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Gary Mishuris

lines on the record: 46
first: 2022-05-13
most recent: 2022-05-13
sittings or episodes: 1
sources: podcast

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“Sure. So behavioral value investor all one word.com is where you can read some articles, usually once a month about intersection of investing and behavioral finance. And Silver Ring Value Partners.com is where you can find my company. And I have something I call the owner's manual there, which is an in-depth explanation of my investment process. And I'm happy to share that with anyone most of the time. I have students or others who just want to learn and improve themselves who request it. And if you request it, no matter who you are, I'll be happy to share it with you. And hopefully there's something in there that can help. And happy to stay in touch. There's contact info there as well if you want to reach out.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Out as opposed to what do I have to be right about each stock five quarters out? That's the mindset you want to have. And also, frankly, you have a set of risk-reward trade-offs. Too many people make the mistake of sizing their largest investments based on upside. But again, going back to the safety first mentality, I size my positions based on downside, meaning my largest investments have the smallest downside. I have an investment which maybe it's a 30% of my base case value as to 30 cents in the dollar. But if that's going to be, if that has 100% downside, that might not”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Prior to starting silvering, I managed the fund at my prior employer and I had two investments. One was SAB Miller, which is a beer company, and the second one was Qualcomm. If you're running some kind of a borrow risk model and you're looking at overlap, they're completely different gig sectors. One is technology, the other is consumer, right? So no relationship, you're good, you're diversified. But the thesis for each one was predicated on rising middle class in emerging markets, meaning people were going to trade up and buy more expensive beer and China and other emerging economies and people were going to trade up to fancier smartphones, which was going to drive demand for Qualcomm's products. So here are two completely different industries with the same macro force, which is a tailwind, if it doesn't play out, would hurt the thesis. So looking for those correlations as systematically as possible and thinking about what do I have to be right about each business five plus years.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I think it's a good question for someone with a constant portfolio because if you're running a widely diverse web portfolio, you're automatically diversified. So you don't need to worry too much. But if you're like me and you have 10 to 15 investments, then you are potentially exposed to undue correlation of risk. Now, what I'm trying to guard against is not that there's some mark-to-market loss in some quarter or year where all these investments move unison. I don't really care all that much about that. What I do care very much about is that the business outcomes aren't too correlated. Because when you're investing into 10 to 15 names, you need to make sure that they are as close to independent of each other as possible. And like you said, if you have areas where you don't invest, that kind of squeezes those 10 to 15 investments into the rest of the opportunity set, meaning that you might be too correlate. But it's not about gig sectors, which is like a common misconception. So I'll give you an example.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Alan Greenspan talked about irrational exuberance in 1996 and the NASDAQ, I think, troubled in whatever, 2002. That's a long time.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“To work in the one tech stock that didn't go up, and right around that time, Warren Buffett came on campus and gave a talk at Sloan, which is the business school at MIT, and he was talking about intrinsic value, long-term, competitive advantage, which all made sense, but it was foreign to me at the time, but at the very least it made me realize I was speculating and not investing. And that's kind of how I entered the path towards value investing. I think at the same time, most people today in the markets haven't lived through a bubble before. Maybe some of them have seen the OE9 crash, but that wasn't really a bubble. It was more dislocation in the sector that was infecting the rest of the financial system. And so very few investors today operating have really experienced that phenomenon. And it's very different experiencing it viscerally than reading about it, right? And so people have forgotten about web band or some other price to eyeballs or some other BS from the late 90s. And they've also forgotten how long it took for them bubble to burst. I mean, I think”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Right, so I think, first of all, whenever you use belief or belief enters your kind of lexicon for an investment, that's a danger sign. And I've seen this a lot of times when you have these called stocks and you push back on someone's thesis, they get upset, like emotionally upset. If someone pushes back on one of my investments in one of my thesis, I'm very happy because I just got a free chance to devise myself. And so when someone is reacting emotionally to disagreement, that's a warning sign for them that they don't really have a lot of basis for their thesis because basically they see an attack on their thesis as an attack on them. Whereas I see an attack on my thesis as an attack on my thesis, which is welcome. And so I think we are experiencing a bubble. I've started my career right before the last bubble burst and I was studying computer science and economics at MIT during the tech bubble over 20 years ago. I was poor growing up as an immigrant and I put my savings”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“How does that sound? Well, no, that doesn't sound good to me. I get the same amount of pizza. So you charge me twice as much. And I've seen these, it's actually where there was a company recently that I saw announce a stock split after the stock collapsed, 50%, and I found that to be tremendously abusing that they're trying to essentially prop up their own stock after a stock collapse by doing a share split, which economically does nothing. But anyway, coming back to Buffett, I think that it's fundamentally different from cryptocurrency. And I'm not an expert on crypto, so I'm going to stay away from that. But I think the issue with crypto is just belief of others. And the issue with Berkshire Hathaway is the cash flow stream now and in the future. And that's fundamentally a different question to answer.