Podcast Summary
Lessons from Legendary Investors: Even the most successful investors face uncertainty and make mistakes, emphasizing the importance of due diligence, emotional control, and learning from experiences.
Learning from this episode of the Richer, Wiser, Happier podcast is that even the most successful investors face uncertainty and make mistakes. Host William Green reflects on insights from interviews with four legendary investors, Howard Marks, Bill Miller, Francois Rochon, and Joel Greenblatt, who share their experiences and lessons on navigating an uncertain world and managing emotions in investing. Joel Greenblatt, a remarkable investor with legendary returns, shares his experience of a seemingly risk-free investment that turned sour, emphasizing the importance of due diligence and being prepared for the unexpected. Green encourages listeners to learn from these insights and apply them to their own investing and life, as they explore the question of how to invest in a successful and truly resilient way in an unpredictable world.
Unexpected events can impact investments: Learn from experiences, be prepared, and diversify to minimize potential losses from unexpected events
Even with thorough planning and careful consideration, unexpected events like natural disasters or global crises can significantly impact investments. The speaker, who bought Florida Cypress Gardens as a young entrepreneur, learned this lesson the hard way when the property fell into a sinkhole just before the deal was set to close. Despite the financial loss, he emphasizes the importance of learning from experiences and being prepared for the uncertainty that comes with business and investing. Joel Greenblatt, another investor, shares a similar sentiment, having experienced the unexpected closure of businesses during the COVID-19 pandemic. Both investors emphasize the importance of diversification and being prepared for the unexpected to minimize potential losses.
Unexpected events can have significant impacts on life and investing: Stay humble and cautious as life and investing are full of uncertainty and unexpected events can have significant impacts
Life and investing are full of uncertainty. Unforeseen events, like a pavilion falling into a sinkhole or a movie changing fashion trends, can have significant impacts. These events are not always within our control, and it's essential to remember that sometimes, things just come out of left field. As the legendary investor Peter Lynch learned, even companies with record revenues can go bankrupt unexpectedly. It's crucial to be aware of the uncertainty and to approach life and investing with a healthy dose of humility and caution. As the Athenian playwright Euripides once said, "how can you consider yourself a great man when the first accident that comes along can wipe you out completely?" So, remember to beware of ending up with an "earful of cider," and always keep in mind the unexpected twists and turns that life and investing may bring.
Emphasizing survival and diversification: In an uncertain world, spread risk across various assets, asset classes, and countries to survive potential disasters, mistakes, or misanalyses.
In an uncertain world, it's crucial to focus on survival and avoiding ruin. This means positioning yourself to withstand potential disasters, mistakes, or misanalyses. Diversification is a key strategy for achieving this, as it spreads risk across various assets, asset classes, and even countries. It's important not to keep all your eggs in one basket, as anything can happen. Howard Marks emphasizes the importance of not pushing the limits too far and acknowledging the unknown, which includes natural disasters, cyberattacks, wars, pandemics, and even con artists like Madoff. By recognizing the importance of survival and diversification, we can better navigate the unpredictable world around us.
Preparing for the unpredictable future: Set aside cash, diversify investments, live within means, avoid excessive leverage, be open to opportunities, learn from mistakes, and strike a balance between caution and opportunity.
It's essential to prepare for an unpredictable future without becoming overly cautious or paranoid. This means setting aside cash, diversifying investments, living within means, and avoiding excessive leverage, while also being open to opportunities and learning from mistakes. As Howard Marks said, "risk avoidance becomes return avoidance" if taken to an extreme. It's crucial to strike a balance between caution and opportunity, and to remember that even the greatest investors make mistakes. The ability to learn from them and move forward with self-compassion is an essential aspect of resilience. In essence, focusing on what we can control and maintaining a positive outlook on the future while acknowledging its uncertainties is the key to navigating it successfully.
