Animal Spirits Podcast - Re-Kindled: Where Are the Customers' Yachts (EP.85)

Episode Date: June 3, 2019

Re-Kindled is a show where Michael and Ben discuss some of the best finance books ever written. On this episode of Re-Kindled Michael and Ben go through some of the lessons, passages, and funny anecdotes from Where Are The Customers' Yachts by Fred Schwed. Find complete shownotes on our blogs... Ben Carlson’s A Wealth of Common Sense Michael Batnick’s The Irrelevant Investor Like us on Facebook And feel free to shoot us an email at [e-mail] with any feedback, questions, recommendations, or ideas for future topics of conversation.       Learn more about your ad choices. Visit megaphone.fm/adchoices

Continue to repeat this operation as long as you live, and you'll have the pleasure of dying rich. If you'd have bought those two weeks later, you'd have probably made a lot of money. Damn it. I should have listened to my own charting. That was perfect. That was like the mic drop right there. Welcome to Rekindled with Michael and Ben. A listener asks, I wanted to hear your thoughts on how relevant old readings are today. More specifically, do you think there's anything to be gained from reading security analysis or the intelligent investor? I read only the latter, but felt it was almost a waste of time as most of the information

in it was irrelevant in today's market. Yet I feel as if the zeitgeist of value investors is that these books are the only things to be read in order to understand value investing. Interested to hear your guys' thoughts on this. So on today's episode, Ben and I are going to talk about, and it's going to be a lot of reading, unfortunately, because that's just sort of the nature of this book. We're going to talk about Where the Customers Yachts by Fred Schwed, which was initially wrote in 1940. So to answer the question, I don't know that any book can teach you how to

better analyze the stock market or how to better cope with the emotions of winning and losing money. But what it can do is make you more aware of human behavior, again, even though it might not necessarily mitigate your own. But why do you pick this up? I think I'm fumbling a little but I thought I was going to be good, but yeah, you got a good, you're off to good start. I was just writing a piece on this. And I think one of the things that people get wrong about studying financial history, which I think is one of the most important variables to being a good investors, understanding financial history. But it's not about understanding how to predict the next cycle or what stocks are going to do the best or using a back test. Obviously, that stuff

can help set some scenarios in place and give an idea of how the markets typically work. But it's understanding that there are all these booms and busts and that human nature is the one constant. And I was shocked rereading this book. I think this is the second or third time I've reread this book. And it's probably one of the funniest finance books I've ever read, which admittedly is a short list of humorous finance books. But this thing held up extremely well for being written in 1940. There was one or two chapters where some of the stuff just didn't make sense in terms of the types of funds and securities use anymore. But his stuff is, this is a timeless book.

Yes. And so getting to the human nature part, one of the key takeaways from reading all of these old books is that human nature never changes. And more importantly, all of us are human beings. And I don't care how many psychology books you read or how many times you read reminiscent of a stock operator. If you think that you're able to read these books and rise above your own self, you are delusional. So I think that reading these books should, if nothing else, teach you. you to be extremely humble in how you evaluate your own abilities. So like Ben said, this book was written in 1940 originally. And this, and he did an update in 1955, which he called the bull market edition. Can you imagine if this guy had a podcast? Like this, his commentary on the market like puts anything I've ever done to shame because I wish that I could write as good as this guy. He is, he is so good at explaining and poking fun at the way that the markets and the people in the markets work, it's really fascinating. So for some context, in 1940, the Dow was still 60% below its 1929 high. And in 1955, it had just surpassed the 1929 high a year earlier. So why don't we

start out with some stuff in the introduction? He wrote, some Wall Street men managed to shed these dreams given sufficient years, but the ultimate dream they almost never shed that there is a secret, meaningful and predictable in the rise and fall of financial enterprises, that a close study of this and that will prove something, that it will tell the initiate when there will be a rally or give a speculator a better than even chance of making a killing, or guarantee for an estate a safe 4% for a few generations. All these things are demonstrably unpredictable. You can easily check this from your own experience or by other people's experience or by looking over the factual matter in the indignation books. But this cup of tea is too bitter for a

Wall Streeter. He obviously had things figured out, I think, far before anyone else about how things worked. And I think for a lot of people, it takes, I don't know if it's always a light bulb moment, but to figure out, like, how things actually work instead of just thinking that everyone is so smart in this game and that they've got it all figured out. And I think that's kind of the way that I went into the investment industry as like, oh, these people are really smart. They must know exactly what they're doing. But he obviously sees the world the BS. And at the very beginning of the book, And this is, the copy that I'm reading is, it's got an introduction by Jason Zweig, which is great, because this was an updated. And Michael Lewis, too, right?

