The Winners You Missed Cost More Than the Losers You Picked.
Why errors of omission cost more than errors of commission.
Warren Buffett has had numerous investments that did poorly. Yet his biggest regrets remain the winners he did not buy or sell too soon. The losses that haunt great investors are not from capital destroyed, but from compounding never captured. The distinction between what we lose and what we did not capture defines great investing.
I read Nalanda Capital Pulak Prashad’s book titled “What I Learned About Investing from Darwin” back in 2023. It was a delightful read as he intertwines the evolution of nature with investing, with refreshing examples. Highly recommend.
While I share many of his thoughts on his investment approach, which we too employ for Vision Capital Fund, there are a few points on which we differ, particularly around Type I and II errors and mistakes. I wanted to share a slightly different viewpoint.
Understanding Decisions and Errors
Before we jump into Type I and Type II errors, let’s seek to understand how these two errors can arise relative to our hypothesis and decisions as compared to the actual results.
There are four types of decisions: two good and two bad.
Two types of good decisions:
🟢 1) Made a good investment when you thought it was going to be good.
🟢 2) Rejected a bad investment when you thought it was going to be bad.
Two types of bad decisions/mistakes:
🔴 3) Made a bad investment when you erroneously thought it was going to be a good one. These are false positive Type I errors (i.e., Errors of Commission).
🔴 4) Rejected a good investment when you erroneously thought it was going to be a bad one. These are false negative Type II errors (i.e., Errors of Omission).
The table below summarises this in a 2x2 matrix:
Type I Error = Error of Commission = I bought the bad stuff
Type II Error = Error of Omission = I missed the good stuff
All investors will make both types of errors (Type I and Type II). It is unavoidable.
Type I: Your ability to spot bad investments
Type II: Your ability to spot good investments
We cannot get everything right and will get something wrong. If we are consistently getting everything right, we could be playing it too safe and taking too little risk.
Your success with Losers = (1 - Type I Error)
Your success with Winners = (1 - Type II Error)
Your winners define you. Your losers merely limit you.
Focus on reducing Type I errors only?
Pulak argues that one should focus on reducing Type I errors (i.e., wrongly picking losers) relative to Type II errors (i.e., wrongly passing on winners), as this significantly improves the success rate (see formula below).
I expanded his original table (see below) to provide more colour on this point. As seen below, reducing Type I error rates from 25% to 5% significantly increases the success rate from 52% to 84% (+3200bps). On the other hand, reducing Type II error rates from 25% to 5% marginally increases the success rate from 56% to 61% (+500bps).
The biggest mistakes are Type II errors, not Type I errors.
A growing realization from learning from several great investors is that, most often, their biggest mistakes are not from errors of commission (i.e., Type I errors, buying losers) but rather from errors of omission (i.e., Type II errors, passing on winners).
Most of these costly errors stem not from the bad bets they made, but the great opportunities they chose not to pursue. This is because losers become irrelevant (-100%), whereas the winners they missed buying or holding on to went on to become multi-baggers (10X, 20X, 50X, 100X+).
Most often, these errors of omission arose primarily due to two scenarios around their assessment of how expensive good stocks are: (1) they chose to sell because it became “expensive”, or (2) they decided not to buy because it was “expensive”.
“The most important mistakes are ones of omission – those that are missed opportunities. The things I needed to do but did not do them, will constitute my biggest mistakes in life.” - Warren Buffett
Our biggest mistakes were things we didn’t do, companies we didn’t buy.” - Charlie Munger
“If I’ve made one mistake in the course of managing investments it was selling really good companies too soon.” - Peter Lynch
“The biggest mistake investors make is selling great businesses too early. ” - Chuck Akre
“When we find really good ones our experience has been it’s been a mistake to sell them even at very high valuations, you just live through it.” - Chuck Akre
“In our view, it would be a mistake to sell some of these good businesses in order to invest temporarily in companies which are much worse but which have greater recovery potential.” - Terry Smith
“Some of the mistakes of omission that I’ve made over the years would be if you had a really good public investment and you found a company that you thought was doing a really good job, and you had some notion for what it was worth, and you thought it was selling at a discount and you bought it. Then it went above that, above your target price...and you sold it. Then you proceeded to realize that probably that sale in the long run was not wise because the things that made that business good continued largely in place and it compounded year after year after year after year.” - Tom Gayner
“My worst mistakes are all mistakes of omission. The great companies within my circle of competence that I didn’t buy.” - François Rochon
“Selling your winners too early is one of the biggest mistakes you can make. A stock with a weight of 1.5% within your portfolio that goes down 7% ‘only’ represents a 0.1% loss in capital. However, when you sell a company that had a 4% weight in your portfolio and that goes on to rise with 200%, it will cost you 8%. You may not see it, but such opportunity costs are real.” - François Rochon
The evidence is overwhelming: many of the greatest investors universally agree that their most painful mistakes were not the bad companies they bought (i.e., Type I errors, errors of commission, buying losers), but it was the great companies they chose not to buy or sold too soon (i.e., Type II errors, errors of omission, passing on winners).