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think it's not just the scarcity of the shares, it's the value he has created from the cash flow stream and the assets that he has produced. So I guess what we're talking about Warren Buffett is he is created something incredibly valuable because the cash flow stream that Berkshire Hathaway produces today is immensely bigger than it was many years ago. And so I would kind of push back on the premise that it's because he hasn't split the shares. It's always a little bit suspect to me when you come into a pizzeria and I used to live in Brooklyn, New York as a kid, and there were a lot of Italian places and you come in, there's some guy throwing up pizza pies and, you know, they caught it usually in eight slices. And let's say $2 a slice or whatever it is, although with inflation, maybe by the time this goes live, it'll be $3 a slice. You never know. But let's say you come in and some guy says, well, how about I cut this pizza in 60 in slices instead of eight and still charge you $2.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, and I think that that's a great point that, so like lately, the markets have decided that just because something is scarce, it means it's inherently valuable. Well, look, I have three kids, and if some of them doodle and create a little piece of artwork and I scan that in, that's unique. Nobody else can recreate that. Does it mean it's”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Charlie Monger tremendously, they're different people as investors. I think that's what master is. It's reaching that comfort in your own skin, not blindly copying someone else.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Or reason to move on from idea, it has to be their reasoning. And Buffy himself has said that. He said, I forget exactly how the quote goes, but something along the lines, it's not because others agree or disagree with you. It's because your facts and reasoning is correct. And so the funny thing about the people who are recommending that we clone Buffet is Buffett isn't cloning someone else. Buffet is learning from people, whether it's from Ben Graham early in his career or Charlie Munger or Phil Fisher, and then he's reaching her own conclusions. Incidentally, look at Charlie Munger and Warren Buffett. Charlie Munger is on the board of COSCO, right? And it's just levered up a daily journal to buy Somaliba with Lilu or something like that. Again, I might be misrepresenting this, the details, but that's my impression. Well, as far as I know, we might find out different in a couple of weeks. Buffett doesn't hold a big stake in Costco, and he has 100 billion cash. So how come? But because he's his own person, his own approach, his own style, his own circle of competence. And while I'm sure he...”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Of that, you're going to be right about 50% of the time, give or take. And if you go against the crowd, you're going to pay about 50% of the time, which is obviously not enough. And so you vary in or you want to be an independent thinker, think from first principles, and basically reach your own conclusions based on evidence and then overlay that with your strengths and weaknesses and your circle of competence. And I think it has to do with just being comfortable in your own skin. Like Warren Buffett could teleport into my office, tell me that he pays every single investment of mine. And in and of itself, that will mean nothing. But if he were to give me reasons, then that would be potentially the influence me quite a bit. But so I think you have to get to the point where, by the way, it's not just because I'm rebelling as authorities, because I respect Warren Buffett tremendously, but I've also achieved my own level of proficiency and I make decisions based on my own process. So someone agreeing with you can be the major source of comfort.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Well, so when I started at Fidelity, over 20 years ago, GE was a very popular stock and everybody owned GE. And you know how well or not well GE has done over the 20 years since then, but you couldn't go wrong because everybody liked Jack Welch and how could you go wrong with owning GE? And so you know how in karate kid part two, they say the secret of karate. Maybe I'm dating myself here. I've been rewatching that with my kids. But it's this little thing that creates the beat. But the secret of investing, you know, I hope you all are listening, is this, it's the balance between conviction and flexibility. But where to be and when, nobody can tell you. You have to decide that. And I think that a lot of people think that to be a good investor, you have to be a contrarian. Because they hear that. I hear this a lot. Oh, I'm a contrarian. That's terrible. Don't be a contrarian because contrarian kind of implies you go against the crowd. Well, the crowd gets it right almost 50% of the time. A little bit more probably in their frictional costs. So if you take the inverse, the opposite.