Investing faux pas

  • Of course there are few better guilty pleasures than finding reassurances in other’s failures

As December begins and the year 2018 draws to a close, many of us might be looking forward to the next year hoping it would be better than its predecessor, regardless of how one might have fared on the many fronts.

Among those fronts, for many of us, is the financial battlefield, which ranges from survival mode to anything beyond that towards infinites.

Whether one is struggling to make ends meet or, again, is at scales more comfortable than that there’s no escaping the fact that money matters. And among those relatively better off scales is the question mark over investment.

Nope, one doesn’t need the proverbial bucket loads of dough to think of investments. In fact, gurus suggest the best time to invest money is often when you don’t have any – for it eventually pushes you to make enough, and then some.

For those who wrestle with their financial ambitions this time of the year, and often feel they’ve come out on the losing side, solace can be found in Michael Batnick’s Big Mistakes: The Best Investors and Their Worst Investments.

Of course there are few better guilty pleasures than finding reassurances in other’s failures. What could be more pleasing than extricating those out of the faux pas committed by some of history’s greatest ever financial minds?

There are 16 of these for you to chew into in Big Mistakes – the 16th being Batnick himself. And while you’re at it, there’s a chance you might learn a thing or two about avoiding the ones that you make, and perhaps be ever so slightly better placed on the financial front this time next year.

Chris Sacca, the founder and chairman of Lowercase Capital, told Airbnb guys what they’re doing is unsafe. It is now worth more than $30 billion. Just like losses, regrets are another enemy that you need to learn to cope with

Benjamin Graham, for instance, was writing about behavioural economics ages before the term had even been coined. That still didn’t prevent him from losing more than two-thirds in just the four years between 1929 and 1932.

Jesse Livermore, “the most quoted trader of all time”, went bankrupt four times and eventually took his own life. His life – and death – is a lesson in the significance of investment risk management.

Mark Twain might be known more for his humour and writing, but at one time he was the “highest paid writer in America”. Of course, what he did with that money interested many as well. Among this is the compilation of “a list of failed investments longer than a pharmacy receipt”.

John Meriwether, the pioneer of fixed income arbitrage, and founder of Long‐Term Capital Management, didn’t quite like entertaining the possibility of having actually misreading the market, once in a while. Overconfidence can be a dangerous thing in the markets.

Jack Bogle, the chief executive of the behemoth that The Vanguard Group is, provides the valuable lesson in patience and steadfastness. For, what the financial world will forever know him for didn’t come to him till he was about to touch 50 years of age.

Michael Steinhardt, one of the earliest pioneers in the hedge fund business, had to overcome aggressive and emotional trading – wherein a fine line between success and failure can be found. You venture into realms where you aren’t really as competent and you can see red.

Jerry Tsai of Fidelity Investments had to sell his Tsai Management and Research five decades ago, owing to a propensity to chase immediate profits. One bad year can kill a decade worth of unprecedented success, and you’d be lucky to find yourself on square one.

When it comes to investment advice in the year 2018, it’s hard for anyone to have missed out on Warren Buffet’s name. At a time when you’d find a barrage of articles about just about any human habit and how one should replicate Buffet to achieve success, it might also be worth the while to learn how the man cost Berkshire Hathaway $6 billion.

Bill Ackman, founder and CEO of Pershing Square Capital Management, has blown up hedge funds. Lesson? It’s hard to deal with emotions while taking on the market, but even harder if you’re public about it and then invite pressure from elsewhere as well.

Stanley Druckenmiller took over the reins from George Soros and for a decade ran Quantum. He founded and eventually closed Duquesne Capital after not being able to provide the desired results. When you’re out of touch with the market, it’s always a great idea to call up fresher minds.

Sequoia sold their entire position only eight months after defending Pearson and Valeant. In 2013, Sequoia closed the fund owing to Valeant ant its assets almost halved from over $9 billion to under $5 billion.

John Maynard Keynes, the founder of Keynesian economics, whose The General Theory of Employment, Interest and Money is a financial gospel for investors, in addition to the infinite volumes of economic wisdom found elsewhere in his writings, lost two‐thirds of his wealth between 1936 and 1938, as he exhibited a struggle in dealing with interest and money.

John Paulson of Paulson & Co made more in a single year in 2007 than anyone ever had in the history of financial markets. In 2010, he invested $5 billion in gold, which has lost 30pc of its value since the year 2011.

Charlie Munger, currently the vice chairman of Berkshire Hathaway, oversaw Wheeler, Munger & Company losing a third in 1973, and another third in 1974. Who doesn’t need a lesson in dealing with prodigious losses?

Chris Sacca, the founder and chairman of Lowercase Capital, told Airbnb guys what they’re doing is unsafe. It is now worth more than $30 billion. Just like losses, regrets are another enemy that you need to learn to cope with.

Of course, Big Mistakes discusses big money and big investments, volumes of which wouldn’t be relatable for anyone reading this. But that’s precisely what makes those lessons even more valuable for us lesser mortals.

The numbers involved are but one factor in these failures which are surrounded by the greatest of success stories. Anyone remotely interested in money, or life in general, can learn more than a thing or two here.