William Green as a child was drawn to horse racing. He thought this was a way to make money with just using your mind. However, he lost money and then that was the end of that. He stopped cold turkey. William Green then discovered the stock market in his 20s. As part of his job writing articles for The New Yorker, Time, Fortune, Forbes, Fast Company, Bloomberg, and The Economist, he had the great fortune of interviewing great investors. He became fascinated with how super investors were able to beat the market and then wondered if he could learn from them by reverse engineering their thought processes.
When he turned 40, his questions of how to make money became more about how do I balance stress, how do I balance my family and work, and how do I live a great life. His goal became to reverse engineer these people's thoughts and learn how to become smarter, wiser and happier. William Green presents four lessons in investing, which are also very important to living a fulfilling life.
You must have the willingness to become lonely. You have to diverge from the crowd. Sr. John Templeton compounded his money at 15% a year for over 60 years. Templeton decided early in his life that would save half of the money he made. The most memorable experience William Green had of John Templeton was actually watching him one morning when Templeton was exercising. Green hid behind a palm tree in the Bahamas and watched as Templeton pumped his arms and his legs in the water. Here Green was hiding and expecting an overpowering presence from Templeton, but to Green's astonishment, Templeton looked ridiculous in the water with his face lathered with sunscreen. But, Templeton didn't care what other people thought.
Super investors don't go with the crowd. In 1939, the world was coming to an end, Germany was about to over run Paris, and the market had been smashed by the great depression. Templeton identified a group of stocks trading at less than $1.00 and he figured out that WWII was going to jump start these tiny companies. He bought all 104 stocks and there were about 37 companies that were about to go bankrupt, which he also bought. The broker at the time thought that this was a strange request, but fulfilled it nonetheless. Five years later, 100 out of 104 were profitable bets and he quintupled his capital.
The crowd is reactive and most people get carried away with fads and listen to market predictions. The key is the ability to detach yourself from the stupidity of the crowd and to think for yourself.
The power of humility. You have to have the self confidence to go your way and build in a layer of humility. "The screwiest thing you can do is to think you are a master of the universe." The future is extremely uncertain and the only constant is impermanence similar to the Japanese word mujō. You have to be constantly looking at where we are in the economic cycle. Howard Marks had the belief and the idea that we are just little cogs and the world is going to go on with or without us. The only reason Howard Marks got into value investing was because the partner at Lehman Brothers got drunk and didn't call him to extend an offer. Think about how many lucky breaks you've received to get you to where you are now.
The market was imploding during the second week of September in 2001 and it was what was said to be the worst week since 1929. Bill Miller had a 15% stake in Amazon (NASDAQ:AMZN). Everyone doubted him and he replied saying, "If I am wrong, I will lose 100% of my money, but if I am right I'll have made 50 times my money." Amazon evidently survived and he has made a great deal of money. Then in 2008 and 2009, everything Miller was buying including Merrill Lynch and Countrywide was turning into dust. His funds goes down more than 55% and 65%.
You need to be humble. Think to yourself, what if I am wrong? What if the private company you invest in goes to dust? Everything can look fantastic and then just goes to hell.
The ability to take pain and have emotional resilience. Think about what Bill Miller went through in the 2008 and 2009 financial crisis. He invested half of his money with margin and his two funds got hammered by more than 55% and 65%, respectively.
We need to pay attention to the need to build emotional resilience. Humans tend to overreach in the good periods. Don't get carried away when the market times are good. There is a time when you will be hit. You want to take various safeguard and don't overreach. Don't invest with margin. You can't control what happens to you, but you can control your attitude towards the situation. When times get rough, where are you going to get your emotional strength?
The key to happiness living a worthwhile life. William Green interviewed Irving Kahn through a series of written questions. At the time, Irving was over 100 years old already. One of the question Green asked was, "when you look back on your life and think about the key to not just a long life, but a happy and meaningful life, what was it?" Irving replied that it is different for everybody, but for him it was his family. The things that truly made him happy was having healthy family members, the fact that he built a company he was proud of, and that he met people who were smarter than him. The only thing he truly cared about in terms of physical things was books. John Spears said investors are always talking about return on capital and this is about return on life.
The ability to stack the odds in your favor increases the odds of having a successful life. Think about how you can make other people's lives complete. What is your gift and your particular abilities and what can you do to make a difference in other people's lives. When you're tilting the playing field in your favor, you'll have a successful and happy life.