Yeah, Michael Lewis and Jason's Wye, because they did a few new versions of this. And so the story behind why is it, why it's called, where are the customers yachts, for those who don't know? He tells the story, once in the dear dead days beyond recall, an out-of-town visitor was being shown the wonders of the New York Financial District when the party arrived at the battery. One of his guys indicated some handsome ships riding at anchor. He said, look, those are the bankers and brokers yachts. Where are the customers yachts, asked the naive visitor. And Zweig actually said in the introduction that, I guess that through a telephone game or something, that story got misconstrued and it was actually something a little bit different or took place

somewhere else. But that's kind of the idea, which is just a perfect. Do you think that story actually happened? One of these other things? Or is that just a old wives tale? It doesn't really matter. No, that's true. It's, I mean, it's so perfect. So he obviously understood the psychology very well. He wrote, the broker influences the customer with his knowledge of the future, but only after he has convinced himself. And this goes back to a great quote from Richard Feynman, who said, the first principle is that you must not fool yourself and you are the easiest person to fool. So I think some of the most successful investors are the ones that are least self-delusional. And I obviously would not put myself in the category

of a very successful investor, but I think that I was very, very lucky to not be born 40 years ago because I think I easily could have been one of those people that fooled themselves. But the luck that I came across was stock tweets and Twitter. Early on when I was just getting interested in the market, these tools were available to me. And I would follow people who seemingly knew something. And I would follow them every day. And I had a mental record of what they were saying. And it just didn't seem to check out. And it really didn't take long for me to realize, oh, wait a minute, that guy's full of shit. Hey, so is that guy. That person's lying. Hey, so that person's lying too. So what I did to guard myself from fooling myself was I kept a diary and I would write down

every trade that I did and why I was doing it and every few months I would go back and read it. And I don't think that you could do that for very long, unless you're incredibly skilled. I don't think you could do that for very long and continue to do it because it becomes so obvious so quickly that you don't know what you're doing, at least in my case, I didn't know what I was doing. I'm just, I've got this mental image in my head of you with the Sarah Jessica a Parker meme from Sex and the City writing your diary every night. Anyway, for me, the big thing for me, you kind of found it by watching other investors on these social platforms. For me, the first, I don't know, 12 to 13 years of my career was spent

talking to professional money managers. And that was a big part of my job, is doing, performing due diligence on money managers and having quarterly meetings with them and reading their updates. And after getting over the initial wave of being impressed for the first few years in the industry, I started really following these managers across all types of different investing. Stocks, bonds, venture capital, private equity, hedge funds, all this stuff. And I realized like all these people are supremely educated. They're all come from like Ivy League schools. They all had great track records. And still so many of them were either full of crap or just couldn't beat the market or couldn't do what they intended to do.

And that it just made me realize, like, this game is so much harder than people make it out to be. Yeah, I think one of the things that happens, and I've said this before, is that when you're on social media, you can be fooled into thinking that you're smarter than a lot of people. And that might be the case. But you're not competing against those people. They're not the ones controlling the money. Right. Right. In this book, I don't know if you notice this, he throws a few barbs, a few sub-tweets, if you will, at J.P. Morgan. And at Jesse Livermore. Okay. I must have missed that. Hit me with it. So in the first chapter, financiers and seers, he's talking about bankers. And he says, in times of stress, when everybody needs money, he strives to avoid lending to anybody, but usually makes an exception of the United States government.

Ah, okay. That's the J.P. Morgan sub-tweet. Yep. So he had a quote in the introduction that I kind of assumed that it was a newer one, but he talked about, he said, a bull makes money, a bear makes money, but a hog never makes anything. I never realized that quote was that old. I kind of figured that was a more modern quote. So where are the customer's yachts? I guess another reason for this, for the name of the title, is that advisors or brokers used to be called customers man.

