We Study Billionaires - The Investor’s Podcast Network - TIP201: Big Mistakes That Great Investors Make w/ Michael Batnick (Business Podcast)

Starting point is 00:00:00 You're listening to TIP. On today's show, we're going to focus on the fundamentals. So often, it's easy to learn about interesting or obscure topics, when in all actuality, it's the fundamentals that are the most important. In an effort to cover this topic appropriately, we're going to talk about the biggest mistakes investors need to avoid when investing. On today's show, we have Michael Batnik, who's the director of research at Ritholt's wealth management.

Starting point is 00:00:26 Michael has recently wrote the book, Big Mistakes, The Best Investors, and their worst investments. Michael is a regular guest on CNBC and Bloomberg, and he's an extra smart investor that reads a ton. So without further delay, I'm really excited to share this interview with Michael Batnik. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected. All right, welcome to the Investors podcast, and I am pumped to have Michael Batnik with us. So Michael, you wrote this book, Big Mistakes, absolutely loved this thing.

Starting point is 00:01:21 And the subtitles so people know is the best investors and their worst mistakes. And this was quite entertaining to read through some of the stories that you tell. And I guess for me, what gave you the motivation or the incentive? What gave you the idea to write the book? So there are thousands of books written on Buffett and some of the greatest traits ever. And when they do study billionaires, what they typically do is they try and explain to people how they were successful, some of the lessons that they've learned along the way so that in turn, you can replicate their success. So what I wanted to do was invert that and to show people that the best investment,

Starting point is 00:02:03 of all time are human beings just like you and I, and it doesn't matter whether you're managing your own 401k or a taxable account or a billion dollar hedge fund. It's really hard. And it doesn't even matter if you're buying and holding or your stock picking or whatever you're doing. It is supremely difficult, not just to beat the market, but even to keep up with it. Love that. So one of the stories in here that really kind of caught my attention. And I know this has been pretty public within the investing circles, but for maybe people that aren't intimately familiar with what's happening on Wall Street or big names, Bill Ackman is a guy that you highlighted in your book. And you tell this amazing story about him and herbal life. And I just want you to kind of share

Starting point is 00:02:48 some of your thoughts, some of your research, and really kind of your end state, what was the big mistake that Bill Ackman made on this one? So the mistake that Bill Ackman made is probably one of the most common mistakes that investors make and probably one of the easiest mistakes to avoid. And that is do not talk about your investments with friends, with family, because they become part of your identity. And it makes it really difficult to change your mind. And if you are an active trader, then having the flexibility to change your mind is one of the most important characteristics of successful investors or traders. And the more you speak about it publicly, Now, imagine he did multiple 300-page slideshows, presentations, and six months later, he says,

Starting point is 00:03:38 eh, I made a mistake. I mean, it's just, investing is hard enough as it is. I don't think you need to make it any more difficult. And talking publicly is a really easy way to make it exponentially harder. You know, Stan Drunken Miller, whenever you hear an interview with him, he often will caveat something at the end when he says, well, yeah, I have this opinion about gold today, but I might change my opinion 10 minutes from now. So like I think that's probably a better way to approach it if you would be talking to friends or families.

Starting point is 00:04:07 And it also goes to this consistency bias that you're talking about where, you know, if you do say something and you change your mind, you just don't feel too bad about it because you've already caveated, I guess. Oh, and this goes beyond investing. But certainly with markets, people are loath to change their mind on an opinion that they had. right? Like it takes a very big person to say, hey, you know what? I was a little ignorant. I didn't have all the information or I simply changed my mind. That's okay. I think that's like a really healthy thing, but it's hard for most people to do. How do you think, I guess for me, like, and you see this, it's so prevalent. How does a person overcome that? Like what what can they do to start getting in the habit, I guess, of being not scared to say those things?