Emotional resilience and informed decisions in investing: Diversify, live within means, set aside a cushion, learn investing rules, build a network, and use reliable tools to become an emotionally resilient investor.
Successful investing requires emotional resilience and the ability to make informed decisions, even during turbulent markets. Diversification, living within means, setting aside a cushion, and learning the rules of investing can help mitigate risks. However, emotions can still get in the way. Investors like Howard Marks and Charlie Munger seem to have a natural ability to stay calm during market volatility, but for the rest of us, it may require intentional efforts. Building a strong network of like-minded investors, such as through a mastermind community, can provide valuable support and insights. Additionally, having reliable tools, like Yahoo Finance, to stay informed about market trends and news can help reduce anxiety and improve decision-making. Ultimately, becoming an emotionally resilient investor takes time, effort, and a commitment to continuous learning.
Managing Emotions in Investing: Successful investing requires accepting losses, adjusting quickly, learning from mistakes, understanding investments, and maintaining confidence in your portfolio.
Successful investing involves taking calculated risks, which can lead to significant losses. However, it's important to keep perspective and remember that setbacks are a natural part of the process. As the investor Joe shared, even those who are experienced and successful in the market feel the emotional impact of losses. But, it's crucial to adjust quickly, learn from mistakes, and look for new opportunities. Joe emphasized the importance of understanding what you own and having a high hurdle for what makes it into your portfolio. By doing so, you can better manage emotions and maintain confidence in your investments. Additionally, having a concentrated portfolio can increase the potential for greater returns, but also heightens the risk of larger losses. Ultimately, being able to handle the emotional side of investing is essential for long-term success.
Understanding the temperamental advantage of great investors: Great investors like Howard Marks, Joel Greenblatt, Charlie Munger, and Warren Buffett have a temperamental advantage, allowing them to stay calm amidst market volatility and find mispriced opportunities.
Successful investing requires a temperamental advantage and the ability to remain unemotional amidst market volatility. Great investors like Howard Marks, Joel Greenblatt, Charlie Munger, and Warren Buffett have this ability to stay calm and wait for mispriced opportunities. However, it's essential to have a disciplined and logical way to value businesses before attempting to invest. As Joel Greenblatt emphasizes, if you don't know how to value a business, you shouldn't be playing the game. The essence of investing, according to Greenblatt, is understanding that stocks represent ownership shares of businesses and trying to buy them for less than they're worth. Ignorance of this fundamental concept can lead to dangerous decisions, as seen in recent trends like high-tech stock mania and cryptocurrency speculation.
Staying disciplined and focused on long-term potential: Successful investing requires a solid understanding of a business's value, patience, and discipline to wait for market recognition. Don't let emotions sway decisions, focus on long-term potential.
Successful investing requires a solid understanding of the fundamental value of a business, buying at a discount, and the patience to wait for the market to recognize that value. This process can take years, and investors may experience emotional challenges during market downturns. Legendary investors like Fred Martin and Bill Miller have emphasized the importance of staying disciplined and not letting fear and anxiety drive decisions. As Bill Miller shared, he had large personal investments in Amazon and Bitcoin during market downturns, but he didn't let emotions sway him. Instead, he focused on the long-term potential of these investments and the importance of staying committed. Additionally, J.P. Morgan's advice to a distressed investor to focus on sleeping rather than losing sleep over market losses highlights the importance of maintaining a long-term perspective and not letting emotions dictate investment decisions.
Understanding Risk Tolerance and Emotional Resilience: Acknowledge potential bad outcomes, be realistic about emotional resilience, and diversify investments based on risk tolerance.
