Joel Greenblatt: Real Losses Are Key to Successful Investing

During his recent interview with The Money Maze Podcast, Joel Greenblatt explains that learning to invest requires real-life experience and, often, losing money. He shares that while investors sometimes profit unexpectedly due to luck, genuine lessons come from mistakes in analysis or unpredictable events, like the COVID-19 pandemic.

Greenblatt advises that investing with an amount meaningful to oneself and analyzing losses is essential for growth. Reflecting on his career, he humorously notes that he and his partner Rob would have been fired several times for their errors if they worked elsewhere. His main message is to learn from mistakes, adapt, and keep progressing as an investor.

Here’s an excerpt from the interview:

Greenblatt: Thank you, nice question, because it’s really hard without losing a lot of money to learn. You know, there are times where you make money that you don’t deserve, meaning you got lucky. Usually, it’s like, “I bought it cheap, and it ended up being worth a lot more than I thought,” you know? And so I got lucky and made extra money.

And there are times when you buy something where, you know, it’s kind of—you couldn’t have anticipated that event. You know, I certainly didn’t anticipate COVID, even though it seemed like there were warnings out there.

I certainly, I was telling my kids at the time, “Yeah, this wasn’t in the playbook. I never, you know, wasn’t expecting this horrible thing to happen, ever, or the world to close down.” And so, you know, sometimes it’s unforeseeable.

And sometimes you just make mistakes, meaning your analysis was wrong, and those are the ones I try to learn from.

Those are the ones I remember—that I either bought too much, or my thought process was wrong here. And I think the advice I’d give someone trying to learn investing is you can’t learn it in a vacuum. You actually have to invest real money.

It doesn’t matter how much; it just has to be important to you. You have to lose enough money that it matters to you, and that’s my advice.

Lose some money doing something you thought was right, and then try to analyze why you got it wrong. You know, even if it’s a few thousand dollars, but that’s important money to you, you’ll learn just as much as if you’re losing millions.

I’ve certainly learned a lot by making a lot of mistakes.

And I’ll just give you some encouragement. My partner Rob and I have laughed, and I believe in the very successful career we’ve both had together. I’ve been doing this for 40 years, and, of course, the market went straight up, so that helped.

I would have said, you know, we both laughed that if we worked for someone else, we would have been fired at least three or four times. We made such enormous mistakes. So, you know, hang in there, learn from your mistakes, and move on.

You can listen to the entire interview here: