"I haven't failed; I've had 10,000 ideas that didn't work."
-- Thomas Edison

If you've ever caught yourself checking your portfolio while simultaneously humming Cher's "If I Could Turn Back Time," you're not alone. The world's greatest investors have all experienced their fair share of mistakes. Mohnish Pabrai, a widely followed value investor, recently lost nearly his entire investment in Delta Financial. Almost every penny! Whoops.

Even Warren Buffett has made big mistakes. As he highlighted in his 1999 annual report to shareholders: "My performance reminds me of the quarterback whose report card showed four Fs and a D but who nonetheless had an understanding coach."

If experienced and talented investors like Buffett and Pabrai trip up once in a while, it's a near certainty that retail investors like you and me will, too ... unless you're tight with Nostradamus. The nature of the market ensures that the occasional mistake will make its way into your portfolio.

The biggest mistake
What trips up average investors? Hindsight is always helpful, but often the biggest investment mistakes stem from one rather simple phenomenon: Picking the right company, but paying the wrong price.

Take a look at these strong earners whose stock prices have nonetheless provided substandard returns.


1-Year Performance

Trailing-12-Month Earnings-Per-Share Growth

Boeing (NYSE:BA)












These are four solid, well-positioned companies. Last June, if you believed that they'd grow their earnings at a double-digit (or even triple-digit) clip, you'd be patting yourself on the back by now. Problem is, that earnings growth was already priced into the stock 12 months ago, and so returns didn't materialize. (I should note that while instructive, one year is hardly a long-term time horizon for judging the success or failure of an investment.)

Losing from the winners
The United States is home to some of the most innovative and exciting companies in the world. From high-flying tech companies like Google to groundbreaking medical leaders like Intuitive Surgical, our financial markets are overflowing with talented organizations that clearly have a pretty bright future. Ironically, that's part of the problem.

By the time it's obvious a company is going gangbusters, it's often too late to get in on the action. The train has already left the station.

Is the company's future bright and prosperous? You bet. Will the company's internal results perform well in the coming years? Good chance. Does that guarantee shareholders will be left smiling? Not by a long shot.

That's because overwhelming optimism has already been priced in. Just ask year-2000 investors in Amazon.com (NASDAQ:AMZN) -- a fantastic company that has yet to reach its Nasdaq-bubble highs. Even eBay (NASDAQ:EBAY), which has been a stellar performer, has just about broken even since early 2000. No matter how terrific a company's earnings become, the price you pay determines everything.

Had you invested in Microsoft (NASDAQ:MSFT) from 1992 to 2000, you'd have made more than 24 times your money. But from 2000 to 2008, you would have actually seen shares slide more than 46% -- even though earnings per share shot up nearly 60% during the period!

To reiterate: Successful investing requires the right company purchased at the right price. The former without the latter is like trying to race a Ferrari filled with sandbags.

What's a Fool to do?
That leaves you with two options: You can search for runaway investments before they gain attention from the investment community, or you can wait until established winners trade at bargain prices. Neither is a cakewalk -- but that doesn't mean all hope is lost.

Our Inside Value service has a number of top-notch companies trading below our team's estimate of their intrinsic value. For a little assistance in your search for bargains, you can see our team's top five stock ideas for new money. We offer a free 30-day trial without obligation to subscribe.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Amazon and eBay are Stock Advisor selections. Intuitive Surgical is a Rule Breakers pick. Dell and Microsoft are Inside Value recommendations. Crocs is a Hidden Gems Pay Dirt choice. The Motley Fool has a disclosure policy.