Oct 8, 2018 · 33m · capital-allocators
Michael Batnick - The Best Investors and Their Biggest Mistakes (Capital Allocators, EP.71)
0:00 / 0:00
gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
In this episode of Capital Allocators, host Ted Seides interviews Michael Batnick, Director of Research at Ritholtz Wealth Management, to examine the major investment errors of legendary market figures and discuss how these historical lessons inform behavioral risk management and portfolio construction today.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. Ted holds 31.1% of the talking time here. How this is scored →
Ted as informed peer 3.0 Guest teaching 2.6 Guest disagreement 0.4 Ted pushing back 0.6
speaking balance: gold is Ted, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 28:05 Batnick clarifies trend-following versus momentum
Michael corrects Ted's classification of their tactical strategy as momentum, distinguishing trend-following by noting they avoid twelve-month relative return calculations.
Hardest push from Ted ▶ 22:06 Ted challenges the premise of the Munger chapterTed directly challenges Michael's book chapter by arguing that Charlie Munger did not actually make any identifiable investment mistakes during the 1973-1974 crash.
Biggest teaching moment ▶ 20:35 Keynes's beauty contest analogy and macro shiftMichael provides an in-depth lesson on how Keynes pioneered macroeconomic investing and then recognized the flaw of predicting embedded market expectations, shifting to bottom-up investing.
Ted holds their own ▶ 14:21 Ted cites David Einhorn on severe drawdownsTed demonstrates domain mastery by interjecting David Einhorn's memorable formulation of how an asset loses ninety percent by dropping eighty percent and then halving again.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | Ted as informed peer | Guest teaching | Guest disagreement | Ted pushing back | Why |
|---|---|---|---|---|---|---|
| Michael Batnick's Academic Struggles and Unconventional Path to Wall Street | 2 | 1 | 0 | 1 | Ted opens the interview warmly and prompts Michael to share his unconventional background. Michael provides a self-deprecating account of his poor college GPA and early cold-calling insurance career, with Ted offering light, humorous commentary. | |
| The Evolution of The Irrelevant Investor and Framing 'Big Mistakes' | 4 | 3 | 0 | 0 | Michael explains the premise behind his book and the limits of Benjamin Graham's value investing. Ted demonstrates industry knowledge by citing David Einhorn's adage about stocks dropping ninety percent. | |
| Jesse Livermore and the Emotional Failure to Follow Rules | 3 | 3 | 0 | 0 | Michael breaks down Jesse Livermore's emotional inability to follow his own trading rules and shares an anecdote about Jack Bogle's early flirtation with technical analysis, while Ted engages collaboratively. | |
| Mid-Roll Sponsor Message: Ridgeline | 3 | 3 | 0 | 0 | Following the mid-roll ad read, Ted invites Michael to detail Stan Druckenmiller's dot-com bubble loss in Verisign. Michael highlights that major investing errors typically stem from emotional discipline failures rather than faulty financial modeling. | |
| John Maynard Keynes and Market Psychology | 4 | 4 | 0 | 0 | Ted introduces Keynes to discuss behavioral finance blind spots. Michael explains Keynes's beauty contest concept and how Keynes adapted from top-down macro forecasting to bottom-up value investing. | |
| Charlie Munger and the Inevitability of Market Drawdowns | 5 | 4 | 2 | 4 | Ted openly questions why Charlie Munger was included in a book on mistakes when Munger made no analytical errors, prompting Michael to concede and reframe the takeaway around inevitable drawdowns. Ted then probes Ritholtz's tactical trend-following implementation. | |
| Social Media Engagement and Research Dynamics at Ritholtz | 2 | 2 | 0 | 0 | Ted asks how Ritholtz balances prolific content creation with wealth management and client acquisition. Michael explains the division of labor between client-facing advisors and research partners. | |
| Concluding Questions, Pet Peeves, and Personal Reflections | 1 | 1 | 1 | 0 | Ted closes with standard personal questions regarding pet peeves, reading habits, and life lessons. Michael responds with direct, grounded observations about market charts and personal growth. |
Statements from this episode (17)
Batnick: Predatory life insurance sales harm clients more than bad stock picks
“If you're selling somebody, you know, a shitty stock or mutual fund, whatever, they're giving you know, 10 grand. And sure, that sucks to lose that, but when you're selling life insurance policies to somebody, and you're asking for giant commissions premiums, …”
Batnick: Even the best analysts face limits with value investing
“You could be the best business analyst in the world, and you might have a great long-term track record and things might be okay, but there are limits to value investing, obviously.”
