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Don’t obsess over the investment mistakes you don’t make

16th May, 2022

Published in The Sunday Times on May 15th 2022

In cryptocurrency circles, next Sunday is a significant day. It marks the 12th anniversary of what is known as Bitcoin Pizza Day - when the first official Bitcoin commercial transaction occurred.

On May 22nd, 2010, Florida resident Laszlo Hanyecz bought two pizzas using Bitcoin. A Californian student named Jeremy Sturdivant, agreed to intermediate in the exchange – and he ordered Hanyecz two large pizzas from Papa John’s. He was paid 10,000 Bitcoins for the two pizzas, which at the time was worth just $41. 

The most expensive pizza ever bought 

Given the extraordinary rise in price of the cryptocurrency in the intervening years, those 2 pizzas at today’s Bitcoin price cost the equivalent of $300m. 

I’ve written a couple of articles on Bitcoin in the past few years and don’t feel I’ve much to add to the debate on it. And in any event, I’ve been wrong about it. 

There are many assets today which defy understanding based upon an assessment using traditional valuation techniques. But that doesn’t mean they should be ignored. 

Blockchain certainly seems to provide a solution to lots of problems that exist today – not just in finance. But how this all plays out and which version of it wins the race, seems to me to be anyone’s guess – though Bitcoin certainly is the front runner. 

DeFi looks like a potential game-changer

More broadly, the concept of decentralised finance (DeFi), which is related to cryptocurrency but has very little to do with Bitcoin, looks like it could disrupt our financial landscape in a very material way. But I feel like we are at a similar point to the early days of the automobile industry with respect to DeFi.  

At the start of the 20th century if you could see how the automobile industry was going to transform the landscape and improve the lives of generations to come, you’d have been correctly bullish on the future of that industry. But as Warren Buffett has pointed out, since 1903, over 2000 companies in that time competed in the auto industry in the US and all but three have gone bankrupt. Identifying the transformational impact that the industry would have was not difficult. Identifying which companies would benefit was.

DeFi is a potential game-changer. But there’s much greater insight required to successfully invest on the back of that view. So, there’s no neat conclusion to this article about cryptocurrency. But the Bitcoin pizza story provides a couple of insights worth taking on board.

Don’t obsess over your misses

The first has to do with obsessing over investments that you don’t own that end up doing incredibly well. The outsized success of Bitcoin, which looms far larger in our minds than all of the crypto failures, tends to make investment success seem easier than it is in reality. There will always be investments that perform incredibly well that you won’t ever own. But the investing world is a big place, so there’s room for lots of misses in a very successful investment plan. 

Missing out on Bitcoin is an error of omission. These mistakes represent missed opportunities. You can live with errors of omission— the pain they cause is seen from the side lines – they do not impair capital.

Errors of commission on the other hand, do. And because of this they are much tougher to swallow. They represent the loss of actual cash, as opposed to the loss of potential cash. Both types of error are common in investing, but you want far fewer errors of commission.

Avoid the errors of commission

It’s more important that you define your circle of competence in investing. And as Buffett says, the important thing is not how large that circle is but knowing where the perimeter is and staying inside of it. Implicit in this is the acceptance of lots of errors of omission, but steadfast avoidance of the ones of commission.   

The other worthy insight from the pizza story is the underlying assumption we make when reflecting on the hapless guy that paid $381m for two pizzas. That he would be sitting on a vast fortune today had he not used his Bitcoin to pay for the pizza. 

The word volatile doesn’t do justice to the gut wrenching turns that Bitcoin has taken in its relatively short history. Bitcoin has collapsed by more than 80% on no fewer than four separate occasions since 2009. 

It’s tempting to look at an historic price chart of assets like Bitcoin - where we know how the story unfolds - and marvel at how easy it was to make money. There’s nothing easy in losing four fifths of your investment once – never mind four times. Past volatility looks like an opportunity - because you know the ending. Future volatility feels much more like risk. So don’t kid yourself into thinking success at this is easy.

The investment opportunity set is massive. Stick to what you know and value. As an investor friend of mine once counselled - treat it like you might a search for a spouse; it’s unrealistic to think anyone is going to find the “best” spouse in the world as only a small subset of candidates are ever “researched”. But avoiding the errors of commission is key! 

Market Data: Calendar year returns

  2017 2018 2019 2020 2021
Bitcoin 1403% -74% 95% 305% 58%

Source: Bloomberg. Figures in USD. 


Gary Connolly is Investment Director at Davy. He can be contacted at or on twitter @gconno1.

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