What Great Investors Do

0:00The lesson in some ways that I drew from Howard that's been life changing for me is you can't predict the future but what you can do is accommodate yourself to accommodate yourself to reality. as it is.

0:16I'm Robert Prokamp, and that was William Green, the author of Richer, Wiser, Happier, How the World's Greatest Investors Win in Markets and Life. Really one of the best books about investing and investors that I've read over the past few years. In this replay of an interview from February of this year, I caught up with William to discuss what successful investing comes down to, personality traits of market beaters, and the investing lessons from Charlie Munger, Howard Marks, John Templeton, and Arnold Vandenberg, an investor you may not know about, but you should.

0:54So William, you've interviewed countless investors over your career through your writing, your own podcast, and you could have made this book just about cold, hard facts about investing, investing principles. But it's not just that, right? You do many sort of mini biographies of famous investors and not quite such famous investors. You explore their life stories, their work habits, psychology, in some cases, spirituality. What led you to choose that path for this book? I think part of it is just that I'm so full of existential angst that I'm always trying to figure out how we're supposed to live.

1:32And so part of that, obviously, is figuring out what role money plays in our life. You know, how can I create a life where I'm free to do what I love to do? How can I have financial independence and financial security? But I think all of us sense that that's not enough. And so I'm always looking at these questions and thinking, yeah, but so then what actually will constitute a rich life? What will constitute an abundant life? Is it possible to live in a way that's truly aligned with who you are and yet also be part of the group? Is it possible to live with integrity and honor and truthfulness?

2:11Or is that kind of naive in a brutally Darwinian, capitalistic, dog-eat-dog environment? Or how do you deal with the fact that the future is unknowable and yet we have to make decisions about the future? So for me, a lot of what's happening is that I'm actually wrestling with these questions myself. And I just happen to be in this very unusual position that I've had extraordinary access over really the last 30 years to these incredible investors who are so thoughtful. So when I was full of existential doubt and I was wrestling with one of these questions, I would get to talk to them about it. So I would get to talk to someone like Bill Miller, for example, who I've probably interviewed for the best part of 100 hours over the last 25 years or so.

3:00And Bill, you know, had beaten the market famously for 15 years running. And so I interviewed him at the height of his fame when everything was going beautifully. But then I also interviewed him when it all fell apart during the financial crisis. And then I also interviewed him when he rebounded massively. So I would go see Bill after the financial crisis, for example, when I was going through pain myself because I had edited the international editions of Time magazine and then got laid off in the middle of the financial crisis. And I would say to Bill, so how do you deal with pain and suffering and failure and public humiliation?

3:43You know, how do you wrestle with it? And here I would have one of the smartest, most thoughtful people who'd gone from managing$77 billion at his pinnacle to something like$800 million. And he would say to me, well, look, you know, I studied the Stoic philosophers for many years. And he was actually he was in a Ph.D. philosophy program many years ago. and he said to me, I know from the Stoics that I can't control my reputation or what people say about me, but I can control my own actions, my own behavior, my willingness to deal with my mistakes and be honest about them and learn from them. And so really for me, I just had this crazy access to people like that.

4:24And so anytime I was going through anything, I would want to ask them about it. And then I wanted to share what I learned with the readers. So in some way, I sort of almost think of it as a stealth spiritual book or almost like a self-help book for investors, where you're wrestling with these profound questions about how to live, how to think, whether you can construct a really happy and abundant life, what habits are required to get you there, how you should behave and how you should think more wisely. Yeah, I think there's no doubt that anyone who reads the book will certainly come away with some investing lessons, but with definitely some life lessons as well.

5:05When I look through the people that you profiled and the things that they believe, it struck me that there were two things that came out in almost all of their lives, and they're somewhat contradictory. One is they spend a lot of time learning about other investors from other investors, maybe even cloning what they have done. But then number two, the best investors are also mavericks. They're really blazing their own path. So let's start with that and talk a little bit about the cloning aspect. Yeah, it's a very perceptive comment. And in a sense, the first chapter and the second chapter conflict with each other totally.

