Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Chill and I'm Tracy Alloway. Tracy, we talk a lot.
Speaker 1: I don't know, I guess if we talk a lot
Speaker 1: on this particular podcast, But I would say findite financial
Speaker 1: media is very into great investments and legendary investors and
Speaker 1: how they got there and how basically a whole industry
Speaker 1: devoted to, you know, how people became rich and successful.
Speaker 1: Wouldn't you say that? Yeah, well, you have to have
Speaker 1: role models if you're trying to do something right. And uh, definitely,
Speaker 1: investors tend to lionize certain people. I mean Warren Buffett
Speaker 1: is probably the most famous investor that springs to mind.
Speaker 1: And every year you get people who go down to
Speaker 1: Omaha and it turns into sort of a war and
Speaker 1: Buffett fest I would say, right, And then not only
Speaker 1: do we sort of lionize these people, but also throughout
Speaker 1: the year, at any given time, if they make a call,
Speaker 1: you have people who want to jump on that call.
Speaker 1: Like if Warren Buffett adds a new position to his portfolio,
Speaker 1: then of course you'll get a Typically you see buying
Speaker 1: of that stock the next day because people think, well,
Speaker 1: Warren Buffett is invested in it, or any one of
Speaker 1: these other gurus so to speak, is invested in it.
Speaker 1: Then you get people trying to follow on and think
Speaker 1: that they their richest and genius will spread to them. Yeah,
Speaker 1: lots of followers, for sure. You even have some people
Speaker 1: now who have basically made a business out of following
Speaker 1: financial gurus, and it's called copy trading. So you have
Speaker 1: followers of followers. It's followers all the way down. But
Speaker 1: the one thing we don't talk about as much is
Speaker 1: the fact that all these people are human, and in fact,
Speaker 1: a lot of them have made some pretty huge mistakes
Speaker 1: in their career. Warren buff It's made mistakes. No, I
Speaker 1: don't know if Warren Buffett has actually ever made a mistake.
Speaker 1: It's possible that he is bad at a thousand. But
Speaker 1: most investors, even the really great ones I believe, have
Speaker 1: made a couple of mistakes here and there, right, And
Speaker 1: you're absolutely correct that we don't hear that much about
Speaker 1: those mistakes. Maybe for obvious reasons, but I'm guessing there
Speaker 1: are probably a lot of lessons you could learn about
Speaker 1: investing from actually talking about what went wrong. There are
Speaker 1: definitely lessons you could learn and we're gonna talk. We're
Speaker 1: gonna learn some of those lessons today. And I think,
Speaker 1: just for your and ice sake, I think we should
Speaker 1: redouble our effort to point out mistakes because you and
Speaker 1: I are in the position to always be reporting on
Speaker 1: people's calls and people's position changes and their forecasts and
Speaker 1: stuff like that, and we should just you know, it's
Speaker 1: like a sort of note to each other, remind each
Speaker 1: other to go back and look and see who got
Speaker 1: it wrong the year before, just to keep everyone more honest. No,
Speaker 1: you're absolutely right, Um, especially on the cell side, we
Speaker 1: have a whole industry of people who are supposed to
Speaker 1: be making calls and a lot of those are incorrect.
Speaker 1: And you're absolutely right that we don't do enough to
Speaker 1: point those out. I got it, Mit, scho. I have
Speaker 1: a few investing mistakes of my own that I'm pretty embarrassed.
Speaker 1: But maybe we'll talk about them during this episode. Maybe
Speaker 1: I'm really curious about them now. No, they're so embarrassing,
Speaker 1: we definitely have to bring them up. All right, Well,
Speaker 1: maybe we can avoid our mistakes, or maybe maybe you cannot.
Speaker 1: We can avoid making investing mistakes if we learned about
Speaker 1: the big mistakes that famous investors have made. And to
Speaker 1: this end, our guest today is Michael bat Nick. He
Speaker 1: is the director of research at rid Holts Wealth Management
Speaker 1: and he has a new book out that came out
Speaker 1: this year entitled Big Mistakes the Best Investors in Their
Speaker 1: Worst Investments. So they should be really fun because we're
Speaker 1: going to talk about great investors and their colossal errors. Michael,
Speaker 1: thank you very much for joining us, Thanks for having
Speaker 1: Why did you write this book about famous investors growing up? Well,
Speaker 1: the best advice I got on writing a book was
Speaker 1: write something that you would want to read, and this
Speaker 1: definitely fit that bill. So there are a bazillion how
Speaker 1: two books, so I wanted to take the opposite side.
