Ep545: Gary Belsky – Long-Term Patience Is the Key to Success in Investing

Listen on

Apple | Google | Stitcher | Spotify | YouTube | Other

Quick take

BIO: Gary Belsky is co-author of Why Smart People Make Big Money Mistakes—And How To Correct Them: Lessons from the Life-Changing Science of Behavioral Economics and the former editor in chief of ESPN The Magazine and ESPN Insider.com.

STORY: Gary waited for seven years to invest in the Berkshire Hathaway stock hoping the price per share would drop. He missed out on the compounding for the seven years and earned a 14% return instead of 18%.

LEARNING: A stock isn’t cheap because it’s $5. A stock is cheap if the Price-to-Earnings ratio is low.


“In the short run, people regret actions, but in the long run, they regret inactions.”

Gary Belsky


Guest profile

Gary Belsky is co-author of Why Smart People Make Big Money Mistakes—And How To Correct Them: Lessons from the Life-Changing Science of Behavioral Economics. The former editor in chief of ESPN The Magazine and ESPN Insider.com, Belsky is president of Elland Road Partners, a storytelling consulting firm based in New York City.

Worst investment ever

Gary was working for Money Magazine when he got assigned to write a story about Warren Buffett in 1992. As he researched the story, Gary got convinced that Buffett was an investing genius. This convinced him to invest in the Berkshire Hathaway stock. However, the stock was selling at $8,000 a share at the time. Gary decided to wait for the stock price to go down. He invested in the stock in 1999.

Had Gary invested in the stock in 1992, he would have had an average annual return of about 18%. But since he waited until 2009, he only got a 14% average annual return. Over that period, the market was up by about 9%. So he still outperformed the market, but he also missed the compounding between 1992 and 2009.

Lessons learned

  • A stock isn’t cheap because it’s $5. A stock is cheap if the Price-to-Earnings ratio is low.
  • The way people lose money in the stock market is not nearly so much about making bad investments. It’s about trading too often.
  • Long-term patience is the key to success in the stock market.

Andrew’s takeaways

  • Take advantage of the compounding effect because even if you’re an average stock picker, you’ll still have a massive amount of return if you invest for the long term.
  • When you learn something, write it down, internalize it and implement it. You’ll be amazed at what you’ll have achieved when you look back 10 years later.
  • Bring people into your decision. Even if it’s just one other person, you’re almost assured the decision will become better.
  • As a startup, produce a monthly financial statement of your P&L, balance sheet, and cash flow, and talk to your management team about it once a month.

Actionable advice

Ask yourself who’s the person that is most likely to annoy you if you asked them what they think about something and then ask them.

No.1 goal for the next 12 months

Brent’s goal for the next 12 months is to finish a project he’s working on.


Read full transcript

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community. We know that to win in investing, you must take risks but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives to reduce risk in your life. Go to my worst investment ever.com today and take the risk reduction assessment I created from the lessons I've learned from more than 500 guests, fellow risk takers, this is your worst podcast host Andrew Stotz from a Stotz Academy, and I'm here with featured guests. Gary Belsky. Gary, are you ready to join the mission?

Gary Belsky 00:42
I am.

Andrew Stotz 00:44
I'm excited to have you. I was up late last night preparing for this. And I'll tell you why. Well, before I do that, let me introduce you to the audience. Gary Belsky is co author of why smart people make big money mistakes and how to correct them lessons from the life changing science of behavioral economics. The former editor in chief of ESPN, the magazine, and ESPN insider.com. Gary is president of Ellen road partners, a storytelling consulting firm based in New York City. Gary, take a minute and tell us about the value that you bring to this beautiful world.

Gary Belsky 01:27
Well, first of all, I think I bring the value of agreeing that it's a beautiful world and finding as I get older that the potential of human beings to surprise you to delight you, to make you smile is infinitely greater than the potential for them to disappoint you and make you sad or frown which is obviously considerable. But second of all, I think I'm very good. People always ask me what I do. And what I think I really do well is not write or edit, or lead or manage all things that I do reasonably well. I think I'm very good at explaining complex concepts to large audiences. That's really the thread that has run through my career since my career started is I'm very good at explaining things to myself, which I often need to do in a way that allows me to then have to explain it to my best friend, my sister, my mom when she was alive, I'm pretty good at that. And have had a lot of fun doing it. So I think that's one aspect of the value I bring to this beautiful world.

Andrew Stotz 02:46
Fantastic. And

Gary Belsky 02:48
also I generally say yes, which is how I ended up on some guy and Thailand's podcast, who I'd never heard of until I did research. And then I was impressed with the people that you have on your podcast. But I said yes. Before I knew any of that, because I just find life is better when I say yes,

Andrew Stotz 03:02
there you go. Well, we all appreciate you saying yes, to our little community, and our community is growing. But my fellow risk takers appreciate I can tell you now my fellow risk takers know that I am a big reader and your book is right here on my shelf. And i What a coincidence. There it is. And there's some of my marks for the listeners out there. I'm holding up his book. And I was just going back through it last night. And you know, what I do when I read a book is I dog ear pages. I'm sure it annoys people that are real, protecting of the book, but I dog eared pages. So I went back to all my dog eared pages. And kind of you know, was really, really realizing as I went back to this now I got your book I'm figuring this is I believe the second edition 2009 in the first edition of apparently came out in 1999. So right at the time of the.com. Bubble time, I guess. And so I probably read this in 2009, maybe 2010. So then I just kind of realized that first thing is that you were one of the pioneers in explaining behavioral finance, you know, through storytelling, and I guess that storytelling is what makes it so appealing to the general audience. You mentioned something about that to me. Before we turn on the recorder. Can you just tell us a little bit about that?