Starting point is 00:04:55 So I'm sorry. The question is how do people change their mind? Well, no, how do people develop the habit to be more Buffett-like in the way that they approach their mistakes? Because I think that's what a lot of it is of being able to change your mind in a public setting. And I know your real point is just don't talk about your picks and like become an identity with you. But if people would have a conversation about it and they do want to say or caveat it with, you know, this is my opinion today, but I could be dead wrong. How does a person develop that? sense of comfort to be able to discuss things and discuss their potential for being wrong. It's easy for Buffett to laugh about his mistakes, right, with $80 billion in the bank.

Starting point is 00:05:36 I don't think anybody thinks he's a dummy for making a few poor investments. But for the rest of us, I think there's two easy things that we can do. We can say, hey, I like this stock because of this reason, because of what they're doing here. And if that reason changes, then I would reevaluate or probably an even even, easier thing to do for the average investor is, hey, I like this stock at $80, but I don't want to get married to it. And if it goes below $70, then I will either sell half or exit entirely or reconsider. But I think that, like, especially for individual stocks, so asset classes mean revert. Individual stocks do not. J.P. Morgan did a great study showing that 40%, I believe this is the number,

Starting point is 00:06:22 40% of all stocks have had a catastrophic decline, meaning 70% drawdown from which they do not recover. So if you know that 4 out of 10 stocks are going to get annihilated to at least give yourself an exit strategy. Very interesting. And a stat that I never really seen before. One of the things I really liked in your book, Michael, that was your story about Jesse Livermore, really an iconic figure on Wall Street. So for those of us who are not too familiar, with him, who was in the first place? And what can we learn from him and his mistakes? He is the first person to make, maybe not technical analysis, but yeah, I guess that makes sense. Studying the tape, following price. He is the first person to make that famous. And he is one of the

Starting point is 00:07:09 earliest, most successful traders. And I guess the most successful, there's a big caveat there. But what he is known for primarily is he was so eloquent with words. He is probably the most quotable traitor of all time. And so every time he would make a mistake, he would journal it down and he would come away with this amazingly profound observation. And he, you know, just this beautiful slew of words for why he was foolish and why he won't do it again and some of the things that he learned. And the irony is that he couldn't even follow his own rules. Like he wrote the rule book, you know, don't fight price. Don't fight the trends. Like all the sort of things. He wrote the rule book. And in 1929, during the Great Depression, or when the

Starting point is 00:07:57 Great Crash came, he was heavily short. He made, I think, $100 million in actual dollars, not inflation adjusted. And then he gave it all back over the next decade. And then when the Securities and Exchange Commission was enacted and there were some laws involved, he could not adapt. And he ended up taking his own life absolutely broke. He made and lost several four fortunes along the way. And if you read his words, and it's just, it's sort of, you know, there is an irony there that he is the most quoted traitor of all time and he cannot follow his own quotes. I hate the backtrack on you a little bit, but going back to the, when we were talking about Bill Ackman, there was a part in that section that was talking about Carl Icahn putting on a position.

Starting point is 00:08:45 And, you know, from what I've studied on Carl Icon, he's like this master chess player, always looks at things from like this chest standpoint. And with Bill Ackman basically being a seller at pretty much any cost, and you talk about this in the book, do you think that icons play was purely because he knew he had a guy, he knew what the other guy was going to do? Yes. I mean, I haven't read Scott Wapner's book yet when the Wolves fight, I think, on those two characters. But I don't, I would, I doubt that Carl Iconn even knows what Herbalife does. But I think that Bill Ackman was so publicly on a crusade that he was going to give the profits to charity, that he was going to go to the end of the world, whatever it took.

Starting point is 00:09:34 And Carl Icon very strictly said, are you kidding me? Okay. Let's do it. And so that is, I mean, obviously if you're managing that type of money, I don't see the appeal to be so public. I just don't get it. Yeah. No, I, knowing some of the stuff that I read about Carl Icon, that seems like totally his play was just, hey, let's take advantage of this dummy. What's he doing? Yeah, and he wasn't the only one. Yeah. No, I think you're right. I think that he wasn't the only one.

