Trust Your Gut

~ Kim Kiyosaki

As my mind ran through all the mistakes I’ve made over the years, two thoughts came into my head.

First, I don’t consider a mistake something bad or something I wish I hadn’t done. A mistake, to me, is simply an action I took that did not have the outcome I intended. Every mistake I make teaches me something I didn’t know. Human beings are designed to learn from mistakes. The more mistakes I make, the smarter I become.

So even when I lose money on an investment, that loss tells me there’s something I need to learn. People who avoid making mistakes stay stuck, even trapped, by what they know. They rarely venture into untested waters and don’t learn anything new.

Second, I found that my mistakes–where the actual results didn’t match my intended results–fell into two main categories: 1. when I lost money or 2. when I lost a good deal.

These cases all had something in common. The mistake was not losing the money or losing the deal. That was the result. What was more important was what caused the result. That’s where the real mistake–plus the lesson–lies.

It turns out that every memorable and costly faux pas I made was the result of the same simple but powerful failing: My biggest investment mistakes occurred at times when . . . I did not trust my gut.

It was those times when I doubted myself: when something sounded so good it had to be true (that’s also known as greed) or when I allowed the so-called experts to talk me out of it.

Not trusting your gut, also known as not following your intuition, can last just a moment. It’s when you see or feel something, as subtle as it might be, and you ignore it.

“No, I must have heard him wrong.”

“I’m sure this case is the exception.”

“But all my friends have invested in this. They must know something.”

My “mistakes” occurred when I didn’t listen to the warning signals going off, and that’s when I got into trouble.

It may be as simple as a gut feeling that says, “Sell those ABC stock shares now.” Then the broker talks you out of it . . . and the shares go downhill. I’ve done that one.

Or when I knew, from one snapshot moment, that I should walk away from a deal because my gut was screaming “No, no, no!” I went through with it because the returns being reported were better than anything I had seen–and I wanted those returns. Here’s the story that goes along with that scenario:

My husband Robert and I met a man who owned a hedge fund while we were attending a stock-trading seminar. Several knowledgeable investors we knew were investing with him and telling us about the incredible returns they were getting. We were interested. So interested, in fact, that we made a special trip to his firm’s offices in Florida to conduct our due diligence on the company.

This man claimed to have designed a unique and confidential trading system that was the core of his success. He had just refurbished and moved into plush offices. I made a mental note of the high overhead he was paying monthly. What we heard and saw did not set off any alarms. That night he and some members of his executive team took us out to dinner at an upscale steakhouse.

This man had made a strong point of telling us what a good Christian man he was. Now I don’t care whether a person is Christian, Jewish, Buddhist, Muslim or Hindu. However, I’m a strong believer in practicing what you preach; if this man goes out of his way to share his religious principles with me, then I expect him to act in a way that is congruent with those principles. Not the case here.

During dinner, and after a bit of wine, this man and his cohorts turned into the most obnoxious, rude, womanizing and embarrassing people I had ever been around. Diners near our table were getting up and walking out. At that point I knew in my gut that, at least on the “Christian” level, this man did not practice what he preached. And my instincts raised the red flag: “Where else is he not practicing what he preaches?” That was the moment I should have walked away.

The next morning I had convinced myself that maybe this was just a fluke. Maybe this man was just letting off some steam. “Can I really judge a person’s character from one incident?” I asked myself.

Why didn’t I trust my gut? Greed. The returns on his investments were far beyond the average. People I spoke with who were investing with him sang his praises. I could certainly overlook this one flaw if it meant I’d make a lot of money, I rationalized.

So Robert and I invested money with this man. The statements we received showed beautiful returns–on paper. We were about to invest more money into the hedge fund when Robert brought home a copy of a well-known investment newspaper. On the front cover was our friend, Mr. Hedge Fund, sitting on the beach with the headline, “Would You Trust This Man With Your Money?”

At first I was shocked, and then I began defending the guy. “It’s probably a disgruntled employee wanting to get even,” I thought.

In fact, this man conned his investors out of millions of dollars that he spent on everything from a new house to a new boat. He’s in prison, and investors may get about 10 percent of their money back.

The lesson for me was this: Had I trusted my gut at that defining moment at dinner when I knew something was not as it should have been, I would have saved myself money, distress and frustration.

Mistakes are truly mistakes only when you cover them up and pretend they didn’t happen; if you do that, you learn nothing. And in that case, you’ve just wasted a perfectly good mistake.