Inside a private classroom on a rainy day in Maryland, Warren Buffett sat with students and spoke about his thoughts on markets. It was 2013 and the economy and market was just starting to roar back to its highs. For those who remember 2013, it was a sight of relief. You could feel it in the air coming off the Financial Crisis and Eurozone Debt Crisis.

Buffett, in mid-conversation, started to talk about cash and what it means to his portfolio. I can not even begin to express how many people make fun of him for holding his cash or try to prove him wrong for holding so much. But, it’s not necessary, because I’ve found the quote and shared it below. Read it:

“Berkshire Hathaway always has $20 billion or more in cash. It sounds crazy, never need anything like it, but someday in the next 100 years when the world stops again, we will be ready. There will be some incident, it could be tomorrow. At that time, you need cash. Cash at that time is like oxygen. When you don’t need it, you don’t notice it. When you do need it, it’s the only thing you need. We operate from a level of liquidity that no one else does. We don’t want to operate on bank lines.

There is no authority for the US Treasury to guarantee money market funds. Their power comes from Congress. Paulson set up an exchange stabilization fund in September 2008 to guarantee money market funds. This stopped the run of money market funds and it was all over. Something like that will happen maybe a couple of times in your lifetime. Two things when it happens again:

1. Don’t let it ruin you!
2. And if you have money/guts, you’ll have an opportunity to buy things at prices that don’t make sense!

Fear spreads fast, it is contagious. Doesn’t have anything to do with IQ. Confidence only comes back one at a time, not en masse. There are periods when fear paralyzes the investment world. You don’t want to owe money at that time, and if you have money then you want to buy at those times.”

Warren Buffett at the University of Maryland (notes and a talk with students)

Lately, I’ve been thinking about great investors and what they’re made of. Are there any similarities? Or commonalities to study? I want to share my first draft here and get as much feedback as possible. At the bottom, you can find my inspiration for this post. Let me know what you think.

One – Great Investors Are Doers

One common trait stands out. Yet it goes overlooked all the time. Great investors get things done. We often miss the first step to becoming a great investor… you need to have money to invest Great investors built a portfolio, worked their way up or started a company from scratch. They pooled assets together, they hired legal teams, accountants, and more. This is, without question, a special trait they all share and it’s probably the most important.

Two – Great Investors Do It Their Way

Great investors seem to be particularly passionate about their style. There is no one size fits all in markets for all great investors. Each great investor has their own unique story, set of skills, and tactics that got them to where they are. It could have been a conventional method such as buying value stocks, growth companies, real estate, angel investing or even index investing. They found the opportunity and they went after it with a strategy specific to them.

Three – Great Investors Lost At Least Once

I know no great investor who won all the time. Actually, a common trait for most great investors is that they have lost before. Or have gut wrenching stories to tell about their portfolios collapsing. There is something about being wrong, learning, and not repeating the mistake. It sounds simple, but it is not. To avoid making the same mistake twice, especially in an area that is so dependent on your beliefs or decision making, you have to be open and flexible enough to change your mind. Dogmatism won’t get you very far in the the investing world.

Four – Great Investors Understand Luck

One thing I am often inspired by with great investors is how they attribute at least some of their success to luck. They understand the bigger picture. Every decision you make in markets could have gone the opposite way. Understanding that luck always plays a factor is a humbling but realistic shared mentality among the greats.

Five – Great Investors Know How To Ride Winners

There is nothing more tempting than selling an asset after it has had a sizable gain. The green, the potential, the ability to realize profits are all in front you. But, have you noticed how many people have stories about the time they bought Amazon in 2002 and sold after a small gain? How much money would they have had they held all this time? Millions? That’s the difference. Great investors hold on to their winners and see the full potential of the assets they are convicted on.

