6 Lessons From the Bear

We learned the hard way that few companies' earnings are immune to a terrible economy.

Few would argue with the assertion that learning from our mistakes is a central component of self-improvement. To that end, savvy investors put a high premium on disciplined reviews of their gaffes. With one of Warren Buffett's favorite admonitions in mind -- "It's better to learn from other people's mistakes as much as possible" -- we've compiled six important lessons from our own and others' experiences during the recent market meltdown.

Beware of over-concentration. Having endured a humbling 2008 after several years of outsize returns, Mohnish Pabrai, of Pabrai Investment Funds, concluded that his previous approach of owning 10% positions in just ten stocks was simply too risky. He now aims for 5% positions for his most compelling ideas, and he keeps stakes in stocks with profiles similar to his biggest holdings and stocks with significant risk to 2% or so. "One needs to be ... willing to give up some of our best-loved ideas when the evidence suggests they are flawed," he says.

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Whitney Tilson
Contributing Editor, Kiplinger's Personal Finance