Bad Blood - InvestED: The Rule #1 Investing Podcast Recap

Podcast: InvestED: The Rule #1 Investing Podcast

Published: 2024-07-09

Duration: 35 min

Summary

Phil and Danielle explore the pitfalls of confirmation bias in investing, using real-world examples like Theranos and the San Diego real estate market.

What Happened

Phil Town and Danielle Towne kick off the episode by discussing the intriguing intersection of personal interests and investing, highlighting how casual conversations can lead to unexpected investment insights. They recount the story of investor Bill Ackman and fly fisherman Oliver White, illustrating how diverse experiences can shape investment perspectives. The duo emphasizes the importance of avoiding confirmation bias, using the example of a bank's poor investment in a San Diego life sciences building that failed due to location oversight.

They delve into the story of Theranos, a biotech company that misled investors and the public about its technology. This tale is used to underscore the necessity of thorough research and skepticism, especially when dealing with companies that present revolutionary but unverified technologies. The hosts stress that investors must discern when they are venturing outside their circle of competence and recognize when something is too complex to understand fully.

Phil recounts a personal experience where a friend invested heavily in a water treatment technology without understanding its workings, which ultimately led to a financial loss. This anecdote serves as a cautionary tale about the dangers of investing in black-box technologies where the underlying mechanisms are not transparent. The conversation shifts to the importance of maintaining intellectual honesty and resisting the urge to believe in something simply because it aligns with one's preconceived notions.

The episode further explores how to mitigate confirmation bias by being aware of its existence and ensuring a deep understanding of the subject matter. Phil and Danielle discuss how journalists and investors share similar investigative approaches but differ in their end goals, with investors being able to walk away from too-hard problems. They stress the need for investors to have a point of view and make decisions based on comprehensive research rather than external opinions.

The hosts highlight the role of scuttlebutt, or informal information gathering, in the investment process. By engaging with various stakeholders and cross-referencing data, investors can piece together a more accurate picture of a company's situation. The necessity of being in the right intellectual state to evaluate evidence critically is emphasized, as well as the challenge of navigating misinformation and sales tactics from companies.

Phil and Danielle conclude with a discussion on the pressures faced by fund managers to outperform peers, which can lead to risky investments outside their expertise. The episode wraps up with a reflection on missed opportunities and the regret that can accompany decisions made from a place of uncertainty, using BYD as an example of a missed investment due to lack of knowledge in electric vehicles and the Chinese market.

Key Insights