It's crucial for investors to understand their own risk tolerance and emotional resilience when it comes to investing. Howard Marks emphasized the importance of acknowledging the possibility of bad outcomes and being realistic about one's ability to withstand them. Investors like Bill Miller and Joel Greenblatt, who have high risk tolerance, can handle extreme volatility due to their temperament and understanding of the value of their investments. However, for those with lower risk tolerance, finding a level of concentration and diversification that allows them to sleep peacefully is essential. Francois Rochon, for instance, feels 25 stocks is enough for him, while Fred Martin prefers 45 to 50 stocks. Ultimately, it's essential to be aware of one's vulnerability and seek a balanced approach to investing that aligns with one's risk tolerance and emotional resilience. Sir John Templeton's advice of owning a minimum of 5 funds exposed to different areas of the financial markets can serve as a helpful reminder for investors to stay humble and diversified.
Maintaining a Disciplined Approach to Investing: Successful investing requires understanding risk tolerance, staying calm during market fluctuations, and focusing on fundamental stock value to resist emotional biases.
Successful investing often requires overcoming emotional biases and maintaining a disciplined approach. The speaker shares his personal investment strategy, which includes a mix of index funds, concentrated hedge funds, and individual stocks, as well as Berkshire Hathaway. He emphasizes the importance of understanding one's own risk tolerance and being willing to survive mistakes. Howard Marks, a renowned investor, also emphasizes the importance of staying calm and rational in the face of market fluctuations. Marks notes that human emotions often lead investors to buy when they should be selling and sell when they should be buying, and that great investors are able to resist these trends. Templeton, another legendary investor, advised focusing on the fundamental value of stocks rather than market trends to avoid being swept up in the madness of crowds. In summary, maintaining a disciplined, value-focused approach and resisting emotional biases are key to successful investing.
Looking for opportunities in downtrodden asset classes: Successful investors buy assets on the cheap during market downturns, holding on despite emotional challenges, to reap substantial rewards.
Successful investors like Howard Marks, John Templeton, and Warren Buffett are known for their contrarian approach to the market. They look for opportunities in asset classes that have performed poorly in the past, believing that the problems are temporary rather than permanent. This strategy allows them to buy assets on the cheap when others are despondent, leading to significant rewards. Although it's emotionally challenging, the key lesson is to avoid panic selling during market downturns and instead, hold on to investments. This approach was exemplified by Templeton's investment in South Korea during the Asian financial crisis. By focusing on pockets of "gloom and doom," these investors are able to find enticing bargains and ultimately, reap substantial rewards. Even if we can't buy at the point of maximum pessimism, we should avoid selling during times of market turmoil. This valuable lesson has helped many investors, including the speaker, during various crises.
The importance of intellectual humility in making investment decisions: Approach financial decisions with a balanced perspective, combining expertise and humility. Be open to learning from others and continuously seek knowledge to make superior investment decisions.
It's essential to approach financial decisions with a balanced perspective, combining both expertise and humility. As heard in the conversation between Howard Marks and his son, having deep knowledge in a specific area is crucial for making informed investment decisions. However, it's also important to acknowledge the limitations of that knowledge and be open to learning from others. In the context of cryptocurrencies, Marks initially held a negative view but was challenged by his son, who pointed out his lack of understanding in the field. This experience serves as a reminder for the importance of intellectual humility and continuous learning in making superior investment decisions. Additionally, NerdWallet's expertise in helping individuals find financially smarter products highlights the value of seeking trusted sources for financial advice.
The Importance of Humility and Continuous Learning for Successful Investing: Successful investors acknowledge their limitations, learn continuously, and maintain an open mind to new ideas. Humility and patience are essential qualities for long-term success.
Humility and a willingness to learn are essential qualities for successful investors. Howard Marks, an experienced investor, emphasizes the importance of acknowledging one's limitations and being open to new ideas, even if they contradict one's current beliefs. Marks shares that he is agnostic about cryptocurrencies and doesn't have a strong opinion on their future, but values the mindset of his son, who understands the technology better. This discussion highlights the importance of continuous learning and the potential for brilliant people to hold opposing views. Additionally, it's crucial for investors to have firm convictions while maintaining an open mind. As Munger mentioned, Buffett's success comes from his continuous learning and adapting to new situations. Ultimately, it's important to remember that we are probably wrong about most things and should respect other people's views. Here's a longer excerpt from an episode with Francois Rochon, another great investor, discussing the importance of a long-term perspective and patience.