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“In time, despite trying, what I've seen is I've seen a lot of value investors humble in energy because they are overconfident about their ability. There was a very famous investor, someone who you would know if I mentioned the name, but I won't. And Columbia Business School has this CSIMA conference, you know, their investment club has very high profile speakers. And this person came and presented and talked about Chesapeake, the gas come. And he got up on stage and said, well, it's my largest holding. I got everything right microeconomically, the market share, the cost position, this and that. But the only thing I got wrong was the”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Sources of the funnel is other investors I respect. And so I have a very loose set of criteria for something going into the top of my funnel. For instance, let's say Warren Buffett buys something. Yep, it'll go into the top of the funnel. But so will a hundred other things. I purposefully do not track the source of like, I have, you know, I have investors I respect. I have screens. I have a watch list of high quality businesses. And I have special situations. And these are all kind of orthogonal to each other for independent and they're complementary in terms of making sure I'm catching different types of potential mispricings. Once something goes on the top of the funnel, I no longer keep track of where it came from. And then the next step is a kill phase where I try to kill things very quickly. So for me, I don't invest in energy. Why? I believe I cannot forecast the long-term price of oil. I haven't met anyone who can either. And so I think it's outside of my circle of competence. It doesn't mean it's outside of buffets or anyone else's, but it's outside of mine. At this point,”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Process oriented. I like repeatable things. I'm a terrible stock picker. By the way, please don't make this into a sound bite, but when I say I'm a terrible stock picker, meaning I have no stock sense. Like I can't tell you which stock is likely to trade which direction. I was a fidelity and there were people who had good stock sense. And so I started saying, well, I need to build a process that plays to my strengths and minimize my weaknesses. So my process is very much about kind of a systems engineering approach of a process as opposed to relying on my gut. So come back to your question about how do we avoid social proof though. One of the interesting thing is like Phil Fisher, who is pretty much almost every growth investor is hero for compounders and all of that stuff, he talks in his book that his best ideas are the ones that worked out the best mostly came from other investors. So you don't want to completely disregard other investors. So here's how I do it. When my idea generation process is run, I have my funnel. One of the”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Format and no. The thing he said almost made no sense. He basically was talking about a company. By the way, this is a company I owned and I lost a lot of money on it back in the day, it's Print. So I remember my mistakes very well. And he kind of used some very simplistic argument of like, sprint is trading at 1,000 per subscriber and Comcast is trading at 3,000 per subscriber. And I was like, but Comcast has the re-revenue streams and sprint has won three, one, one thousand. It's like, I hope you have more than that, right? By the way, I had more than that. I didn't help you from not losing a bunch of money on that, plenty of behavioral mistakes there, maybe a whole bunch of them. But the point is, you start from the hero worship phase and you run into this kind of like, wow, my heroes are not perfect. And or wow, my hero might want to do it this way. Fine, but I'm different. And I have these strengths. So like I'm an engineer, I studied economics, computer science, and I'm IT. I think very linearly A to B to C.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“It took me a long time. They say that the old cliche about 10,000 hours or 10 years of deliberate practice to achieve mastery. It took me a long time because you started as an investor in this hero worship stage. You kind of start and you say, oh, pick your hero, right? Or set up heroes. And you want to do everything like them. And I remember there was a very well-known fund manager who has beaten the S&P at that point for more than a decade. Again, I'm not going to say the name. You might know who that is. And then there was a publication back in the day called Outstanding Invested Digest. And I read an interview with this, and this was maybe mid-career where I was seven or eight years into kind of my practices as a financial analyst as an investor. And I wrote an interview with him on the stock that I knew well. And his thesis was like so shallow, like I was shocked. And I was waiting to hear that there was so much more behind the curtain. He's just summarizing and keeping it brief because of the”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“So, I teach a value investing seminar at the local business school in the Boston area. And the framework I always use with my students is understand, apply, and then customize. And what I'm talking about is when you study great investors, I think there's a different school of thought out there with some well-known proponents that you want to clone great investors or copy them or whatever the case may be. And I strongly disagree. I think that you and not Warren Buffett, no offense, neither am I. And neither is anyone listening to this. nonetheless, Warren Buffett has a lot to teach us. The goal isn't to copy Buffett's approach or this. The goal is to understand and figure out how can we tease out things that are applicable to our own investment approach and circumstances. And how does that interact with our circle of competence? Because you and I might have very different circle of competence and therefore we might be taking the same framework, the intrinsic value framework that Buffett uses and be applying it somewhat different than he does. So that's one thing.