We Study Billionaires - The Investor’s Podcast Network - TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris

Starting point is 00:00:00 You're listening to TIP. On today's show, we are exploring behavioral finance with Gary Mashuris. Gary is the managing partner and chief investment officer of Silver Ring Value Partners, an investment firm that focuses on overlaying a behavioral finance-focused system with the concentrated long-term value strategy. In this episode, we discuss human biases such as overconfidence, base rate neglect, recency bias, anchoring, endowment effects, social proof, scarcity, and others. If you're not familiar with the human biases I just named, then you are in for a real treat as we are about to explore how our human nature can sometimes get the best of us, even without us knowing it.

Starting point is 00:00:37 So with that, please enjoy this discussion with Gary Mashuris. 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. Welcome to the Investors Podcast. I'm your host, Trey Lockerbie, and today I'm very excited to have with me Gary Mushuris on the show. Welcome to the show, Gary. Thank you very much for having me. So I really wanted to bring you on because you are an expert at behavioral finance, and you overlay that with your value investing approach.

Starting point is 00:01:24 And it's been a while since we've kind of reviewed behavioral finance and certain human biases in particular. And the markets are getting pretty squiremore. squirly right now. So I thought it might be a good time for us to review these traps that we might be falling into. So for example, the market has been pretty humbling as of late for growth-style investors. The NASDAQ is off 20% from its all-time high and S&P is off 10% at the time of this recording. So we're nearing bare market territory almost. And it seems these days that 20% returns with inflation below 2% are, those days are just disappearing in the rear view. And there's a saying that everyone is a genius in a bull market. And I'd like to explore the psychology at play here,

Starting point is 00:02:06 since these conditions could easily create overconfidence, which I think is one of the most deadly human biases we might fall into. How are we as investors to know if our performance is attributed to skill or if it's just from specific market conditions? Sure. I mean, I think it's always timely, but as you pointed out, it's probably even more timely now than ever. I would say, first of all, I think the thing that investors get wrong, at least most investors I know, is that they're focused on achieving the highest returns they can. And that sounds weird. It should sound weird. What's wrong with it?

Starting point is 00:02:41 Trying to achieve high returns. I think the issue is that in doing so, they don't realize frequently the risks they take. And my approach is quite different. I put safety first. And subject to that, I want to achieve good returns. And that's a different mentality. And, you know, tying that into kind of overconfidence, you look at the last 10 years and large growth stocks of returns, 20% per year or something like that.

Starting point is 00:03:06 And the last five, it's been 25% per year. So you could be a monkey throwing darts if you were investing in that universe and you would think that you're an amazing investor. The reality is that there are some of amazing investors for sure. And that's not to take anything away from them. But I think that there are also many people who just are, as the same goes, bull market players, right, as you alluded to. And so how do you tell a difference? So I think you have to separate what are you forecasting or what are you getting right versus your outcome.

Starting point is 00:03:38 Here's what I mean. So let's say you buy a stock because you think it's a high growth stock, right? Chances are most of the market participants don't disagree with it being currently high growth stock. Usually, the disagreement is about the years they're far out. So maybe right now the company is growing 30% and maybe you think that the opportunity is so large and the management team is so good that this company is capable of growing at that rate for 10, 15, whatever years, right? And maybe the market is not discounting that. So what does that mean? In the first few years, you don't really learn that much about whether you're right or not.

Starting point is 00:04:14 Now, it might look different to you because you might buy the stock and all of a sudden the crowd, the grieves. with you and the stock doubles or triples or quadruples. But that's not you being right or wrong. That's just people voting with their dollars at a point in time. As we've seen recently, those votes can change very, very suddenly. And so I think that one way of making sure that it's really you're getting the right things correct is focusing on, are you getting the fundamentals right? Approximately. It's not a game of precision, but approximately right. The same thing applies if you're a value investor, I quote, quote, traditional value investors. Let's say you're buying mature business and you think that the long-term earnings power of this business is a dollar per share.

Starting point is 00:04:55 And right now, maybe it's earning 25 cents per share because maybe it's sickly depressed. Well, if it doubles tomorrow, that doesn't say anything about whether you were right or not. It says just about what the market thinks at a point in time. But to tell whether you're right, you need to wait a number of years and see if the earnings power comes to fruition. And so I think to kind of come back to your premise is what we have is we're all overconfidence as investors. And I really say all, maybe there's one person on earth who's not overconfident or something like that. And obviously, the funny thing would be to say, we're all overconfident

Starting point is 00:05:28 except for me, but I know I'm overconfident as well. And so I think you have to build in structural humility into your investment process. Because if you assume that you're not overconfident, well, you're just proving the point. You are overconfident about not being overconfident. The issue is how do you acknowledge, yes, I'm likely to be susceptible to overconfidence, and let's build in a kind of structural checks and balances to try to minimize that. That's at least my approach. I think you made a really good call out there, which is so challenging for any investor, but especially those focus on growth.

Starting point is 00:06:02 And you start to realize why growth investors are so interested in R&D and these intangibles. And to give you an example, I think it was in year 25 or 26 for Amazon. It was year 2019 going to 2020. In 2020, Amazon grew 37.62% from 2019. And that was, you know, 25 years into business, something like that. So, like, these growth companies, even though it's unlikely that they persist at these growth rates, they can surprise you. And a lot of that comes from this R&D that they've been doing, maybe even under the hood that you don't see, you know, you see Facebook, for example, putting almost $2 billion into the metaverse. And you could say, you could write that off. But five years from now, maybe Facebook grows another 40% in one year. year. I mean, this is why it kind of makes these growth investments so difficult to project. Absolutely. And I think it's something that it's wonderful when it happens. I think the other part that we have to think about is what are all the other companies that people thought were going to be Facebook or people thought we're going to be Amazon that nobody knows the name of. So there is definitely a selection bias at play where we see vividly the examples of success or when the style works. And we

Starting point is 00:07:11 forget that for every success, there are many, many failures and that in the past there were very smart people, perhaps just as smart as we are, who predicted those companies that we no longer remember the names of, we're going to be the next Facebook or the next Amazon. That's something just to keep in mind that it's not as easy as it sounds, but when it happens, it's pretty wonderful. Another way to think about overconfidence is simply the sheer hubris we have as investors to think we can outsmart the market. So, for example, we can use filters to find business. businesses that match our required metrics, but it often feels like we could be the Patsy at the table because as you mentioned, kind of every analyst is probably doing that. What are some