Starting point is 00:10:06 Matter of fact, I believe that, I believe that Dan Loeb did the same thing. And I think even George Soros bought Herbalife. Oh, man. Let's take a quick break and hear from today's sponsors. All right, I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year, bringing together activists, technologists, journalists, investors, and builders from all over the world. many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse,

Starting point is 00:10:56 using AI to expose human rights abuses, and building technology under censorship and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to, but end up having to. having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June.

Starting point is 00:11:34 If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Oslof Freedomforum.com, with patron passes offering deep access, private events, and small group time with the speakers. The Oslo Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put AI to work today. NETSuite is the number one AI cloud ERP, trusted by over 43,000 businesses.

Starting point is 00:12:19 It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the Netsuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on. It's AI built into the system that runs your business.

Starting point is 00:12:48 And whether your company does millions or even hundreds of millions, NetSuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide demystifying AI at netsuite.com slash study. The guide is free to you at netsuite.com slash study. NetSuite.com slash study. When I started my own side business, It suddenly felt like I had to become 10 different people overnight wearing many different hats.

Starting point is 00:13:17 Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all ecommerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place. inventory to payments to analytics. So you're not juggling a bunch of different platforms. You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with

Starting point is 00:13:51 helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing, sign up for your $1,000, per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show.

Starting point is 00:14:27 So, Michael, one of my favorite stories and perhaps the favorite story that you're telling here, that's the story about long-term capital management. You know, we had Jim Ricketts on the show multiple times, and we also heard about his version of what happened with that company. He was the general counsel. It's very interesting to hear your take and really how it debunks everything that you really taught in academia.

Starting point is 00:14:55 So what can we learn from this dreadful experience in the late 90s? What happened with long-term capital management is they were just a hedge fund composed of the best and brightest, multiple Nobel laureates. They had more brain power than the staff at MIT, I think, was aligned, something like that. I said that avoiding talking publicly about your investments is one of the most common mistakes.

Starting point is 00:15:23 I would say that the lessons that we can learn from LTCM's failure, nobody thinks they are below average intelligence, right? People that have the money to invest in the first place, it's generally because they were successful in other walks of life. They're doctors, their engineers, they're educated people, and they think, I'm smart, I can beat the market. and it is often the opposite. I mean, the irony of all of this is that if you would just buy a global equity index fund and do literally nothing for the next 40 years, you're probably going to beat the smartest people out there. And one of the reasons why is because they are so smart and there's so many of them.

Starting point is 00:16:02 And their intelligence cancels off. It cancels out. It's like LeBron James playing LeBron James every single night. There is not a sustainable edge there. So these guys calculated the probability of everything, except the thing is that we need to remain humble because the past is just one example of what could have been. And we haven't seen all of the examples and potential outcomes in the market. Things are so random.

Starting point is 00:16:34 So you can't treat the stock market like a physics experiment. there are too many variables to control for all of them. So in LTCM's case, the chart of their returns, it's up, up, up, up, and then zero, straight to zero. They got caught up in the Russian default in 98, and they, I think at one point, there was a crazy stat in the book in Roger Lowenstein's book that I think I quoted, but they were making more money at one point than like McDonald's or something. Like they were just printing money. And then what happens is like economics 101, they attracted competition. The spreads of what they were doing compressed.

Starting point is 00:17:14 They needed more and more leverage. And then when it blew up, they got carried out real fast. So the lesson for the average investor reading that story is if these Nobel laureates, people that wrote the Black Shoals formula, if they got carried out, how could you not be humble? Yeah. Yeah. And their returns, I think the other thing that sucked in so much capital, when you talk about this in the book, is the amount of their returns when they first started were huge. I mean, 20, 30 percent annually.

Starting point is 00:17:48 Not only were their returns huge, but their sharp ratio or their risk adjuster returns were off the charts because to their credit, they had found an inefficiency and they exploited the heck out of it. And other people said, you know, companies like Goldman Sachs said, hey, wait, minute. That's a good strategy. And then Morgan Stanley said, that's a good strategy. And then that's what happens. And then the opportunity is compressed and they piled on leverage and then cabloy. Well, having said that, Michael, I'm curious to hear what you think about Dallio's Bridgewater Associates and how they might be attracting competitors into what they do in risk parities. So I don't think so because I don't know how big all weather is, but I'm making this up. Let's call a 30 billion out of the 200-something that.

