Stuck in a Bad Trade? Why Staying Wrong Is the Real Mistake

Investments in Play #336 | June 9-13, 2025

In the world of investing, being wrong is part of the game. Even the most celebrated investors - those whose names are synonymous with market success - have made incorrect calls. The difference between the greats and the rest often lies not in avoiding mistakes but in recognizing and correcting them swiftly.

As the saying goes, “It’s okay to be wrong, but it’s not okay to stay wrong.” In investing, stubbornly clinging to a flawed thesis - believing you’re not wrong, just “early” - can lead to catastrophic losses. Being early, in many cases, is being wrong, because timing is a critical component of market success.

Let’s explore this idea with real-world examples of famous investors who stuck to losing bets and those who adapted when the evidence demanded it.

The Perils of Staying Wrong

One of the most dangerous traps in investing is confirmation bias - the tendency to seek out information that supports your original thesis while ignoring evidence to the contrary. When investors fall in love with their ideas, they risk holding onto losing positions far longer than they should, often with devastating consequences.

Bill Ackman and Valeant Pharmaceuticals

Bill Ackman, the billionaire hedge fund manager behind Pershing Square Capital, is known for his bold, concentrated bets. In 2015, Ackman took a massive position in Valeant Pharmaceuticals, betting that its aggressive acquisition-driven growth model would continue to deliver outsized returns. His thesis hinged on Valeant’s ability to acquire drug companies, cut costs, and raise prices to boost profits. Initially, the stock soared, validating his view.

However, cracks began to appear in 2015 when allegations of price gouging and questionable accounting practices surfaced. Valeant’s stock plummeted, but Ackman doubled down, insisting the market was overreacting and that Valeant was a misunderstood value play. By 2016, the evidence was overwhelming: regulatory scrutiny intensified, and Valeant’s business model was unsustainable. Ackman’s fund lost over $4 billion on the bet, and he finally exited the position in 2017, admitting defeat. His reluctance to pivot earlier turned a bad call into a disaster, costing his investors dearly and tarnishing his reputation temporarily.

John Paulson and the Housing Market Post-2008

John Paulson became a legend for his massive profits betting against the subprime mortgage market in 2007–2008. However, his success didn’t make him immune to staying wrong. After his subprime triumph, Paulson bet heavily on a rapid economic recovery post-financial crisis, particularly in financial stocks and gold. His thesis was that the U.S. economy would rebound quickly, and gold would serve as a hedge against inflation.

By 2011–2012, it was clear the recovery was slower than anticipated, and inflation remained subdued. Gold prices peaked in 2011 and began a multi-year decline, while many of Paulson’s financial stock picks underperformed. Despite mounting evidence, Paulson held onto his gold-heavy positions, believing the market hadn’t yet caught up to his vision. His fund, Paulson & Co., saw significant losses, with some estimates suggesting his gold fund lost nearly 50% of its value by 2013. Investors redeemed billions, and Paulson’s refusal to adapt earlier eroded much of the goodwill from his earlier success.

The Power of Admitting You’re Wrong

Contrast the above examples with investors who demonstrated the humility and discipline to change course when the facts no longer supported their thesis. Flexibility in the face of new evidence is a hallmark of long-term success in markets.

Stanley Druckenmiller and the Tech Bubble

Stanley Druckenmiller, one of the most successful hedge fund managers of all time, famously flipped his view during the dot-com bubble of the late 1990s. Initially, Druckenmiller was skeptical of tech stocks, believing their valuations were unsustainable. In 1999, as the Nasdaq soared, he stuck to his bearish stance, missing out on massive gains. But rather than digging in his heels, Druckenmiller reassessed the market’s momentum and shifted his portfolio to capitalize on the tech rally.

By early 2000, however, Druckenmiller’s analysis showed signs of a bubble ready to burst. He quickly pivoted again, reducing his tech exposure just before the March 2000 crash. While he later admitted to being “late” to the tech party, his willingness to adapt—first to join the rally and then to exit before the collapse—preserved his fund’s capital and reputation. Druckenmiller’s ability to admit he was wrong about the initial tech surge and then adjust again when the bubble became undeniable showcases the power of flexibility.

David Einhorn and Allied Capital

David Einhorn, founder of Greenlight Capital, is another investor who demonstrated the value of changing course. In 2002, Einhorn publicly shorted Allied Capital, a business development company, alleging accounting irregularities and an overvalued portfolio. Initially, the market shrugged off his warnings, and Allied’s stock held firm, causing paper losses for Einhorn’s short position. Critics accused him of being wrong or overly bearish.

Instead of stubbornly holding his position, Einhorn doubled down on his research, digging deeper into Allied’s financials. By 2007, his persistence paid off as regulators investigated Allied, and its stock began to crumble. However, what sets Einhorn apart is his willingness to exit shorts or reverse positions when the evidence shifts. For example, in 2018, Einhorn shorted Tesla, believing its valuation was unsustainable. When Tesla’s stock continued to climb in 2020, driven by strong delivery numbers and market enthusiasm, Einhorn closed his short position, acknowledging the market’s momentum and his miscalculation. This discipline prevented larger losses and allowed Greenlight to refocus on better opportunities.

Why Being Early Is Often Wrong

In investing, the adage “being early is the same as being wrong” holds true because markets are driven by timing as much as by fundamentals. A brilliant thesis that’s too early can often lead to losses just as severe as a flawed one. Cash tied up in a losing position misses other opportunities, and prolonged losses erode both capital and confidence. The key is to remain vigilant, constantly reassessing your thesis against new data. Markets don’t care about your ego—they reward those who adapt.

Lessons for Investors

1. Embrace Being Wrong: Even the best investors make mistakes. Accepting this frees you to act decisively when the evidence changes.

2. Monitor Your Thesis: Regularly test your assumptions against market data, earnings reports, and macroeconomic trends. If the facts no longer align, reconsider your position.

3. Cut Losses Early: As painful as it is to admit defeat, exiting a losing position preserves capital for better opportunities.

4. Learn from the Greats: Druckenmiller and Einhorn show that flexibility is a superpower. Ackman and Paulson’s missteps remind us that even legends can falter by staying wrong too long.

Conclusion

Investing is a humbling endeavor. No one gets it right every time, and the market has a way of punishing those who cling to outdated beliefs. Heck, this is why I often say, “I’m always wrong.” I rarely try to be “right” so I can avoid being wrong. In other words, I believe in making a plan for both directions: what will I do if my asset goes up in value, and what will I do if my asset goes down in value?

The difference between good and great investors lies in their ability to recognize when they’re wrong and act swiftly to correct course. As Warren Buffett once said, “The most important thing to do if you find yourself in a hole is to stop digging.” In the fast-moving world of markets, it’s not about avoiding mistakes—it’s about having the courage to admit them and the discipline to move on.

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Read on to discover the week’s biggest winner and loser in the Investments in Play portfolio as well as all the moves I made this week in addition to my future buying and selling price targets for the positions that saw changes over the week.