Starting point is 00:07:51 ways to know if we're avoiding a value trap and actually discovering an undervalued business? Your question reminds me of, you know, I was listening to a talk many years ago in person by Jean-Marie Valard from First Eagle Investments, who was kind of a legend of international value investing. And he said something that surprised me at the time, which is there's no such thing is a value trap. What do you mean? Like in value investing, value trap is kind of a common term. So, well, there's no such thing as a value trap. There are just investments with fundamental as you get wrong. And so I think that one thing you can do is to start with seeking out the opposite point of view fairly early and understanding if someone is, you know, let's say you're buying a business,

Starting point is 00:08:34 if someone were to be short this stock or at least someone were to be avoiding it with extreme prejudice, why would that be? And so, you know, it's interesting, right? So I have all these kind of checks and balances I try to insert into my process to guard against behavioral biases. By the way, understanding that even with the best efforts, I'm still going to have some biases. That's not, the perfection is not the goal. The goal is to minimize them as much as possible. So you're going to have these biases, but if we can kind of limit them, that's better. So I used to have this exercise called the devil's advocate exercise. Now that would ask other investors, you know, someone, an analyst or another investor friend to present a strong alternative point of view on

Starting point is 00:09:15 the existing holding. And then I had this idea, wait a second, why am I waiting until I own this thing? Because there's all kinds of biases that kick in, like anchoring, the endowment effect. By the way, some of those who are you listening, the endowment effect is not like a Harvard endowment. It's like we like things we already own more than the same thing that we don't know. The act of owning something makes us like it more. They've done experiments quite frequently to show that it's a persistent effect. So my question to myself was, why am I waiting to have this devil's advocate presented once I own something?

Starting point is 00:09:47 Why not have the devil's advocate be done as I'm researching something before I've really anchored on that idea? And so now what I do is as I'm researching the idea as I'm finding information. Obviously, as I'm pursuing it, there's some amount of liking that's already occurring. Like, I'm not spending time on an idea I hate. That would be silly. So the fact that I'm researching it already means that I like it to some degree and there's some kind of formation of biases that's happening.

Starting point is 00:10:12 So in parallel now, I'm asking some of my interns, for example, to go and say, present me with the strongest possible negative case on this business. Find out everything that's wrong that's right there. And I want it early because time, especially if you do deep research, which I try to do, is a very valuable commodity. And, I mean, I can't afford to constantly spend time on things that you never invest in, or at least you need to shorten that time if you can. And so having someone kind of debaise me early in the research process

Starting point is 00:10:40 and point something out that would make me kill the idea, it's hugely valuable for two reasons. One is the time. But the other is I'm much more likely to listen to someone's opposing viewpoint before I really anchored on the idea than if, imagine this, you know, you buy an idea and then tomorrow someone presents you with a strong negative thesis. I mean, it is super hard to sell it the next day after you bought it. But if they presented to you the day before you bought it, how much easier is it to just not buy it in the first place, right?

Starting point is 00:11:08 So just having those checks and balances early in the process, I think is, again, not perfect, but I think it's an important step in minimizing those biases. You know, that's interesting. I haven't actually come across the endowment effect. That's a really interesting one. And what you were just describing is reminding me of this conversation I have with Bill Nygrin at Oakmark. And it sounds like they have this investment panel, I guess you would call it, or, you know, before. they do make any decisions. They do, I think, what you're mentioning, which is having a devil's advocate in the room to kind of shoot down the idea. And that is something that could be so

Starting point is 00:11:41 beneficial for retail investors to find a little cohort of people around you that might be willing to do that for you. I think that's something that's probably pretty uncommon in the retail space, but so valuable. I think it's valuable. And I think it's interesting. My prior firm, so I launched Silver Ring Value Partners about six years ago. Prior to that, I spent 15 years at large firms, my last firm, I had the same idea and they went to the head of the team and they said, listen, let's do this. I have a lot of respect for Bill Nigrin. And I think the way he approaches it is a reasonable way of implementing this idea.

Starting point is 00:12:14 And I got nowhere. And it's like, well, like, we have the resources. You know, I was part of a team that was managing over $10 billion in assets. We had plenty of analysts. Like, why not? Like, well, it's just going to distract our analysts from finding new ideas. And like, really? I mean, it's really hard.

Starting point is 00:12:31 We're so busy finding all these amazing ideas that we can't spend X percent of the analyst's time kind of doing these things. So, yeah, so I guess what I was saying is you'd be surprised how often you have these possibilities to have a debiasing step in your research process formally, not off the cuff, not over lunch somewhere, but systematically insert into the research process in an institutional setting, but it just doesn't happen. And I think a big part of that is incentives. Think about it, you know, you take a typical asset management team, let's say they're whatever. an analyst and a portfolio manager to, like, what's the reward for the analyst to kill the portfolio manager's favorite idea? How do they get paid from that? How do they get promoted from that? It's hard. It's just really no incentive. They might say, no, we really want you to give us your strongest possible view, but that's not where their bread is buttered. Their brother's buttered by

Starting point is 00:13:21 potentially finding new winners or something like that. And by the way, like an interesting question would be like how many times does this devil's advocate process kill an idea before it makes its way into the portfolio? Because it can't be just a fig leaf. It can't be just, oh, okay, we checked the box. We had the devil's advocate thing. Now we can go ahead and buy it. Our conscious is clear. It needs to be a real process, really with people empowered to really change the minds or the decision makers. Otherwise, it's pointless. 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 somber. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord,

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Starting point is 00:18:04 and you're researching, let's say, a healthcare company. Would you try and find someone who is an expert in the healthcare industry or sector to help you be the devil's advocate, or do you think that creates its own bias? That might be interesting. I'm curious. Yeah. I mean, right, so domain expertise is trickier. And so I think that a great idea should be obvious to a non-specialist. And granted, the specialist might need to explain some key terminology or something like that. Let's say it's a drug, you know, but you don't need to know the deep science of a drug to appreciate the economic potential of the drug in the market. And so if it's not obvious in terms of economics, the science might

Starting point is 00:18:44 not matter. It might matter from a humanity point of view, but from a investment point of you, it has a thoughtful generalist who has experienced should be able to give you a good devil's advocate case. But again, if the devil is in some detail and it really requires analyzing some phase three study and finding out some design flaw in the study that only a deep expert could find, it's going to be harder. So we shouldn't kid ourselves. I think most of the time, the problem is not some tiny nuance. The problem is, it's just not that compelling. And I think I'll give you one piece of evidence to this. So I manage a small partnership. I have friends who manage their own small pools of money professionally.