Speaker 1: And maybe that's the wrong way of putting it, because
Speaker 1: this is not a how not to book, This is
Speaker 1: just a book. On to your point, we do lionize
Speaker 1: these best investors, but they are human too, and investing
Speaker 1: is really hard and I don't care what style you're doing,
Speaker 1: how big a dollar pull you're managing, it is really
Speaker 1: hard and it's not about avoiding mistakes. I mean, there
Speaker 1: are certain mistakes that are easily avoidable. For instance, do
Speaker 1: not buy and hold a triple levered. You know et F.
Speaker 1: Don't do that that we can avoid. But Jesse Livermore
Speaker 1: said something along the lines of the mistake family is
Speaker 1: so large that you think you've made it all, then
Speaker 1: you know one is right around the corner. So you're
Speaker 1: going to make mistakes whatever you're doing, if you're buying
Speaker 1: and holding, I mean, whatever you are doing, you're going
Speaker 1: to make mistakes. So the point of this book was
Speaker 1: that maybe after reading this you will have a little
Speaker 1: bit of empathy for your future self when you do
Speaker 1: make a mistake. Don't go off the reservation, don't beat
Speaker 1: yourself up, Just taken and try to move along. So, Michael,
Speaker 1: I'm really curious how you actually went about researching this book, because,
Speaker 1: as Joe and I were discussing, you know, these are
Speaker 1: things mistakes, errors, that people generally don't like to talk about,
Speaker 1: and that certainly aren't as well publicized as their successes. Yeah,
Speaker 1: so a lot of this stuff is public. I didn't
Speaker 1: speak to any of the individual investors because it was
Speaker 1: all out there. A lot of it people have written about,
Speaker 1: people have spoken about, of course, like John Paulson's recent
Speaker 1: struggles are very public. Iron Horn's recent struggles, actments, recent struggles,
Speaker 1: so I think we have a lot more access to
Speaker 1: information than we would have in the past. We were
Speaker 1: joking earlier that maybe Warren Buffett had never made a mistake,
Speaker 1: but of course he has made a mistakes. And you
Speaker 1: wrote about Warren Buffett in your book. So what was
Speaker 1: Warren Buffett's biggest mistake? Not only did Warren Buffett make mistakes,
Speaker 1: but there was plenty to choose from. It wasn't like
Speaker 1: I had to search very difficult, very hard for this one.
Speaker 1: So the biggest mistake that that he would say is
Speaker 1: that he bought a shoe company called Dexter Shoe. I
Speaker 1: think it's a small company in Maine that got destroyed
Speaker 1: by overseas competition. But the mistake was not that he
Speaker 1: bought this this company. The steak was that he bought
Speaker 1: it with stock and he paid something like three d
Speaker 1: fifty or four ure million or something like that, and
Speaker 1: that is now worth seven billion dollars. There's a bowling company.
Speaker 1: I used to own a pair of deck I just
Speaker 1: want to get this in there. I used to own
Speaker 1: a pair of Dexter shoes. By the way, I don't
Speaker 1: know what happened to them all right, keep going well,
Speaker 1: so yeah, so so in that particular mistake, that is
Speaker 1: not something that any of us are not going to replicate,
Speaker 1: because none of us are going to have the opportunity
Speaker 1: to buy a ship company with with chairs in our
Speaker 1: own company. The point is, if Warren Buffett makes mistakes,
Speaker 1: and he's made plenty of them, be very careful about
Speaker 1: being overconfident in your own abilities, Michael, as you point out,
Speaker 1: like none of us own a Berkshire Hathaway, that we
Speaker 1: could even buy a company within our own stock like
Speaker 1: that is not something that we're going to replicate. But
Speaker 1: is there a generalizable error from there? Is there a
Speaker 1: lesson from that Buffet mistake that the average investor could apply? Oh? Certainly.
Speaker 1: So this is the availability bias. He had purchased another
Speaker 1: assume manufactured company that did extraordinarily well for him, and
Speaker 1: he said, well, that one did well, this one will
Speaker 1: do well. And people make these parallels all the time.