And there's like a footnote where he says, and again, this was in 1940 or this might have been an added in 1955. A new name is being sought for customer's man. As this is being written, registered representative is being considered. But I do not think it will be retained simply because registered representative is too much of a mouthful. And we know that it definitely did take, take on. Yeah. He has another piece in here in the first chapter in the introduction about asking about the future of what's going to happen. And he says, now if you do someone the honor of asking him a difficult question, you may be assured that you will get a detailed answer.

Rarely will it be the most difficult of all answers? I don't know. This guy was like the first blogger, financial blogger, right? He kind of had it before any of us. The proper activity of a customer's man is to keep his clients informed as to what is happening and what has happened. To these services, he insists on adding, as I have complained already, his notions of what is going to happen. Yeah.

He, like, saw through all the BS way before anyone else. This is so good. So he, another one, he says, your average Wall Street are faced with nothing profitable to do, does nothing for only a brief time. Then suddenly and hysterically, he does something, which turns out to be extremely unprofitable. He is not a lazy man. And this is like the perfect explanation for a career risk, right?

He's saying, like, you can't do nothing because people think they're paying you to do something. He actually wrote directly about career risk later on. He said something similar. But it is pretty wild because, again, how little things change. This was written, I don't know, 80 years ago, 50 years ago, whenever, 60 years ago, whenever this edition came out, some statisticians have to write weekly and even daily market letters. This is a tough way to make a living. It not only requires the constant making of predictions, but it requires putting the predictions down on paper for anyone interested to check up on.

imagine this guy was was writing today about financial media right how much stuff there is today and we're part of that too we produce a ton of content but yeah it's hard to imagine like how much little data and analysis there was back then and he was already saying there was too much now you you know if he if he had a Twitter account it would be sort of like Jonathan Clements yes yeah every like every time there's it's very thoughtful and it sort of makes you think now you when we were reading this, you sent me, you said, read pages 36 and 37. That's where I am now. These are so good.

And he, I'm going to let you discuss this one because you're more attuned to that, but he does not take kindly to technical analysis. We'll put it that way. No, he doesn't. Where to begin? History does in a vague way repeat itself, but it does slowly and ponderously and with an infinite number of surprising variations. And this is my favorite.

A busted chart reader, however, is never. apologize about his method. He is, if anything, more enthusiastic than the sovereign devotee you may run across. If you have the bad taste to ask him how it happens that he is broke, he tells you quite ingenuously that he made the all too human error of not believing his own charts. That was perfect. That was like the mic drop right there. I love that quote. So the other one, he said, damn and I should have listened to myself. He says there have always been a considerable number of pathetic people who busy themselves examining the last thousand numbers which have appeared on a roulette wheel in search of some repeating pattern. Sadly enough, they have usually

found it, which is like the data mining. Like this guy, he kind of had these behavioral things way before anyone else. I guess maybe him and Ben Graham. He would love the odd stats account. So one of the things that I found interesting about this is I did some searching and I couldn't find another book by him. So I'm thinking, how does this guy... He wrote children's books. Yeah, he wrote children's books and he wrote his own memoir. So I wrote, I reached out to someone who I know who reads way more than I do. And he said, yeah, apparently this guy just decided, I don't really want to do much with my life. Like, I'm a great writer, but I would rather just relax and party and not do anything. So he just decided. Party? Yeah. I think he was just like a guy who liked a drink and whatever. So he. Man, I would love to party with a French wedding. So he rolled like one of the best finance books ever and then just sort of walked into the sunset and said, all right, I'm done. Peace out. I've often said that when young people ask me for advice about which allocation they should pick or where do they begin, I think decent advice for people, not for people that like really don't have any interest that are just like, hey, I have $10,000. I don't really care about the stock market.

Like, what do I do? I want to invest. That's different. But for people that are like, hey, I want to get into the market. Like, what do I do? My advice is to trade often and early. And maybe you take a liking to it. but the only way to figure out what sort of investor you're going to become is to just begin.

