Even The World's Greatest Investors Have Made Horrible Mistakes

Episode Summary

Executive Summary: The episode centers on Michael Batnick’s book about the biggest mistakes made by legendary investors, arguing that even elite investors are human, prone to bias, FOMO, overconfidence, and public-posturing errors. The hosts and guest use examples from Buffett, Ackman, Livermore, Bogle, Druckenmiller, Graham, Keynes, Munger, and Saka to show that investing is hard, humility matters, and avoiding catastrophic risk is more important than chasing brilliance.

Main Topics: Why study investors’ mistakes (Priority: 5/5): The conversation frames the book as a corrective to financial media’s tendency to lionize winners and ignore failure, with the goal of extracting practical lessons from public errors. Biases and psychology in investing (Priority: 5/5): Examples like availability bias, FOMO, ego, and public commitment explain why even elite investors repeat avoidable mistakes and struggle to change their minds. Public calls, Twitter, and reputation risk (Priority: 4/5): The speakers discuss how broadcasting positions can trap investors in bad theses, intensify pressure from clients or followers, and distort decision-making. Mistakes by famous investors (Priority: 5/5): The episode reviews specific missteps by Buffett, Ackman, Druckenmiller, Livermore, Bogle, Graham, Keynes, Munger, and Chris Saka, showing that no strategy is immune. Timing versus being wrong (Priority: 4/5): The discussion distinguishes between being fundamentally wrong and merely early, emphasizing that the market, not the investor, ultimately decides outcomes over time. Risk management and position sizing (Priority: 5/5): The guest argues for limiting speculative activity to a small portfolio sleeve, writing down trade rationales, and avoiding large drawdowns that can permanently impair judgment. Humility and survivorship bias (Priority: 4/5): The episode concludes that beating or even matching the market is extremely difficult, and survivors of major mistakes may owe as much to luck and persistence as to skill.

Key Arguments: Great investors make mistakes too, and studying those errors is more instructive than only celebrating wins. Availability bias can make investors overgeneralize from a previous successful trade, as in Buffett’s Dexter Shoe deal. Publicly declaring a position can create ego and commitment bias, making it harder to reverse course after new information emerges. The fear of missing out is one of the most dangerous forces in markets, affecting professionals and institutions as much as retail investors. Managing money adds pressure from clients and headlines, which can force premature exits even from good trades. The most important defense is not perfect forecasting but limiting downside through position sizing, discipline, and written trade journals. Being early is not the same as being wrong; time horizon matters, and the market is the final arbiter. Even the most successful investors miss huge winners, proving that no one can capture every opportunity.

Data Points: Stock Movers reports: 5 minutes or less - Promotional intro for Bloomberg’s stock audio product. Bloomberg journalists and analysts: 3,000 - Promotional intro claims stock news is backed by Bloomberg’s global reporting network. Dexter Shoe mistake value: $350–$400 million originally; now worth about $7 billion - Buffett bought Dexter Shoe with Berkshire stock, which became enormously expensive in hindsight. Bill Ackman Herbalife presentation: 4 hours - Used as an example of publicly committing to a stock thesis and then reversing it. Druckenmiller’s VeriSign loss: about $3 billion in 6 weeks - Illustrates FOMO and late-cycle participation in the late 1990s market. Livermore short on the market: $100 million - Referenced as the profit he made shorting during the Great Depression before later being hurt by early bullishness. Portfolio sleeve suggestion: 5% max - Guest advises limiting stock-picking or market timing to a small portion of total assets. Potential drawdown example: 60% - Guest warns a large loss can create lasting psychological damage and make recovery difficult. Broad market decline example: 35% - Used to show that discipline for one investor may look like a mistake to another. Charlie Munger position: Blue Chip Stamps - Example of a concentrated position hurt by the 1973–74 bear market.

Pivotal Quotes: "the mistake family is so large that you think you've made it all, then you know, one is right around the corner" — Michael Batnick: Explaining why investors should expect errors and avoid overconfidence. "Do not talk to friends and family about your newest stock pick" — Michael Batnick: Advice drawn from Bill Ackman’s public Herbalife episode and the dangers of public commitment. "We're never wrong, just early." — Michael Batnick: Describing the common investor claim when a thesis eventually proves right after a painful interim period.

Implications: Listeners should expect mistakes, size risks modestly, and avoid public overcommitment. The episode’s broader lesson is that humility, journaling, and patience matter more than constant prediction, because even elite investors cannot beat markets consistently.