In Investing Knowing What Not To Do And Not Doing It Are Two Separate Things

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During his recent interview with Tobias, Michael Batnick of Ritholz Wealth Management discusses some of the big mistakes that have been made by successful investors. Michael makes the point that while these investors knew what not to do, knowing what not to do and not doing it are two separate things. Here’s an excerpt from the interview:

Tobias Carlisle: I think it’s one of the interesting things about studying the records of great investors like this is that you see how often they do make mistakes, but they still somehow figure out how to thrive and make a lot of money despite the fact that they’re making mistakes. It’s something about the way that they construct their portfolios. They’re never sort of super concentrated. They’re not using leverage that’s going to kill them. You draw any other lessons from the guys who’ve been successful despite those big mistakes?

Michael Batnick: Yeah, I think that they’re pretty much all behavioral driven. Certainly in the case of like, Stanley Druckenmiller, there’s a perfect example. He went all in at the top, and somebody said, “What did you learn?” And he said, “Nothing. I knew what not to do. I just couldn’t help it.” Jesse Livermore, who is the single most quoted trader of all time. Every single time he made and lost a fortune, he came away with like, these almost, like, soliloquies, just beautiful language on what an idiot he is, and he couldn’t even follow his own rules. I think people have a pretty good idea how to lose weight. Doesn’t mean that you’re going to have a six pack. We know what to do. We know what not to do, but knowing what not to do and not doing it are two separate things.

Tobias Carlisle: Yeah, the problem’s not intellect. The problem’s not knowing what you should do. It’s being able to actually do what you should do, which is a totally different thing.

Michael Batnick: Right, which is why I firmly believe that there is not a … I don’t think that you could be a super investor without having a high IQ, but you could be a very average sort of intelligence person and do just fine in the market. I think that it’s really more of your temperament and your personality, and some are better suited to it than others. Myself, I was just way too emotional. Not that I would like, stew over my losses, but just, again, I didn’t have any rules, and I was making decisions based on how much I was up or how much I was down, rather than following any sort of process.

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