Six – Great Investors Do What They Love

Most great investors do what they love and it is beyond money. They are interested in markets, supporting great businesses, putting their money to work to solve problems or to get a return for their clients. Money is just a secondary reward of the passion they have. That’s why I think it’s important to always know that if you are an investor, you also should have a vision beyond the money. If everything went to zero today, you should still be able to say that you did what you loved doing. If not, that means you are literally just working for the chance you could strike it rich and I’m not sure that kind of attitude yields anything positive ever.

Seven – Great Investors Know The Risk of Ruin, But Also The Fat Pitch

To produce abnormal returns, you usually have to take abnormal risk. With risk, comes the chance of ruin. In this sense, great investors walk a very thin rope connected between two very tall buildings — one called risk and the other called return. But this is why the fat pitch is important. Great investors seem to know their fat pitch. And they sit. And they sit. Until suddenly, there it is. The fat pitch is the investment that, in their eyes, has the best returns with lowest risk and it can afford to be a larger than usual position. This is not easy to do or spot, but many great investors have made their career one or two fat pitches.

Eight – Great Investors Research and Think Before Believing

Each day, new pieces of information are thrown at us, books are being published, people are selling services and products, and the news is always looking to provoke the next big talking point. Great investors are rarely swayed in either direction when it comes to this. From what I’ve seen, great investors have a sound process of research, but more importantly a passion for that research. Some of the best investors I know actually get angry when they see certain things being thrown around that are obviously wrong, but people were too lazy to do their own research. They take it personally because they actually did the research first before blindly believing.

Nine – Great Investors Understand Time

There are no get rich quick schemes. There are no hidden secrets. Everything a great investor will accomplish whether it’s an aggressive stock pick strategy or a day trading algorithm is accomplished over time. Understanding the long game, the journey, and the process over 30, 40 or 50 years is something that has to be planned out and constantly baked into the decision-making process. Markets are not going anywhere and they have existed since the dawn of civilization. No one day makes a new trend. No great investor got rich in one night. Things are built over time.

Ten – Great Investors Understand The Basics

This should go without saying, but actually, you will be surprised by how many people are investing or moving money around today and could not tell you what Free Cash Flow means in two or three sentences. Great investors understand some aspect of basic business operations because they have run their own, studied other companies or learned about it through the years from their own work.

Thanks for reading and I hope you enjoyed this first draft. I still have some work to do on it. Most of my insights are derived from reading about the greats, meeting many smart investors throughout my years in the industry, and also things I have learned first hand managing my own portfolio. You can read the inspiration for this post here from Michael Mauboussin or leave a comment if you have anything else to add.

I’ve spent the last 10 years working in social networks and the digital world. I like to think that I’ve seen quite a bit. I also think about how lucky I am — my first job, in 2012, was at a social media company. I had no idea at the time this digital world would become what it is today.

I remember first joining Twitter in 2010. I was absolutely amazed by the number of people sharing their ideas and thoughts online. I had to get involved. I’ve seen some inspiring stories in my time. Stories of people connecting online to learn, grow and build. I’ve also watched sad stories. Of people losing it all, being duped and tricked by online scammers. Rest In Peace to one guy, a great trader, who eventually took his own life. I never met him, but we knew of each other by our online presence.

Our ability to connect online isn’t going anywhere and, to some degree, it’s still just getting started. I, for one, am always taken back by how often people forget that social media, in its current state, is still less than 20 years old. We still have so many more mistakes to make and things to learn about the online world. It is truly the Wild West out there.

One thing in particular keeps me optimistic: people are smart. People learn over time. We make mistakes and we learn from those mistakes. It is the basic building block of human achievement — we test, we experiment, then we learn and try it again. We may get duped once, but rarely get duped two or three times. I actually recently wrote a tweet about this: I said people are smart and they make the right decision over time in regards to fake news, that they can freely decide for themselves. I was amazed at how many people disagreed with me. They said that’s wrong, that people don’t make the right decision. I can’t stop thinking about what the opposite of that is in the context of fake news. The people telling me I’m wrong are essentially saying they know better than the average person, that the average person does not make the right decision, and someone should decide for them. That is a very dangerous way to think. It is also fairly arrogant.