Speaker 1: I mean this, obviously there was a logical step. This
Speaker 1: is a shoe company. That's a shoe company. But people
Speaker 1: make comparisons all the time, just something that pops easily
Speaker 1: into their brain that has no business being compared with
Speaker 1: with something else. But there are a lot of mistakes
Speaker 1: are of easily avoidable, as for instance, what Bill Ackman
Speaker 1: did is very easily avoidable. Do not talk to friends
Speaker 1: and family about your newest stock pick. And if you
Speaker 1: do talk to them, and if you do pound the table,
Speaker 1: give yourself an out say hey, I really you know,
Speaker 1: if somebody asked, I really like the stock x y
Speaker 1: C at a hundred, which one are you referring to?
Speaker 1: So Bill Akman the the mistake that I highlighted in
Speaker 1: the book, of course, there was, you know, like every
Speaker 1: body else, there was multiple mistakes to choose from. I
Speaker 1: went with our life. How can anybody give a four
Speaker 1: hour presentation on a stock and then say, hey, you
Speaker 1: know what, I forget everything I said last week. I
Speaker 1: changed my mind, right, So I think it's really easy
Speaker 1: to just avoid that. Just don't talk about your positions
Speaker 1: in public, especially not your friends and family, because we
Speaker 1: are loath to change our mind. But like I said,
Speaker 1: if you do talk about it, at least give yourself
Speaker 1: a note. Don't get married to a position. Michael, I
Speaker 1: kind of think when it comes to investing, there's there's
Speaker 1: two very generalized broad bucket mistakes that you can think of,
Speaker 1: and one has to be making a bad investment that
Speaker 1: loses money, and the other one has to be missing
Speaker 1: out on a good investment. Do you have any famous
Speaker 1: examples of either of those and on the whole, which
Speaker 1: one is more common for the people that you surveyed?
Speaker 1: M hmm, this is a this is a good question.
Speaker 1: So I think the unforced errors are probably more common.
Speaker 1: But I have never had anybody say to me, Hey, Michael,
Speaker 1: I got a stock tip. The thing quintupled? Now what
Speaker 1: do I do right? Like, It's never that. It's always hey,
Speaker 1: somebody gave me a stock tip. I've down, what do
Speaker 1: I do now? So the unforced errors, in terms of
Speaker 1: watching something go up without you, is really hard to
Speaker 1: insulate ourselves from. I'm not really sure. I don't really
Speaker 1: have a good suggestion of how to like protect yourself
Speaker 1: from yourself. And as an example, Stanley Druckon Miller, who
Speaker 1: literally has like a top three track record of all time,
Speaker 1: I bought a stock I think it was called Veri
Speaker 1: sign in late nineties. He had terrible fomo and it
Speaker 1: showed him a profit, of course, and then he doubled
Speaker 1: down and then it went like it the market top
Speaker 1: the very next day, and I think he lost like
Speaker 1: three billion dollars in six weeks. And it basically he
Speaker 1: said no Moss, he set him out, so he got
Speaker 1: swept away with the phone. With the late nineties, we
Speaker 1: just saw the same thing with bitcoin recently. It is very,
Speaker 1: very difficult to watch people make money when you're not.
Speaker 1: Let's talk about some of these psychological errors. You mentioned
Speaker 1: the famous trader Jesse Livermore earlier, and I read his
Speaker 1: book a couple of years ago, and he, you know,
Speaker 1: he sort of prized himself on his risk manager abilities,
Speaker 1: but even he would then somehow getting these like horrible
Speaker 1: ruts where he broke all of his own risk management
Speaker 1: rules and he would double and triple down on losing investments,
Speaker 1: even when he knew that that was the worst thing
Speaker 1: you could possibly do. I think there was like some
Speaker 1: cotton trade or something like that that totally destroyed him.
Speaker 1: Are there examples in your book of investors who just
Speaker 1: like they just blow through all of their own rules
Speaker 1: and risk management approaches and destroy themselves. Well, he is
Speaker 1: the prime example. He made several fortunes and lost them all.
Speaker 1: And the one that really did him in was he
Speaker 1: was short the market and the great depression, and I
Speaker 1: think he made a hundred million dollars and a hundred
Speaker 1: million dollars, I mean that's a lot of money in
Speaker 1: at decent amount today. But he went so he flipped
Speaker 1: and he went bullish a little bit too early or
Speaker 1: something like that, and he got destroyed. And uh, every
Speaker 1: time that he made and loss of fortune, he came
Speaker 1: away with these like remarkably eloquent sayings about the market.
Speaker 1: And he is probably the single most quote a trader today.