5:44because the first chapter is about Monish Pabrai and the idea that really, instead of trying to reinvent the wheel, what you should do is study people who are wiser and smarter and more experienced than you, reverse engineer what they did and figure out how to clone it. And the second chapter is about Sir John Templeton, who's a total emblem of being non-tribal, free thinking. When I asked him if anyone had influenced him, he said, no, nobody at all. And I said, not even his parents. Yeah. He's like, yeah, not even my parents. And, and so in a way, those two chapters are contradictory, but I think there's, there's something, and look, this goes back to that beautiful line from F.

6:28Scott Fitzgerald, where he talked about the ability to hold two contradictory ideas in mind without going crazy, that that's sort of a mark of intelligence. And I think that's true, that usually the great truths are contradictory. So I think with the great investors, one of the things that struck me about them that makes them such a good filter to study the world is that they're great pragmatists. And so they'll just do whatever works. So for a lot of them, even if they're very independent spirited and non-tribal, they're just pragmatic enough that they're going to say, well, what's everyone figured out already?

7:06And so Monish, in a way, is a perfect example of this because he's someone who grew up very poor in the outskirts of Mumbai and discovered early on that he had an extraordinarily high IQ and then stumbles on a book by Peter Lynch in Heathrow airport that mentions Buffett and realizes that Buffett is the master of compounding and says, well, let me just reverse engineer this game and figure out how he compounded at such a rate. And so Monish kind of discovers that basically the principles of investing are almost as timeless as the principles of physics. And he says it really comes down to what Ben Graham taught Buffett, more or less, which is basically that, you know, the market is irrational, that it's bipolar and that you want to take advantage of that bipolar nature and buy stuff when it's very much out of favor and at a deep discount.

8:03And so then he looks around and he sees that almost nobody else is doing this, that the world is sort of made up of all of these people who are failing to understand the fundamental laws of investing. And he says, well, look, if nobody else is going to do it, the Indian will do it. And so he starts describing himself as a shameless cloner. So for me, this is one of those principles that goes very deeply through investing and life. And so when I'm studying Monish, I'm thinking, and Monish has become a good friend over the years. So I'm studying and I'm thinking, okay, so what can I learn about the way Monish not only invests, but the way he constructs his life?

8:42And one of the things that's so striking about Monish is that almost to an antisocial, you could say almost sociopathic level, Or he just says, I'm not going to do anything that I don't want to do. You know, he's like, I'm not interested in all of the mumbo jumbo related to marketing my funds. So I just don't have any meetings with prospective investors. And he'll have lunch with someone and he'll just say, well, did I enjoy that lunch or not? And he's like, if not, I'll never see that person again. And so he's basically cloned this from Buffett, who he realized just lives in a way that's deeply aligned with who he is.

9:20So I think you can take these principles and then say, well, yeah, so, okay, I want to learn how to clone as an investor, but I also want to learn how to clone in other areas of my life. And that kind of fascinated me that these master principles do run through every area of your life. I think not just investing, they turn out to be very helpful in other areas of life too. Yeah, one line you had when we talked a little bit about the Maverick side, you said, to beat the market, you must be brave enough, independent enough, and strange enough to stray from the crowd. Because after all, if you're going to beat the market, you have to be doing something different than the market.

9:56Yeah, and they are odd, these people. I mean, they really are. I think I've become more and more struck by this over the years, that they're so fanatical and so intense and so extreme in much of what they do. And I remember, you know, Monish went to Charlie Munger's house after the book came out. And he sent me a video where he said, Charlie, you know, what do you think of William's book? And Charlie said, I love the book. It's a great book. And Monish said, what did you find interesting? Were there any insights you found particularly interesting? And he said, yeah, how many of us got divorced or separated?

10:36And he said, it's totally understandable because the game was so absorbing that all of our spouses felt neglected. And I think that's true, that to be really extraordinary at something, you on the whole are going to be pretty extreme, pretty obsessive. there are a few of these people who are reasonably well adjusted and have great families and and a lovely people you'd like to sit next to at dinner but they and and i do like basically everyone i wrote about because i tended to focus on people i liked and admired as humans i wasn't just focusing on you know rapacious billionaires who you know the only talent they had was for making money i wanted to learn from people i thought were admirable as well that there was something special about the way they lived.