As I dove deep into my thought process, I found myself making a chart to convey my thoughts more clearly. It’s not meant to be a fancy graphic, it’s meant to illustrate the simple point that we learn over time and get smarter. We get better at spotting fake news, doing our own research, and being skeptical of the things presented to us on social networks. I need to upgrade my Microsoft Paint skills, but I hope you get it:

I have a hard time thinking that the opposite of the chart above is true. The opposite would imply people are incapable of learning and doing their own research to make the right decision. I believe that if this next chart were true then we would not be here today, the iPhone in your hand would not exist, and the restaurants and coffee shops bustling with people in New York City would have never existed, we would have been duped long ago:

I think fake news is good for society. We are better off seeing all news and debating it rather than being censored for certain news. Censoring one piece of information is a slippery slope. The even better question to ask is who gets to play the man in the high castle determining what we see and what we don’t? And what makes this person more capable of deciding than you and I? In addition, we can’t ignore what fake news does for society in terms of the conversation. All rocks are turned over. All debates are had. The market for news actually becomes more efficient, nothing is hiding. We learn what is true and what is not over time by doing our own research and sharing with others. We give more credibility to those who are putting in the time vs. those who are not.

A mentor of mine once said to me that in social networking, over time, the cream rises to the top. The best people will shine. I still believe that. And for it to happen in the best way possible, we need to be free to explore anything and think for ourselves, which is the most important right. Those are my thoughts. I hope you enjoyed them. If you really want to get involved and understand why I wrote this post, please see the tweets below:

My thoughts on the Zerohedge suspension

1. I actually think it’s healthier for society to see all news, even fake news, and debate it rather than be censored from it.

2. I believe people are smart and capable of doing their own research and making the right decisions over time.

— Scheplick (@scheplick) February 1, 2020

3. They may spread fake or incorrect news, but watching the global response of scientists work together to debunk the Coronavirus-HIV story was incredible — more shared research.

4. Twitter should encourage block, mute, and timeline management rather than suspensions.

— Scheplick (@scheplick) February 1, 2020

I should also make it clear that I am open to learning and listening to all feedback. If someone drops a fire response, I could very well change my mind. So send me your thoughts or tweets or blog posts.

When the market crashed in 1929, Joe Kennedy completely avoided it. He sold everything days before markets plummeted. Then, he took his money and bought assets at the lows several months later, increasing his wealth by more than 10X. How did he do it and what’s the real story? In this post, we examine the rise of the Kennedy’s and how the stock market created their real wealth.

Joe Kennedy is the father John F. Kennedy (JFK). While many people today know of JFK and his time as President of the United States or even his brother Robert, the story of their father, Joe, is still misunderstood and rarely discussed. Joe Kennedy is the most important part of the Kennedy story. He’s a man who made hundreds of millions in the stock market and bootlegging alcohol.

Joe was born in 1888. That’s right — a LONG time ago. No smartphones, cars, refrigerators, and electricity, for most people, was a luxury. Joe was born in Boston, Massachusetts to an Irish family. His father at the time strove to be a politician in the city and that’s where Joe learned first hand about deal making, inside information, and all the tactics that come with most politics no matter the day or time.

Joe Kennedy did not go right into politics in his early years. He actually started on Wall Street. At one point, he was said to be the youngest President of a bank as he was just 25 years old. But, this is where the story of Joe gets interesting, because the bank is not where he made most of his money.

Joe eventually got involved in the stock market and that’s what made him rich. Today, most of his tactics for making money in the stock market would be considered insider trading, but at the time, Wall Street was like the wild west with little rules, anything goes attitude, and susceptible people willing to give their money to any scheme. Joe made most of his money in the stock market in the Roaring 1920s.