Speaker 1: And the irony is that he couldn't even follow his
Speaker 1: own rules, not even close. Um, and he he got
Speaker 1: blown up a brazilion times and at the end he
Speaker 1: took his own life because there were structural changes in
Speaker 1: the market with the SEC coming in, and he just
Speaker 1: he just couldn't do what he used to do. And
Speaker 1: uh and yeah, so Joe mentioned the human psychology, how
Speaker 1: many of these big mistakes are are driven by human error.
Speaker 1: And you know, if that's the case, then is the
Speaker 1: major lesson just that we should write down some tried
Speaker 1: and tested rules and you know, have them sort of
Speaker 1: set in stone and never deviate from them. And maybe
Speaker 1: we should have machines run our training portfolios or people
Speaker 1: completely devoid of emotion. Is that the takeaway? Well, it's
Speaker 1: hard to give such broad advice like that, but like
Speaker 1: I said, insulinting yourself from the fear of missing out,
Speaker 1: I just don't have a good answer. And another example
Speaker 1: is Jack Bogel. He so he took over the Walenton
Speaker 1: Fine which is one of the oldest mutual fund companies
Speaker 1: in the country, and he basically ran into the ground
Speaker 1: because in the late sixties, during the go go years,
Speaker 1: the name of the game was high turnover, rapid trading,
Speaker 1: and and the Wellington Fund, which prided himself in being
Speaker 1: conservative and surviving the Great Depression and a balanced portfolio.
Speaker 1: He hired some hotshots from Boston to keep up with
Speaker 1: what everyone else was doing. He even had a mutual
Speaker 1: fund that was based on technical analysis. So Jack so,
Speaker 1: Jack Bogel was infected with a fear of missing out.
Speaker 1: Stanley truck and Miller was, it's really difficult and these
Speaker 1: psychological things. I mean, I don't know if machines aren't
Speaker 1: necessarily the answer. I think that one thing that all
Speaker 1: of us can do is write things down, like when
Speaker 1: you go into a trade, write things down, and so
Speaker 1: so I did this, and this is not intentional at
Speaker 1: the time, but I kept a trading diary or a
Speaker 1: journal of what I was doing, and I would go
Speaker 1: back and look at it, and it sounded so ridiculous,
Speaker 1: and but it was my words, Like I couldn't blame
Speaker 1: anybody else. It was me. I was ridiculous, And so
Speaker 1: that was a really good a to protect myself from
Speaker 1: being sort of self delusional. If these are my thoughts yesterday,
Speaker 1: what are my thoughts could be tomorrow? So it's a
Speaker 1: game that I just I just stopped playing entirely. Michael,
Speaker 1: you're on Twitter and you obviously have been involved with
Speaker 1: finance Twitter and trading Twitter for a really long time.
Speaker 1: Do you think that Twitter can exacerbate what you described
Speaker 1: with like Bill Ackman, where someone comes up with a
Speaker 1: public view or a public persona or a public stand
Speaker 1: on a stock, and then that causes them to get
Speaker 1: overly locked into a position. And I don't even necessarily
Speaker 1: mean on a stock. Maybe someone has a reputation for
Speaker 1: being bullish or bearish on some idea, and that Twitter
Speaker 1: can have the effect of making it harder for people
Speaker 1: to change their minds. Of course it does, because the
Speaker 1: thought process and the way the sausages made when trades
Speaker 1: are put on and taken off, it's not pretty. And
Speaker 1: so when you allow people to see that, it looks ridiculous.
Speaker 1: And now some people have made a career out of that,
Speaker 1: like as if for instance, Paul Twutor Jones amously circulated
Speaker 1: the analog chart and right, so we laugh at that
Speaker 1: stuff now, but that but that was like his thesis
Speaker 1: and he was using He's a very big proponent or
Speaker 1: was of Elliott wave analysis, And if we saw somebody
Speaker 1: doing that in public, we would sort of laugh at them,
Speaker 1: or at least I would. So I think that putting
Speaker 1: your views out into the public can be really really dangerous,
Speaker 1: really dangerous. And I think that just Twitter in general,
Speaker 1: it just gives a very warp sense of the world
Speaker 1: because you could see all these bozos and you think, oh,
Speaker 1: I'm treating against them, like, of course I have an
Speaker 1: edge against these people. But Jim Simons is not on Twitter, right,
Speaker 1: like Ken Griffin, he's not on Twitter. So these are
Speaker 1: the people you're competing against, but you don't really see them.
Speaker 1: You see the people that are on Twitter all day long.