11:23But they're deeply eccentric, very extreme. One thing that I took away from the book is that just about every one of them reads and reads and reads and reads, often to the exclusion of doing anything else, whether it's meeting other people or attending to their personal lives. Yeah, I think that's true. I mean, Munger would always talk about Buffett's strength being that he was a continuous learning machine. And I remember Monish describing to me how Munger would just sit there in this big lazy boy chair with these bright lights behind him with two stacks of books and journals and the like on either side.

12:05And he said it was just like this conveyor belt, just motoring through stuff, some of which he skimmed, some of which he read fully. but Monish claims that Munger would read about 500 books a year and and then if you if you add the fact that he had incredible recall there's I mean the way Monish put it was it was like he'd been alive for 300 years you know so so there's a huge advantage to this idea of of applying compounding not only to money but to things like the compounding of knowledge the compounding of wisdom. So in some way, it's like they're intellectual athletes rather than physical athletes.

12:47I think on the whole, I mean, I was joking about Tom Gaynor at some point, the CEO of Markel, about the fact that he would never be in an Olympic beach volleyball team. He was basically perfectly built for this game of kind of sitting and reading and thinking. And maybe because I'm pretty idle and indolent myself, this is one reason why I was so drawn to these people. I think I'm very drawn to the idea that you can sit around and think and read and learn, and that somehow gives you an advantage in life. And there's something sort of deeply subversive about me, I guess, that was drawn to these sort of slightly strange, subversive creatures who had sort of cracked the code of the markets.

13:34And they were, they're all sort of anti-authority in a way. They're all sort of thinking for themselves, questioning conventional wisdom and outwitting the market and outwitting their peers. And so I think for a journalist in a way like me, there's something very appealing about that because, you know, I mean, I'm calling you from a room in London where I'm staying for a few days. And I grew up in England. I went to which was, you know, this famous boarding school where we were literally locked up at 6.15 every evening. And so I just, I think I sort of bridle against rules. And there's something about these rule-breaking mavericks breaking the code that's deeply seductive to me.

14:26When Johann Rahl received the letter on Christmas Day, 1776, he put it away to read later. Maybe he thought it was a season's greeting and wanted to save it for the fireside. But what it actually was, was a warning, delivered to the Hessian colonel, letting him know that General George Washington was crossing the Delaware and would soon attack his forces. The next day, when Raw lost the Battle of Trenton and died from two Colonial Boxing Day musket balls, the letter was found, unopened in his vest pocket. As someone with 15 ,000 unread emails in his inbox, I feel like there's a lesson there. Oh well, this is the constant, a history of getting things wrong.

15:05I'm Mark Chrysler. Every episode, we look at the bad ideas, mistakes, and accidents that misshaped our world. Find us at constantpodcast.com or wherever you get your podcasts.

15:24To the degree that investors can be classified along sort of the value and growth spectrum, I would say most of the investors that you profile lean toward value, not exclusively. You do talk to Will Denhoff, the Fidelity Contra Fund, very successful fund. Bill Miller, I think, could be classified one way or the other. I mean, most of his net worth, I think, is an Amazon or something like that. Yeah. He's along the ways, you know, a little of both sides there. But so, first of all, to the degree that you, do you think that's a fair characterization? And if so, you know, value investing has been a tougher sell over the last five, 10 years.

15:59So are there principles these investors still offer us, even if their style of investing is out of favor? Yeah, these distinctions, as you know, between value and growth and the like are pretty nebulous. And the thing that Munger once said to me, I had this extraordinary two-hour Zoom call with people like Munger and Lou Simpson, a bunch of great investors like that, after the book came out. And one of the things that Munger said to me, and these are his exact words, I tried to sort of tattoo them on my forehead. He said, all investing that's successful comes from getting more value than you pay for.