So I don't recommend that anybody who's interested in the market opens up a TD Ameritrade account and buys the total stock market index. That's never going to happen. And so he said in trying it... By the way, that's pretty much exactly what I did. Come on. I swear to... Maybe it was like a target date fund, the very first thing I ever invested in and I just put money in every month.

I know. You are rare. You also drunk, don't your coffee, as is well documented. That's true. Let's see. In trying it, you must use real money. Making mind bets won't do. Like all of life's rich emotional experiences, the full flavor of losing important money

cannot be conveyed by literature. Art cannot convey to an inexperienced girl what it is truly like to be a wife and a mother. There are certain things that cannot be adequately explained to a virgin either by pictures, either by words or pictures. nor can any description that I might offer here even approximate what it feels like to lose a a real chunk of money that you used to own. That's perfect. And to your point about trading and figuring out that way, I get a lot of people who say,

young people who say, hey, I'm thinking of putting all my money in the stock market or hey, I'm thinking about doing an 80-20. What do you think? And you can never give individual advice like that based on an email because it's too hard. But this is the point. How do you deal with losses when you have your own capital at stake? and it's not paper trades or... Yeah, so how could you advise somebody on what they're, with, you know, from an email,

you don't know this person. How could you even begin to give advice? And that's why I have always, it never ends well. So we've maybe had this talk before, but do you think when the next big one hits, whenever that will be, let's call it more of like a 40% downturn in the stock market than the 20% ones we've been having and it lasts a little longer? so I think that I was lucky enough to live through 2007 to 2009 relatively early in my career and I didn't have a ton of money and so plowing money into the stock market at that point

for me didn't seem that much of a stretch because I knew like I don't have that much money going in there already so putting money to work is this is going to work out great for me 30, 40 years down the line but now that there are there is more money there I have been saving more, even though I've experienced those initial losses, does it still make it more painful the next time around? Yes. It's going to be more money. Right. So I think even getting over that hump of losing initially, I think it still doesn't always make it easier because then there are different challenges that you come upon the next time. Let's make a pact right here right now. I won't sell if you won't sell. As long as the doubt doesn't go below 20,000,

then all bets are off. Well, of course I won't sell, but I mean, it'll still be painful, right? I think, honestly, I'm one of those people that just, I would stop looking and it just, I'm not one of those people that would have to react just to do it. But I guess, yeah, no, that's, we'll see when the time comes. So he did not take kindly to investment trusts, the precursor to mutual funds. He said, so a lot of us who clearly are not magicians, pull our money and hire a set of professional experts to do the guessing. And Ben, I jumped ahead to page 68. Yeah. He, okay, for all those of you who are reading along at home, he talks a little bit about people who, I think they said there was one point where they sprayed the newspaper with ink and then picked the stocks based on that, which is kind of like the dart throwing monkey. Yeah. The other one, he had a really good description of fad investing, which I kind of put to a couple stocks these days. So he says, the notion of selecting the best security, which is best is in quotes, still deserves a close scrutiny. Those classes of investment. investments considered to be best change from period to period. The pathetic fallacy is that what are

thought to be the best are in truth, only the most popular, the most active, the most talked about, the most boasted, and consequently the highest priced at that time. So glamour stocks. Yeah. I mean, this is, this is Tilray of today. Everyone was talking about this stock when it was huge. And now it's down 80%, I think, from the highs, and you don't hear a peep about it. So when these stocks are going up, yeah, it's only trading at a price to sales ratio of 70 now versus 150. or whatever. But it's crazy how, and that same thing happened with cryptocurrencies, where when they were going up into the stratosphere, everyone was talking about it. Then they fall and no one mentions it. Now they're rising again and people start talking a little bit again. But this cycle just repeats

over and over. And then you get into your head like, well, maybe it's not over. Maybe the initial gains aren't, haven't been, you know, are just the start. And sometimes that's true, but most of the time is not. Do you think that this is more cynicism or just sort of the reality? I want to read you two quick quotes. Thus far, in our history, there has been little evidence that there exists a demonstrable skill in managing security portfolios. That's one. The other one is the subject of choosing profitable financial investments does not lend itself to competence. I think the other thing about back then is the data wasn't there either. So he's... Wait, I asked you a question. Yeah, no, I'm saying, I think, I'm thinking he's probably being, it's probably both.