Batnick: Benjamin Graham beat the market by almost 2% annually
“Now, he did beat the market by almost two percent a year for a decent amount of time, so they were very good.”
Batnick: Jesse Livermore repeatedly failed to follow his own trading rules
“The irony is that he couldn't even follow his own rules. And he made and lost several fortunes. And every single time he came away with this soliloquy and these beautiful words and Every time he just couldn't do it.”
Batnick: Wellington Fund Collapsed to Lowest Decile Under Boston Managers
“And they brought in a group of young managers from Boston and basically blew the fund up, and they went from, you know, top decile to lower, to lowest decile, and this is a true story.”
Batnick: Jack Bogle Once Started an Unsuccessful Technical Analysis Fund
“It was in, ah, maybe Clash of the Culture is one of his books, where he spoke about, he started a fund based on technical analysis, and obviously, ah, it didn't do so well.”
Batnick: Legendary investment mistakes stem from emotion, not valuation errors
“But one common theme that we all make mistakes on is the emotional side. Like none of these mistakes were because somebody used too aggressive of a growth assumption or an inappropriate discount rate or didn't understand the business. It was always like either…”
Batnick: Keynes wrote the best chapter on investing in history
“And he wrote, in my opinion, the best chapter ever on investing. I don't know if it's 11 or 12 in general theory, but everything that you hear from Howard Marks and all these guys really started with Keynes in this chapter.”
Batnick: Stock investing obscures embedded expectations unlike sports betting
“And that's the hard part about investing is that, like, if you want to bet on the Golden State Warriors, well, you're not going to get very good odds, right? Because everyone knows they're going to win. Same thing with horses. But when you're buying a stock, y…”
Batnick: Charlie Munger's 1973-74 Losses Stemmed from Concentration, Not Mistakes
“He got crushed in the 73, 74 bear market like everybody else did. And I guess you can nitpick because he was so heavily concentrated in this company, blue chip stamps in particular, but you're right. He didn't make any mistakes. He, you know, he lost money whe…”
Batnick: T-Bills Had a 50-Year Period of Negative Real Returns
“And if you don't like it by T-bills and if you know, and even that comes with a lot of pain, I think they went 50 years with negative real returns.”
Batnick: Regret Over Timing Errors Is Poisonous to Investors
“I think probably regret is one of the most poisonous things that enters into investors' brains, either selling too soon or buying too early. And the problem is that those moments stay with you, right? And you always remember what happened last time, even if it…”
Batnick: Chris Sacca Passed on Airbnb, Snapchat, and Dropbox
“But he actually said no to three of the best potential investing opportunities. I think it was Airbnb, Snapchat, and Dropbox. It's not like they came to him. He looked at them and said, nah, no, no, no.”
Investment backtests are bullshit because nobody publishes the failing ones
“Because when you show, you know, the back tests, which I think are, you know, back tests are bullshit. This looks amazing, of course. We're not, nobody's going to implement a strategy with a bad back test.”
Batnick: Momentum and Trend-Following Can Never Be Arbitraged Away
“Rising prices attract buyers and falling prices attract sellers. And it is literally that simple. And I don't care how many computers or geniuses get involved. That alone can never be arbed away.”
Batnick: Only one of four Ritholtz partners is a full-time advisor
“And I think we're unique in the sense that of the four partners of the firm, only one is a full-time financial advisor.”
Batnick: Hindsight '$10K invested' charts ignore the emotional pain of holding
“I think that looking at the growth of a dollar, you know, a lot gets lost in the charts, the emotions of it and what it took to hold on. I just think that like people that are, oh, if I should have bought Amazon, I knew it. No, you didn't. If you did, you woul…”