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“and what happened and there are certain actions that get triggered as a function of that thesis tracker so for instance let's say i have two orange cells in a row meaning three quarters in a row the company is slightly underperform my expectations that automatically forces me to re-underwrite the investment number one number two i freeze the investment from adding additional funds to it there was an old joke at fidelity about a portfolio manager who lost half of his fund in a single 5% position and of course how does that happen well gets cut in half you put more you bring it back to five cut in half bring it back to five so you know Peter Lynch used to talk about cutting the flowers and watering the weeds so I think it's very important”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“About flip flopping and having their value estimate move all over the place, they don't want to do that, but then how do you do it? So my solution has been to have small changes all the time proportionate to small fundamental developments. And that might seem counterintuitive because you might say, well, Gary, like value estimates aren't precise anyway. So what's the value of making small changes? The value of making small changes is you get in the habit of changing your value and de-anchoring. And another thing, so I have this what I call thesis tracker. So for every investment, so I have 10 investments right now in the portfolio. For every investment, every quarter I have with Excel sell and it's color coded, bright, red to bright green, and bright red means they really deviative in that quarter from my thesis. Actually, based on facts, not based on my opinion, and it could be COVID, it could be a recession, there are no excuses, it's purely a comparison between what I think the business should be doing.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“That's very undisciplined. And so he now or she come in and they say, okay, well, I estimate the intrinsic value of this business to be about 100. Now, obviously, it's a range, maybe it's 50 to 150, but let's just use 100 for simplicity as a kind of purposes. And they anchor to that. And then fundamental developments happen, and they stick to this 100. So let's say something happens, a number of quarters occur, fundamental information comes out, and the stock now goes from 60, let's say it goes to 30. Well, they rarely, really update 100. They stick to this 100 as if it's the truth, as opposed to just an estimate at a point in time, and then they double down and triple down. And then when they lose their shirts, they're like, what happened? What happened is they underreacted to new information. They weren't responsive to fundamental developments that should have caused them to take that 100 as their value estimate and bring it down. So how do you combat that? Because they're worried.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Developmental arc in a lot of investors. So, first of all, most investors are taught to be very disciplined in sticking to their price target. I'm talking about fundamental intrinsic value investors. I'm not talking about people who are reading charts or something like that. I'm talking about people come in and they're taught that Wall Street analysts just change their price targets willy-nilly. So imagine a donkey with carrot hung in front of the donkey, right? That's kind of the Wall Street price target. If the stock is at 10, the price target is 15. If the stock gets to 15, guess what? No change in fundamentals. The new price target is 20 because the way wall should works is you start with a conclusion, i, x, y, z bulge bracket for a many lists want to recommend the stock. What kind of upside do I need to put into my template to justify that? 30% or whatever. So I'm going to have a price target of 30% ahead of the stock price. So the young analyst sees that and he's thought by his elders that that's a bad way to invest.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“I think a good one that comes to mind is when I was a fidelity early in my career, Peter Lynch used to tell the story that probably illustrates anchoring pretty well, where he started doing research on the company and the stock was at 10. He thought the business was worth $30 per share, but he wanted to do some extra checking and have his analysts check things out and so forth. And while he was doing these checks, basically the stock went up to 15. And he never bought the stock. Why? Well, because he anchored in the 10 and he did not want to buy at 15 because he kept waiting at even though from 15 to 30, it's still a double, which is a pretty good return. He was waiting, waiting for it to come back to 10 so he could buy it again, his original price that he anchored on and never did. He missed out. So that's a common thing. It's hard to buy something where you start doing work at one price point and it moves up even if there's still a lot of upside. Another example is just I've done this for over 20 years and I've mentored a lot of analysts along the way and I see the same”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“We put a disproportionate weight on what just happened and assume that's a proxy for what's going to happen as opposed to zooming out and looking at a much longer data series.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“the company or the history of similar companies. So in the first case, the history of companies growing 30% for two years is mean reversion in the growth rate towards the growth rate in all companies. So just to level set everything, the average company's profits over long periods of time grow in line with nominal GDP. By the way, ironically, if you look at Wall Street estimates, they assume the average company is going to grow earnings at double digits. Well, it hasn't. It's been growing 5% to 6%. And that's an example of base rate neglect because they forget that a fifth of the market is going to have negative earnings growth. But that's a separate thing. And then the base rate for a company that's been earning its cost of capital and had a couple of good years is that the long-term history is much more likely to be the best predictor than the last couple