But he's probably making it mostly based on anecdotal evidence because there wasn't the data back then to see how good people were. So I'm sure he was going by what he saw at the time. But now we have the data and we kind of know that he was more or less right for the most part. I'm going to guess that since you opened the brokerage account and started contributing to a target date fund, you beautiful genius you, that you have never sold a stock short. No, never. I don't, honestly, it's not in my DNA. I don't think I ever could. Or do the triple leveraged ETFs like you used to.

Man, you got to live a little bit. How many stocks have you shorted in your career, do you think? Back in your trading days. Career. Career. That was supposed to be in quotes. Definitely Amazon several hundred times. What else did I short?

I don't know. I don't remember. No, you know what I did. I was more of the triple bear short. Okay. Like F-A-Z, for instance. That was a go-to. How that worked out for you.

Terrific. So I love his description of short-selling here. I'll let you take it. He talks about the psychology of a short-seller, and this is pretty terrific. He says, when he buys a stock borrowing money casually from the broker to do it, and the stock goes down five points, he is comparatively calm. meaning like when people borrow stock on margin. But when he sells it short and it goes up three quarters of a point, he is immediately desperate.

He thinks it might go to a thousand, although precious few stocks ever have. When he buys, he never considers that it might go to zero, though that is the precise figure where a great many common stocks eventually wind up. Which is actually the truth now that we've seen the data on this, the Bessonbinder quote, where a lot of stocks, what is it, 65% or something, underperformer have a massive decline. The psychology of buying and selling is not symmetrical. Right. Yes, exactly. So this was my other favorite one. He says, before October 1929, no one objected to short sellers except their own families. Their families objected to going bankrupt. That's pretty funny. All right. So let's move on

to, there's a chapter that, uh, some of it was kind of boring, but there was some good stuff in here. Putz calls straddles and gabble. He wrote, options are in, and again, Ben, I'm going to guess that you've never traded options. Didn't you have a recent option trade? I did. Yeah. What did you trade options on? Oh, actually, I was early.

I believe that I bought call options in like the second week of December, but they were weekly. So they expired at zero, obviously. For the market. So if you had bought those two weeks later, you'd have probably made a lot of money. Damn it. I should have listened to my own charting. I would have just listen to myself. Okay. He wrote, options are infinitely attractive to dream about. We all know many stocks, which have moved much more than 10 points in a month and more than 50 points of three months. But when a man stops dreaming these transactions and tries doing them, something different always seems to happen. So I guess this whole point is like, grow up people. This is a game that cannot be won and you're acting like a child.

that's like the one thing when I have friends from high school or college reach out with for investing advice and it's usually not advice it's should I buy this or sell this but a lot of them say hey I'm I'm dabbling in options like how many investment strategies that begin with the word dabbling have ever gone gone well right I'm dabbling it's like no you don't dabble into something like this and it's yeah there's no way to just sort of dip your toe in the water on these things. I'm dabbling in astrophysics. Right.

So this is when he pokes fun at Jesse Livermore. He says, I have heard a man boast that when the market was breaking, he can tell it with his eyes closed just by listening to the ticker. This feat could also be performed by your little niece since the ticker does set up a clattering during a break. But I don't see how either of them can foretell how severe, whatever. All right. So he says, there's a well.

So didn't Jesse Livermore kill himself right around the publication of his book, probably? He killed himself in 39, I believe. Yeah. Okay. Oh, man, too soon, Fred Schwed. He wrote, there was a well-known story of a shrewd plund. Actually, you know what? He might have written this before he died.

Yeah, he probably did. In fairness. So he wrote, there is a well-known story of a shrewd plunger and tape reader of the old days who received a strong tip to buy a certain railroad stock. So he tells the story of how Jesse Livermore like made a killing. And then he writes, to me, this anecdote has a distinctly dreamlike quality. And you know what? I feel like everybody that quoted Livermore in the 30s are the same people who quote

Druck today. That makes sense. I'm sure everyone is following everything he did. He was probably the one back then, right? I get the feeling that it took a while for Graham to really come into like the collective consciousness. I mean, I don't know this for sure, but I would assume it had a lot to do with Buffett that really bought Graham to the four. You've done more research on this than me. The intelligence investor was published in 1949.

