Post-Mortem Analysis

Post-Mortem Analysis (also known as an Investment Post-Mortem) is a structured, critical review of a completed investment, conducted after a position has been sold. Think of it as an autopsy on a decision. The goal isn't to assign blame or wallow in regret, but to honestly dissect what went right or wrong with your thinking process, regardless of whether the investment ultimately made or lost money. This disciplined practice is a hallmark of great investors, separating those who learn from the past from those doomed to repeat its mistakes. Legendary figures like Warren Buffett and Ray Dalio are famous for their rigorous post-mortems. They understand that the market is a powerful teacher, but you only learn its lessons if you're willing to go back and study the exam paper. The objective is to refine your investment strategy, identify recurring behavioral traps, and turn every investment—good or bad—into a valuable piece of tuition for the future.

Our brains are masters of self-deception. When an investment succeeds, it’s easy to say, “I'm a genius! I knew it all along.” This is classic hindsight bias. When it fails, we often blame external factors: “It was a freak event, just bad luck.” A post-mortem analysis acts as a powerful antidote to these mental shortcuts. It forces an honest confrontation with the facts and the quality of your original decision-making. The core benefits are immense:

• It Refines Your Investment Process. By systematically reviewing your decisions, you can spot weaknesses in your research, valuation models, or risk assessment, allowing you to build a more robust system over time.
• It Combats Behavioral Biases. A post-mortem brings your psychological blind spots into the light. Are you consistently overconfident? Prone to anchoring on a stock's past high? A victim of confirmation bias? Identifying these patterns is the first step to correcting them.
• It Defines Your Circle of Competence. Reviewing your wins and losses helps you understand which industries, business models, and situations you truly understand, and which you should avoid.
• It Turns Mistakes into Assets. A losing investment is a sunk cost. But the lesson learned from it, if properly analyzed, can become one of your most valuable assets, preventing you from making the same costly error again.

A great post-mortem is like a detective's case file: structured, evidence-based, and ending with a clear, actionable conclusion. It's not a quick glance; it's a deep dive.

This step is impossible unless you have a crucial habit: writing down your investment thesis before you buy. Your pre-investment journal or memo is your baseline for comparison. Without it, your memory will rewrite history to make you look smarter than you were. Your review should start here:

• What was the original story? What did you expect to happen?
• What were the key numbers? What was your calculated intrinsic value? What earnings per share (EPS) growth did you project? What was the margin of safety?
• What was the qualitative case? Why did you believe the company had a durable economic moat? What was your assessment of management?

This is the most important concept in a post-mortem. A good process can lead to a bad outcome (bad luck), and a poor process can lead to a good outcome (dumb luck). Your goal is to reward good processes and punish bad ones, not to reward or punish outcomes. Ask yourself:

• Was the research thorough? Did I perform adequate due diligence? Did I read the annual reports, study the balance sheet, and understand the competitive landscape?
• Was the decision rushed? Did I buy based on a hot tip or a sense of FOMO (Fear Of Missing Out)?
• Was I lucky or good? If the investment was a success, was it because my thesis played out, or because of an unexpected tailwind I never predicted? Getting rich by being lucky is dangerous because it teaches you the wrong lessons.

Now, play detective. Compare what you thought would happen with what actually happened. Isolate the specific reasons for the difference.

• Analytical Errors: Did you miscalculate free cash flow? Misinterpret the company's debt load (e.g., its debt-to-equity ratio)? Did you fall for a value trap where the stock was cheap for a very good reason?
• External Events: What happened that you didn't foresee? A new competitor, a technological shift, a regulatory change, or a macroeconomic event like a black swan event? Was this event reasonably foreseeable or truly unpredictable?
• Psychological Traps: Be brutally honest. Did loss aversion cause you to hold on to a losing stock for far too long? Did you ignore negative news because it conflicted with your initial belief?

An analysis is useless without a takeaway. The final step is to synthesize your findings into concrete rules or checklist items that will improve your future investment decisions. Good examples of actionable lessons include:

1. “My pre-investment checklist must now include a 'bear case' section where I list the top three things that could destroy the investment.”
2. “I will never again invest in a commodity business during a downcycle without confirming its balance sheet can survive two more years of low prices.”
3. “If a stock falls 30%, I must write a fresh one-page analysis on whether to buy more, hold, or sell, instead of just hoping it will recover.”