Starting point is 00:19:22 And all the people are professionally friends with are intrinsic value investors. Some people tend towards more the growth side of intrinsic value investor. I think some people tend towards the more traditional value than Graham style. Regardless, we're all kind of speaking the same intrinsic value language. But our portfolios are vastly different. Moreover, when we talk to each other about our portfolios and share ideas, very infrequently does someone end up taking someone else's idea and actually, putting it into their own portfolio.

Starting point is 00:19:50 And to me, that says that there's just enough biases out there because someone with similar intelligence, similar quality process and so forth, did the research found the idea to be attractive, here we are being pitched that idea by some of our respect, and yet we don't buy it. So we have our own unique circles of competence. That's one thing. And that's a legitimate bias. That's a good example of a bias, I would say.

Starting point is 00:20:12 Maybe it's a fact-based bias in the sense that we have patterns of investing that we're more comfortable with or experiences that lead us to be experts in something that someone else is not. But I think there's just a lot of subjectivity in investing. I think a good generalist can take even a specialist's idea and find holes in it that the specialist might not be self-aware enough about. Fascinating stuff. So I want to move on to the next one, which is base rate neglect. So there's this phrase that's kind of come up, I don't know, maybe over the last decade,

Starting point is 00:20:44 maybe longer, but it's don't fight the Fed. And we've seen a lot of help from the Fed when markets have declined in the past. And we've seen the Fed reverse course on, say, raising interest rates quickly due to recessions and other liquidation problems around the world. So from this, we may have misconceived notions on how either the Fed will react to markets if they continue to decline from here, for example, which would thus enact this base rate neglect human bias. So walk us through what the base rate neglect bias is and how we might be able to avoid it. Yeah, so I think it's fascinating that, and I think sometimes people talk about inside view versus outside view. So base rate neglect refers to ignoring the experience of others in similar situations and just making an assumption based on what we think we can do in this situation. So let's say a very simplistic example of someone flips coins a thousand times.

Starting point is 00:21:38 They get 50% heads, 50% tails for a fair coin. and somehow we convince ourselves that we can take a fair coin and flip tails 70% of the time. And that sounds ridiculous when I phrase it that way, but sometimes essentially that's kind of what is happening. So, for example, if you study great investment records, which I'm sure you do, you realize that there is a certain range of access returns over decades that the best investors have been capable of. And if you take Warren Buffett out of the picture and if you take people who use leverage

Starting point is 00:22:08 out of the picture, unlevered returns, there's almost no. Nobody over decades has exceeded 5% per year access returns with no leverage and so forth. Obviously, Buffett is done close to 10, but I don't think there's going to be another Buffett necessarily. So when someone shows up and they think they can do 10, what they're doing is they're exhibiting example of base rate neglect. They're looking at their own strategy and they're saying, I have these clever mental models, I have this process, I have this special sauce.

Starting point is 00:22:37 So they start to leave their own marketing deck a little bit too much. And they forget that the people who tried and failed to achieve the 10% per year, as an example, have also had their special sauce and their analyst teams and this and that. And yet they were only able to do a certain, you know, think about like someone like John Neff, whose record is public or who had three decades of returns. He beat the market by 3% per year in arguably less efficient markets than they are today. So when someone shows up and says, I'm going to beat the market by 10%. That's a little bit crazy.

Starting point is 00:23:07 It's a little bit arrogant. And again, I think we're all overconfident, but come back to the Fed. So look at the last 10 years. We had almost a perfect kind of confluence of events. We had interest rates coming down. We had unrivaled Fed manipulation of markets far beyond just the short term end of the curve. We had maybe as a result of or maybe as a coincidence, huge amount of speculation, both by retail investors and by a number of institutional investors, institutional in quotes, not naming any names,

Starting point is 00:23:35 don't ask. And you basically had, over the last five years, you had 25% Kager for a large growth stocks or all-cap growth stocks. So if you're investing in that universe, it's pretty easy to start believing your own BS and start saying, well, gee, yeah, no, I can crush the, I can do 20, 25% per year. But like, really? Let's like zoom out over the long term US equities returned inflation plus six to seven, depending on the time period. So if you think you can do 20% plus, you think you're going to beat the market by double digits per year. And I know everyone thinks they're very special, but that's just a perfect example of the inside view. The inside view is all these specific details for why the past experience of others doesn't matter. And the base rate is the past experience

Starting point is 00:24:19 of others in a similar situation. I think the best thing you can do is zoom out and say, well, whatever I think about my own capabilities, let me put a heavy weight on the experience of others and a small weight on why I think I'm going to do so much better. And that's probably the best you can do. That's interesting because I was kind of wondering the distinction here between, say, the base rate neglect effect versus, say, the recency bias effect. Because what I was kind of describing, I don't know, it could maybe fall into both categories depending on how you look at it. So recency bias is when you're essentially taking events from the past and extrapolating them into the future. So how exactly is that different or what are maybe some other distinctions between

Starting point is 00:24:57 that and the base rate neglect effect? So I think a recency bias is almost a special case of base rate neglect. So what are some examples of recency bias? Let's say you have a company over the last couple of years has been growing 30% per year, and you assume it's going to grow at 30% per year for the next one year. I'm obviously using extreme example. So that's recency bias. You take a near-term past and assume that's going to be the same in the long-term future. On the other side, let's say you have a company that over the cycle has barely earned its cost of capital

Starting point is 00:25:28 and averaged a dollar per share, but now the last couple of years has been earning $2, dollars per share and averaging 20% return capital. So you're going to extrapolate that $2 and assume that's the new normalized earnings for the business and say the new long term average earnings is $2 and this now all of a sudden the 20% return of capital business or something like that. In each case, you're ignoring the base rate, the base rate in this case being the history of the company or the history of similar companies. So in the first case, the history of companies growing 30% for two years is meaner version in the growth rate, totally. towards the growth rate in all companies.

Starting point is 00:26:06 So just to level set everything, the average company's profits over long periods of time grow in line with nominal GDP. By the way, ironically, if you look at Wall Street estimates, they assume the average company growth is going to grow earnings in double digits. Well, it hasn't. It's been growing 5% to 6%. And that's an example of base rate neglect because they forget that a fifth of the market is going to have negative earnings growth, but that's a separate thing.

