The Reading Room

Big Mistakes: The Best Investors and Their Worst Investments

Michael Batnick

Published: 2018

In this read, the author gives some valuable insights regarding ways in which the best investors have failed. The book also advises readers on creating successful strategies by learning from previous mistakes. The crux is that even the masters of the art of investments make mistakes but the difference is that they learn from them. The book dives into the tales and investment journeys of veteran investors like Jesse Livermore, Warren Buffet and Paul Tudor Jones.

Some of the notable lessons are as follows:

Avoid the availability heuristic – Warren Buffet’s mistake
Warren Buffet in his career invested in many shoe companies like H.H. Brown in 1991 and Lowell Shoe in 1992. Both the acquisitions were extremely successful and paid off rich dividends. However, the hat-trick in 1993, while acquiring Dexter Shoe, did not pay off. In the availability heuristic, people perform a mental shortcut by using immediate examples when considering a subject or decision. In this case, since his last two shoe company acquisitions were extremely successful, he was more ready to believe that the third will yield the same results. In six years low priced Chinese shoes flooded the market and killed the company.

Yielding takes courage – Mark Twain’s mistake
Every intellectual may not be an astute investor. One Mark Twain’s earlier investments was in the 1880 typesetting machine created by James Paige. The machine was aimed at replacing human-operated typesetting machines but the company did not do well and lost value in a very short span of time. Twain, however, continued putting money into the business, hoping for a turnaround which never materialised. His mistake was holding onto a failing proposition and not accepting defeat even when the Law of Holes prompted him to let go and save what he could.

Ego – a sin to stay away from, Bill Ackman
Bill Ackman, one of the world’s best known activist hedge fund managers began to publicly call out a pyramid scheme-based company named Herbalife in 2012. His hedge fund, Pershing Square Capital Management, shorted the company believing that its stock would soon crash. Extremely convinced of his belief, Ackman even went on television to state that his short position on Herbalife amounted to about 500 million dollars. Unfortunately, his forecast was incorrect. Eventually, in 2018, Ackman exited this trade at an undisclosed loss. Ackman’s biggest mistake here was his ego. The lesson to be learned is that one should always look at investing as a means to make money and not a place to be proved right.

Venturing into unknown doesn’t pay always– Stanley Druckenmiller’s mistake
Stanley Druckenmiller is one of the most successful macro-driven investors. During the dot com bubble, leaving the path he knew best, and buoyed by enthusiasm regarding technology stocks, invested six billion dollars into the sector in just one week. Within just six weeks of this unparalleled investment, he lost three billion dollars, cutting his investment in half. The biggest lesson here is that investors should in most situations, stick to what they know best.

The book goes deeper into the driving forces behind these mistakes to provide valuable insights. A key learning is that one must always be alert to cognitive and behavioural biases that develop over time. One should consistently ensure that one’s investment decisions are purely based on analysis and keep on incorporating new information that one may receive and if necessary revise such decisions.

 

Dhaval Somaiya
November 2021

The information contained above and in other entries in the Ocean Dial Book Review Series is intended for general information and entertainment purposes only, and should not be relied upon in making, or refraining from making, any investment decisions. No information provided herein should or can be taken to constitute any form of advice or recommendation as to the merits of any investment decision. You should take independent advice from a suitably qualified investment adviser before making any investment decisions.

Zero to One: Notes on Startups, or How to Build the Future

Peter Thiel

Published: 2014

“People also ask: How much money did Peter Thiel make from Facebook? Is Peter Thiel a genius? What is Peter Thiel known for? How can I get in touch with Peter Thiel?”

Read more

Tiananmen Square: The Making of a Protest, a diplomat looks back

Vijay Gokhale

Published: 2021

A new book by a former Foreign Secretary and Ambassador to China, who revisits for the first time his first-hand experience of the June 4, 1989, Tiananmen Square incident, which he witnessed as a young diplomat from India, and explains why, 32 years on, its legacy remains significant for both China and the world.

Read more

Talking to Strangers

Malcolm Gladwell

Published: 2019, Little, Brown & Co.

A challenging and controversial excursion through history, psychology, and scandals. Revisiting the trial of Amanda Knox, the suicide of Sylvia Plath, among other news stories, Gladwell argues that something is wrong with the tools and strategies we use to make sense of people we don’t know. And because we don’t know how to talk to strangers, we are inviting conflict and misunderstanding.

Read more

Disclaimer

IT IS IMPORTANT THAT YOU READ THE CONTENTS OF THIS NOTICE CAREFULLY BEFORE ACCESSING THIS WEBSITE. THIS NOTICE GOVERNS YOUR ACCESS TO AND USE OF THE WEBSITE. BY ACCESSING THE WEBSITE YOU AGREE TO ACCEPT THE TERMS OF THIS NOTICE AND THE FOLLOWING TERMS OF USE. IF YOU DO NOT AGREE TO ABIDE BY THESE, YOU MUST STOP USING THIS WEBSITE IMMEDIATELY.

This website is provided by Ocean Dial Asset Management Limited, whose Registered Office is at 13/14 Buckingham Street, London WC2N 6DF and Registered Number 05583807. Ocean Dial Asset Management Limited is authorised and regulated by the Financial Conduct Authority (“the FCA”), with registered number 447424.

