Achingly Beautiful Investing

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During a recent skim through the pages of a romance novel, I was surprised by just how unreal everything seemed. Nearly every character was described as attractive, all of them equipped with lean, fit physiques. And each was extraordinary in his or her chosen field -- the surgeon was incredibly talented, the writer wildly successful, the financial manager a genius with money. Everyone was honorable, noble, and rather perfect.

But as attractive as those fantasies may be, in romance novels and investing alike, reality is much different.

Warts and all
Many people idolize great investors, imagining that they enjoy some level of perfection we mere mortals don't. After all, wouldn't Warren Buffett have to be some sort of rumpled, steak-loving demigod to amass his mind-boggling wealth?

But in truth, Buffett's made plenty of mistakes, just like the rest of us. If he's different from his fellow investing luminaries, it's only because he's often brave enough to own up to those errors. In his latest letter to shareholders, for example, he regrets buying shares of ConocoPhillips (NYSE: COP) at too high a price. In the past, he's also bemoaned not buying Wal-Mart (NYSE: WMT), and not selling Coca-Cola (NYSE: KO), at given opportunities. Critics can also point out his big stake in the Washington Post (NYSE: WPO), which has lost roughly half its value in the past year.

As Buffett proves, successful investing is not about avoiding mistakes entirely, but about learning from them as you go.

Missteps and misunderstandings
Most romance stories involve characters making foolish assumptions, only to later discover they've been completely wrong. Investing, alas, is no different.

The drugstore business has seemed awfully enticing lately; with an aging population, it's natural to assume that pharmacies will play an ever-larger role in more people's lives in the years ahead. Still, the stumbles of Rite Aid (NYSE: RAD) might have scared you away from the sector. Its stock fell from roughly $6 per share two years ago (and close to $50 in late 1998) to around $0.25 recently.

But swearing off the entire business based on one struggling company might be a mistake. Other industry players, such as CVS Caremark (NYSE: CVS) and Walgreen (NYSE: WAG), could become far more promising investments. Our Motley Fool CAPS community has awarded both of those dividend-paying stocks four-star CAPS ratings, out of a maximum five.

Similarly, a dividend cut may not be as ominous an omen as it initially seems. As my colleague Rick Munarriz explained, news that a company is scaling back its payouts to shareholders can also indicate that it will have more cash on hand to pay down debt, reinvest in its growth, or address other pressing needs.

Happy endings
Investing does share one attribute with romance novels, though: a happy ending. Attentive investors, steadily buying into a low-maintenance index fund or some carefully selected stocks, are likely to enjoy a long and prosperous retirement.

When it comes to your financial future, don't wait for your Prince or Princess Charming to come. Take control of your own story, no matter how many twists and turns it takes, and you'll have a much better shot at your own "happily ever after."