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What Is 'Malinvestment'?

• Malinvestment is a sub-optimal investment of resources, time, attention, or energy.
• Malinvestment can come from many sources: errors, inefficiency, or imperfect information.
• You can think of some forms of Malinvestment as a form of tuition: it’s the price you pay to learn valuable information.

Josh Kaufman Explains 'Malinvestment'

Often, we make Decisions that don’t turn out the way we expect: unnecessary purchases, bad hires, poor investments, and wasted energy.

This type of error is called Malinvestment: a “bad” or “poor” investment. The meaning of bad or poor is variable, but it’s almost always tied up with a feeling of “That was dumb… what a waste!”

Malinvestment is very common. You can’t see the future, and that Uncertainty introduces a significant risk of error whenever you make a purchase or investment of time and energy.

It’s easy to feel bad about Malinvestment: making mistakes is never fun. Feeling too bad, however, is a form of Hindsight Bias: if you knew then what you know now, you wouldn’t have done what you did.

Sometimes, Malinvestment looks like a straightforward mistake—an error. You thought the investment was promising, wise, or prudent, and it turns out it wasn’t. This usually takes the form of:

• Buying items you don’t use.
• Purchasing a Product that doesn’t work or malfunctions.
• A change in your preferences, needs, or priorities that makes past investments obsolete.

These errors often come from not having enough information before making a purchase decision. You can often prevent these types of errors by:

• Collecting more information before you invest.
• Being more diligent about evaluating needs and priorities before investing.
• Investing only to solve a clear, present, recurring, immediate, or important need or problem.

Other forms of Malinvestment look like inefficiency: an unnecessary waste of resources. This usually takes the form of:

• Paying Insurance premiums without incident.
• Building and maintaining backup systems and Fail-safes you never need to use.

It’s important to realize that this type of Malinvestment is very common when dealing with Uncertainty and risk. Paying Insurance premiums is usually a wise thing to do if you’re not able or willing to mitigate certain common or large risks on your own.

If you don’t end up collecting a claim on the Insurance, your premiums weren’t really “wasted,” in the sense that you were paying to mitigate a very real risk. You would’ve saved money if you could see the future, but you can’t. Paying to mitigate major risks is a good Decision as long as you don’t overpay for the Insurance.

When you’re trying to do something new or different, you’re bound to make a few mistakes. Investing time, energy, or effort in something that doesn’t work out the way you hoped is almost a certainty:

• Starting to do something in a certain way, only to find out it won’t work.
• Doing something one way, then discovering a better way when you’re almost done.
• Breaking something important, then having to fix it.

In these cases, Malinvestment is a form of tuition: it’s the price you’re paying to learn more about the topic or area of interest. As long as the tuition costs aren’t too steep, a certain amount of error can teach you a lot about what’s important, what works, and what not to do in the future.

Often, it’s wise to seek out a certain level of Malinvestment as a form of Exploration. You’ll never have perfect information, and you’ll never find the “optimal” or “perfect” strategy before you begin. If you wait until you’re 100 percent certain you’ve found the best possible approach before you begin, you’ll never get started.

Here’s a useful question that’s helpful in overcoming this tendency: “How quickly can I start making mistakes?” The faster you jump in and start trying to do what you want to be able to do, the faster you’ll learn—errors and all.

When in doubt, err on the side of imperfect experimentation.

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"Our errors are surely not such awfully solemn things. In a world where we are so certain to incur them in spite of all our caution, a certain lightness of heart seems healthier than this excessive nervousness on their behalf."

William James, nineteenth-century doctor and pioneering psychologist

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