Starting point is 00:26:30 And then the base rate for a company that's been earning its cost of cash. capital and had a couple of good years is that the long-term history is much more likely to be the best predictor than the last couple of years, which could be a cyclical high or something like that. So I think ignoring the base rate leads to the recency bias where we put a disproportionate weight on what just happened and assume that's a proxy for what's going to happen as opposed to zooming out and looking at a much longer data series. Got it. You know, another one you touched on a minute ago was anchoring. And as we mentioned, the NASDAQ is off, say, 20% from the high or even hearing something like, you know, some stock is at its 52 week low. I mean, when I hear those things,

Starting point is 00:27:12 I just immediately think anchoring bias. So walk us through anchoring and please provide some examples, whether it be from a study or maybe what you've seen from other investors. I think a good one that comes to mind is when I was a fidelity early in my career, Peter Lynch used to tell the story that probably illustrates anchoring pretty well, where he started doing research on the company and the stock was at 10. He thought the business was worth $30 per share, but he wanted to do some extra checking and have his analysts check things out and so forth. And while he was doing these checks, that basically the stock went up to 15. And he never bought the stock. Why? Well, because he anchored in a 10 and he did not want to buy it at 15 because he

Starting point is 00:27:52 kept waiting it for, even though from 15 to 30, it's still a double, which is a pretty good return. He was waiting, waiting for it to come back to 10 so he could buy it again at his original price that he anchored on and never did. He missed out. So that's a common thing. It's hard to buy something where you started doing work at one price point that moves up, even if there's still a lot of upside. Another example is just I've done this for over 20 years and I've mentored a lot of analysts

Starting point is 00:28:15 along the way. And I see the same developmental arc in a lot of investors. So first of all, like most investors are taught to be very disciplined in sticking to their price target. I'm talking about fundamental intrinsic value investors. I'm not talking about like people who are reading charts or something like that. I'm talking about people come in and they're taught that Wall Street analysts just change their price targets will and nearly. So imagine a donkey with carrot hung in front of the donkey, right?

Starting point is 00:28:41 That's kind of the Wall Street price target. If the stock is at 10, the price target is 15. If the stock gets to 15, guess what? No change in fundamentals. The new price target is 20 because the way Wall Street works is you start with a conclusion. I, XYZ, bulge bracket, firm analysts want to recommend the stock. What kind of upside do we need to put into my template to justify that, 30% or whatever? So I'm going to have a price target is 30% ahead of the stock price.

Starting point is 00:29:06 So the young analyst sees that, and he's thought by his elders that that's a bad way to invest. That's very undisciplined. And so he now, or she, come in and they say, okay, well, I estimate the intrinsic value of this business to be about 100. Now, because it's a range, maybe it's 50 to 150, but let's just use 100. for simplicity, you know, the kind of purposes. And they anchor to that. And then fundamental developments happen and they stick to this 100. So let's say something happens, a number of quarters occur, fundamental information comes out, and the stock now goes from, like boy, that's 60, let's say goes to 30. Well, they rarely, really update that 100. They stick to this 100 as if it's the truth,

Starting point is 00:29:46 as opposed to just an estimate at a point in time. And then they double down and triple down. And then when they lose their shirts, they're like, what happened? What happened is, they underreacted to new information. They weren't responsive to fundamental developments that should have caused them to take that 100 as their value estimate and bring it down. So how do you combat that? Because they are worried about flip-flopping and having their value estimate move all over the place.

Starting point is 00:30:11 They don't want to do that, but then how do you do it? So my solution has been to have small changes all the time proportionate to small fundamental developments. And that might seem kind of intuitive because you might say, well, Gary, like, value estimates aren't precise anyway. So what's the value of making small changes? The value of making small changes is you get in the habit of changing your value and de-anchoring. And another thing, so I have this what I call thesis tracker. So for every investment, so I have 10 investments right now in the portfolio, for every investment, every quarter I have with Excel cell and it's color-coded,

Starting point is 00:30:47 bright red to bright green. And bright red means they really deviate in that quarter from my thesis. actually based on the facts. Now, based on my opinion, it could be COVID, it could be recession. There are no excuses. It's purely a comparison between what I think the business should be doing and what happened. And there are certain actions that get triggered as a function of that thesis tracker. So for instance, let's say I have two or three orange cells in a row, meaning three quarters in a row, the company slightly underperformed my expectations.

Starting point is 00:31:17 That automatically forces me to re-underwrite the investment. Number one, number two, I freeze the investment from. adding additional funds to it. There was an old joke with Fidelity about a portfolio manager who lost half of his fund in a single 5% position. And of course, how does that happen? Well, he gets cut in half, you put more and bring it back to five, cut in half, bring it back to five. So, you know, Peter Lynch used to talk about cutting the flowers and watering the weeds. So I think it's very important once the thesis is tracking to re-underwrite the investment. So having this kind of rigorous I'm an MIT engineer by training, having this rigorous process where I'm forced to reunderate

Starting point is 00:31:53 and I'm prevented by my own rules from adding capital if certain things occur is really helpful. Same thing. If there's a bright red cell, even if for one quarter, immediately reunderite. And there's a recent example where Netflix, not a stock I own or have an opinion on, but there was a well-known hedge fund manager who I'm sure you know who I'm talking about who very publicly bought the company in a large amount and very publicly sold it. And time will tell if he is right, but good for him, at least, being able to change his mind on something that was both painful, locking in losses, and just so visible in public, where he was able to say, listen, the thesis is bright red, it's not tracking, I thought

Starting point is 00:32:35 X was going to happen, instead Y is happening, I got a bail. And so I don't know if that's the right decision. In this case, either way, I have no opinion. but the fact he's capable of making that change, which would be too hard for many people, it's a powerful thing. Yeah, and that manager, I think you're talking about who shall not be named Bill Hackman is actually, I think, gone on record to say he's going to be less focal about his investments, at least the activist one.

Starting point is 00:33:01 So, yes, I'm with you. I'm really eager to see if this was the right move or the wrong move, but it does, you have to give him credit, you know, for going against his anchoring, maybe in this example. All right. So another one I want to talk about, and this is a big one. And sadly, I see this one all too often in venture capital, but you can easily see how you can fall for it in the stock market as well. And that is social proof. It's kind of almost like the opposite of the devil's advocate tool we were talking about earlier. So a recent example of this could be Buffett buying a large stake in Occidental Petroleum. You could be bullish on oil and reviewing multiple companies, but upon hearing Buffett has picked a horse in the race, it's really hard to not let that influence your behavior or decision making, right? So Buffett says he even moved from Wall Street to Omaha just to get away from the noise and eliminate social proof of Wall Street. This one feels a little more primal than the others and thus even harder to correct. So what are some tips you've picked up for eliminating things like social proof? So I teach a value investing seminar at the local

Starting point is 00:34:05 business school in the Boston area. And the framework I always use with my students is on this stand, apply, and then customize. And when I'm talking about this, when you study great investors, I think there's a different school of thought out there with some well-known proponents that you want to clone great investors or copy them or whatever the case may be. And I strongly disagree. I think that you and not Warren Buffett, no offense, neither am I, and neither is anyone listening to this. And nonetheless, Warren Buffett has a lot to teach us. The goal isn't to copy Buffett's approach or this. The goal is to understand and figure out how can we tease out things that are applicable to our own investment approach and circumstances. And how does that interact with a circle

