Most errors fall into one of the two categories:

• Errors of commission: Errors that occur because of what we commit.
• Errors of omission: Errors that occur because of what we omit.

(I am actually tempted to say, all errors would strictly fall into one of these two categories, but I am refraining to do so because I don’t have the data.)

Now, these Errors of Commission and Errors of Omission are joined at the hip. If you try to minimize Errors of Commission, you will end up with Errors of Omission. And if you try to minimize Errors of Omission, you will end up with Errors of Commission. This is almost like a Universal law that applies to everything.

Let me give you an example. Picture a scenario where I receive a call from an unknown caller. If I answer it and it turns out that it’s somebody trying to sell me a credit card, then it is an Error of Commission. It is an error because I am foregoing some time and attention in answering an unwanted call. So let’s say, in order to minimize this Error of Commission in future I decide that I will not answer calls from unknown callers. But what if it is a family member calling for help from an unknown number? Then I will be committing an Error of Omission. And there is a cost to that too. (This has happened to me.)

So now, I decide, just to be safe, I will answer all calls even from unknown numbers. And therefore I will not miss an urgent call from a family member (from an unknown number) but in the process I will end up answering all calls, even from telemarketers which would be an Error of Commission and that brings me back to square 1.

So- if you try to minimize one, you will end up with the other.

Here’s another example. I have friends who have deleted their social media accounts because they think it is a waste of time. We all know how much time we end up wasting on social media- one reel leads to another, one short video to another etc. Social media also has certain advantages that you can meet likeminded people from another continent or people you may end up admiring and so on.

So, by choosing to minimize Errors of Commission he is committing Errors of Omission. On the other hand, people who choose to be on social media actively are choosing to minimize Errors of Omission but are likely to commit Errors of Commission. So the errors are inescapable.

A third example. I have happened to meet several investors and their styles vary. At one extreme are investors who want to Buy and Hold forever. They are very very selective in what kind of businesses they want to buy (avoiding Errors of Commission). So as you can guess, they will miss out on businesses that are transforming from an ordinary to an extraordinary business or ordinary businesses enjoying temporary tailwinds etc. On the other hand there are investors who are mile-wide and inch-deep. They wouldn’t miss out on tailwinds or transformations; but because they buy and sell so often they are likely to make mistakes of commission like selling something too soon.

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Economics teaches us that, no matter what- there will be trade offs. So if you are going to answer all calls, you will pay for it in terms of distraction and loss of time. And if you don’t answer calls, you will occasionally end up missing a very important call. Either way, there will be costs.

Therefore, the question to you is: Which cost are you willing to pay?

Whichever one you choose, do understand that there is a cost to it. And therefore make peace with it, rather than trying to wish for having it all.

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In 2014, Jeff Bezos launched the Fire Phone. It was a spectacular failure. Amazon took a write off of $170 M because of that in 2015. TV Commentators and analysts who don’t understand the deeper connection between Errors of Commission and Errors of Omission will dissect it and say “what a colossal waste!”.

A company, like Amazon, that thrives on innovation and that brings latest technology and gadgets to the market will make a lot of Errors of Commission too. If they got too defensive and said “we don’t want to make mistakes”, they will end up making the other kind of mistakes – Errors of Omission.

Errors of Omission can be costly, sometimes more costly that Errors of Commission. The thing is- Errors of Omission are not visible and therefore people just weigh only what is visible – Errors of Commission. For example, if Amazon did not have a Day 1 culture, they are very likely to not commit a mistake like the Fire Phone; but they would have ended up not inventing things like the Kindle, Prime, AWS, Fulfilment etc., etc. How can you want the upside of innovation but not the downside?

Like I asked: which cost are you willing to take, because costs there will be. Bezos, and hats off to him, very early on made that decision that innovation will be a culture at Amazon. Below is an excerpt from his first letter to shareholders, in 1997:

So, Bezos is somebody who would rather make Errors of Commission rather than Errors of Omission. But the way they work around this law is that they cut down on projects that are not working out and double down on those that are working. Those that work out tend to payoff exponentially!

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Warren Buffett is a conservative investor. And by conservative I mean he would minimize Errors of Commission. After all, he sees himself as a custodian of the money of the shareholders of Berkshire. So he has a way of investing in companies that are producing good, solid cash flows year after year – like Coca Cola, Apple, Amex, Moody’s etc. Buffett also does not like to pay too much to acquire businesses. So every filter criteria that you put to minimize Error of Commission increases the chance of an Error of Omission. For example- Buffett did not buy Wal Mart early on in its life cycle because he thought it was too expensive. How expensive was that error? $50 B!

Typically, our most egregious mistakes fall in the omission, rather than the commission, category. That may spare Charlie and me some embarrassment, since you don’t see these errors; but their invisibility does not reduce their cost. … I refer to business situations that Charlie and I can understand and that seem clearly attractive—but in which we nevertheless end up sucking our thumbs rather than buying.

-Warren Buffett, Letter to Shareholders, 1992

What were the big mistakes made by Berkshire under Buffett? Well, while mistakes of commission were common, almost all huge errors were in not making a purchase, including not purchasing Walmart stock when that was sure to work out enormously well. The errors of omission were of much importance. Berkshire’s net worth would now be at least $50 billion higher if it had seized several opportunities it was not quite smart enough to recognize as virtually sure things.

– Charlie Munger, 50th Anniversary Letter

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I have tried to show you two opposite pictures- Amazon where the culture is to minimize Errors of Omission (and therefore they will occasionally end up with Errors of of Commission) and Berkshire where the philosophy is to safeguard investors’ money by minimizing Errors of Commission. Neither Amazon will become defensive in it’s approach, nor Berkshire aggressive. However both the top men believe in telling you what their company stands for and let you as a shareholder decide.

So:

• Errors of Commission and Errors of Omission are joined at the hip. If you try to minimize one, you will end up with the other.
• Either way there will be errors and costs associated to those errors. It is better to pick your approach and make peace with it. If you want to be an experimenter or tinkerer, you will end up with Errors of Commission; If you want to play it safe, there will be Errors of Omission. You can choose a middle path and that too will have costs. For example, you may choose to an employee by day and an entrepreneur by night, and that will test your discipline, your mental and physical stamina.
• Errors of Commission are visible; Errors of Omission are invisible. People tend to weigh what is visible over what is invisible or what could have been. A good thinker will account for Errors of Omission too.

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So why does Warren Buffett commit mistakes? Because, this law is almost universal. And therefore, you and I will commit mistakes too.

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A few years ago, I found my calling in Investing. I wanted to invest to live and live to invest. At about the same time, I realized that if I wanted to commit myself to becoming a good investor then I needed to omit many things like Birthday parties, family gatherings, community service, movies, cricket matches and even family WhatsApp groups to make room for all things investing. How could I be there for everyone, when my best work requires long attention? I had to give up these expectations from myself and soon others gave up those expectations from me as well. ( If there is a popularity ranking in my family, my name wouldn’t even be on that list. 🙂 )

Like I said, you can’t have it all. Better to choose an approach and make peace with the associated costs.

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I have been writing this blog over 4 days – some now, some later types. But even when I wasn’t in front of my computer, my mind was thinking and writing this blog all the time. My wife asked me how the blog was coming along and I said “it feels like my Magnum Opus”. 🙂

Writing this blog has brought much clarity to me. I can now see much clearly my own life choices better. If I had reframed those in the form of “which cost would be more acceptable”, I would’ve probably come to a different conclusion.

Cheers!