of years, which could be a cyclical high or something like that. So I think ignoring the base rate leads to the recency bias where”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“So I think a recency bias is almost a special case of base rate neglect. So what are some examples of recency bias? Let's say you have a company over the last couple of years that's been growing 30% per year and you assume it's going to grow at 30% per year for the next one years. I'm obviously using Extreme Example, right? So that's recency bias. You take a near-term past and assume that's going to be the same in the long-term future. On the other side, let's say you have a company that over the cycle has barely earned its cost of capital and averaged a dollar per share. But now the last couple of years been earning $2 per share and averaging 20% return on capital. So you're going to extrapolate that $2 and assume that's the new normalized earnings for the business and say the new long-term average earnings is $2 and this now all of a sudden the 20% return on capital business or something like that. In each case you're ignoring the base rate. The base rate in this case being the history of”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“The time period. So if you think you can do 20, you think you're going to beat the market by double digits per year. And I know everyone thinks they're very special, but that's just a perfect example of the inside of you. The inside view is all these”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“A little bit crazy. It's a little bit arrogant. Again, I think we're all overconfident, but come back to the Fed. So look at the last 10 years. We had almost a perfect kind of confluence of events. We had interest rates coming down. We had unrivaled Fed manipulation of markets far beyond just the short-term end of the curve. We had maybe as a result thereof or maybe as a coincidence, huge amount of speculation, both by retail investors and by a number of institutional investors, institutional quotes, not naming any names don't ask. And you basically had over the last five years you had 25% KGR for a large growth stock or all cap growth stocks. So if you're investing in the universe, it's pretty easy to start believing your own BS and start saying, well, gee, yeah, no, I can crush them. I can do 20, 25% per year. But really, let's zoom out over the long term U.S. equities returns inflation plus six to seven, depending on”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Nobody over decades has exceeded 5% per year excess returns with no leverage and so forth. Obviously Buffett is down close to 10, but I don't think there's going to be another buffet necessarily. So when someone shows up and they think they can do 10, what they're doing is they're exhibiting example of base rate neglect. They're looking at their own strategy and they're saying I have these clever mental models. I have this process. I have this special sauce. So they start believing their own marketing deck a little bit too much and they forget that the people who tried and failed to achieve the 10% per year, as an example have also had their special sauce and their analyst teams and this and that. And yet they were only able to do a certain, you know, think about like someone like John Neff, whose record is public or who had three decades of returns, he beat the market by 3% per year in arguably less efficient markets than they are today. So when someone shows up and says, I'm going to beat the market by 10%, that's”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“So I think it's fascinating that, and I think sometimes people talk about inside view versus outside view. So base rate neglect refers to ignoring the experience of others in similar situations and just making an assumption based on what we think we can do in this situation. So let's say a very simplistic example of someone flips coins a thousand times, they get 50% heads, 50% tails for a fair coin, and somehow we convince ourselves that we can take a fair coin and flip tails 70% of the time. And that sounds ridiculous when I phrase it that way, but sometimes essentially that's kind of what is happening. So, for example, you know, if you study great investment records, which I'm sure you do, you realize that there is a certain range of excess returns over decades that the best investors have been capable of. And if you take Warren Buffett out of the picture and if you take people who use leverage out of the picture, unleave returns, there's almost”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Thing and that's a legitimate bias, that's a good example of a bias, I would say. Maybe it's a fact based bias in the sense that we have patterns of investing that we are more comfortable with or experiences that lead us to be experts in something that someone else is not. But I think there's just a lot of subjectivity in investing. And I think a good generalist can take even a specialist idea and find holes in it that the specialist might not be self-aware enough about.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“And I think I'll give you one piece of evidence to this. So I manage a small partnership. I have friends who manage their own small pools of money professionally. And all the people I'm professionally friends with are intrinsic value investors. Some people tend towards more the growth side of intrinsic value investor. I think some people tend towards the more the traditional value Ben Graham style. Regardless, we're all kind of speaking the same intrinsic value language. But our portfolios are vastly different. Moreover, when we talk to each other about our portfolios and share ideas, very infrequently does someone end up taking someone else's idea and actually putting it into their own portfolio. And to me, that says that there's just enough biases out there because someone with similar intelligence, similar quality process, and so forth did the research, found the idea to be attractive. Here we are being pitched that idea by someone we respect and yet we don't buy it. So we have our own unique circles of competence.