Was Joe Kennedy responsible for the Great rise and crash of the 1929 stock market? That is still up for debate. At that moment of euphoria, he was at center stage fueling the mania, trading it, and getting involved first-hand. His connections from his time at the bank and days in Boston and Harvard could influence a number of people. Not only did Joe trade stocks and make hundreds of millions during its rise, he famously avoided the Great Depression and stock market crash of 1929. While most people watched their portfolios crash, he sold days prior before it all fell down.

How did he do it? There is a famous anecdote about Joe and while he was trading stocks during the Roaring 20s. Markets were SPIKING. Money was flowing. But, days before the crash, a certain moment lead Joe to sell everything at the highs and hold his cash. In 1996, the writer John Rothchild wrote a piece called “When The Shoeshine Boy Talks” and he says:

“Joe Kennedy exited the stock market in timely fashion after a shoeshine boy gave him some stock tips. He figured that when the shoeshine boys have tips, the market is too popular for its own good.”

The story continues:

“A theory also advanced by Bernard Baruch, another vested interest who described the scene before the big Crash: “Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day’s financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely. Her paper profits were quickly blown away in the gale of 1929.” – Fortune Magazine, When Shoeshine Boys Talk Stocks

Later on, Kennedy spoke more about how he dodged the great crash of 1929 and said it came down to “a passion for facts, a complete lack of sentiment, and a marvelous sense of timing.” While all of this was true, it can’t be ignored that Kennedy was possibly, and according to some sources, running pump-and-dump schemes and manipulating stock prices. He ran in certain circles who had both influence on the media to pump a stock and the ability to crash a stock.

Joe Kennedy made his wealth during in the 1920s as stock prices soared, he preserved his wealth when markets crashed, and then, when things got really ugly, when they were at its worst, he used his preserved cash to invest in real estate and other assets when they were at their most depressed prices. By some estimates, his net worth went from about $30 million during the Roaring 20s to about $4 billion several years after the Great Depression (inflation adjusted). And that’s the great untold story of the Kennedy’s, how they really made the their family fortune.

What you are about to read first appeared on my Medium page here. But, I am resharing it on my blog for those who missed it. Enjoy!

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Each year I do this, I’m reminded of how little I actually know. I think it’s important to accept and reflect on that reality. Someone recently said to me, “every time you meet someone, they know something you don’t.” I think that is a great way to go through life — curious, learning, and listening to all the things you could have never predicted or taken the time to learn about.

I first started writing my yearly investing lessons in 2016. I found it to be rewarding and it was a pleasure to publish it online, in front of everyone, to not only get feedback, but to also hold myself accountable for what I believe in or see in markets. I think that takes guts. You can read my previous reflections here.

