Why do some investors keep losing money?

For example, an investor might say: "Don't bother me, I know what I am doing" while getting destroyed in the markets. Of course the easiest way to relieve the tension is to blame it on "circumstances beyond your control." But this approach really solves nothing. Rationalizing only sets you up to create the same pattern of cognitive dissonance and repeat the same mistakes over and over again.

Much more productive would be to ask what lessons can be learned from your mistakes that will make you a better investor in the future. Here are some examples:

• One star investment manager, Mohnish Pabrai of Pabrai Investments Funds, took a drubbing in 2008 so he decided to change his investment strategy. Instead of allocating 10% of his capital to his ten best investment ideas, he reduced it to 5% of his capital. Sometimes he invests only 2% of his capital.
• Barnes and Noble Inc. (NYSE BKS) was thought to be a good investment at 4 times earnings, only to find it trading at 2.7 times earnings..
• Deleveraging trillions dollars of toxic assets is much greater than previously thought. As a result U.S. GDP is now forecast to be negative throughout 2010.
• Looking for real opportunities has become more difficult. For example, Eco Star and Delia's, a clothes retailer, were trading at or below their levels of cash on hand, so you were getting an operating business for free.
• Another lesson that was learned is that in future trades, investors should take profits quicker on winning positions.

We need to look at investing differently and understand the risks better. Our win/loss ration now might be 55/45%, where in the past we had a much higher probability of having a winning trade.

What are your thoughts on these investment ideas?