Yeah. And I mean, security analysis was like 1934. Right. Buffett didn't get famous. I think the first time that Buffett was in a book was Super Money by the pseudonymous Adam Smith. And that was 1973, I believe. So considering there wasn't much fundamental analysis back then, so I bet you're right that Livermore was probably the one that most people pointed to for let's invest like this guy. Yeah. So I don't know when Graham really, really got super famous. So he talks a lot about the Great Depression in here because it's still so fresh in everyone's mind. But he talks about the other side of that, which is,

is the boom and this was a good one I thought in our moments of sober thought we all realize that booms are bad things not good but nearly all of us have a secret hankering for another one another little orgy won't do us any harm is the feeling that persists both downtown and up and so the idea is like yeah we know things are kind of getting out of control but if we just hop in for a little bit we can still have some fun and usually it just doesn't work like that and so he says we either got in too late or out too late or both but now that we are experienced just give us one more shot at a good, reliable runway boom, which I think was like an onion headline from a couple years ago. It was like Americans seek another bubble to invest in.

To your point of people loving another boom, because everyone assumes that they're just going to get out before it ends. So there's a great quote, again, from the super money book that I just mentioned by Adam Smith. We are all at a wonderful ball where the champagne sparkles in every glass and soft laughter falls upon the summer air. We know by the rules that at some moment the Black Horseman will come shattering through the Great Terrace doors, reeking vengeance and scattering the survivors. Those who leave early are saved, but the ball is so splendid, no one wants to leave while there is still time, so that everyone keeps asking, what time is it, what time is it? But none of the clocks have any hands. Don't these guys make you feel bad about the stuff

that you write sometimes? Like, these guys are so good, like, these guys are actual, like, writers and authors. We're just, they're writers. We're just people who happen to write. We're not writers. These guys are writers. So he, this is, there's been tons of stuff written on the Great Depression. I've read dozens of books on it. I still have yet to find a good explanation for why it happened. Was that a humble brag? You think it's a humble brag?

I don't know if it's bragging to say you read about the Great Depression a lot. Dozens? I want a fact check. I've read more about the Great Depression than Ben Bernacki. No. But there still hasn't really been a great explanation for why it happened. It's kind of one of those things like, well, what's the stock market that caused a Great Depression or do the economy go down first and cause it? It's kind of all jumbled up and

still no one really knows. But this is the best description I've ever read. And it doesn't actually explain it, but I still think this is just amazing. In 1929, there was a luxurious club car which ran each weekday morning in the Pennsylvania Station, which that's where you get off, right? Penn Station. Yes, sir. When the train stopped, the assorted millionaires who had been playing bridge reading the paper and comparing their fortunes filed out the front end of the car. Near the door, there was placed a silver bowl with a quantity of nickels in it. Those who needed a nickel and change for the subway ride downtown took one. They were not expected to put anything back in exchange. This was not money. It was one of those minor conveniences like a quill toothpick for which

nothing is charged. It was only five cents. There have been many explanations of the sudden debacle of October 1929. The explanation I prefer is that the eye of Jehovah, a wrathful God, happened to chance in October on that bowl. In a sudden understandable annoyance, Jehovah kicked over the financial structure of the United States and thus sought, saw to it that the bowl of free nickels disappeared forever. That is just amazing. I have a confession. What's that? I read that twice because you said, I don't get it.

Is he just saying that there's no actual reason and he's just giving a bullshit one? Or does that mean something? I'm missing it. He's just saying people were so rich back then. I mean, what does it cost for a subway now? $3 a ride, something like that? Okay. Can you imagine if every day people walked up and there was just a bowl of $3 bills for everyone,

not that $3 bills exist, but there was $3 for everyone that was walking in the subway that they could just grab it and go on the subway. Like he's saying that's how crazy things were back then, that people were just getting free money was just sitting there for everyone for the taking. Got it. And he's saying the other side of that is, no, you guys have taken this too far. Okay. Okay. He told the story earlier in the book about how a kid was making $25 an hour to untangle the phone lines. Oh, really? Yeah. So, I mean, I think his point was just like, okay, at a certain point, enough's enough. And things go too far. And so here's another one on the very next page, which I actually used in my wealth of common sense book. What page are you on? So I'm on 135. So I believe this is one of the last chapters. So this is great. So I put this in my first book, actually. Speculation is an effort, probably.