Speaker 1: So what's the motivation for going public with the trade
Speaker 1: because if I was being very cynical, and remember Joe
Speaker 1: urged me to be more cynical at the beginning of
Speaker 1: this discussion. But I would say, these people want other
Speaker 1: people to follow them into the trade to inflate whatever
Speaker 1: stock or acid it is that they are buying and
Speaker 1: or betting against. Well. The the funny thing is that
Speaker 1: I have no way of proving this, But I just
Speaker 1: suspect that a lot of the people that talk about
Speaker 1: positions publicly don't even have them, like, don't even have
Speaker 1: skin in the game. They're just talking about it. And
Speaker 1: people would almost rather like, hey, good trade, man is
Speaker 1: like almost better than making money, which is just I
Speaker 1: think people are just in it for the ego. Um.
Speaker 1: And uh So I think, what what is the um?
Speaker 1: Why would somebody put themselves out there? Well, if you're wrong,
Speaker 1: people forget, and if you're right, like it's it's an
Speaker 1: asymmetric trade. If you're right on a really big oil
Speaker 1: trade or whatever, that can make your career. Right, we
Speaker 1: see people that are living off of one big trade. Um,
Speaker 1: So why wouldn't you put it out there? Do you
Speaker 1: think that the pressures and the types of errors people
Speaker 1: make are different for individual investors versus say, someone who
Speaker 1: manages money. And I'm thinking about the effect that if
Speaker 1: you manage money, you might get a situation which your
Speaker 1: clients are calling up. It's like, wait, why aren't you
Speaker 1: in tech docts or why aren't you in bigcoin or whatever?
Speaker 1: And if you're missing out for a few quarters, you
Speaker 1: can suddenly see a U M start to flee, Whereas
Speaker 1: if you're in an individual you know you might miss out,
Speaker 1: but no one is breathing down your neck or threatening
Speaker 1: to yank their money. Great point. I think that's one
Speaker 1: of the individual investors biggest advantages. So when um, when
Speaker 1: John Paulson put on this trade, he had investors like,
Speaker 1: what what Paulson trade? Are we talking about? So when
Speaker 1: he's short of the housing, his investors were like, are
Speaker 1: you nuts? What do you what do you think? You
Speaker 1: know that Morgan Stanley doesn't know, so I can only
Speaker 1: imagine the pressures that he was facing. And Michael Barry
Speaker 1: two in the movie The Big Short. In the book,
Speaker 1: of course, I think Joel Greenblatt tried to like take
Speaker 1: his money out and maybe even suit him if I'm
Speaker 1: remembering the story correctly. So there are all sorts of
Speaker 1: pressures when you're managing money. If you have a client
Speaker 1: leave for a specific reason, and then you have a
Speaker 1: second client leave for the same reason, how could you
Speaker 1: not say, hey, wait a minute, maybe this is just
Speaker 1: the tip of the iceberg. Maybe it was all my clients.
Speaker 1: Maybe maybe I better unwind this trade. Even if it's
Speaker 1: it's it's the right thing to have on So I
Speaker 1: think that that adds a whole other layer of complexity,
Speaker 1: Like look at the position that iron Horn is in
Speaker 1: right now. How could he not be affected? How could
Speaker 1: he continue to be objective when he's in the journal
Speaker 1: and all these articles are being written about him. I
Speaker 1: think that makes it enormously difficult. To this point, how
Speaker 1: do you figure out if you make a mistake, you know,
Speaker 1: one of your investments goes pear shaped, or you miss
Speaker 1: out on something. How do you determine whether or not
Speaker 1: it's the market that's right or whether you're right? Am
Speaker 1: I explaining this? Well, I'm probably not. Um, So mistakes
Speaker 1: me different things to different people, Like sitting through a
Speaker 1: thirty decline in the spre could be disciplined to one person, um,
Speaker 1: but that could be a mistake to somebody else where.
Speaker 1: A selling could be a mistake to the person who
Speaker 1: thought they were being disciplined. So the mistake family like,
Speaker 1: like I said, like Jesse Livermore said, mistakes me different
Speaker 1: things to different people. But uh wait, what was the question?