16:35But then what he said is, look, there are a lot of different ways you can do that. So he said, you can do that like Bill Miller, where Bill went and figured out back in, you know, 1999, 2000, that Amazon, which most of his peers thought was going to go bankrupt, was actually incredibly valuable and would be worth an enormous amount. And Bill at one point a couple of years ago said to me that he was the single largest individual shareholder of Amazon, not named Bezos. So, I mean, you know, he's built an enormous fortune there, but he's also in recent years built an enormous fortune in Bitcoin. And so there's a kind of, there's a free thinking willingness among a lot of the great investors just to look for things that they think will be more valuable.

17:24And there's so many paths up the mountain. But I think, I mean, in terms of a takeaway for the rest of us, one thing that very much struck me, I wrote a chapter about simplicity. And I think it's very helpful to reduce the complexity of investing to a few simple rules that you basically are pretty sure are approximately true on average over time. And so for Danoff, when I went to visit him in Cambridge, Massachusetts, and I thought, oh, there's some great secret source to this guy managing over$200 billion with this amazing record over the last 30 years, he said, yeah, it all comes down to three words.

18:05He said, stocks follow earnings. And so he didn't really care about the valuation that much unless it really got absurd. He was just trying to buy companies that he felt that they're best in class companies. And over time, they're going to do great. And all things being equal, if their earnings double, their stock price will probably double. And so that led him to buy things like Microsoft and Tesla and Berkshire Hathaway, very high quality stuff. but he made it sound sort of simple and Bill Miller who's a good friend of Will Danoff said to me you know Will Danoff claims that he's not that smart and so he keeps it really simple and he's like that's nonsense he's like he's really smart and he's really driven and I think that's another thing that these guys there is this intensity and this ferocity so even if the principles themselves are quite simple the application of the principle requires an amazing degree of intensity.

19:02And I remember Bill Miller telling me once that when he first met Will Danoff, something like 30 years ago, I think they went to some meeting in Phoenix where they were introduced. And they're both really likable guys, right? And someone says to Bill, oh, meet Will. And Bill holds out his hand and says, hi, Will, nice to meet you. And Will Danoff doesn't extend his hand and says, I'm going to beat you, man. I'm going to beat you. And I think that gets at the intensity of it. That gives you a sense that I think at one point in the book, I write something like that sometimes the real secret of success is nothing more mysterious than the fervency of a person's desire.

19:45And so I don't think it's that the principles are that hard. I think the application can be very, very difficult. But again and again, you come back to the idea with people like Howard Marks or Joel Greenblatt or Charlie Munger, that it's really about buying things at a discount to what they're worth. And so that fundamental principle of the margin of safety, I think, is probably about as resilient and timeless and robust a principle as there is in investing. Now, let's talk a little bit more about that margin of safety, because many of the investors you profile did talk about why it's important to understand the risks you're taking, not to take too much risk, and to always be in a situation where you are going to be okay no matter what happens.

20:33The term, unfragile, was used. Talk a little bit about how they think about which investments to buy, the right sizing, and maybe how much to have in cash, so that no matter what happens, they're still going to be okay. I think the most fundamental rule, in a sense, is that you've got to stay in the game. And so you have to set yourself up to survive, despite the fact that the future is unknowable and that anything can happen. And so one of the things that Howard Marks talked to me about is just the importance of not overreaching. He would say, look, given the fact that you don't know what the future holds, you have to ask yourself, will I be able to survive an uncertain future?

21:18So that requires you to set aside enough cash, not to have leverage, not to have too much debt, not to be living beyond your capability. But also he pointed out, it's very important not to underestimate how emotionally and psychologically fragile you might be. And his view, of course, is that people say that they'll be fine if the market goes down 20, 30, 50%. But then when it actually happens, they tend not to be. So this question of, I think, figuring out how you'll cope in drawdowns is hugely important, and just not deluding yourself. So I think one thing that I started to ask myself is, where am I fragile, both in my portfolio and my life?

22:05And how can I reduce that fragility? And so I think if you have all of your money in one asset class or all of your money in one bank account or one brokerage firm or one currency, you're playing with a loaded gun. And so you just want to assume that terrible stuff can happen. And I remember Charlie Munger at one point, I went to a Daily Journal meeting, the company he was chairman of back in 2017. And I remember him saying that that he had had four drawdowns of 50 % over the course of his lifetime. And he said, and Berkshire itself had gone down 50 % three times. And so he said, you have to set yourself up so that you can survive those drawdowns with grace and aplomb.