Starting point is 00:34:47 of competence? Because you and I might have very different circle of competence. And therefore, we might be taking the same framework and intrinsic value framework that Buffett uses and be applying it somewhat different in the key of us. So that's one thing is, and it took me a long time. You know, they say that the old cliche about 10,000 hours or 10 years of deliberate practice to achieve mastery, it took me a long time because you started as an investor in this hero worship stage. You kind of start and you say, oh, pick your hero, right, or a set of heroes, and you want to do everything like that. And I remember there was a very well-known fund manager who has beaten the SMP at that point for more of the decade. I'm not going to say the name. You might know who that is. And then I read,

Starting point is 00:35:27 there was a publication back in the day called Outstanding Investor Digest. And I read an interview with this. And this was maybe mid-career where I was seven or eight years into kind of my practice as an financial analyst as an investor. And I read an interview. with him on the stack that I knew well. And his thesis was like so shallow, like I was shocked. And I was like waiting to hear that there was like so much more behind the curtain. He's just summarizing and keeping it brief because of the format. And no. The thing he said almost made no sense. He basically was talking about a company. But this is a company I owned and I lost a lot of money on it back in the day at Sprint. So I remember my mistakes very well. And he kind of used some very simplistic

Starting point is 00:36:06 argument of like Sprint is trading at $1,000 per subscriber and Comcast. is trading at 3,000 per subscriber. And I was like, ah, but Tomcast has three revenue streams and Sprint has one, three, one, one, thousand. It's like, I hope you have more than that, right? By the way, I had more than that didn't help me from not losing a bunch of money and plenty of behavioral mistakes there, maybe a whole bunch of them. But the point is, you start from the hero worship phase and you run into this kind of, like,

Starting point is 00:36:34 wow, my heroes are not perfect. And or, wow, my hero might want to do it this way, fine. but I'm different. And I have these strengths. Like, I'm an engineer. I studied economics, computer science, and I'm MIT. I think very linearly A to B to C. I'm very process oriented.

Starting point is 00:36:49 I like repeatable things. I'm a terrible stock picker. By the way, please don't make this into a soundbite. But when I say I'm a terrible stock picker, meaning I have no stock sense. Like, I can't tell you which stock is likely to trade in which direction. I was a fidelity. And there were people who had good stock sense. And so I started saying, well, I need to build a process that plays to my strengths and

Starting point is 00:37:09 minimize way weaknesses. So my process is very much about kind of a systems engineering approach of a process as opposed to relying on my gut. Now, come back to your question about, you know, how do we avoid social proof though? One of the interesting thing is, is like Phil Fisher, who is pretty much almost every growth investor's hero for compounders and all of that stuff. He talks in his book that his best ideas are the ones that worked out the best, mostly came from other investors. So you don't want to completely disregard other investors. So here's how I do. But when my idea generation process is run, I have my funnel. One of the sources of the funnel is other investors I respect.

Starting point is 00:37:46 And so I have a very loose set up criteria for something going into the top of my funnel. For instance, let's say Warren Buffett buys something. Yep, it'll go into the top of the funnel. But so will a hundred other things. I purposefully do not track the source of that you have, you know, I have investors of respect, I have screens, I have a watch list of high quality businesses, and I have special situations. And these are all kind of orthogonal to each other for independent and they're complementar in terms of making sure I'm catching different types of potential misprisings.

Starting point is 00:38:16 Once something goes on the top of the funnel, I no longer keep track of where it came from. And then the next step is a kill phase where I try to kill things very quickly. So for me, I don't invest in energy. Why? I believe I cannot forecast the long-term price of oil. I haven't met anyone who can either. And so I think it's outside of my circle of competence. It doesn't mean it's outside of Buffett or anyone else's, but it's outside of my life. time at this point in time, despite trying. What I've seen is I've seen a lot of value investors humble in energy because they are overconfident about their ability. There was a very famous investor, someone who you would know if I mentioned the name, but I won't. And Columbia Business

Starting point is 00:38:52 School has this CSIMA conference, you know, their investment club has very high profile speakers. And this person came and presented, talked about Chesapeake, the gas company. And he got up on stage and said, well, it was my largest holding. I got everything right, micro-recognomers. economically, the market share, the cost position, this and that. But the only thing I got wrong was the price of gas. And that's why the investment didn't work out. And I was like, yeah, but dude, it's a gas E&P company. What else is there?

Starting point is 00:39:20 And so, by the way, the interesting thing is he didn't say, and I learned that it's too unpredictable if despite my best efforts and all the things that got right, it's still got the stock wrong because the one thing I couldn't forecast was the main driver of the business. He said, nope. And I still like it. I double down. I'm like, no, no, that's not the conclusion.

Starting point is 00:39:37 The conclusion is if this one macro variable driven by things you can't predict overwhelms all this microeconomic analysis that you can do, you can't do it. So the conclusion I reached is I can't really successfully predict the price of gas and oil 5, 10, 20 years out. And without that, you can't come up with cash flows for these businesses. And without that you can't invest in them. That's my belief. So when someone like Buffett invest in something outside my circle of competence, my initial response is past. Now, let's say he invests in something that is within my circle of competence. Then it goes through the same processes as if a friend of mine who you've never heard of,

Starting point is 00:40:12 but who is a good investor recommended to me or if it came through a screen. And I try to diminish the impact of it having come from the famous investor and focus on the merits of the idea once it's in the funnel. Hopefully that makes sense. No, it does. And going back to Buffett in 2008, he put a bet on Conoco Phillips that played out pretty poorly for that exact kind of reason. He said he couldn't really predict the price of oil and had such a massive.

