Errors of Commission vs Errors of Omission

Errors of commission happen when you choose the wrong investment and errors of omission happen when you do not choose the right investment.

When a deer sees a watering hole, it doesn’t always run toward it to quench its thirst even if it seems safe. The deer knows that the cost of missing out on the easy source of water is less than the cost of a predator’s ambush. Not taking action leads to errors of omission (the deer going thirsty for some time), but saves it from extinction.

A cheetah is the fastest mammal on Earth but lacks in size and strength compared to many other competing predators. It doesn’t attempt to kill an adult water buffalo, a favorite prey of lions. Doing so would lead the cheetah to commit errors of commission by choosing the wrong prey. It preys on smaller animals like rabbits and small antelopes. Sometimes a cheetah doesn’t chase an animal that it should have. It leaves the family hungry for a day but by being selective they get to see another day.

In investing, chasing too many opportunities can lead to fatal mistakes (errors of commission). You have to make a trade-off. If you want to limit errors of commission, you will have to commit many errors of omission. You will have to be a great rejector.