“Make half a mistake” can be frequently be heard around the Marotta family and in the Marotta offices. It is a phrase of encouragement, a strategy for making a decision in the face of an uncertain future, and a comfort in the face of hindsight.

The admonition to “make half a mistake” has spanned three generations. George Marotta taught his son David Marotta who taught his daughter Megan Russell.

Over those years, it has evolved from only an investing strategy into a guiding principle.

So, to explain its phrase today, here are three generations of Marottas explaining what the phrase has meant to them.

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George Marotta

When I was teaching undergraduate seminars at Stanford, I often ordered books from Amazon in bulk and had them delivered to my office at Stanford. I would then divide the cost by the number of students and resell the books to them. It was very convenient and at low cost. It worked so well that I bought the Amazon stock.

Imagine that I bought $10,000 worth in 2002 for $40 per share, or 250 shares. When it doubled to $80 in 2007, I imagine I thought it was overpriced. What should I do?

If I sold all my shares, I would have made $20,000. The shares today (Jan 2022) are worth over $2,000 per share. The same number of shares would be worth over $500,000.

If I sold half my shares in 2007 for $10,000 and kept half, I would have some of my original shares and my profit. Whichever way Amazon moved at that point I would not be too disappointed. Making half a mistake is a way to make a decision in the midst of an uncertain future. I will be disappointed, but not crushed with a decision that only makes half a mistake.

In the case of Amazon, we may be sad about the half I sold, but in the case of another company that none of us remember any more, we’d be glad that I at least sold half.

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David John Marotta

When I first started as a financial planner, I mentored under my father for several years. I remember him often saying, “Let’s make half a mistake.”

In making an important investment decision there are two common mistakes: the mistake of acting and the mistake of refraining from acting. When the future is uncertain, it is hard to know which is the mistake. This is where making half a mistake is helpful.

Making half a mistake is a shorthand to diversify your decision and hedge your bets.

Without the admonition to make half a mistake, it is easy to find yourself either not making any decision or making a rash decision. Either could risk ruin to your portfolio.

Imagine an investment where there is an 80% chance of tripling your money and a 20% chance of going bankrupt. Such an investment would have an average annual return of 2.4 times your investment or 140%. But if you put all your eggs in this investment basket, you have a very good chance of losing all your money. Even this massive average annual return deserves only a small portion of your investment.

The first year you risk a 20% chance of going bankrupt. The second year you have a 36% chance of suffering bankruptcy in one of the two years. And by the third year your odds of suffering bankruptcy in one of the three years is 48.8%. By the fourth year you have a 59% chance of going bankrupt in one of the four years and losing all your money. The riskier the move the more important it is to only make part of a mistake.

The advice to “make half a mistake” is sprinkled into several articles on our website. It reminds us that we are making decisions with limited foresight of the future. It keeps us humble. It keeps us from hubris.

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Megan Marotta Russell

While my father’s exposure to the concept of making half a mistake was limited to his financial planning practice, I grew up with my father regularly applying the advice to all aspects of my life. For me, “make half a mistake” is a guiding concept.

My first memory of the principle comes from school.

I have always loved writing papers. Diligent readers of my articles are likely unsurprised. I love taking a written work and unpacking the meaning of the lines. I enjoy doing this for Philosophy papers, works of fiction, and even tax law.

School teaches students to be cautious. Our teachers have a typical expected response which they know to be of high quality. Truly innovative ideas, on the other hand, carry the risk of getting poor grades.

Innovative students are then challenged with the dilemma of either writing papers containing only what is expected to fish for a high grade or writing about what interests them and hope for the best. Either could score you the grade you desire or disappoint you with the grade you dread.

However, taking a risk where you may fail is an important life skill. It helps foster your inner entrepreneur and sets the stage for greater success in life.

“Make half a mistake,” my father advised. Rather than shying away from greatness out of fear of failure, I cautiously take the risk. In high school, I wrote enough of the English paper safely to secure the A but included my innovative ideas to take the risk.

Now in my finance career, “make half a mistake” continues to help me make difficult decisions. We used this principle when we were deciding what to do with Hong Kong in 2020 and 2021, how much to allocate to our sector targets in our U.S. allocations, and more.

I think it was one of Barbara Sher’s books that explains that men and women respond differently to clothes that don’t fit. She points out that when women try on a shirt that doesn’t fit, they say, “I’m too big for this shirt.” When men try on a shirt that doesn’t fit, they say, “This shirt is too small.”

See, the interesting thing about “make half a mistake” is that if you are self-critical, you’ll always see the mistake side of things. If you cut only some of your Hong Kong allocation and then Hong Kong goes down, the inner critic says, “Should have cut it all,” but you could just as easily say, “I was smart to cut it back at all.”

In half a mistake, the glass is always partially full and partially empty. You know that it will be from the start. Focusing on the empty side misses the power of the advice.

Of course in hindsight there are better options. However, when faced with an uncertain future, hedging your bets is a good strategy. By doing only half of what you think is right, you protect yourself from being 100% wrong.

Make half a mistake and celebrate that you weren’t entirely wrong.

Photo by Daniel Lincoln on Unsplash