In everyday conversation, error and mistake are often used interchangeably. But in the world of investing, the two are quite different and understanding the distinction can help you protect your wealth.

Error:

Refers to a deviation from accuracy, correctness, or expected outcomes. It is typically a technical or procedural fault, such as misreading a stock’s/portfolio future value, earnings, or miscalculating returns.

  • Causes: Data input issues, misinterpretation, mechanical failures.
  • Nature: Preventable through checks and systems.
  • Recourse: Often possible — the action can be reversed or corrected if identified early. If not identified early, it can lead to mistake

Example: An investor wanted to buy Zoom Video (ZM) during the pandemic but accidentally bought Zoom Technologies (ZOOM) — a completely unrelated penny stock.

Result: ZOOM spiked temporarily from confusion before crashing

Type: Error- due to a technical or research oversight.

Mistake:

A wrong decision or action that arises majorly from behavioural or emotional bias actions leading to poor judgment. It occurs due to incomplete information, carelessness, or lack of due diligence.

  • Causes: Emotional decisions, behavioural biases, lack of research.
  • Nature: Realized after the fact, often irreversible in effect.
  • Recourse: Limited — may require unwinding or restructuring the portfolio.

Mistakes can also happen due to:

  • Ignoring diversification – It’s that moment when investors overestimate their knowledge or try to predict the outcome. This is the time, investors ignore diversification and take excessive risks.
  • Chasing hype without proper analysis – Depending too much on social media or following what others are doing. Instead, a self and independent analysis should be done 
  • Panic-selling during a market dip – It’s like avoiding an air travel because there was a recent news on plane crash. Instead, look for statistics when markets go belly up and its behaviour post-crash. 

Example: During COVID’s market crash in March 2020, many retail investors sold at the bottom fearing further losses. 

Key Difference:

  • In case of an error, the portfolio action can usually be corrected or reversed if error caused is identified in time.
  • In case of a mistake, by the time it’s realized, the damage may be done — requiring restructuring or loss realization.

In the journey of investing, guidance from seasoned professionals can turn uncertainty into clarity and confidence. And can help you achieve the perfect balance through personalized risk assessment and asset allocation.

Happy Investing.