Starting point is 00:40:37 impact, which is really interesting. I'm also reminded when you were talking about a thin thesis and following along, I mean, there was a fund manager who we won't name, but it was on CNBC. And they asked him, hey, what does this company do? And he was like, wait, what? I can't hear anything. Yeah, so static. Statick, sorry. He opted out. So I mean, like, that's why you want to kind of avoid social proof. I think social proof is, I feel like it comes out of this human, this natural human tendency to have a fear of failure because it somewhat gives you an out. Right. So if you're that goes against you, your investment goes against you, but Buffett put money in. You know, it's easier to be like, well, hey, look, even Buffett got it wrong. And so I think

Starting point is 00:41:14 that's why it's so tempting to give you kind of that out. Well, so when I started with Fidelity, like they owe, over 20 years ago, GE was a very popular stock and everybody owned GE. And you know how well or not well GEE has done over the 20 years since then. But you couldn't go wrong because everybody liked Jack Welch and how could you go wrong with owning GE? And so, you know how in Karate Kid Part 2, they say the secret of karate. Maybe I'm dating myself here. I've been rewatching that with my kids, but it's this little thing that creates the beat. Well, the secret of investing, if I hope people all are listening, is this. It's the balance between conviction and flexibility. But where to be

Starting point is 00:41:51 and when, nobody can tell you. You have to decide that. And I think that a lot of people think that to be a good investor, you have to be a contrarian because they hear that. I hear this a lot. Oh, I'm a contrarian. That's terrible. Don't be a contrarian. Because contrarian kind of implies you go against the crowd. Well, the crowd gets it right almost 50% of the time, you know, a little bit more probably than their frictional cost. So if you take the inverse, the opposite of that, you're going to be right about 50% of the time, give or take. And if you go against the crowd, you're going to write about 50% of the time, which is obviously not enough. And so you're a very, or you want to be an independent thinker, think from first principles, and basically reach your own

Starting point is 00:42:27 conclusions based on evidence and an overlay that with your strengths and weaknesses and your circle of competence. And I think it has to do with just being comfortable in your own skin. Like, Warren Buffett could teleport into my office tell me that he hates every single investment of mine. And in and of itself, that will mean nothing. But if he were to give me reasons, then that would be, you know, potentially the influence me quite a bit. But so I think you have to get to the point where, by the way, it's not just because I'm rebelling us authorities, because I respect Warren Buffett tremendously, but I've also achieved my own level of proficiency and I make decisions based on my own process. So someone agreeing to you

Starting point is 00:43:04 you can't be the major source of comfort or reason to move on from idea. It has to be their reasoning. And Buffett himself has said that. He said, I forget exactly how the quote goes, but something along lines, it's not because others agree or disagree with you. It's because your facts and reasoning is correct. And so the funny thing about the people who are recommending that we clone Buffett is Buffett isn't cloning someone else.

Starting point is 00:43:27 Buffett is learning from people, whether it's from Ben Graham early in his career, or Charlie Munger, or Phil Fisher, and then he's reaching her own conclusions. Incidentally, look at Charlie Munger and Warren Buffett. Charlie Munger is on the board of Costco, right? And he is just levered up at Daily Journal to buy some Alibaba with Lidu or something like that. I mean, again, I might be misrepresenting this, the details, but that's my impression. Well, as far as I know, we might find out different in a couple of weeks. Buffett doesn't hold a big stake in Costco, and he has a hundred billion cash.

Starting point is 00:43:56 So how come? But because he is his own person, his own approach, his own style, his own circle of competence. and while I'm sure he respects Charlie Mongo tremendously, they're different people of investors. I think that's what master is. It's reaching that comfort in your own skin, not blindly copying someone else. Let's take a quick break and hear from today's sponsors.

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Starting point is 00:47:37 I love this karate kid analogy, this yin and yang or wax on, wax off example, right, of conviction and flexibility. It's reminding me of a quote from billionaire Mark Andresen, who basically coined the phrase strong opinions weekly held, right? So I think that's kind of the growth mindset. set mentality. You have to constantly be learning, evolving and being flexible enough to change your opinion, which, as you're pointing out, Buffett has done many times over his career. So moving on, I've got a couple more of these I want to touch on. The scarcity bias seems to be just ubiquitous

Starting point is 00:48:11 these days, especially in markets like NFTs, where almost the entire point is the scarcity of the object. Scarcity is proven to create value in some instances, like real estate comes to mind. So how should we approach scarcity, either from a defensive position or maybe even an offensive position. Yeah. And I think that that's a great point that. So, like, lately, the markets have decided that just because something is scarce, it means it's inherently valuable. Well, look, I have three kids. And if some of them doodle and create a little piece of artwork and I scan that in, that's unique. Nobody else can recreate that. Does it mean it's valuable? To me, as a proud of father, Yes. But like to the market, maybe I can make an NFT out of it, but it shouldn't be, right? It shouldn't be valuable to most people. So, well, if you're in the desert and there is water, well, yeah, that's hugely valuable. So, you know, for something that to be valuable, it should be scarce somewhat, but also very useful. And I think, like, lately, people have been, like, going on this craze where just because something is unique and scarce, it's all of a sudden hugely valuable. And that is just not true. I'm thinking of writing this article.

Starting point is 00:49:22 about, you know, so I got my wife these pretty tulips because I'm into bonsai as a hobby and I went to a tree nursery looking for a bonsai stock and I saw these tulips. I got them for my wife and I'm like, I'm going to take a picture of them and I already got this article title, something like the red tulipto, the pretty crypto or something like that. Just because something is unique, like those tulips doesn't make them valuable. So I think that where is scarcity valuable in business is when you have a scarce set of assets that someone can't replicate, usually there's something to intellectual property involved with some competitive position. And yet, it's a bottleneck for others to achieve their means. So an example early from my career that I missed is Monsanto. So the Monsanto was a company that was doing genetic, modified crops. And it had tremendous intellectual property. It had approved to modify crops. It had trust with farmers. It had seeds and seed strains that they could integrate with genetically modified crops. Eventually got bought up. So I think finding scarcity that's useful in the business sense is a good metric for potential targets of a strategic acquire. So I think that's where scarcity could be useful.

Starting point is 00:50:30 And another good question I always tell my analysts or my students is if you try to judge how good a business is, I think how much time and or capital would it take for someone else to make it a bad business. And I think that's a good kind of, you know, if you have scarce things, you know, whether it's a brand, whether it's intellectual property, whether it's a low-cost position, it should take a lot of time and their capital for someone else to overcome that. That's where scarcity is useful. Just because some scribble, someone's really scarce and that's now it's digitally unique, like really? Like, have we fallen so low as a society that, but anyway, I don't want to offend

Starting point is 00:51:05 anyone too much. I think it's a great point. You know, I always think about this fact where scarcity is obviously a big component of something like Bitcoin and people seem to just get so riled up about the idea that Bitcoin could go into the hundreds of thousands of dollars per share just because it's scarce. And the utility is not comparable here, so don't get me wrong. But I'm always reminded about this humble guy from Omaha who was able to do it with a share price. So Berkshire Hathaway A shares are now worth over half a million dollars per share. And that's because of the scarcity of those shares to some degree, right? I mean, the utility, yes, and the growth, but the scarcity, he's not willing to dilute those shares like some other companies are willing to do with their own outstanding

