A Type of Mistake Involving Self-Blindness Regarding the Investments We Never Made

The Investor’s Scarcest Resource: Attention

One of the most painful experiences for a long-term investor is looking back several years later at an exceptional business (high-quality stock) and realising:

For many investors, these moments create a unique type of regret. It is the regret of failing to act when the opportunity was available.

A classic example for some technology investors, including me, is Advanced Micro Devices, better known as AMD.

For investors who followed the semiconductor industry closely, AMD was not an unknown company. Many consumers had direct experience with AMD products. Millions of people used AMD Ryzen processors in their personal computers. Gamers, engineers, and technology enthusiasts could observe improvements in AMD’s product quality, performance, and competitiveness against its much larger rival, Intel.

Yet some investors, despite having direct exposure to AMD’s products and understanding the company’s improving fundamentals, did not invest when the market offered the most attractive opportunity.

Looking backward, the decision appears obvious. AMD transformed from a struggling semiconductor company into one of the most important players in high-performance computing, data centres, and artificial intelligence infrastructure.

The natural emotional reaction is: “how could I have missed something so obvious?”

However, this question contains a dangerous assumption. It assumes that what appears obvious today was equally obvious in the past. It was not. This difference between how things appear today and how they felt at the time is one of the greatest psychological challenges in investing.

The Difference Between Knowing in the Future and Acting in the Present

One of the biggest misunderstandings about quality investing is the belief that successful investors simply identify great companies. In reality, identifying a great company is only one part of the process. The harder challenge is allocating limited attention among thousands of possible opportunities.

Every investor faces a fundamental constraint: there are more attractive companies in the world than any individual investor can deeply understand, even if they spent over five decades intensely researching stocks daily.

The global stock market contains tens of thousands of listed businesses across technology, healthcare, financial services, industrials, consumer products, energy, materials, and countless other industries. A serious investor cannot analyse everything. Even professional fund managers with large teams of analysts cannot achieve complete coverage.

The reality is that investment success depends not only on what you know. It also depends on what you choose to focus on. Attention is therefore one of the most valuable resources an investor possesses.

Every hour spent researching one company is an hour unavailable for another company. Every investment thesis developed is created at the expense of another potential opportunity. This is the hidden opportunity cost of investing.

Every Portfolio Decision Is an Opportunity Cost Decision

When an investor buys a stock, they are not merely saying “I believe this company will perform well.” They are also saying “among all possible investments available to me, this is one of the best uses of my limited capital.”

This is why portfolio construction is difficult. A portfolio is not simply a collection of good companies. A portfolio is a collection of the best opportunities an investor can identify at a given point in time.

A wonderful company that is ignored may still generate zero returns for the investor who never buys it. A mediocre company that receives too much attention can occupy valuable mental and financial resources that could have been deployed elsewhere.

This creates an uncomfortable reality: an investor can be correct about a company and still fail as an investor because they did not allocate enough attention or capital toward that opportunity. Understanding a business is not enough. The investor must also recognise the importance of the opportunity relative to other available choices.

The Paradox of Expanding the Circle of Competence

One of the most important principles in investing is developing a circle of competence. This concept, strongly associated with Warren Buffett and Charlie Munger, refers to understanding the boundaries of one’s knowledge.

An investor does not need to understand every company. Instead, they should focus on businesses where they possess a meaningful understanding of:

However, there is an interesting paradox. A good investor should continuously expand their circle of competence. Learning new industries is valuable. Studying unfamiliar businesses improves investment ability. Understanding industries outside one’s existing knowledge can reveal opportunities that would otherwise remain invisible.

However, expanding knowledge requires time. And time spent learning new areas reduces time spent monitoring existing areas of expertise. This creates a difficult trade-off.

There is no perfect solution. The investor must constantly balance two competing objectives: expanding knowledge and circle of competence, and maintaining awareness of existing areas of competence. The failure to balance these two objectives can create errors of omission.

The Most Painful Mistakes Are Sometimes the Investments We Did Not Make

Investment mistakes are usually classified into two categories.

These mistakes are painful because they directly reduce capital. Errors of omission are psychologically unique because they create a permanent reminder of a missed opportunity.

The investor knows: “I could have owned this and have made a huge amount of money (unrealised gains).” The money was not lost. The capital was available. The opportunity existed. The investor simply failed to act.

Why Errors of Omission Are So Difficult Emotionally

A poor investment can and will often be rationalised posthumously. An investor can say “the information available at the time did not justify the decision.” Perhaps the company looked attractive but experienced unexpected problems. Perhaps management made mistakes. Perhaps industry conditions changed. Investment outcomes are greatly influenced by uncertainty.

However, missed investments feel different because the investor imagines an alternative reality.

This mental comparison between reality and an imagined better outcome creates regret, sometimes on an intense level, which can cause an investor to chase the same stock when it has greatly appreciated by hundreds of percent in a couple of years, making the stock very overvalued when the investor purchases the stock after missing a great opportunity a couple of years ago.

Behavioural economists describe this as counterfactual thinking — the tendency to compare what happened with what could have happened. For investors, this can become dangerous because it encourages emotional decision-making. A missed opportunity can become much more memorable than the hundreds of correct decisions where no obvious winner was missed.

The Important Lesson: Missing One or Two Great Investments Does Not Mean Failure

Every successful investor has missed extraordinary investing opportunities. This is unavoidable. The investment universe is simply too large. Even the greatest investors in history have acknowledged missed opportunities. Warren Buffett has openly discussed missing early investments in businesses that later became extraordinary compounders.

The goal of investing is not to identify every winner. That is impossible. The goal is to build a process that consistently identifies enough high-quality opportunities while avoiding permanent capital destruction.