1. The financial statement is what grounds a company in reality. Everything else is a “story.”
2. There is something new to learn in markets each day and the second you forget that, the moment you think you know better, markets will show you otherwise.
3. In technical analysis, the most important indicator is volume. You want to avoid slippage. And you want to know where most of the people are transacting.
4. If you don’t understand something in a financial statement, research it. Do not move on from it. You have to put in the hard work.
5. Learn to find irregularities. Find the things people are missing, usually buried in obscure foot notes or random slides in management presentations. This is also the most time consuming thing to do.
6. Watch, read, and study more presentations from management, and press releases from companies. Mastering the investor relations page is an underrated art for any investor.
7. Read more footnotes in financial statements.
8. In 2019, I did things a little differently. Spirituality, man. You have to have a belief in something. Whether it’s science, God, Mother Nature or anything else. Your investing career is only as grounded as your personal spirituality.
9. In 2019, I spent a considerable amount of time reading about Buddhism, Taoism, and some serious hippie stuff related to Mother Nature and the Earth. I don’t necessarily prescribe to any of it, but a lot of the teachings opened my mind up to things the market is generally against: stripping yourself of excess and finding meaning beyond news, money, and markets.
10. Combining spirituality with markets is a trippy thing, but there are benefits that go beyond a balance sheet or chart. It’s an investment in your sanity and long-term thinking.
11. They say the same part of the brain activates when people do drugs and a trader makes money. One is socially acceptable and considered “sophisticated” while the other is furthest from it. Just remember, at times, that’s what markets really are.
12. Market cap is an overused and overstated metric. It’s becoming the PE ratio of this era. I think Enterprise Value (market cap + (debt-cash)) or the difference between the two is a better use of your time.
13. A low PE ratio is generally low for a reason. If you buy a two month old avocado for 25 cents when avocados normally sell for $2, it’s not a bargain. It’s still going to be brown on the inside.
14. The stock market is one of the few places where as the price of an asset increases, more people want to own it and buy it even higher.
15. The market is not driven by greed or by fear, it’s driven by what your neighbor is doing. I am not the first to opine on this. When people hear the neighbor next door banked $10,000 on Bitcoin and bought a new BBQ, it is a driving force for decision-making. It is FOMO. No one wants to miss out and no one wants to feel jealous.
16. Remember that all social media companies make money by monetizing your time. Don’t let them distract you from your goals.
17. Free cash flow is still the first thing I check for all companies. Revenue, operating expenses, and enterprise value are not far behind.
18. Value investors do best when interest rates are rising. Value companies generally have more cash on hand and cash performs best when it’s earning the most interest. It is a tailwind that should not go unnoticed.
19. Growth investors do best when interest rates are dropping. Low interest rates are the fuel they need for growth.
20. Growth investors do not outperform value all the time and value investors do not outperform growth all the time.
21. If you maintain your own portfolio, always make sure you know what percentage of your stocks are considered growth or value — I don’t think it’s wise to be overweight either.
22. Industries surrounded by hype come and go as they always have from 3D printing to pot stocks and crypto stocks. This will always be a thing. The difference between a newb and an experienced investor is one knows this to be true.
23. You never quite know when a growth industry becomes a mature industry, but I believe the transition really starts to unfold when companies in the same growth industry start projecting similar growth trends as their competitors. They can’t all be right. They are all counting the same potential customer.
24. As an emerging industry becomes mature, with each passing day, another sales call is made by a competing company and the market begins to shrink, not expand. I think several industries are approaching this point. Read more on my thoughts here.
25. Never buy anything based on a tip from anyone. It’s either insider trading or something nefarious. Do your own work.
26. Always check your research one more time before buying or selling. The market has been open for 100+ years and there is no immediate rush to do anything without confirming it.
27. Online shills are a thing. Sketchy promoters make fake accounts across all social media networks. Their goal is to make the popularity of a stock appear big when in reality it’s a scheme to trick unsuspecting people.
28. Social media is a place to connect and learn about investing. It is not a place to find easy money. Generally, if someone is talking about a certain investment, they have already been invested in it. You are late.
29. Most people in this industry have a position in something and then they talk about it. That’s true for public investors and private investors on TV, on the Internet or in magazines and newspapers. They take a position and then they create their marketing campaign. Most people are pumpers, they just don’t know it.
30. If you’re going to pay for anything, pay for the education. Pay for a group of people to learn with.
31. Stay away from “popular” stocks no matter the temptation. The only time it makes even a little sense, is if you use the product first hand.
32. Try to only own things you know and understand.
33. The best investments are the ones that you also use in your daily life. The ones you can vouch for. You are an expert of the product and you are doing due diligence each time you use it. Owning shares is a bonus.
34. 2019 was a year of experimentation for my portfolio and I learned how important it is to embrace new ideas. In only a few examples has dogmatism worked all the time.
35. If you want to trade aggressively, the after-hours and pre-market trading hours are an opaque, confusing, but also fascinating space to try and gain an edge.
36. I believe pre-market and post-market trading is gamed and manipulated in ways no one understands and few have really investigated. I am hoping to do more research on it in 2020. You should, too.
37. Calling tops is hard, but you will never truly learn markets if you don’t try at least once.
38. No matter who you are, or how disciplined you think you are, unless your strategy is automated to some degree, you will experience moments of tilt or bad decision making at the worst time — the turning point.
39. Avoiding immoral companies and companies that do things that go against what you believe shows character and integrity. I believe that finds a positive way into your portfolio and life.
40. Automation is good and once you learn to apply it to your investing or trading, you will also learn to apply it to other things in your life.
41. They say know your enemy. Building automated strategies will open your eyes up to the people you’re going against — the quants. You have to see it first hand to know.
