How Warren Buffett taught this legendary investor the value of making mistakes

Learn Warren Buffett’s simple psychological trick to being persuasive

For many of us, it can be tough to embrace our flaws or mistakes.

Billionaire investor Peter Lynch learned that skill from legendary business magnate Warren Buffett.

Nicknamed "America's money manager" by Forbes, Lynch became well-known for managing the Fidelity Magellan Fund and growing its assets from less than $100 million to $13 billion. As a result, he established the world's best-selling stock fund for over a decade during the 1980s bull market.

In an interview with Forbes Magazine as part of its "100 Greatest Business Minds" series, Lynch said Buffett taught him to embrace what he calls his own "greatest mistake," which was that he "always sold stocks way too early."

He recounts how Buffett once called him unexpectedly on a Saturday in 1989 to ask for a favor. When his daughter picked up the phone, she said, "It's Mr. Buffett on the line."

"And I thought some of my buddies are kidding me because she was only 6," Lynch told Forbes.

Buffett told Lynch that he loved his new book "One Up on Wall Street," in which Lynch explains his investment style and how it can help others succeed.

"I want to use a line from it in my year-end report. I have to have it," Buffett said. "Can I please use it?"

"Sure. What's the line?" Lynch asked.

The line Buffett wanted to quote was this: "Selling your winners and holding your losers is like cutting the flowers and watering the weeds."

These billionaires are handing over their fortune to charity and not their kids

Lynch said he was honored by Buffett's request. Eight years after that phone call, Lynch added that having Buffett quote him in an annual report was "as thrilling to [him] as getting invited to the White House."

Lynch rephrased the sentence from his book and added a bit more context in a 1997 article called "Use Your Edge." One of the oldest sayings on Wall Street, he wrote, is to "let your winners run, and cut your losers."

"It's easy to make a mistake and do the opposite, pulling out the flowers and watering the weeds," Lynch wrote.

Now 73, Lynch said he mistakenly sold his stocks in Home Depot and Dunkin' Donuts too early because they would have soon grown over fiftyfold.

"Why did I do that? I was dumb," he told Forbes.

"If you're great in this business you're right six times out of ten. But the times you're right," Lynch said, "it overcomes your mistakes. So you have to find the big winners."

Like this story? Like CNBC Make It on Facebook.

Don't miss:
This 31-year-old millennial is set to be the world's youngest head of state
Stanford psychologist says this mindset shift will make you happier and more successful

Warren Buffett is worth $75 billion but says he would be 'very happy' with way less