unsuccessful to turn a little money into a lot. Investment is an effort, which should be successful to prevent a lot of money from becoming a little. It's like the whole idea of risk management. I bet you he was a terrible investor. It's possible. Well, it almost seems like one of those people that was so weary of Wall Street that they probably kept all their money in cash or bonds. He seems like a very conservative investor that wouldn't trust taking risk. Yes. He made a great point about they so there's just like a little quote they in bold for the loosest use of a pronoun in the english language i nominate they as in the common wall street expressions they are accumulating the coppers they are taking profits they are going to put christie through par you know and he keeps going

and that's so true and that still persist today like yes everyone is like on social media people say everyone everyone is bullish everyone is bearish everyone is saying everyone everyone is Everyone has replaced the day. Yeah. I mean, it's kind of the same thing. But I still see a day all the time. All right. So I loved this.

He gives this difference between a British investor and an American investor. And it's probably still true to this day. He says, have you ever noticed that when you ask a British about a man's wealth, you get an answer quite different from that of an American. The American would say, I wouldn't be surprised if he's worth close to a million dollars. The Englishman says, I fancy he has 5,000 pounds a year. Which is kind of like the right way. think about wealth and using your wealth.

But I actually disagree because he wrote that a man's true wealth is his income, not his bank balance. Okay. I think in those terms, back then, income was what you're making on your investing, not your salary. Because think about how all the stocks back then just paid dividends. Oh, okay. Then I misread it.

I think you're right. Maybe I'm wrong. That's how I took it. It's just, it's not what's your full amount. of money you have, it's what can your money do for you? And I thought that was an interesting way of looking at it. Ben, go to page 142, if you will. Okay.

When there is a stock market boom and everyone is scrambling for common stocks, take all your common stocks and sell them. Take the proceeds and buy conservative bonds. No doubt, the stocks you sold will go higher. Pay no attention to this. Just wait for the depression, which will come sooner or later. When this depression or panic becomes a national catastrophe, sell out the bonds, and buy back the stocks.

no doubt the stocks will go still lower again pay no attention wait for the next boom continue to repeat this operation as long as you live and you'll have the pleasure of dying rich and he's not wrong but he acknowledges that while this is good advice he's never met anybody who actually has been able to do this right so this is like rebalancing on steroids or i guess fred shred was a market timer and the funny thing is is that they didn't call these recessions back then they were called depressions and panics like yeah because that's what they were. And so, yeah, this is, it's not quite the same thing these days.

And I guess this is another good point about reading history is that a lot of the stuff that used to work in the past just doesn't work anymore. I mean, I'm sure that you could have created this, a great depression fighting scenario in your stock portfolio back then that would have ceased to exist once depression is more or less went away until, I mean, well, actually, I guess at the end of 2018, we had a three-week depression when stocks felt 20%. That was bad. That was no joke.

So at the end, towards the end of the book, he finally takes a little bit of a softer tone. And he says, the crookedness of Wall Street is, in my opinion, which is kind of funny because he spent 150 pages writing about it. Yeah. The crookedness of Wall Street is, in my opinion, an overrated phenomenon. The hearts of Wall Street men are not more or less black than the hearts of the men in the sausage cover game. There is probably the same percentage of malpractice, but the Wall Street depredations are more spectacular. They involve vastly greater sums and they make more interesting reading. best of all, they suggest to the public an excuse for the public's own folly. And the point here is basically that it's not that there's all bad people that work in the finance industry.

