Lessons from great minds of investing: William Green

Gyan on Treadmill dated 07-Apr-2018

One of the benefits of reading and learning about investing and investors is that you can learn a lot about life. You get more life wisdom rather than investment wisdom, I would even go as far to say that the latter is a bonus. Most of the great investors have tasted great success, experienced great failure, resisted temptations, handled bare borne emotions like greed and fear, shown exemplary courage and exemplary humility, separated what is important from what is urgent and unimportant and finally, helped a large number of people to become successful and lead their life with calm and peace. 

William Green

For his book 'Great minds of investing', William Green and team interviewed 22 of the greatest minds of investing and culled the essence of their life experience. The book provides deep insight into the minds of these investors, identifying the qualities and principles that have enabled them to achieve huge success. It has taken the wisdom of the great investors without restricting it to investing and extending it to life.

The book is currently available only in hard cover and is very expensive at about 86 Dollars. I am waiting for the Kindle Edition to appear to even consider buying.

As an aside, if anyone wants to gift me this book, you are welcome to do so.

As a part of the 'Author Talks' series at Google, William Green spoke of the lessons that he learned after interviewing these great minds in investing. Here is the essence of his presentation.

(You can watch the presentation here)

While analyzing these experts to understand the 'How' questions, like how do they make decisions, how do they handle failures, how do they avoid obvious mistakes and how do they manage work life balance and 'what' questions like what are their principles, what are their life approach etc, Green came up with a list of four life lessons.

They are: 

1. Willingness to be lonely: This deals with the ability to diverge from the crowd and take tough decisions (take uncomfortable idiosyncratic positions). 
2. The power of humility: While you have to have the self-confidence to go your way, you also should have the humility to accept the possibility of making mistakes. This helps you build safeguards in case you are wrong.
3. The ability to take pain: As a long-term investor, there are bound to be times when you are making huge losses and the society will be after you with a pitchfork. You should have the emotional resilience to handle the downside. 
4. The key to happiness: What they do with their money? How do they use it for societal benefits?

John Templeton was one of the great investors of his time. He was the first leading investor to venture beyond American Borders and venture into the area of global investing. Many a time he took

John Templeton

extraordinary tough decisions which no one would have taken. As an example of his ability to take tough decisions, Green talks about Templeton's investment in small companies in the US markets in 1939. It was the beginning of WW2. Germany was moving into Paris and everyone was expecting the world to come to an end. Templeton bought a basket of 104 companies in the NYSE trading at less than a dollar. 37 of those companies were bankrupt. Five years later, when he sold off his position, 100 out of the above were profitable and he made 5 times his initial investment. 

Mohnish Pabrai is another investor who stood out against the crowd. When he started off in 1994, he

Mohnish Pabrai

found that no serious investor was following the strategy of Warren Buffett, like buying companies trading at very low price in relation to its intrinsic value. He understood the value of 'Extreme Patience' and followed the value investing principles to the core. 

One example of extreme patience is to wait for the perfect opportunity to invest. You may have to wait for very long period of time, but great investors always eschewed the tendency to invest because they 'had to invest'.

Another example of loneliness is Bill Miller's purchase of Amazon. After he purchased it, the stock crashed from 90 Dollars to about 5 Dollars. Miller invested almost all his money in this one company and as per the latest price, the stock has grown 200 fold from those lows. This is the ability to accept that you will be lonely a lot of time.

You also have to be humble to understand that you do not have all the answers. You have to accept the possibility of either extrinsic (war, earthquake etc) and intrinsic (hubris, assuming that you can predict the future) events and take steps to handle the aftermath. You have to accept that you are just a cog in the giant wheel of the universe and remove all illusions of control. Humility also means accepting the role that luck played in your life and career and not to attribute all the successes internally and all failures to external causes. 

As an example of role of luck, Green explains the case of Howard Marks. Early in his career, Marks

Howard Marks

had applied for a job at Lehman brothers and the guy who was supposed to make the final offer got drunk and forgot about it. Had that offer come, and had Marks accepted (which he most certainly would have), his career would have taken a different turn.

(Non-sequitur) At certain point in life you realize that the scarce resource is time, not money.

You need to be humble enough to accept that you could be wrong. And take possible corrective action. 

It is not easy to balance the trait of humility with the arrogance that comes with loneliness. You have to be arrogant about your intellect, your process and your approach to take a position vastly different from that of the majority, It is very easy to be carried away by your arrogance and miss the changing trends that could impact your decision. It takes humility to always ask the question, what if I am wrong? Humility ensures that ego is kept out of decision analysis.

Ability to take pain is another important trait. At one point, Bill Miller of Legg Mason was managing

Bill Miller

an asset base of 77 Billion which crashed to 800 Million (almost 1/10th) during the financial crisis. At that time, he had to lay off about 100 people. He looked around and found investors who had lost their wealth, people who had lost their jobs, all due to mistakes he made. That realization is very painful.

There are two ways to handle pain. One is to prepare for the inevitable crash when things are going good. For example, Bill Miller's wife put all her alimony into bond funds and did well when Markets Crashed. Another is to look around how others have handled pain, what was their source of strength, and identify our own source of  emotional strength. It could be from your family, your faith, your life philosophy...anything. 

What is the key to happiness? Does money make people happy? Many of the investors whom Green interviewed were not very happy. On the other hand, some of them had an inner glow which can come only from having a higher purpose. One way to remain happy is continuous learning. Author

Irving Kahn

gives the example of Irving Kahn, the oldest American investor. At 108 years of age (He had four brothers and all of them lived to above 100. Kahn died at the age of 109), he was a perfect embodiment of the message of this book. When asked what made him happy, he sited three points. One, a happy and healthy family, two, that he was able to start a company and provide employment to many and three, the ability to interact with very smart minds who could provide answers to many of his questions. He was a life long learner, the only thing he craved for were books. 

Happy people focus on 'Return on Life', while others focus on ROI, ROC etc.

Happiness comes from a higher purpose in life. Mohnish Pabrai has created the 'Dakshana Foundation', whose objective is poverty alleviation through education. The foundation identifies talented but impoverished students and help them prepare for competitive examinations. The foundation is very succssful

Ashok, one of the Alum from the foundation, cleared IIT JEE with a AIR of 66, joined CS at IIT Mumbai and is currently working at Google.

He was also sitting in the audience, listening to the presentation by Mr.Green.