42. I believe there is an edge to being the last discretionary trader or investor. While everyone else is moving toward automation, there is something to be said about those who are combining both.
43. If you’re a long-term investor, don’t ever manage your portfolio from your phone. You need less screen time, not more.
44. If you’re a trader, you have to learn how to manage your positions from your phone. Find the best mobile app and use it wisely.
45. Options are an unbelievable casino where you can literally go broke or make a lot of money… and then just to go broke again.
46. If you can put aside the Las Vegas temptations of options, they are a fantastic place to hedge or place small bets with your risk defined.
47. My favorite options strategy is to use them as a tool to take a “big swings” or “YOLO trades” on crazy ideas. You can risk very little money on the craziest ideas for potentially big rewards.
48. If you are tempted to sell a long-term investment that has been an important staple to your portfolio, consider first using covered options strategies to unwind it or at least generate some additional income.
49. 99% of your gains can be attributed to luck of the moment. But, 99% of your losses are generally due to poor decision-making in the heat of the moment.
50. Never invest in something without first understanding that you could lose it all. Coming to that agreement with yourself is important. You have to be willing to accept the consequences before they happen.
51. Work-life balance is one thing, but I don’t think enough people think about investing-life balance. We work to fulfill ourselves, to help a business with its day-to-day activities or to make more money so that we never have to work again. You need to have an investment philosophy in place to guide you along the way so that the first Dollar you earn has the potential to be worth more Dollars down the road.
52. For every big trade we hear about it, or big winner, we forget to think about all the ones before who tried and failed at the same exact thing. The only difference was timing.
53. We tend to forget how long the greatest investors sat on the wrong side of a trade, until suddenly, out of nowhere, it worked. That includes Oracle of Omaha himself, Warren Buffett, who in his early days made many terrible trades including the name his company still has today: Berkshire Hathaway.
54. You learn the most about an investor when you ask them how they managed their worst positions.
55. The phrase “losers average losers” is wrong. Dollar cost averaging into an investment you like at lower prices is an amazing thing.
56. I actually like trying to call tops. I think it’s weird that more people are not trying to call tops with a small percentage of their portfolio, at the very least using it as a rolling hedge.
57. Trying to call a top with your own money on the line teaches you things about the market many will never understand.
58. Don’t fight the Fed.
59. Don’t fight buybacks.
60. Don’t fight the unemployment rate.
61. Don’t fight tax cuts.
62. Never ever go short when all of these things are true.
63. When major macro trends begin to take force, for example millions of people getting jobs, trying to go against that is like standing in front a tsunami with your hands up saying, “you shall not pass!”
64. Decentralization is going to drastically change financial markets and the modern corporation. Crypto is more than a financial asset, it is a new way of thinking about transactions.
65. I think Bitcoin is the most important thing to happen this decade. It nearly appeared out of thin air. Totally decentralized. No management. Practically no regulation. It’s complicated and still new to many. Its market cap is $100+ billion market cap and it made a 9,000,000% move this decade.
66. Zuckerberg sold nearly $1.5 billion worth of Facebook shares this year. Bezos sold nearly $3 billion worth of Amazon. That’s $4.5 billion between *TWO* people who ultimately sold to funds that invest on behalf of the general public. Time will tell who made the better trade. But, I actually believe that this is a serious problem. And it’s not Bezos or Zuckerberg at fault. It’s the laziness and lack of diversity of most funds and indexes. They are all investing in the same equities. The Dow, Nasdaq, and S&P 500 all share insanely similar allocations at the top. In 2020, I want to wage a campaign against this. There are over 4,000 other stocks out there and even more investment vehicles. The Wilshire 5000, for example, is largely ignored and filled with overlooked and fascinating opportunities.
67. 99% of the population has no idea what the Federal Reserve does, but it largely determines the winners and losers of society.
68. More people should learn about the Fed.
69. I have read Geithner, Bernanke, Yellen, and Volcker. One thing is for certain: new policies, tools, and processes are put into place that a previous Fed Chair did not use or even know of. In some ways, they are learning and creating on the spot. I don’t know if this is good or bad. But, people like Bernanke used different tools than Volcker and so on.
70. Being “cool” is risk taking. You take risks on music or style or your confidence. “Cool” people ultimately drive new movements from music to art or anything else. I think the decentralization of money is one of the coolest things happening in all of finance right now. And while I only own, say 1% of my portfolio in crypto the ecosystem is cool and I want to learn more.
71. The time to be fearful isn’t when people are selling, but when no one is buying.
72. Companies who are building their entire business on the subscription model have not been tested, yet. Time will tell how strong they are when that moment comes.
73. Exercise is still more important than any sum of money. Say you lost everything today, and your portfolio went to $0 — damn that would suck. But would you still be healthy? Able to move? That always needs to be answered yes.
74. Debt is a burden that eventually impacts the way you think about investing. I am a different investor with no debt than I am with debt. Obviously, at times, debt makes sense, but there are certain levels of your income or cash on hand that it should never reach.
75. While debt for individual people can be a burden, for companies it is sometimes the opposite. Tapping debt markets in a low interest rate environment and putting that money to work where it returns more than the interest on the debt speaks highly of a company. Especially the team in place.
76. Study the background and social media profiles of the management team for the company you want to invest in. It’s one way to see who you’re betting on.
77. Understanding the subscription business model is becoming increasingly more important. It has moved from gyms and magazines to SaaS, music, finance, and more.
78. Return on invested capital is how you value a management team. How good are they are deploying capital? That’s who you want to invest in.
79. In venture capital, they say they bet on the person and not the company. The same is true for investing in public markets.
80. Your significant other is the most important thing in your life. A shared understanding, vision, and belief in one another will change how you approach investing. There is no greater fan of your work and your ideas. A lot of my successes in 2019 are owed to my now fiancée and how she helped me in various situations.