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“I mean, right, so domain expertise is trickier. And so I think that a great idea should be obvious to a non-specialist. And granted, the specialist might need to explain some key terminology or something like that. Let's say it's a drug, you know. But you don't need to know the deep science of a drug to appreciate the economic potential of the drug on the market. And so if it's not obvious in terms of economics, the science might not matter. It might matter from a humanity point of view, but from a investment point of view, it has a thoughtful generalist who has experience should be able to give you a good devil's advocate case. But again, if the devil is in some detail and it really requires analyzing some phase three study and finding out some design flaw in the study at only a deep expert could find, it's going to be harder. So we shouldn't kid ourselves. I think most of the time the problem is not some new tiny nuance. The problem is just not that competitive.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Over lines somewhere, but systematically insert into the research process in an institutional setting, but it just doesn't happen. And I think a big part of that is incentives. Think about it. You take a typical asset management team, let's say they're whatever, 10 analysts and a portfolio manager. to kill the portfolio manager's favorite idea how do they get paid from that how do they get promoted from that it's hard like it just there is really no incentive they might say no we really want you to give us your strongest possible view but that's not where their bread is buttered their bread is buttered by potentially finding new winners or something like that and by the way like an interesting question would be like how many times does this devil's advocate process kill an idea before it makes its way into the portfolio because it can't be just a fig leaf it can't be just oh okay we checked the box we had the devil's advocate thing now we can go ahead and buy the conscious is clear it needs to be a real process”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“I think it's valuable, and I think it's interesting at my prior firm, so I launched Silver Ring Value Partners about six years ago. Prior to that, I spent 15 years at large firms. My last firm, I had the same idea and I went to the head of the team and they said, listen, let's do this. Basically, I have a lot of respect for Bill Nigrid and I think the way he approaches it is a reasonable way of implementing this idea. And I got nowhere. And it's like, well, we have the resources. I was part of a team that was managing over $10 billion in assets. We had plenty of analysts like, why not, like, well, is this going to distract our analysts from finding new ideas? I'm like, really? It is really hard. We're so busy finding all these amazing ideas that we can't spend X percent of the analyst time kind of doing these things. So, yeah, so I guess what I was saying is you'd be surprised how often you have these possibilities to have a debiasing step in your research process formally, not off the cuff, not”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“It's hugely valuable for two reasons. One is the time, but the other is I'm much more likely to listen to someone's opposing viewpoint before I really anchored on the idea than if imagine this, you know, you buy an idea and then tomorrow someone presents you with a strong negative thesis. I mean, it is super hard to sell it the next day after you bought it. But if they presented to you the day before you bought it, how much easier is it to just not buy it in the first place? So just having those checks and balances early in the process, I think is, again, not perfect, but I think it's an important step in minimizing those biases.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Have the devil's advocate be done as I'm researching something before I've really anchored on that idea. And so now what I do is as I'm researching the ideas, I'm finding information, obviously as I'm pursuing it, there's some amount of liking that's already occurring. Like I'm not spending time on an idea I hate. That would be silly. So the fact that I'm researching it already means that I like it to some degree and there's some kind of formation of biases that's happening. So in parallel now, I'm asking some of my interns, for example, to go and say, present me with the strongest possible negative case on this business. Find out everything that's wrong that's right there. And I went early because time, especially if you do deep research, which I try to do, is a very valuable commodity. And I mean, I can't afford to constantly spend time on things that you never invest in, or at least you need to shorten that time if you can. And so having someone kind of debas me early in the research process and point something out that would make me kill the idea.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Biases. That's not the perfection is not the goal. The goal is to minimize them as much as possible. So you're going to have these biases, but if we can kind of limit them, that's better. So I used to have this exercise called the Devil's Advocate Exercise. And I would ask other investors, you know, someone analyst or another investor friend to present a strong alternative point of view on an existing holding. And then I had this idea, wait a second. Why am I waiting until I own this thing? Because there's all kinds of biases that kick in, like anchoring, endowment effect. By the way, some of those of you listening, the endowment effect is not like the Harvard Endowment. It's like, we like things we already own more than the same thing that we don't own. The act of owning something makes us like it more. And they've done experiments quite frequently to show that it's a persistent effect. So my question to myself was, why am I waiting to have this devil's advocate presented once I own something? Why not?”