Big MIstakes (EP.32)

Episode Summary

Executive Summary: This episode centers on Michael Batnick’s new book, Big Mistakes, and a broad discussion of investing lessons, market behavior, and technology trends. The hosts reflect on research, concentration risk, value versus momentum, Mary Meeker’s internet trends, hedge fund blowups, and listener questions about diversification, expertise, and long-term investing.

Main Topics: Michael Batnick’s book Big Mistakes (Priority: 5/5): The episode opens with a discussion of the book’s premise, research process, favorite chapters, and the emotional challenge of writing and editing it. Batnick explains why focusing on investors’ worst decisions is more useful than celebrating their best ones. Behavioral investing lessons from famous investors (Priority: 5/5): The hosts highlight Mark Twain as a memorable case study of behavioral mistakes, missed opportunities, and poor judgment, and mention several other investors that nearly made the book but were cut for length. Value and momentum research post (Priority: 5/5): They discuss a long-form research piece by Jesse Livermore, Patrick O’Shaughnessy, and Chris Meredith on how value and momentum work, emphasizing decomposition, multiple expansion, and the role of investor mistakes. Mary Meeker’s internet trends deck (Priority: 4/5): The conversation reviews selected charts on smartphone adoption, internet penetration, voice recognition, Facebook monetization, tech CapEx/R&D, e-commerce, savings/debt, healthcare costs, and Slack adoption as signals of technological and economic change. Hedge fund losses and fixed-income risk (Priority: 4/5): They examine a Bloomberg story on Field Street Macro’s large losses from Italian bond yield moves and contrast that with Bill Gross’s smaller drawdown, using it to argue that many so-called hedge funds are actually making directional bets. Listener questions on diversification and long-term investing (Priority: 4/5): The hosts advise on a concentrated Exxon position held by a 92-year-old, caution against assuming an industry edge based on one’s profession, and define long-term investing as deeply tied to personal time horizon and survival. Recommendations and media diet (Priority: 2/5): The episode closes with podcast, book, and audiobook recommendations, plus a reflection that stepping away from news/social media can improve wellbeing.

Key Arguments: Batnick’s book works because it flips the usual investing-book formula and studies failures instead of triumphs, revealing recurring behavioral mistakes among elite investors. Mark Twain is a compelling example because his mistakes were not intellectual but behavioral: distraction, overconfidence, and inability to stop making bad bets. The value premium is real but depends on investors overreacting and mispricing cash flows; it may persist, though it could become harder to exploit as markets get better at pricing. Momentum and value can both work because they exploit different errors at different points in the cycle; diversification across factors matters even when the ideas seem contradictory. The hosts argue that many hedge funds are not hedging at all; they are making leveraged directional macro bets, which can lead to huge losses when the view is wrong. A concentrated stock position in old age should be evaluated differently from one in youth because time horizon and tax costs matter more when there is less time to recover. Working in a field does not automatically create investing edge; narrow expertise can increase overconfidence and can still miss the broader market context. Technology is accelerating information flow and potentially market reactions, but retail investors now account for a much smaller share of trading than in past decades. Long-term investing should be defined by personal financial needs and lifespan, not by slogans; money needed within five years generally should not be in equities. Mary Meeker’s data show that large tech companies are spending heavily on future growth rather than simply buying back stock, suggesting continued reinvestment capacity.

Data Points: Number of investors featured in Big Mistakes: 15+ Batnick himself - The book includes more than 15 investors plus a chapter on Batnick’s own investing mistakes. Time to write each chapter: About 3 weeks - Batnick described the writing pace for the book chapters. Global internet users: About 3.6 billion - Mary Meeker’s deck showed global internet usage at more than half the world’s population. Internet penetration growth: 24% in 2009 to 49% in 2017 - The hosts cited Meeker’s chart showing rapid increase in internet access. Smartphone adoption: Nearly 1.5 billion devices in 6 years - A chart showed smartphones going from zero to near-saturation very quickly. Facebook annualized revenue per daily user: $16 in Q1 2015 to $34 today - The hosts highlighted how Facebook monetization per user roughly doubled. Top tech companies’ annual RD and CapEx: $77 billion - Amazon, Google, Intel, Apple, and Microsoft combined spending. Tech CapEx and RD as % of revenue: 13% in 2007 vs 18% today - Used to show rising reinvestment by large technology firms. E-commerce share of retail: Around 13% to 14% - The deck showed online retail still a minority of total retail activity. Personal savings rate: Down from about 12% to 3% - A long-run chart showed household savings deteriorating. Debt to annual income: Up from about 15% to nearly 25% - The hosts cited rising consumer leverage over time. Healthcare premium share: 14% to 18% - Share of income devoted to health insurance premiums increased. Healthcare premium dollar amount: About $2,000 to almost $7,000 - Illustrates the absolute increase in healthcare costs. Slack daily users: Over 10 million - The hosts praised Slack’s growth and utility in workplace communication. Email usage decline in Slack-using companies: 32% decline - This was mentioned as a survey result, with a caveat about survey reliability. Amazon short interest in 1998: 8.7 million of 11 million float shares shorted - Mary Meeker’s historical anecdote about Amazon when skeptics were extremely bearish. At Home price-to-sales ratio: $450,000 implied from $5.6B market cap / $12M revenue; stated P/S 453x - Used as a reminder of extreme dot-com valuation excess. Field Street Macro loss: 50% - The hedge fund suffered large losses from Italian bond yield exposure. Bill Gross fund drawdown: 3% - Compared with the much larger macro fund loss.

Pivotal Quotes: "You might buy a particular stock after it doubled, only to see it head south after your purchase, or worse, you will throw in the towel on a loser, only to see it double in the next 12 months." — Michael Batnick (reading his book preface): Quoted while discussing the typo issue and the book’s central behavioral investing message. "The lesson for investors is that if you want to find companies that are going to experience strong upcoming growth in their businesses, you should look for companies with strong recent returns, not companies trading at high valuations." — Referenced from the value/momentum research discussion: Summarizes the momentum finding highlighted by the hosts. "If I could sum this up, the 20,000 words up in just a few minutes, this is what I took out of it." — Ben Carlson: Introduces his distilled interpretation of the long value/momentum research piece.

Implications: The episode reinforces that successful investing depends on humility, behavior, and time horizon more than confidence or sector knowledge. It also suggests tech is reshaping markets and daily life, but disciplined diversification and skepticism remain essential.