It's there's bad incentives. And so I think that that's something that a lot of people miss these days. Obviously, there was a lot of people in like the 2008 crisis who were sort of bad people and were taking advantage. But most of the people who went the wrong way then were just people who had terrible incentive structures in their business model. And I also like you would hear what he said. A burnt customer certainly prefers to believe that he has been robbed rather than that he has been a fool on the advice of fools. So it's kind of like, you know, do your homework and pay attention to your own money and not just blindly follow what everyone says. So let me ask you a question. I had never really thought of it this way. But this was interesting. You know, we always say that before the SEC, I guess before in 1934, investors had very little information about a company that they were buying. They knew the dividend. They knew the name of the stock. But they didn't really.

really know much else. And he actually makes the point that by taking 50 steps forward, we might have taken a few steps backward. Maybe I'm misinterpreting this, but I'd like to hear your thoughts on this. In the days before the SEC, the description of a new issue commonly consisted of a couple of pages containing an inadequate balance sheet, a skimpy indication of recent earnings, and perhaps a little pep talk. This leaflet didn't begin to contain the things that an investor should know. But it did have one tremendous advantage, and investor could be persuaded to read it. Nowadays, a properly registered prospectus contains everything. It is as long as this book and duller. Just looking at it causes the intellect to shrink up into a

ball of protest. I imagine the same number of people have read one of those things as have read and finished a book I can't pronounce. What do you think about that? So maybe things have become so complex with the way that companies report that it's harder for people understand them and also maybe easier for companies to hide things. So I could, I could kind of get behind that. Like, if there was just a smaller set of everything, all the important numbers need to be on one page, that sort of makes sense. Obviously, that wouldn't really fly with people, but I can see some reasoning behind that. It's an interesting, it's an interesting counterpoint that I never really considered. So one thing he does in the conclusions, which he calls the in conclusions, is he asks a set of questions. And it was kind of

funny to me because, again, this was originally written in 1940. In one of his questions, he asked, like, these big picture questions people need to ask themselves, is, is capitalism doomed? And it's funny because people seem to be asking that question today. Like, it's an original question. Like, people haven't been asking that for decades upon decades upon decades. And isn't it kind of fascinating that capitalism actually survived the Great Depression? Obviously, some of the outcropping of that and the wars were that some countries tried socialism. But the fact that the system survived that period with two world wars,

sandwiched around a great depression, that the system survived that. Don't you think that we can survive whatever's going on today? Yeah. I mean, obviously, I want to say yes, but we're almost back to flat on the year for the S&P 500. That's true. It's brutal. Yeah, we're only up 12% this year in stocks. And 15% for the last 10 years. It's things are tough out there. Okay. Final thoughts on this book. Anything that stuck out? Didn't we just do that for 38 minutes? I'm, your big conclusion, anything that, anything else? I just, I was shocked at how, how rereadable this book was.

There was some stuff where it kind of like, okay, that, that didn't translate well, but 85% of this book aged like a fine wine, I thought. And it's very surprising how much stuff he was saying is basically another way. He said it better than we, we could, the stuff that we're saying today. Of course. I still think after reading this, rereading this, I still think that I prefer the money game, which is similar, maybe because it's a little bit more recent. I think that was 69.

Yeah, these would be good companion books, actually. Yeah. For the different times. Okay, so what Ben and I plan on doing next, and you know, it's funny, before we hit record on this one, we were a little bit unsure of how this would go because the big short, which we did a few weeks ago, was very easy to riff on, whereas this was a lot of us reading and commenting. And I feel pretty good about how this went, Ben.

What about you? Yes. I mean, again, a lot of his words are so good. I think it's easy to just go with them. So anyhow, what I'm getting at is that the next one that we're going to do is we're going to shift gears a little bit. And we're going to be doing a rekindled episode of the book Super Forecasters by Philip Tetlock. And we'll probably do that in, I don't know, we'll hope to do that in three or four weeks. Again, like we said with the Michael Lewis one, this is quite a bit of work. So I think that three to four weeks is fair on us and gives us. you enough time to read that book if you want to. Again, it's called Super Forecasters by Phil

Tedlock. Yep. Okay. Thanks for taking it out. If you haven't read where other customers yet, it's highly recommended for anyone who likes thinking about financial history. It's a really great book. Thanks for listening. Well, hold on. One last thought. One final thought. If you've listened to this and you have not read the book, you could probably skip it. Yeah, we just did it for you. We just did the clip notes for you. That's true. The TLDR version. We pull out all the good stuff. All right. Animal Spiritspot at gmail.com if you want to hit us up, and we'll talk to you later. You know,