Starting point is 00:18:34 they manage. It's all in like stock futures and bond futures and super deep liquid stuff. So I'm not necessarily concerned that any replication of that sort of strategy is going to have, you know, send tremors through the market. There was an experience like that, the quant quake in the summer of 2007 where all of these quants were doing the same thing and that potential for disruption in the short term. Yeah, I mean, that certainly exists. It's not something that keeps me up in night, but I wouldn't be surprised if we had another August 2015 type moment at some point in the future. So one of the figures that you talk about later in the book is a very interesting investor because it's a venture capital play. And you mentioned Chris Saka.

Starting point is 00:19:17 I didn't see in your book that you talk anything about Chris when he first started off. I don't know if people know this, but when Chris was at Georgetown, I think he was in the whole a million dollars or a couple million bucks or something before he went to Google. which is just fascinating. But I really liked how you laid out his four rules in the books. Talk to the people a little bit about Chris Saka. Tell his story. Talk about some of the companies that he's invested in it,

Starting point is 00:19:43 at the stages that he invested. It's fascinating. This is really an awesome story you put in here. Yeah, so by all accounts, Chris Saka had the single most successful venture capital fund ever. Everything the guy touched was gold. And I think that his story is interesting. because it's so applicable to us.

Starting point is 00:20:01 Whenever you, let's say you bought Apple a few years ago, you kick yourself for not owning more of it. Or, I mean, there's always something to distract you, to veer you off the path that you're going down. And his story is a great example of that. So he, it's not that he didn't get the opportunity to invest in the following companies. He literally had the opportunity, got the pitch,

Starting point is 00:20:25 and said, thanks, but no thanks for various reasons. Dropbox, Snapchat, and Airbnb, three of the biggest unicorns that exist. And unicorns are privately held companies that are valued at a billion dollars or more. So the point is, you're not going to about a thousand. You're not going to be even close. There are going to always be things that you wish you invested in. Oh, and the problem with this is that hindsight bias creeps in,

Starting point is 00:20:51 and it's really hard to counteract that. It's really obvious now that Amazon was destined to be this giant company. Of course it wasn't, right? Like, of course it really wasn't. Otherwise, everybody would have bought it. So the lessons with Chris Saka is that even the most successful people will have regrets. And that is just part of the game. And one of the dangerous things about regret is that it paralyzes you.

Starting point is 00:21:16 And it sort of develops this like scar tissue in your brain. And you can't be objective going forward. So, man, you know, this just goes back to the whole thing. I just think that people just underestimate how. truly, truly hard investing really is. Yeah, because specifically talking about Chris Saka, you know, it's easy to talk about how he invested in Twitter. And I think he owned 20% of that at some point in time.

Starting point is 00:21:43 So a huge, huge success. But really what you're getting at here, that is, that's really his big misses, right? Dropbox, Snapchat, you also said, talk to us more about those misses and really the key takeaways from that. Yeah, so Dropbox, Airbnb, and Snapchat. You know, like I said, three of the biggest, most successful private companies, he didn't, it's not that he got the opportunity. Each of these founders came to him. And for various reasons, Dropbox, he said, what are you kidding me?

Starting point is 00:22:18 Google's going to crush this. Airbnb, he thought there would be murders in people's homes. He said, what sort of maniac would fund this sort of company? And then Snapchat, he said, you know, the guys would send pictures of. of expletives. And so he, you know, he's able to laugh it off because, you know, his success is so overwhelms the three misses. Yeah. I think self-awareness, just the fact that you're talking about it is step one into something that some people just never realize how paralyzing that can be by constantly going back and saying, oh, I miss this. And then they feel like they have to make it up,

Starting point is 00:22:54 you know, as they get their next opportunity. So they double down or triple down because they feel like they have to make up for that missed opportunity. That's exactly right. And I think that the best investors, and a good example of this is Harry Markowitz, who basically discovered modern finance. And so somebody asked him, so what do you do with your money? And his was the mean variance optimization framework for stocks and bonds and different asset classes.