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Your question reminds me of, and I was listening to a talk many years ago in person by Jean-Marie Villard from First Eagle Investments, who's kind of a legend of international value investing. And he said something that surprised me at the time, which is there's no such thing as a value trap number. What do you mean, like in value investing, value trap is kind of a common term? So, well, there's no such thing as a value trap. They're just investments whose fundamentals you get wrong. And so I think that one thing you can do is to start with seeking out the opposite point of view fairly early and understanding if someone is, you know, let's say you're buying a business, if someone were to be short this stock, or at least someone were to be avoiding it with extreme prejudice, why would that be? And so it's always interesting, right? So I have all these kind of checks and balances. I try to insert into my process to guard against behavioral biases. By the way, understanding that even with the best efforts, I'm still going to have some.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely. And I think it's something that it's wonderful when it happens. I think the other part that we have to think about is what are all the other companies that people thought were going to be Facebook or people thought were going to be Amazon that nobody knows enough of. So there is definitely a selection bias at play where we see kind of vividly the examples of success for when the style works and we forget that for every success there are many, many failures and that in the past there were very smart people, perhaps just as smart as we are, who predicted those companies that were no longer their member the names of were going to be the next Facebook or the next Amazon. That's something just to keep in mind that it's not as easy as it sounds, but when it happens,”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Whether you're right, you need to wait a number of years and see if that burning's power comes to fruition. And so I think to kind of come back to your premise is what we have is we're all overconfident as investors. And I really say all, and maybe there's one person on earth who's not overconfident or something like that. And obviously the funny thing would be to say we're all overconfident except for me. But I know I'm overconfident as well. And so I think you have to build in structural humility into your investment process. Because if you assume that you're not overconfident, well, you're just proving the point you are overconfident about not being overconfident. The issue is how do you acknowledge, yes, I'm likely to be susceptible to overconfidence. And let's build in a kind of structural checks and balances to try to minimize that. That's at least my approach.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“That. Now, it might look different to you because you might buy the stock, and all of a sudden the crowd agrees with you and the stock doubles or triples or quadruples. But that's not you being right or wrong. That's just people voting with their dollars at a point in time. And as we've seen recently, those votes can change very, very suddenly. And so I think that one way of making sure that it's really you're getting the right things correct is focusing on are you getting the fundamentals right. Approximately it's not a game of precision, but approximately right. Same thing applies if you're a value investor, right-unquote traditional value investors. Let's say you're buying a mature business and you think that the long-term earnings power of this business is a dollar per share. And right now, maybe it's earning 25 cents per share because maybe it's cyclically depressed. Well, if it doubles tomorrow, that doesn't say anything about whether you were right or not. It says just about what the market thinks at a point in time. But to tell”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Some amazing investors for sure, and that's not to take anything away from them. But I think that there are also many people who just are, as the saying goes, bull market players, right, as you alluded to. So how do you tell the difference? So I think you have to separate what are you forecasting and what are you getting right versus your outcome. Here's what I mean. So let's say you buy a stock because you think it's a high growth stock, right? Chances are most of the market participants don't disagree with it being currently high growth. Usually disagreement is about the years that are far out. So maybe right now the company is growing 30% and maybe you think that the opportunity is so large and the management team is so good that this company is capable of growing at that rate for 10, 15, whatever years, right? And maybe the market is not discounting that in. So what does that mean? In the first few years, you don't really learn that much about whether you're right.”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT
“Sure. I mean, I think it's always timely, but as you pointed out, it's probably even more timely now than ever. I would say, first of all, I think the thing that investors get wrong, at least most investors I know, is that they're focused on achieving the highest returns they can. And that sounds weird. It should sound weird. What's wrong with it? Trying to achieve high returns. I think the issue is that in doing so, they don't realize frequently the risks they take. And my approach is quite different. I put safety first. And subject to that, I want to achieve good returns. And that's a different mentality. And tying that into kind of overconfidence, you look at the last 10 years and large growth stocks of returns, 20% per year or something like that. In the last five, it's been 25% per year. So you could be a monkey throwing darts if you were investing in that universe and you would think that you're an amazing investor. The reality is that there are some”
2022-05-13 · We Study Billionaires · TIP447: How to Build a Human Bias Defense System w/ Gary Mishuris · IDENTIFIED FROM THE TRANSCRIPT