistic. Without a crystal ball, I might have sold the stock when it got to $2 or $3, and I probably would’ve been happy, having doubled or tripled my investment.

2. Whether it’s Apple or Amazon or any other investment that’s multiplied in value, there are countless investors who sold those shares at prices far lower than where they are today. But did they all make mistakes?

There’s any number of reasons someone might sell. Among them: because it’s the right decision for that person at that time. That sounds obvious, but this is often overlooked. If you’ve ever sold something at a price that looks like a mistake in hindsight, I suggest turning your attention to the way you used the proceeds. I certainly wouldn’t look at it as a mistake if you used the funds in a manner that met your needs at the time—to pay tuition, buy a home or simply meet your retirement expenses.

3. In her book Thinking in Bets, Annie Duke, a retired professional poker player, talks about “resulting”—judging a decision solely by its outcome. This is a mistake because luck plays such a large role in life, and certainly in investment markets.

Suppose you sold an investment because you deemed it overpriced. If it subsequently rose, is it right to say you made a mistake? In Duke’s view, no. Instead, investors should focus on making good decisions with the information they have at the time. If you do that, you shouldn’t later criticize yourself for failing to predict which way the wind would blow.​

4. The potential for regret isn’t limited to investment decisions. It extends to all corners of personal finance. Didn’t get a pay raise or a promotion you’d hoped for? In the short run, that’s a disappointment. But that often leads people to pursue better opportunities.

When I was growing up, a neighbor was fired from a local shoe company by his mercurial boss. He moved to Los Angeles, bought his own shoe company and enjoyed great success. If I had to guess, he wakes up every day at his home on the Pacific Coast Highway and thanks God for having been fired.

The bottom line: It’s easy to imagine how wonderful an alternative path might have been. But that would only compound the feeling of regret, and unnecessarily so, since the alternative we imagine is just that—a product of our imagination.

5. This year, many investors are regretting that they didn’t sell some of their stock holdings last year, when they were at all-time highs. That’s understandable. But it’s an unrealistic yardstick.

The late Jack Bogle, founder of Vanguard Group, once commented: “The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly 50 years in this business, I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.”

The lesson: Don’t judge yourself harshly. If you’re content with where you are in your financial life, that’s the proper yardstick, in my opinion.

6. Psychologists tell us that humans are wired to worry more about the negative than to celebrate the positive. If there’s an investment you wish you’d made, it’s okay to remember it. But don’t remember only that. You’ve likely also made lots of good decisions along the way. They need to go on the other side of the scale.

The venture capital firm Bessemer Venture Partners has notched its fair share of successes. Since its founding in the 1970s, it has benefited from more than 250 initial public offerings. But on its website, it maintains a list it calls “The Anti-Portfolio.” This is a list of the investments the firm failed to make. Among the companies that employees evaluated and rejected: Apple, Google, Facebook, eBay, Intel. It’s almost comical. But that’s precisely the message: These are just the failures. They’ve also had many successes, and that’s all that matters. No one bats a thousand. Not Babe Ruth. Not Warren Buffett. No one. The perfect investor simply doesn’t exist.

Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on Twitter @AdamMGrossman and check out his earlier articles.

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