Better to focus on reducing both Type I and Type II errors.
Pulak argues that Warren Buffett is the best investor in the world because he is the best rejector in the world (reducing Type I errors). Instead, I think Warren Buffett is one of the best investors because he knows what to reject (losers) and also what to look for (winners). A few winners, like Apple, Coca-Cola, American Express, See’s Candies, and GEICO, drove the majority of Berkshire Hathaway's 47 years of outperformance (in addition to the leverage of the insurance float).
It is not about solely choosing to reduce one error or the other. Rather than focusing directly on lowering either of the Type I and Type II error rates, one can choose to focus on increasing one’s ability to pick winners and avoid losers, which indirectly reduces both Type I and Type II error rates. For example, we seek to aim for a 60-80% long-term batting average by combining both actions. It is not one or the other.
Winner’s Game versus Loser’s Games.
There are two types of games in skilled games (e.g., tennis): (1) a winner’s game and (2) a loser’s game. A winner’s game is won through hitting incredible winning shots with superior skill and positive actions. A loser’s game is won by avoiding and minimizing unforced errors and negative actions. Amateur games are typically losers’ games, and professional games generally are winners’ games.
Active stock investing has long been argued to be a loser’s game (e.g., Charles Ellis in Winning the Loser’s Game), in which, while it is possible to outperform the market, the odds are so poor that it is not prudent even to try.
Instead, my firm belief is that one can outperform the stock market. While it is not easy and certainly requires a lot of hard work, I have sought to prove it can be done, first as an individual investor for over 7 years with Vision Capital, Vision Give Back Fund, and more recently, while still in the early days, to seek and repeat it for the next few decades as a professional investor with Vision Capital Fund.
Asymmetry of owning Stocks.
So far, we have discussed only probabilities that assume symmetric outcomes (i.e., a win = a win, a loss = a loss), and the success rate treats both wins and losses equally.
This is where the critical flaw resides. It ignores the asymmetric payoffs of buying stocks. When one buys a stock (i.e., long-only without margin/leverage), the maximum it can go down is -100%, which seems a lot, but the downside is actually capped at -100%. Conversely, the maximum a stock can go up is theoretically infinite (i.e., 10X, 20X, 50X, 100X+ for multi-baggers), effectively unlimited upside.
While the payoff of a long stock position at a given time might look seemingly symmetrical, the payoff of a long stock position over a long period of time is actually highly asymmetrical.
Effectively, each long stock position is a synthetic long call option, and a portfolio of carefully selected stocks becomes a portfolio of synthetic long call options.
Losers can only hurt you once, taking at most 100%. Winners can save you endlessly, returning 10X, 50X, 100X, or more. This is not a small edge, it is the entire game.
“…has alpha, the impact will show up in asymmetrical returns. If her returns show no asymmetry, the investor doesn’t have alpha…Flipping that over, if an investor doesn’t have alpha, her returns won’t be asymmetrical. It’s as simple as that."
- Howard Marks (What Really Matters - Nov 2022)
Howard Marks said it well. Asymmetry changed everything I thought about stock investing. Asymmetry is the holy grail in finance. If an investor has alpha, it will show up in asymmetrical returns. Conversely, if the investor lacks alpha, his returns will not be asymmetric.
Asymmetry makes it both a Winner’s and a Loser’s game.