Speaker 1: The question is if you're watching the market. Let's take
Speaker 1: bitcoin as an example, right, and you see it go up,
Speaker 1: you know, in the space of a few months or
Speaker 1: a few years or whatever, but you are absolutely convinced
Speaker 1: that bitcoin eventually is going to fall apart, but you
Speaker 1: miss out on it in the interim and eventually, you know,
Speaker 1: five years later, it does fall apart. Have you made
Speaker 1: a mistake or where you vindicated? And how much of
Speaker 1: these decisions are dependent on market timing? And how are
Speaker 1: you assigning blame or credit either to the investor or
Speaker 1: to the wider market. We're never wrong, just early. So
Speaker 1: Adam Smith wrote about this, his name was George Goodman,
Speaker 1: not really Adam Smith in The Money Game, which is
Speaker 1: my favorite book ever written on investing, and he talks
Speaker 1: about just the psychology of yourself versus the market. So
Speaker 1: I don't know that I have a good answer to
Speaker 1: how do you know if it's a mistake, Because, like
Speaker 1: I said, a mistakes are different things to different people,
Speaker 1: but the market will ultimately I mean, the market is
Speaker 1: the ultimate decision maker. So it's different time frames at
Speaker 1: different objectives and different things to different people. So I
Speaker 1: don't know that there is a aha, now I'm wrong.
Speaker 1: Now I made a mistake type of thing. Let's like
Speaker 1: do a rapid fire discussion of some of the mistakes
Speaker 1: in your book. So looking at the you have a
Speaker 1: John Maynard Keynes who made everyone knows an economist. He
Speaker 1: also traded what was his big mistake? So his mistake
Speaker 1: turned out to be an amazing lesson. So the idea
Speaker 1: there was that he basically wrote the modern monetary system
Speaker 1: and was the father of macro economics investing, and he
Speaker 1: tried to apply that sort of analysis, Hey, what do
Speaker 1: interest rates in Great Britain due to the currency in Argentina?
Speaker 1: And then what does that do to stocks in Bolivian whatever?
Speaker 1: And so he tried to do that and he got
Speaker 1: destroyed like everybody else did during the Great Depression, and
Speaker 1: he totally did a one A D and became a
Speaker 1: bottoms up value investor. So that was a really really
Speaker 1: interesting chapter to to read about it to write, And
Speaker 1: you start out with Benjamin Graham as well, the father
Speaker 1: of value investing, What could he pass really have done wrong?
Speaker 1: So he was very conservative going into the crash of
Speaker 1: twenty nine. I think he had, like, you know, a
Speaker 1: decent amount of cash and preferred stocks or whatever, um.
Speaker 1: But he went into early he thought that stocks were
Speaker 1: incredibly cheap, and they were, but they got incredibly cheaper.
Speaker 1: And so the takeaway for the average reader, and we're
Speaker 1: all average, so to take away for the reader is
Speaker 1: that be very careful. There are limits to value investing.
Speaker 1: Just because something is cheap does not mean that it's
Speaker 1: not cheap for a good reason. Does that mean that
Speaker 1: it's not going to you know, if some of these
Speaker 1: training had a multiple of four times earnings, it's probably
Speaker 1: good reason. It doesn't mean that can't contract even further.
Speaker 1: So this actually sort of comes around to Tracy's earlier
Speaker 1: question about how do you actually know when something is
Speaker 1: a mistake? And I guess my question with Benjamin Graham
Speaker 1: is did he make an analytical error? Because he's considered
Speaker 1: to be a great investors because he's the father of
Speaker 1: value investing, literally wrote the book on it. I think
Speaker 1: he's a mentor to uh Or in buff It is
Speaker 1: that right. He was his teacher, his teacher at Columbia.