Starting point is 00:23:21 And he said, I split it 50-50, 50 percent stocks, 50 percent bonds to minimize my regret. And if that's good enough for Harry Markowitz, something like that should be good enough for the rest of us. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up, and customers now expect proof of security just to do business. That's why VANTA is a game changer.

Starting point is 00:23:47 Vanta automates your compliance process and brings compliance, risk, and customer trust together on one AI powered platform. So whether you're prepping for a SOC2 or running an internet. Enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Ryder spend 82% less time on audits with Vantta. That's not just faster compliance, it's more time for growth.

Starting point is 00:24:20 If I were running a startup or scaling a team today, this is exactly the type of platform I'd want in place. It started at vanta.com slash billionaires. That's vanta.com slash billionaires. Ever wanted to explore the world of online trading but haven't dared try? The futures market is more active now than ever before and plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&B 500, NASDAQ, Bitcoin, gas,

Starting point is 00:24:53 and much more. Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity. You'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited, risk-free demo account with charts,

Starting point is 00:25:24 and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high yield savings accounts. Instead, they often use one of the premier passive income strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes, thanks to the Fundrise Income Fund, which has more than $600 million invested in a 7.97% distribution rate.

Starting point is 00:26:11 With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise Income Fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund's perspective. at Fundrise.com.

Starting point is 00:26:50 This is a paid advertisement. All right. Back to the show. Hmm, interesting point. So in your book, you talk about a lot of different failures, a lot of misses. Which failure was most profound for you? And perhaps, which one did you enjoy researching the most? Probably Mark Twain.

Starting point is 00:27:12 Man, that guy would be deadly with a Twitter account. He was, he was. he was an absolute genius, and I don't use that lightly, with language. And he made a mistake that is absolutely common with many people. And that is that he got married to a really bad investment. And it was something called a typesetter, which I guess was like pre-typewriters. There was 180 pieces of equipment, and it was just totally complex. and he just, he kept putting good money after bad and he was, he doubled down and he doubled down and he

Starting point is 00:27:51 doubled down until he was basically bankrupt and he was forced to literally go around the world on a stand-up comedy tour to repay his debts. And some of the, some of the lines that came as a result of his failures in investing are just absolutely gold. So I just want to read a quote from your book, and this is a Mark Twain quote that you put in here that I think is just stellar. Here's the quote. It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so. And wow, that is some powerful stuff, especially for investors,

Starting point is 00:28:32 because you see a lot of people out there that run around saying, well, I mean, Bill Ackman's the perfect example. I mean, 100% sure herbal life is a Ponzi scheme. You know what I mean? And then look where that got them. I mean, you have to have an appreciation for how wrong you can be sometimes. And I just find that quote awesome. The funny thing about Twain is that it wasn't just this one.

Starting point is 00:28:54 I mean, this was one of a laundry list of examples. He was enamored with entrepreneurs and inventors. And he, and not just that, with stocks. And I mean, he had a terrible fear of missing out when there was an opportunity to be made in money. And he ended up, in the end, he ended up all right. But there are just some really fascinating stories about how awful, awful, awful. of an investor he was. And think about the IQ on that guy. Again, it just goes to show that brains do not equal success. Yeah, and I think you talk about it a little bit. It's the process.

