Big Mistakes is a book written by Michael Batnick. Who is this guy? Honestly, I do not know him too. From the About the Author page of this book, he is the Director of Research at Ritholtz Wealth Management, an investment advisor firm in New York. This is the only information I have about him. Nonetheless, his background is not that important compared to the contents of his book.
Why did he write about mistakes instead of successes?
“By three methods may we learn wisdom: First, by reflection, which is noblest; second, by imitation, which is easiest; and third by experience, which is the bitterest.”
The author quotes these words of Confucius in the book. So, by learning about the mistakes, hopefully we can gain knowledge through the first or second way.
Layout of Big Mistakes
This book is divided into 16 chapters, covering the dignitaries of investment field. They are Benjamin Graham, Jesse Livermore, Mark Twain, John Meriwether, Jack Bogle, Michael Steinhardt, Jerry Tsai, Warren Buffett, Bill Ackman, Stanley Druckenmiller, Sequoia, John Maynard, John Paulson, Charlie Munger, Chris Sacca and the author’s own experience.
In each chapter, the author starts with an introduction about the person or fund before delving into the mistakes. Before ending a chapter, the author will put in some thoughts about the lessons from the mistakes discussed.
Highlights
This book shows that even great investors had their own mistakes. If successful investors have their own share of mistakes, it is only natural that we, the common investors, would commit mistakes too. This book proves that mistakes are unavoidable in the investing journey. The important thing is that we learn from our mistakes and try to avoid from committing the same mistake again.
Since mistakes are unavoidable, we have to find our own way, i.e. a methodology that we are comfortable with. It means having a repeatable process. By having a process, it is hoped that we would be less susceptible to the vagaries of human emotions and reduce our mistakes.
This book also comments on the sayings that we often hear about investing like “Nobody ever went broke taking a profit.” and “Buy when there’s blood in the streets.” Although the sayings sound true, applying them is usually difficult. Not every situation can be condensed into a saying.
One lesson that particularly rings true to me is the following: There are no good times without the bad times. We need to handle losses calmly as it is part and parcel of the journey. The author advised against selling an investment after it has declined in price per se. Besides that, we must make sure that we are not putting ourselves in a position of being a forced seller. Thus, only use money that we can afford to lose or have no use in the near term to invest.
Another lesson that I learned is we need to keep the losses manageable. We should avoid depleting our capitals as much as possible. It is up to us to set the balance.
We often hear about the average return from the stock market is around 7%. The author provides clarification on this average number. “Stocks tend to swing in a wide range, spending a lot of time at the fringe and little time near the average, delivering maximum frustration.” Thus, the average return might not be what we would get in real life.
Furthermore, luck plays a great role in our investing journey. Can successes be entirely attributed to superior stock picking skill? The answer is no, according to the author. It is more likely to be lucky than consistently run faster than the competition.
Most investors are trying to build a perfect portfolio. Does a perfect portfolio exist? It is simply impossible. What is more likely to be achieved is that we hold a portfolio that is suited to our personality.
Conclusion
Compared to most investment books on the market which talks about how to reap great profits, this book is an outlier from the mass. It provides a different perspective to look at investment, at least for me. By knowing these mistakes, hopefully I can avoid from committing these blunders.
As usual, before I end, I will share some witty quotes from the book.
“Cheap can get cheaper. Rich can get richer. Margins of safety can be miscalculated, and value can fail to materialize.”
“Risk management is a part of investing. Repeating mistake is part of investing.”
“William Bernstein: Investment success accrues not so much to the brilliant as to the disciplined.”
“Travelling outside your circle of competence is one of the most common ways that investors misbehave.”
“Cullen Roche: The stock market is the only market where things go on sale and all the customers run out of the store.”
“Few people are spared from unforced errors, and the way they usually manifest themselves is because we can’t handle people making money while we aren’t.”
“Some things can’t be taught, they have to be learned the hard way, even if we don’t learn anything at all.”
“Charlie Munger: You need patience, discipline, and an ability to take losses without going crazy.”
“Hindsight bias leads to regret, and regret leads to poor decision making.”
Recommended book
If you are interested in Big Mistakes, you may get the book from Kinokuniya Malaysia through the link below*.
*Disclosure: The above link is Involve Asia affiliate link. Thus, I may earn a small commission when you purchase the book through this link.