Speaker 1: Did he violate some rule of his own or anything,
Speaker 1: or is it just bad timing? No, No, he didn't
Speaker 1: make a mistake that. The point was out that there
Speaker 1: are limits to value, right, like things that look extraordinarily
Speaker 1: expensive can triple in price, and things that look extraorinarly
Speaker 1: cheap can still get cut in half. And there was
Speaker 1: another trapped in the book where a mistake wasn't necessarily made,
Speaker 1: but there was just a takeaway for the reader. So
Speaker 1: Charlie Munger got crushed. He had a really concentrated position
Speaker 1: in this company called blue Chip Stamps. Now that wasn't
Speaker 1: a mistake. It was seventy four bear market. Everybody got
Speaker 1: cut in half. The point was of that was that
Speaker 1: everybody gets crushed sometimes. So they're just market environments which
Speaker 1: you will not win. Right. So it's not necessarily that
Speaker 1: Monger made a mistake in that in that chapter, or
Speaker 1: that Ben Graham made a mistake buying socks. It's that
Speaker 1: stuff happens. So you mentioned Jesse Livermore, who obviously didn't
Speaker 1: really recover from his mistakes, but the vast majority of
Speaker 1: the investors that you're talking about in your book did
Speaker 1: bounce back? How were they able to do that? How
Speaker 1: did they overcome the reputational issues surrounding getting something really
Speaker 1: really wrong, survivorship bias? And I say that only have joking,
Speaker 1: but the truth is, like, I don't have a great
Speaker 1: answer to why did these particular people bounce back, because
Speaker 1: certainly a lot more investors did not bounce back after
Speaker 1: they had difficult periods of time. So I would say
Speaker 1: that there's a lot of combinations of of luck, of skill,
Speaker 1: of perseverance, of metal fortitude, you know, all the sort
Speaker 1: of cliches. Do you have any I mean, you see
Speaker 1: clients at your firm who have probably come with busted
Speaker 1: portfolios and stuff like that. Do you have any sort
Speaker 1: of lessons that you've learned on sort of like how
Speaker 1: to come back in general, how for the average reader
Speaker 1: or the average listener of this podcast after taking a
Speaker 1: huge blow, how to sort of regroup and reset. The
Speaker 1: important thing is that you put yourself in a position
Speaker 1: to not experience a huge blow, because I think coming
Speaker 1: back from it is supremelygult. We blame the market, We say, oh,
Speaker 1: just my luck that I'll do this, and then the
Speaker 1: market will do that, so there's easy ways to avoid that.
Speaker 1: I have no problem with with picking stocks and timing
Speaker 1: the market as a hobby with a small portion of
Speaker 1: your money, because it is a lot of fun. But
Speaker 1: if you're going to do it, do it with you know,
Speaker 1: five percent of your portfolio max or something like that.
Speaker 1: Don't put yourself in a position to be a four
Speaker 1: seller because if you take a six blow to your overall,
Speaker 1: there is no coming back from that. You will have
Speaker 1: developed such a mental scar tissue and animosity towards the
Speaker 1: market that you will never be objective again. I feel
Speaker 1: like if you take five percent of your money and
Speaker 1: trade it or try to market time or pick individual stocks,
Speaker 1: the worst thing that can probably happen is that you
Speaker 1: do really well in that. Yeah, why five percent should
Speaker 1: be Yeah better? I better up? Yeah. Well, the good
Speaker 1: news is that's not likely for most people because and
Speaker 1: I also think another reason why training is a good idea,
Speaker 1: it's because it's a constant reminder of how difficult an
Speaker 1: opponent the market is. And I think that's really the
Speaker 1: main takeaway from this book is, for goodness sakes, how
Speaker 1: can you invest, trade whatever you're doing and not be humbled, like,
Speaker 1: how can you really think that you have an edge? Like,
Speaker 1: come on, it is so difficult and there is constant
Speaker 1: feedback um, and typically you're not winning. So to continue
Speaker 1: to try and adapt or solve the puzzle, it is
Speaker 1: not solvable. So I'm not saying don't trade and don't
Speaker 1: have fun, but be responsible. Should we even try to
Speaker 1: outperform the market in that case, I don't think it's
Speaker 1: a terrible goal, considering the fact that you're probably not
Speaker 1: going to and it's gonna be a nice reminder of
Speaker 1: why you shouldn't try to outperform the market. One more,
Speaker 1: I'm curious about Chris Saka you wrote about in your book,
Speaker 1: and I think he's just a private company tech investor, right, Yeah,
Speaker 1: So just one lesson Tracy, just in terms of outforming
Speaker 1: the market is insanely difficult, but I think people underestimate
Speaker 1: how hard it is to even keep up with the market. Now.
Speaker 1: As far as as far as Kris Saka goes, yes,
Speaker 1: he uh allegedly has the most successful venture capital fund
Speaker 1: of all time. He was a huge investor in Twitter
Speaker 1: and one of the earliest investors in Uber like all
Speaker 1: the unicorns. Basically he was there now, there were things
Speaker 1: that he passed on, and there was some really giant
Speaker 1: missus that he that he passed on, and three of
Speaker 1: those were Airbnb, Snapchat, and drop Bocks, three of the biggest.
Speaker 1: I think they're all still private companies. So the point
Speaker 1: with that is like even the most successful private investor
Speaker 1: of all time said no to these three companies. He
Speaker 1: had an opportunity and these at thanks, but no, thanks.