Starting point is 00:29:25 When you see a person who has a process that has worked for them and they continue to replicate that process over and over again, they typically see some of the best results. And it reminds me this story that Monish Pabri told us whenever he was talking with Charlie Munger. He was saying that he was asking Charlie like, why didn't you guys consider this or why don't you do this different? And Charlie's response to him was really profound. And I distinctly remember this. He said, you know, Monash, that's just not part of our process. That's just not our process. It's just not the way we do things. And so even though I think Charlie might have had an appreciation for how good the idea was, it was outside of their comfort zone. It wasn't part of the thing that had worked

Starting point is 00:30:07 for them for so many years. And so they just didn't even consider it, which I found quite fascinating. A lot of investors have gotten absolutely blown to smithereens that way. Michael Steinhardt in the book is an example of that. When he tried to do the macro thing in foreign countries, he got blown up. So I think it's very important for skilled investors to stay in their lane. And for the rest of us, maybe don't even try to compete with these people. It's just not a winning proposition. Of all the failures that you studied, what can a new business,

Starting point is 00:30:42 be really taken away from this? Say that you're in college or you just graduated. Perhaps you do not have a big portfolio just yet, but you would really like to go into the field of stock investing. Why can we learn from the very best investor? Which kind of story could you highlight to the novice investor here? The future does not have to look like the past. I think that people rely way too much on history. And I think the best, and I study a ton of history because I think I find It's fascinating. But the most important lesson that I learned from history is that none of the outcomes was preordained. This was none of what happened was obvious to anyone at the time.

Starting point is 00:31:22 So we could look back at charts, at whatever, but a lot of truth gets lost in a chart. So to go back and to read Benjamin Roth's Diary of the Great Depression, or John Brooks, his book, The Go-Go-Go years, just gives you an appreciation of what was actually happening at the time. Don't rely too much on history to lead you forward. Well, I'm curious because you're a heavy reader. I like on your Twitter account how you said you're a long distance reader. I love that statement. That's pretty cool.

Starting point is 00:31:53 So out of all the books that you've read, what book would you say has had one of the biggest impacts on your investing approach or just kind of has shaped you? And if you want to throw out more than one, go ahead. Oh, this is tricky. I think that, well, I mean, I've had a long journey. And so I think that a lot of these books, it's just sort of like compound interest. You know, it's not one book that did it. It's just over time. So as just a quick example of that.

Starting point is 00:32:24 So I started, I believe the first book that I read was the intelligent investor. And so I was so enamored with the whole Mr. Marketing. I remember reading it to my mother because I was so excited. Like, oh, it was like a light bulb. Like, oh, my God, this is so incredible. And so I was, you know, I was enamored with valuations and fundamental analysis. And then I tried doing basic work and that didn't work. So then I read reminiscent of a stock operator by Jesse Livermore.

Starting point is 00:32:49 And it was another light bulb. I'm going to be the next Paul Trudeau Jones. This is so easy. Just be patient that don't fight the trend and all the sort of things. So it was really just a long, long, long evolution. I would say that my probably my favorite investment book is the Money Game by Adam Smith, which was written in 1968, I believe. And by the way, his name is George Goodman.

Starting point is 00:33:09 It was the pseudonymous Adam Smith. And it was written in 1968, and that could have been written today. He was such a wordsmith. And it was just so funny. And some of the observations that he made on the human nature of investing were just hilarious. So if I had to recommend just one, maybe not to start with. But if you have, you know, if you're already a seasoned investor, I would say definitely recommend, definitely pick that one up.

Starting point is 00:33:30 Well, Michael, thank you so much for coming on the show. The name of the book is Big Mistakes, the Best Investors, and their worst investments. Michael, if people want to learn more about you, give them a handoff so that they know where to go. Sure. So it's not that hard to find me. I have a blog, Michaelbatnik.com, and I do a podcast every week with my friend and partner, Ben Carlson, called Animal Spirits, where we discuss a dozen topics that are going on. Not so much the trading stuff, but just, hey, what's happening in the market and the world and shoot the breeze? And that's where you can find me. Awesome. Thank you so much for coming on the show today,