Starting point is 00:51:46 shares? Well, I think it's not just the scarcity of the shares. It's the value he has created from the cash flow stream and the assets that he is produced. So I guess what we're talking about Warren Buffett is he is created something incredibly valuable because the cash flow stream that Berkshire Hathaway produces today is immensely bigger than it was many years ago. And so I would kind of push back on the premise that it's because he hasn't split the shares. It's always a little bit suspect to me when, you know, like you come into a pizzeria and I used to live in Brooklyn, New York as a kid, and there were a lot of Italian places and you come in, there's some guy throwing up pizza pies and, you know, they caught it usually eight slices and let's say

Starting point is 00:52:29 $2 a slice or whatever it is, although with inflation, maybe by the time, it goes live, it'll be $3 a slice, you never know. But let's say you come in and some guy says, well, how about I caught this pizza in 16 slices instead of eight and still charge you $2 a slice? How does that sound like? Well, no, that doesn't sound good to me. like I get the same amount of pizza, you know, so you're charging me twice as much. And I've seen these, it's actually, there was a company recently that I saw

Starting point is 00:52:52 announce a stock split after the stock collapsed 50%. And I found that to be tremendously, you know, amusing that they're trying to essentially prop up their own stock after a stock collapse by doing a share split, which economically does nothing. So, but anyway, coming back to Buffett, I think that it's fundamentally different from cryptocurrency. And I'm not an expert in crypto, so I'm going to stay away from that. But I think the issue with crypto is just belief of others. And the issue with Brookshire Hathaway is the cash flow stream now and in the future.

Starting point is 00:53:23 And that's fundamentally a different question to answer. Totally agree. You know, belief seems to replace analysis for lots of market participants, which might just be an unfortunate truth that we have to live with. But it's important to recognize that this can also be somewhat of a self-fulfilling prophecy. So since let's take GameStop, for example, it once hit a market cap of. of 22 billion in 2021 due to this short selling phenomenon that occurred. And some people might now believe that it could double where it currently is, which is 10 billion, back up to 22 billion

Starting point is 00:53:56 because it's been there before. And if enough people believe that, well, it might just come true in these markets. Right. And so right now, a lot of people believe that we're nearing the burst of possibly the biggest stock market bubble in history. So what are some steps to take if you, you actually believe something like this, which again may just occur simply because the belief is there? Right. So I think, first of all, whenever you use belief or belief enters your kind of lexicon for an investment, that's a dangerous sign. And I've seen this, you know, a lot of times when you have these called stocks and you push back on someone's thesis, they get upset, like emotionally upset. If someone pushes back on one of my investments in one of my thesis, I'm very happy because I just got a free chance

Starting point is 00:54:43 to devise myself. And so when someone is reacting emotionally to disagreement, that's a warning sign for them that they don't really have a lot of basis for their thesis, because basically they see an attack on their thesis as an attack on them. Whereas I see an attack on my thesis, as an attack on my thesis, which is welcome. And so I think we are experiencing a bubble. I've started my career right before the last bubble burst. And I was studying computer science and economics in MIT during the tech bubble over 20 years ago. I was, was poor growing up as an immigrant and I put my savings to work in the one tech stock that didn't go up. And right around that time, Warren Buffett came on campus and gave a talk at Sloan, which

Starting point is 00:55:23 is the business called MIT. And he was talking about intrinsic value, long term, competitive advantage, which all made sense, but it was foreign to me at the time. But at the very least, it made me realize I was speculating and not investing. And that's kind of how I entered the path towards value investing. I think at the same time, most people today in the markets haven't lived through a bubble before. Maybe some of them have seen the O809 crash, but that wasn't really a bubble. It was more dislocation in the sector that was infecting the rest of the financial system. And so very few investors today operating have really experienced that phenomenon. And it's very different experiencing it viscerally than reading about it, right? And so people have forgotten about web ban or some other

Starting point is 00:56:03 or price to eyeballs or some without a BS from the late 90s. And they've also forgotten how long it took for that bubble to burst. I mean, I think Alan Greenspan talked about irrational exuberance in 1996 and the NASDA, you know, I think troughed in whatever, 2002. That's a long time, career-wise, emotionally and so forth. So I think we are going through a period where everything was right, went right for financial assets, many of them, not all, but many of them got to extreme prices and that's not correcting itself. Unfortunately, usually prices don't stop in the middle at rational and frequently they go to the other extreme worth is partway towards the other extreme. So, as I said in the beginning, my approach is safety first.

Starting point is 00:56:45 It's always safety first, no matter the environment. But I think it's particularly important to be a safety first-minded investor now. How can you do it? So there are a couple of ways. One is you can try to hedge out various tail risks. And that's tricky, but you have to think that some obvious tail risks are obviously market, you know, there's interest rate tail risk, there's just stock relations, tail risk. Most people are not likely to do that, but that's one approach. It's tricky to do it at scale,

Starting point is 00:57:13 and it's tricky to do it as a cost-effective way, but it makes sense. If you can do it, you can't hedge every single thing out, nor are you trying to hedge against the 10% drop in the market. You're trying to really hedge against a disastrous event. Benjamin Graham with Heroky Security analysis had just experienced massive losses in the Great Depression in the 1920s and 1930s, because even though he was an experienced investor, just wasn't prepared for the magnitude of the losses that came. the way, one of the ways he lost money was margin debt. So stay away from leverage. Always a good idea, but especially like at a time like today, I would say stay away from questionable balance sheets because think about a business is either path dependent or it's not. Meaning, let's say you have a business

Starting point is 00:57:55 where it's going to be worth a lot if there is no recession or it's going to be worth a lot if the recession is mild, but it's going to go bankrupt if there's a very sharp recession. You don't want to be in that kind of investment because you have to know which path the future will take, and we don't. So stronger balance sheets. And also, I think that just there's a lot of gambling stocks out there and they're kind of greater full stocks. And I would say, maybe just to pause, a lot of times there's this debate between growth and the value investing. That's really not the main distinction. The main distinction is between intrinsic value investing, where you think a stock is a partial ownership piece of a business and greater full investing, where whether it's from a value

Starting point is 00:58:34 point of view or growth point of view, you're just buying an asset because you think someone else will pay more for it tomorrow. That could be a growth approach where you buy some growth company because you think they're going to raise guidance or give a long-term growth forecast that gets the market to revalue it up. Or it could be a boring cyclical where maybe over a cycle they earn 30 cents, but you say, well, I don't care. They're going to earn 25 cents in the quarter. The market will annualize that to a dollar, multiply that by 15, and the stock will do well. Either of those examples, regardless where they grow to value, they're just gambling. It's just greater fool.