Speaker 1: So you're not going to invest in everything that's going off,
Speaker 1: I mean, stating the obvious. There will always be something.
Speaker 1: There will always be a distraction out there, whether it's
Speaker 1: bitcoin or the bowl of stocks or whatever. It is, like,
Speaker 1: there will always be something that is going that is
Speaker 1: going parabolic that you're just not investing in. And deal
Speaker 1: with it. Well. On that note, Michael, I think deal
Speaker 1: with it is the perfect way to end our conversation.
Speaker 1: Thank you very much for joining me. Yeah, thanks for
Speaker 1: having me. Thanks Tracy, Thanks Michael. That was great. So, Tracy,
Speaker 1: are you going to tell us what your big disastrous
Speaker 1: investment was. No, I'm going to deflect to another aspect
Speaker 1: of my personal life and just tell you something that's
Speaker 1: tangentially related to Michael's last point, and we were talking
Speaker 1: about whether or not the market is wrong versus the
Speaker 1: actual investor. So many many years ago, my uncle, who
Speaker 1: lives in Austria and has a retail business, got offered
Speaker 1: the sale rights for Crocs in Europe. Do you remember
Speaker 1: Crocs the shoes, Yeah, of course, yeah, they still exist, Yeah,
Speaker 1: but I remember when they were a huge craze. They
Speaker 1: were a massive craze. But anyway, this was before then.
Speaker 1: He turned them down, specifically on the basis that he
Speaker 1: thought the shoes were ugly, so he missed out on millions.
Speaker 1: Joe um and clearly, you know, was he wrong about
Speaker 1: Crocs being ugly? I would say, no, yeah, he wasn't wrong,
Speaker 1: he was just early. Yeah, to use a trader cliche,
Speaker 1: I really liked that conversation, particularly that point about just
Speaker 1: how hard it is to beat the market. So obviously,
Speaker 1: famous investors make mistakes, and they're probably some generalizable lessons
Speaker 1: about the psychology of mistakes and violating your own rules
Speaker 1: and all kinds of stuff like that, but just at
Speaker 1: that point that you're gonna lose if you try to win,
Speaker 1: you're almost certainly going to lose. Everybody loses at times,
Speaker 1: and the idea of beating the market for almost everyone
Speaker 1: is a massive fool's Errand yeah, well not just that,
Speaker 1: but Michael made the point that it's difficult even to
Speaker 1: keep up with the market um, and that is something
Speaker 1: that I think a lot of people underappreciate. And actually,
Speaker 1: on that note, I do have an anecdote from my
Speaker 1: personal investing history, which by the way, is not extensive
Speaker 1: at all and took place before I joined bloomer Um,
Speaker 1: but many many years ago, you know, I invested in
Speaker 1: a dividend fund, thinking this was a short bet at
Speaker 1: the time, and dividend equities are safe, it should be
Speaker 1: fairly straightforward, and a couple of months into it, the
Speaker 1: guy that had been running the fund for decades and
Speaker 1: making a good success of it stepped down and the
Speaker 1: stock immediately plunged about ten or twenty percent something outrageous
Speaker 1: like that. So that gives you an you had the
Speaker 1: right idea. You had the right idea. Dividends if you,
Speaker 1: you know, is a good thesis. And so the fact
Speaker 1: that you you you avoided this key man risk in
Speaker 1: the fund though down. Yeah, it's tough. It's tough anyway.
Speaker 1: I have many, many more examples of things that went
Speaker 1: wrong in my personal portfolio. All right, well, that's actually
Speaker 1: a good excuse to wrap things up here so that
Speaker 1: we can get to me and you chatting off the
Speaker 1: recording and you can tell me more of your stories. Yeah,
Speaker 1: you're right, Joe. Okay, let's leave it there. Let's continue
Speaker 1: this conversation offline. Uh. This has been another episode of
Speaker 1: the All Thoughts podcast. I'm Tracy allow It. You can
Speaker 1: follow me on Twitter at Tracy Alloway and I'm Joe Wisenthal.
Speaker 1: You can follow me on Twitter at the Stalwart, and
Speaker 1: you should follow our guest Michael Batnick, the author of
Speaker 1: the Best Investors in Their Worst Investments, on Twitter at
Speaker 1: Michael Batnick, and follow our producer to for Foreheads at
Speaker 1: Foreheads t, as well as the Bloomberg head of podcast,
Speaker 1: Francesco Levie at Francesca Today. Thanks for listening.