Thanks for reading and I hope you enjoyed this year’s lessons. If you enjoyed it, subscribe to my email here and I’ll send you some of my other writings and notes. Make sure you’re also following me on Twitter.

I leave you with a quote I enjoyed while exploring Buddhism and reading various western philosophers who embraced the philosophy:

“When we speak about freedom, freedom from being a puppet of the past, it simply involves a change in your thinking. You’re getting rid of the habit of thought whereby you define yourself by what has happened before you and instead start thinking in the more plausible and reasonable way where you define yourself in terms of what you’re doing now. And that is liberation from the ridiculous situation of being a dog wagged by its tail.” — Alan Watts

Everyone asks for help. It’s natural and it’s important to learn from others. But, I also think you can’t ignore what it requires to have true mastery of any one thing. It’s built on an attitude of doing and a belief in your own ability when there’s no one to get help from.

Like many aspiring investors, I have read about Charlie Munger for many years. I once had an internship in Boston at a money management fund. I would play Munger’s talks in the background with a single headphone in while I did my work. I learned a lot that summer as an intern, but also as a student of Munger’s speeches.

The other day, a friend wanted to learn more about stocks in the current environment. He wanted to know how they were up so much and what he could do to make money. Obviously, it’s great to see people so interested in markets, but there is no easy answer. You could go to a financial advisor or you could open a brokerage account, but the journey is so much bigger than that.

Once, at a Berkshire Hathaway conference, a guest asked Charlie Munger what his secret was to picking stocks. How did he get so good? How did he find moats? Here’s what Munger said:

“There’s an apocryphal story about Mozart. A 14-year-old came to him and said, “I want to learn to be a great composer.” And Mozart said, “You’re too young.” The young man replied, “But I’m 14 years old and you were only 8 or 9 when you started composing.” To which Mozart replied, “Yes, but I wasn’t running around asking other people how to do it.”