NOT FOR U.S. PERSONS
The information contained herein does not constitute a distribution, an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction in which such distribution or offer is not authorised. In particular, the information herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States of America or to or for the benefit of any U.S. Person as such term is defined under the United States Securities Act of 1933, as amended.

No investments or services mentioned on this website are directed at U.S. Persons who are not Professional Clients or Eligible Counterparties as defined by the UK Financial Conduct Authority (FCA) Handbook or Qualified Purchasers as defined under the Investment Company Act of 1940. The information contained herein does not constitute a distribution, an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction in which such distribution or offer is not authorised.

THIS WEBSITE IS ONLY MADE AVAILABLE TO PROFESSIONAL CLIENTS AND ELIGIBLE INVESTORS AND COUNTERPARTIES.

ODAM does not manage money for retail clients. Eligible investors only may access ODAM’s expertise through the funds or investment companies for which it acts as investment manager.

This website is not directed at you if Ocean Dial Asset Management Limited (“ODAM”) is prohibited by any law of any jurisdiction from making the information on this site available to you, and is not intended for any use which would be contrary to local law or regulation. This website and its contents are not intended to sell services or products over the Internet, rather for Internet viewer convenience and information purposes.

Information displayed in this website contains material that may be interpreted by the relevant authorities in the country from where you are viewing the website as investment advertising or an offer to purchase securities. Accordingly the information on this website is only intended to be viewed by the persons who fall outside the scope of any law that seeks to regulate investment advertising in the country of your residence or in the country in which the website is being viewed. Users of this website are therefore assumed to have the knowledge and experience in business and financial matters to enable them to evaluate the merits of, and risks of, investing in the investment funds referred to in this website. Persons of any other description should not enter this website nor rely on any of the information contained therein. If you are uncertain about your position under the laws of the country in which the website is being viewed then you should seek clarification by obtaining legal advice from a lawyer practising in the country of your residence or in the country in which the website is being viewed before completing this question.

Risk warnings

Investments may fall as well as rise and investors may lose a substantial portion or even all of their investment. Past performance is not necessarily a guide to future performance.

Investments denominated in foreign currencies can result in the risk of loss from currency movements as well as movements in the value, price or income derived from the investments themselves.

Investment in emerging markets involves risks which may not be typically associated with investing in more developed markets. Investment in small- and mid-cap stocks may also involve a higher degree of risk as these markets tend to be more volatile than their larger capitalisation counterparts.

Disclaimer

To the extent permitted by relevant law and regulation, ODAM expressly disclaims any and all liability which may derive from this website or any other information provided by ODAM in connection with this website, and any errors therein or omissions therefrom. The description of the investment management services and processes provided by ODAM in this website is written in general terms. The services and investment funds referred to in this website should not be regarded as an offer nor solicitation for such services or investment funds in any jurisdiction where such offer or solicitation is unlawful. The terms and conditions applicable to individual investors investing in investment funds managed by ODAM are set out in each relevant fund’s offering document. This website contains information designed only to provide background material for determining whether or not to consider investment. This website should be read in conjunction with the relevant offering document for each fund. All potential investors must carefully read the offering document which will contain significant additional information needed to evaluate investment in the fund and important disclosures regarding risks, fees and expenses. The offering document is the sole document upon which potential investors should rely. Recipients in any doubt about the content of this website should seek advice from an independent professional adviser.

This website is based upon information that is considered to be reliable but ODAM does not represent or warrant that it is accurate or complete, nor should it be relied upon as such. Views and opinions expressed within this website including comments on sectors or individual stocks or companies are those of ODAM and its Mumbai based affiliated company Ocean Dial Asset Management India Private Limited (a company incorporated in the Republic of India) as at the date of publication. Subsequent events may cause these views to change. The investment policies and procedures described are guidelines and not rules. Occasional deviation from the parameters given may result.

Use of links
The ODAM website may contain links to websites operated by other parties. ODAM does not control the content or accuracy of information on such websites and does not in any way confirm or endorse the material placed on such sites. The links are provided for your reference only.

Copyright
The copyright and all other rights in all of the material on this website are owned by the company listed on the web page or the material is included with the permission of the rights owner. You may review and copy material on this website for your own private or domestic use only. All other copying or use is prohibited.

Governing law
You agree that in the event of any dispute of any nature that may arise between you and ODAM, these terms and conditions shall be governed by and construed exclusively in accordance with the law of England and Wales and you agree to be subject to the exclusive jurisdiction of the courts of England and Wales.

Privacy policy
Any personal information that you supply ODAM via the website and other means will be held in accordance with the General Data Protection Regulation – please see our privacy notice for more details . If you would like to be removed from our database at any point, please email your request to enquiries@oceandial.com

Use of cookies
For the purposes of gathering data to measure traffic and patterns of usage on our website, we need to use your IP-address. In addition, for example, we use cookies to ascertain as to whether you have agreed to our disclaimer.
A cookie is a small file held on your PC. If you do not want to accept cookies, you will need to alter the setting on your internet browser. We will not use your IP-address or any cookie to identify you personally.