Starting point is 00:59:09 You're just betting what someone will pay as opposed to thinking about the cash flow stream and the value. So I think staying away from greater full stocks, again, always a good idea. But even if you were one of the people who had fun with them in the last five years, I predict that it's going to be a little bit less fun over the next number of years. So just focusing on businesses that have solid balance sheets, have real cash flow streams, and where there is positive asymmetry, where if you're wrong, your losses will be modest, but if you're right, you can have substantial gains.

Starting point is 00:59:41 You'll do fine. And then finally, this is very important, set yourself up to never be a forced seller. Because you can do everything right, but if you manage your affairs, whether it's because of margin or because of external circumstances, where you have to sell, not of your own volition, that is a huge issue because you can have the market. Let's imagine you have, you're managing someone else's money. and you have short-term clients. And the market goes down 50%, and your clients will redeem and you're forced to sell. Well, it really doesn't matter what three years from them will be that

Starting point is 01:00:12 you'll be forced to sell. So you have to set your affairs up so that you are never a forced seller. As a matter of fact, I make a good chunk of my money buying from forced sellers or non-economic sellers. And that's why it's so important when I partner with people, is to have people who share my long-term view and they don't judge short-term progress by, you know, price duration in the short term. So again, don't be a fourth seller. Don't buy path dependent stocks. And just don't gamble. If you need to go gamble, buy a lot of ticket like with your serious money, focus on safety first. That will be my message. I love that. And so I know that you and I are both aligned, I think, on this philosophy. I'm, for example, a big believer in running a concentrated

Starting point is 01:00:53 portfolio. And what I mean by that is staying within, let's say, 10 to 15 investments. What is always curious to me is how much to stay within our circle of competence without overweighing the portfolio into highly correlated assets. So, for example, you mentioned staying away from oil as being outside of your circle of competence. That eliminates one sector, let's say, part of the energy sector. But then you're maybe building a portfolio that might have overlap with other sectors potentially, right? So how do you look at that diversification within a concentrated portfolio. Yeah, and I think it's a good question for someone with a concentrate portfolio, because if you're running a widely diversified portfolio, you're automatically diversified.

Starting point is 01:01:36 So you don't need to worry too much. But if you're like me and you have 10 to 15 investments, then you are potentially exposed to undue correlation of risk. Now, what I'm trying to guard against is not that there's some mark-to-market loss in some quarter or year where all these investments move unison. I don't really care of all that much about that. What I do care very much about is that the business outcomes aren't too correlate. Because when you're investing into 10 to 15 names, you need to make sure that they're as close to independent of each other as possible. And like you said, if you have areas where you don't invest, that kind of squeezes those 10 to 15

Starting point is 01:02:13 investments into the rest of the opportunity set, meaning that you might be to correlate. But it's not about gig sectors, which is like a common misconception. So I'll give you an example. So prior to starting a silver ring, I managed a, you know, a, you know, a, you know, a, you know, fund at my prior employer, and I had two investments. One was SAB Miller, which is a beer company, and the second one was Qualcomm. If you're running some kind of a borrower risk model and you're looking at overlap, they're completely different gig sectors. One is technology, the other is consumer, right? So no relationship, you're good, you're diversified. But the thesis for each one was predicated

Starting point is 01:02:47 on rising middle class in emerging markets, meaning people were going to trade up and buy more expensive beer and China and other emerging economies, and people were going to trade up to fancier smartphones, which was going to drive demand for Qualcomm's products. So here are two completely different industries where the same macro force, which is a tailwind, if it doesn't play out, would hurt the thesis. So looking for those correlations as systematically as possible and thinking about what do I have to be right about each business five plus years out, as opposed to What do I have to be right about each stock five quarters out? That's the mindset you want to have.

Starting point is 01:03:24 And also, frankly, you have a set of risk-reward trade-offs. Too many people make the mistake of sizing their largest investments based on upside. But again, going back to the safety first mentality, I size my positions based on downside, meaning my largest investments have the smallest downside. I have an investment which maybe it's a 30% of my base case value, I have to know, 30 cents in a dollar. But if that's going to be, if that has 100%. percent downside, that might not be my biggest position.

Starting point is 01:03:52 So, again, you want to have multiple layers of defense. You want to have debiasing and thorough research at the security selection level. You want to size the position based on how much you can lose. And then finally, you want to look at the correlation and you want to make sure the way I do it is I don't want any one thing that I have to be right on to account for more than a 10% hit to the portfolio. The Y10, well, I have 10 fingers, but more seriously, it's also, if I lose 10%, on being wrong on some judgment, the 90% at reasonable rates of return can overcome that in a year.

Starting point is 01:04:25 But if I lose 20% or 30% on something, it's too much. You know, it's very hard to recover from that. So longevity in investing, whether you're investing in your own capital or someone else's is super important. And it's okay to have slightly lower returns at some period of time and always recover from that. But losing big chunks of money permanently, very hard to recover from. And that's what I try to guard against. Well, Gary, this has just been a fascinating discussion and I learned a ton. I really hope we can do this again sometime soon.

Starting point is 01:04:54 Before I let you go, give a handoff to our audience where they can learn more about you, your blog. I know you're writing a blog. That's great. Your fund. Any other resources you want to share? Sure. So behavioral value investor, all one word.com is where you can read some articles, usually

Starting point is 01:05:11 once a month about intersection of investing and behavioral finance and silver ring value partners.com is where you can find my company. And I have something I call the owner's manual there, which is an in-depth explanation of my investment process. And I'm happy to share that with anyone most of the time. I have students or others who just want to learn and prove themselves who request it. And if you request it, no matter who you are, I'll be happy to share it with you. And hopefully there's something in there that can help. And happy to stay in touch. There's contact info there as well if you want to reach out. Fantastic. Well, thank you again so much, Gary for coming on the show. I really hope we can do it again. And I will be following along on the

Starting point is 01:05:49 blog. So appreciate your time. Thank you so much for having me. I appreciate it. All right, everybody, that's all we had for you this week. If you're loving the show, please don't forget to follow us on your favorite podcast app. And if you would be so kind to leave us a review, we would really appreciate it. And I can't emphasize this enough. Please check out our resources at the investorspodcast.com or simply Google TIP Finance. And lastly, reach out with any feedback. I'm on Twitter at Trey Lockerbie. And with that, we will see you again next time. Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by the Investors Podcast Network and learn how to achieve financial independence. To access our show notes, transcripts or courses,

Starting point is 01:06:30 go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision consult a professional. This show is copyrighted by the Investors. podcast network. Written permission must be granted before syndication or rebroadcasting.

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