The point is, at a certain moment everyone has to learn to be great at something on their own. They need to take their own chances and do their own research whether they want to be like Munger or a great chef slicing avocados. I believe that’s true for investing and just about everything else.

I recently read about a cryptocurrency ponzi scheme. In total, this scheme managed to scam people out of $722 million. The scheme was simple – they promised investors massive returns if they just gave them their money. Here are a few details:

“The indictment describes the defendants’ use of the complex world of cryptocurrency to take advantage of unsuspecting investors,” U.S. Attorney Carpenito said. “What they allegedly did amounts to little more than a modern, high-tech Ponzi scheme that defrauded victims of hundreds of millions of dollars”

And

“Discussed with his conspirators that their target audience would be “dumb” investors, referred to them as “sheep,” and said he was “building this whole model on the backs of idiots.”

US Justice Department (link)

It’s likely that these scammers will see the gavel thrown down on them like an episode of Judge Judy. In the meantime, I can’t stop thinking about the people who willingly gave them their money, about $722 million. How? What? Why? Imagine for a second that three or four people approach you, “Yo man, so I’m starting this company called BitCoin Club and we’re just, like, like we’re going to make so much money mining Bitcoin with your money.”

I don’t know if this surprises you, but in the investing world, things like this happen all the time. It, sadly, does show the type of people who are attracted to the financial world. Ponzi schemes, con artists, pump & dumps, and fraud have found their way into the investing world since the age of markets first began many moons ago.

There’s no easy way to avoid it, either. Everyone wants your money, but few really deserve it. I always come back to the legendary Peter Lynch who championed the idea of investing in only the things you know. His style has always resonated with me because of its simplicity. Lynch was most interested in the companies who he could see, use, and work with in his day-to-day life.

I will let Lynch speak to you in his own words (you can watch his entire speech at the bottom of this post):

“The single most important thing to me in the stock market is to know what you own. I am amazed at how many people own stocks and they would not be able to tell you why they own it. They couldn’t say in a minute or less why they own it.

If you can’t explain it, I’m serious, if you can’t explain to a 10-year-old in two minutes or less why you own a stock, you shouldn’t own it. And that’s true I think of about 80% of people that own stocks.

I made money in Dunkin’ Donuts. I can understand it. When there were recessions, I wouldn’t have to worry about what was happening. I could go there, see people were still there, I did not have to worry about low-priced Korean imports or anything. And you laugh. I made 10 or 15 times my money in Dunkin’ Donuts. Those were the kind of stocks I could understand. If you don’t understand it, it doesn’t work. This is the single biggest principle. And it bothers me that people are not very careful with their money.

The public, when they buy a refrigerator they go to Consumer Reports. When they buy a microwave, they do that. They ask people what’s the best kind of car to buy. They do research. And when they go on a trip to Wyoming, they get a travel guide.

But people hear a tip on a bus on some stock, they’ll put half their life savings in it before sunset. And they wonder why they lose money in the stock market. And when they lose money, they blame it on the institutions and program trading. That is garbage. They didn’t do any research. They got a piece of junk. They never looked at a balance sheet and that’s what you get for it.”

Peter Lynch

Lynch changed the way a lot of people think about investing. Myself included. But, I think it’s important to point out that I’m not saying Peter Lynch’s wisdom is a secret piece to success. Or a top 10 thing all geniuses do before waking up at 5 AM. No, I’m not saying any of that. There are no easy answers. What I’m more-so trying to say, is that generally, you probably want to remain extremely skeptical of the things you don’t understand or know. It may be smart to stick to the things you know, instead.

In an industry filled with people who want your money, you may benefit from added scrutiny, skepticism. Because, without it, well that’s how people get burned. They get burned when they underestimate their own ability to perform due diligence and overestimate their trust in something they know nothing about.