Starting point is 00:34:06 Michael. Yeah, my pleasure. Thank you so much for having me. All right. So this is the point in the show where we play a question from the audience. And this question comes from Spencer. Hey, President Stig. My name is Spencer O'Point. I'm 18 years old and I'm from Ontario, Canada. I just want to let you guys know that I listen to your show every week. And you guys are really the ones who introduced me to investing. So thank you. Keep up the great work. My question this week is, do you think value investing and the principles taught by Ben Graham and made famous by Warren Buffett are still effective in today's society. Not in the sense of current market conditions, rather in the general sense. In the sense that the number of Graham and Dodsville type investors has grown so much,

Starting point is 00:34:47 do you think that the increasing number of value investors has affected the overall efficiency of the market? I guess my question in essence is, is it still possible to find Buffett-type investments even in a down market? Thanks, and I hope to hear from you guys. So, Spencer, my personal opinion is that, yeah, there's a ton of value investors out there, but I think there's still a lot of speculators out there. And I would say that the speculators are on par or at parity with the value investors and maybe more than the value investors. The other type of investor that I think has come into the fold, especially in this last

Starting point is 00:35:27 credit cycle are the ETF investors. So I think that if you were going to look at how many people out there are investing just through straight ETFs and not really doing anything beyond that, I think the number would be staggering. And I wish I knew what it was. But my expectation is that it would be very, very high. And so considering that you have those other market participants, I think that, yeah, there's people out there that can still implement a value-based approach. You know, in the last, I don't know the exact stat. I know the Wall Street Journal came out with something showing how. poorly value has performed in the last 10 years relative to other strategies. I think that that's

Starting point is 00:36:05 another reason why value investing might work really well moving forward into the next cycle. So I'll definitely say that markets tend to become more efficient as the mature. And I think even Buffett mentioned that in one of the Berksie episode, that we released not too long ago. And that was whenever he was talking about investing in China. Efficient here means mispriced and to which extent it is mispriced. For instance, when Buffett started out his investing career, there was no cash flow statement. So he made his own cash flow statements for the companies you're looking at. So he would cross the market and he could invest into strong cash flows that no one really saw out there, which is for obvious reasons harder to do today. But I agree with

Starting point is 00:36:54 Preston in the sense that there will always be value to gain. I mean, more than anything, you need to understand what you're investing in. That's also why inefficient does not mean that it's a good market. Buffett was asked about would he invest in China and he said, no, because I don't know anything about China. He would still invest in the U.S. And that's not because China might or might not be cheap. It's because that was not his circle of competence. Another reason is that even among value investors, you know, they value stocks differently. So what is the undervalue stock to me, me, it's not necessarily an undervalued stock to you. And then there's this, let's call it, systemic inefficient in one way or the other. You know, you have your active management who can't

Starting point is 00:37:41 invest for the long run. And they might say so, but as we also talked about a few times here on the show, they make two-thirds of the money on fees and on performance. So more than anything, they would need to be good with marketing and continue to invest in stocks that do not look too, ugly, which value stocks tend to do. And then you have the thing with indexing, Preston briefly mentioned before. At least the way it looks like is that all the indexing will give you more volatility, say it might give you a flash crash. I mean, there's still value to gain, but perhaps not as much as in the past. But I still think there's a lot of value, if you will, to gain. All right. So Spencer, thank you so much for asking such a great question and thanks so much for listening to the show. As a token of our appreciation, we're going to give you a free subscription to our intrinsic value course. This is a paid course that Stig and I created inside of our TIP Academy. And we're going to give it to you completely for free for calling in and asking such a great question. If anybody else out there is listening to this and you want to ask a question and potentially get it played on the show, go to Asktheinvestors.com and you can record your question there.

Starting point is 00:38:55 Guys, that was all impressed and I had for this week's episode of The Investors Podcast. We see each other again next week. Thanks for listening to TIP. To access the show notes, courses, or forums, go to theinvesterspodcast.com. To get your questions played on the show, go to AsktheInvesters.com and win a free subscription to any of our courses on TIP Academy. This show is for entertainment purposes only. Before making investment decisions, consult a professional.

Starting point is 00:39:24 This show is copyrighted by the TIP network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP201: Big Mistakes That Great Investors Make w/ Michael Batnick (Business Podcast)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.