22:56And he said, if you don't have a drawdown like that, the chances are that you're not taking enough risk, you're not being aggressive enough. So I think this idea of just setting yourself up to survive both emotionally and financially is really key. And I think of this a lot in terms of my own life. I'll often think, this is very much a clone from Charlie Munger. I think about trying to avoid situations with asymmetric risk on the downside that can be catastrophic. So think of things like driving while drunk or texting while you're driving or cheating on your taxes or cheating on your spouse if you happen to love your spouse and don't want to wreck your marriage, you know, things like that.

23:46These are things where there's tremendous downside and limited upside. And so I think just this idea that you want to remove fragility is very important. And there's a beautiful line from Nassim Taleb. You know, I stole the phrase anti-fragile from Nassim Taleb. There's a beautiful bit in one of his books where he says, the fragile breaks with time. And so I think one of the things we learned from Howard Marks is we don't know when something will break and we don't know if it will break. But the longer you go on doing stuff that makes you fragile, the more you're playing with fire. So if you cheat on your expenses once, you'll probably get away with it.

24:30Cheat on your expenses or on your spouse, whatever, 50 times. Sooner or later, you're likely to get into trouble. And so I think, again, these principles that are very powerful in investing turn out to be incredibly helpful in life. Another common theme with many of the folks you profiled was the ability to basically estimate odds and probabilities of something. And that's partially what investing is. right? I'm going to put my money here because I think it's going to be worth more in the future, but I have to assign some sort of probability to that. And for many of them, they basically learned this from playing games, whether it was playing poker.

25:07A lot of them love bridge. Yeah. In some ways, the greatest emblem and icon of this is Ed Thorpe, who I write about in the introduction to the book. And Ed, I often think of as the greatest gambler in history, the greatest game player in the history of investing. I mean, this is the guy who not only figured out how to beat the casino at blackjack, but then figured out how to beat the casino at roulette, and then figured out how to set up this hedge fund that basically didn't have a losing quarter in 20 years. So when I talked to Ed, one of the things that I was trying to figure out is not only how you succeed in investing, but how you apply that kind of game player's approach to life.

25:48Like if If you were approaching life, how would you stack the odds in your favor so that it was likely to work out? And he used the example of health. And he said, look, there are certain illnesses or predispositions you might have, and those are like the cards you're dealt. But then it's your choice whether you get vaccines, whether you get a checkup every year, whether you eat well, whether you exercise and the like. And so it's really all about how you play the hand you're dealt. and that's been really helpful to me because again it goes back to what bill miller was talking about with the stoic philosophers you have to distinguish between what you can and can't control and so i think what they're doing a lot of the great investors is just that they're focusing on what they can control and so for for you know when ed thorpe when i when i was fact checking the book i was asking him how he dealt with um with the covid crisis and and he was like oh thank you for asking.

26:43And it turned out to be unbelievable the way he dealt with it. Like really early on, before there was a single reported death in the US, he'd analyzed the data from Wuhan in China and figured out, you know, what this meant, but also by drawing on deductions from what had happened during the Spanish flu in 1918, which had killed his grandfather. And so he figures out before anyone had been reported dead in the US, that something like 200 to 500 ,000 people were likely to die over the next year. And so he puts himself in isolation with his new wife before, you know, anything happened, basically, and buys masks and buys, you know, detergent and the like.

27:27And so, again, it's like this insistence on analyzing the data for yourself, thinking for yourself independently, looking and giving total primacy to staying in the game and what could be more fundamental than staying in the game by actually literally surviving. And so I just thought that was a beautiful emblem of how to think about life. And similarly, Munger would often talk about only playing games that you're equipped to win. You know, Munger, when he was asked for career advice, said at one point, look, if you're five foot three, don't become a professional basketball player competing against people who are eight foot tall, you know, find something where you have a natural talent, where you have natural advantages and that you're obsessed with.