The power of optimism in business and investing: Unwavering optimism, grounded in data and history, is crucial for success in business and investing. The human mind, which drives innovation and progress, is the source of solutions to current challenges like inflation, market downturns, and geopolitical crises.
Learning from this discussion with Francois Rousseau is that unwavering optimism is a crucial ingredient for success, particularly in the world of business and investing. Francois, who has outperformed the market significantly over the last 30 years, attributes his success not only to his stock-picking abilities but also to his optimistic outlook on life and business. He believes that the human mind, which drives innovation and progress, is the fountainhead of improvements and advances. Despite current challenges such as inflation, market downturns, and geopolitical crises, Francois remains confident that the human race will continue to find solutions to these problems through ideas and innovation. He emphasizes that optimism is not a naive impulse but is grounded in a data-driven understanding of history and human nature. By staying optimistic, we can put our minds to finding solutions and continue to move forward, ultimately improving our standard of living and addressing major issues like climate change and inflation.
The sun always rises again: Historically, economic downturns are temporary and followed by growth, driven by intrinsic value growth, productivity increase, and human ingenuity.
Throughout history, there have been numerous periods of economic hardship and market corrections, followed by significant rebounds and growth. As demonstrated by the decrease in extreme poverty and increase in average standard of living since the 1850s, as well as the historical market data, these downturns are temporary, and the sun always rises again. This optimistic perspective, rooted in the fundamental forces of intrinsic value growth, productivity increase, and human ingenuity, is not naive but rather a realistic understanding of the nature of human society and its ability to overcome challenges and continue to progress. It's essential to remember this perspective during difficult times and to focus on the overall balance of good that has come from human history. Despite the prevalence of negative news and criticisms of business and capitalism, it's important to maintain faith in the future and the ability of free enterprise to drive a better future.
Focus on human innovation and historical economic growth: Despite challenges, have faith in human ingenuity and the historical trend of economic growth for investment opportunities
Despite the dire warnings and depressing news about the environment, political mayhem, and economic instability, it's important to have faith in human ingenuity and innovation to tackle these problems. Francois Rochon's rational analysis and Warren Buffett's historical data demonstrate that the stock market and the economy have consistently rebounded from crises and challenges, making it a good time for investment. The babies being born today are the luckiest generation in history due to the significant increase in American GDP per capita since the 1930s. The trend of working more efficiently and producing more is certain to continue, and most children are doing well. So, instead of being overwhelmed by the negative news, it's essential to focus on the power of human innovation and the historical evidence of economic growth.
Investing and Living Wisely with Renowned Thinkers: Listen to The Investors Podcast Network for valuable insights from extraordinary thinkers on investing and living wisely, featuring interviews with Joel Greenblatt, Howard Marks, Bill Miller, Francois Rochon, Ray Dalio, Guy Spier, and Tom Gayner.
Despite the vast wealth accumulated by individuals like John D. Rockefeller in the past, today's living standards in areas such as transportation, entertainment, communication, and medical services surpass what they could achieve. Warren Buffett, a renowned investor, acknowledges the challenges and risks ahead but remains optimistic about the continuation of progress. The speaker encourages listeners to maintain a positive outlook and keep persevering. The podcast, which features interviews with extraordinary thinkers like Joel Greenblatt, Howard Marks, Bill Miller, and Francois Rochon, offers valuable insights into investing and living wisely. The guests share ideas selflessly, making the podcast an invaluable learning resource. Upcoming episodes will feature interviews with Ray Dalio, Guy Spier, and Tom Gayner. Follow the speaker on Twitter @williamgreen72 and subscribe to The Investors Podcast Network for more.