Active stock investing is not a loser’s game or a winner’s game. It is both, simultaneously, due to asymmetrical outcomes. You must avoid losers like an amateur defending against unforced errors, while hunting winners like a professional taking calculated shots. The critical insight: losses have a floor, gains have no ceiling. Miss the defensive game and you bleed. Miss the offensive play, and you never compound. Miss the asymmetry and you misunderstand everything.
This highly favourable asymmetric risk-return profile results in positive skew and extreme power laws, with the right tails and a minority of very few long-term winners accounting for the majority of returns.
This is consistent with observations from the global public stock market, where ~1% of the ~63,000 companies accounted for ~90% of total net returns over 30 years from 1990-2020 (see below).
Over 30 years, 1% of companies created 90% of all stock market wealth. The math is brutal and beautiful: find the few that matter, hold them while they compound, and let asymmetry do what textbooks say is impossible.
To win, swing both probabilities and payoffs in your favour.
Great investing is about swinging the probabilities and payoffs in our favour:
Lose less often → Avoid most losers (bad traits to avoid)
Lose less bad → Losses from losers don’t hurt, limited downside (no short-selling, leverage, derivatives, hedging)
Win more often → Higher chance of finding winners (good traits to seek)
Win much more → Unlimited upside from winners (multibaggers)
Focus on reducing your Type I errors first (what to avoid)
Ultimately, you have to build your own list of what a bad investment likely looks like. More often, we realise that the more of these traits a company has, the poorer it tends to be, and the higher the likelihood of eventual continued underperformance.
Focus on reducing Type II errors next (what to seek)
Likewise, you must build your own list of traits that define a good investment. Similarly, it is often tough for one to possess all traits, but we have found that when a company has more of these traits, it tends to continue its outperformance.
Winners power outsized outcomes and outperformance.
If the investment strategy is well employed, the gains from the multi-bagger winners will tend to drive the majority of overall gains, overwhelming the losses from all the losers by many times over. Diversification is the strategy, and growing concentration then becomes the outcome.
An investment portfolio should naturally become more concentrated over time, driven by the largest positions that have earned the right to be so. After all, if a stock is going to be the next multi-bagger, a little is all we need, if not, a little is all we want.
The Only Scorecard That Matters
The investing industry obsesses over batting averages and success rates. These metrics feel scientific, measurable, and reassuring. They are also mostly irrelevant.
What matters is this: Did you own enough of the right businesses while they compounded?
Type I errors hurt your ego and subtract percentage points. Type II errors haunt your returns for decades and cost you multiples of your capital. The first makes you feel foolish for a while. The second makes you permanently poorer.
Asymmetry is not a bug in the market, it is a feature that enables outperformance. Stocks can fall 100% but rise 10,000%. This lopsided math means your few winners will overwhelm many losers, provided you find those winners and hold them through temporary overvaluation and multiple price declines along the way.
The great investors you admire do not have perfect track records. They have something better: they owned the right companies through the right decades. Every legendary track record is built on multi-baggers held long enough to matter.
Your job is not perfection. Your job is to build a system that:
Filters out obvious losers, so nothing kills your portfolio
Identifies potential winners before they’ve fully compounded
Holds winners even when they look expensive
Accepts being wrong often because asymmetry protects you
We seek traits that predict winners and avoid traits that signal losers. We diversify to give ourselves shots at multi-baggers. We hold when everything screams “sell”—because we’ve learned the most expensive word in investing is “sold.”
After all, if a stock will become your next 50-bagger, a small position is all you need. If it won’t, a small position is all you want. Let your winners prove themselves by getting bigger.
The winners you own will define your wealth. The winners you pass on will define your regrets. Choose carefully which list you want to be longer.
The information contained in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and reliability of the content, errors or omissions may occur. The author and publisher do not assume any responsibility or liability for any errors, inaccuracies, or omissions in the content, nor for any actions taken based on the information provided. Readers are encouraged to verify any information before relying on it and to seek professional advice as needed.
10 Nov 2025 | Eugene Ng | Vision Capital Fund | eugene.ng@visioncapitalfund.co
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The biggest cost in investing isn’t the losses from bad bets, but the winners we miss out on. 🏆 The asymmetry of upside versus downside is what separates good investors from great ones — whether in stocks or real estate, it’s the right winners held long enough that define lasting wealth.