The Best Investors Get it Wrong
Sam Rudnick
Head of Investment Programs @eToro. Oversee the 'Popular Investor Program'; a global marketplace of talented investors who can be copied by eToro's investor community. eToro veteran
Reading the Berkshire Hathaway Annual Letter this year reminds us that even the best investors get it wrong. In fact every year Warren Buffett likes to remind us all where he went wrong. Normally the opening or 2nd page of his annual letters includes a personal admission of any failures over the past 12 months, emphasized far more prominently than any gains or successes.
It is this humility and transparency that makes him a great investor.
Howard Marks of Oaktree Capital says 'good times only teach bad lessons'. Being wrong is right and being right is wrong.
At eToro I oversee an Investment Program (Popular Investor Program) that includes over 1,500 investors that have tens of thousands of individuals copying their investments at any given time. There is a lot of pressure and responsibility on our team to ensure that the most suitable investors are visible to our millions of clients. A few years ago I made a minor tweak with our product team to remove the statistic of % of profitable trades in our mobile app and replace it with the performance of profitable and losing trades.
When I look at an investor the first thing I want to know is, what can go wrong here, not what can go right. Everyone makes mistakes. What will be the extent of the damage when these mistakes happen? It's important to analyze risk; historical drawdowns, beta, Sharpe and the standard deviation of historical positions. I will want to go back several years and identify any discrepancies where a decision deviated from the investment mandate. Why was this decision taken? Is this concisely documented somewhere? Do investors have a transparent explanation or has it been sugar coated?
One should be cautious of investors/fund managers that claim to be right and earnings reports that do not provide a balanced perspective.
Document your failures, publish your mistakes and learn from them. Warren Buffett turned 90 last year and does not seem to stop making mistakes, while still being the greatest investor.
Feel free to share your own thoughts in the comments :)
Opinions stated here are my own and should not be construed as investment advice.
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Executive Director | Compliance | Investments & Trading | Business Advisory
3 年The problem isn't getting it wrong... the problem is not admitting it quickly. As George Soros said when he was asked what is the secret of his success: "I know very quickly when I'm wrong" But then on social media everyone is a genius at trading and investing (especially on Instagram!!) Cheers Sam, you do a fantastic job.
Investor
3 年I think his age and his absolutely monstrous portfolio are factors to take into account. We live in a time where everything changes so quickly that I'm sure it would be too much to keep up with for anyone who was born in the 30s. Small/medium cap stocks are pretty much out of the picture for Warren unless he plans on outright buying the entire company and even then, how many companies would he have to successfully choose in order to even make a dent in his net worth. I think Warren is too humble for his own good, his track record speaks for itself.
Entrepreneurial-minded Executive Leader || CRO, CXO, COO || B2B, SaaS, B2C || AI-First || Board Advisor || Entrepreneur & Angel Investor
3 年Loved the post Sam!
Founder & CEO at Quantum Economics
3 年To be honest, there comes a point when the size of the mistakes overpowers the fact that he's been transparent about them. Buffett is no longer the greatest investor. Sad but true.