STREET DOGS

In his new book, Big Mistakes: The Best Investors and Their Worst Investments, Michael Batnick recounts stories from the likes of Warren Buffett, Bill Ackman, Jack Bogle, John Maynard Keynes, Michael Steinhardt, Stanley Druckenmiller and others that should finally convince anyone that investing is not only really hard, but that you just can’t avoid the big mistakes; whether you’re managing a few thousand dollars or billions. Failures and losses are part of the game.

Among the stories told, how Charlie Munger lost big time in 1973 and 1974 — 31.9% in 1973 (versus a negative 13.1% for the Dow Jones Industrial Average) and another 31.5% in 1974 (compared to a -23.1% for the Dow). “Not in terms of true underlying value,” explains Munger, “but by quoted market value, as our publicly traded securities had to be marked down to below half of what they were really worth.” And how even Benjamin Graham, the father of value investing, got destroyed during the Great Depression — through the use of leverage, to boot! “When the Dow collapsed, Graham had his worst year ever, losing 50% … having ducked the 1929 cataclysm, he was enticed back into the market before the final bottom. In the four years from 1929 to the bottom in 1932, Graham lost 70%.”

More than just anecdotal diversions, these stories set the basis for the book’s critical focus: learning from mistakes. These investors all recovered from their missteps and gained a wealth of knowledge that can only come from experience.

As for Batnick: “It took me around five years and nearly $20,000 in commissions to realise I was not destined to be the next Paul Tudor Jones,” he says. “I was too emotional to be a successful trader, which led me into the arms of Bogle’s index funds.”