Gary Belsky 04:31
Yeah, the book why smart people make big money mistakes was the first book about behavioral economics aimed at a general audience. There had been books, academic books on the subject, but Tom Gilovich and I were the first to really write a book that was aimed to just regular people who might be interested in really in judgment and decision making, right I had been in Money Magazine for about eight years, and during that time, I wrote a cover story about behavioral economics again, and I think it was the first cover story about the about a field that would become and still remains very popular and well known and influential. But another editor at the magazine had heard of it and thought that we might be able to use the insights of behavioral economics to write a story for Money Magazine. And we did the cover story was the eight big money mistakes, and how you can avoid them or something like that. And I wrote the story, it was probably three or 4000 words, and they did well. I found the subject really interesting. I reported for a month six, six weeks, I talked to one of the founders of the field, a guy named almost Turski. I also talked to a guy named Tom Gilovich who I would end up later writing a book about, but at the time, I thought I was done with the subject. And about a month after the story came out, I got a call from an editor at Random House, actually, which didn't end up publishing my book, but it was an editor at Random House named Elaine Pfeffer blit. And Elaine took me to lunch and said, I took you to lunch because I read your cover story and Money Magazine, and I think there might be a book. And I remember looking at her and saying, I don't know Elaine, I wrote 4000 words about it. I think I probably written everything I need to say. And she was very good. And she was, I think she was a little bit surprised, because most writers are like, Oh, my God, Random House wants to meet her write a book, God. And she was like, Well, why don't you think about it over the weekend. And then I went home and thought about it. And I'm sure I talked to some friends. And I realized, oh, yeah, there was probably more to this than I was thinking. And also, Random House wants me to write a book. And so I came back and said, Oh, yeah, I think there probably is a book here. And that became the origin story for how I put together a proposal. And then before I got to presented to Random House, the publisher of Money Magazine told me that I had to do it for them. And so I decided, you know, I was like, Okay, I guess I have to because I worked for Money Magazine. And they were gonna have me do it for a publisher that was part of the same company and the publisher that was part of the same company, strong armed me into getting a co author, I really had a very specific idea as to how I wanted to do this book. And they said, Well, you're just a journalist, you need somebody who's in the field. And I was like, Okay, and so I, it's a longer story. But I spent a good couple of weeks trying to figure out who I could wrangle in the field who mattered and who I could work with. To co write my book with me. And I went back to one of my more helpful sources, a guy named Ed Russo at Cornell, and add was, had written books himself. And he was like, you know, I've written books myself, I don't know if I want to be the best collaboration partner. He goes, but there's a guy who I think you talk to in your story, but I don't know if you know him. Well, his name is Tom Gilovich. I think he might be the right person for this. And it's, again, I can tell the story longer, but I basically ended up driving down to Long Beach Island, off the coast of New Jersey, and meeting Tom on his vacation, for some reason, everything was very rushed. And I remember I said, sent him I had emailed him, the proposal I'd put together and the first thing he asked me when I sat down after introducing me to his wife, and to his two little girls, he was like, Why do you need me for this book, your proposal is really good. You seem to understand this subject perfectly well, for someone not in the field. And I told him the story, I was like, Well, to be honest with you, they want me to get somebody who has a PhD in behavioral economics, to be a co author. And we talked a little bit about that. I remember being very impressed with a guy who was in the field and had the confidence enough to tell me that I could write the book without him. Hmm, I just, that was within five minutes. And I was like, I think I want to write a book with this guy. And he told me later that he, whatever it was that I said, I said, I think it probably will be more fun if I write it with you. And I'm sure you can make the book better. And I like hearing from people who are smarter than me, and I'm pretty sure you're smarter than me too. And he told me that he had decided within five minutes that we could work together. And so literally, we just decided to work together. And by the way, we've written together off and on for the last 25 years all because the book publisher insisted that I needed to have a PhD on the cover with me. And what was funny was, you know, and the way that life works, we put together i connected him with my agent, we signed a collaboration agreement. We redid the proposal a little bit, we went back to this book publisher, I'm not naming them. And they changed their minds. And they were like, You know what, we don't wanna do the book. We don't think behavioral economics is gonna be a big enough subject. Ah, so you're free to sell the book to whoever you want. So my agent was very happy because she thought we were gonna be able to get a lot more money if we put the big bid out the book out for auction and Tom, again, telling you something about somebody that reveals a lot said to me, you know, If you can let you can kick me out of the project, you don't need me to write this book. And now you don't have to use me. And I remember again, just being so impressed by that, and thinking like, again, I think the book is going to be better if I will do it with you. And I think it's gonna be fun. And he was like, Okay, let's see what happens. And we ended up selling the book to Simon and Schuster, and the, and it ended up going to auction there were multiple bidders, the book has been selling for 20 years, it's used as textbooks. It's used as textbooks around the world, I have no idea how you say why smart people make big money mistakes in Thai, but I could say it in Chinese and Japanese and Korean because there are editions and all those languages in about 12 languages, actually. But as we came towards the end of that first process, and we were working on the cover, I remember we got a mock up of the cover, not the one that you showed me on Zoom, but the cover from the original edition. And one of Tom's notes was, oh, yeah, you have to take PhD off the cover by after my name. And I was like, really why? And he was like, Well, anybody that has to put PhD on a cover of a book is probably insecure about their credentials. And he's like, I'm not if they want to, you know, we can put them on a PhD and the biography but you're Gary Belsky. I'm Tom Gilovich, that's enough. And I remember thinking that's so funny, because what a fight we would have had with the original publisher, who really wanted specifically to have the letters PhD on the cover of this book, because they thought it lent the book gravity. Anyway, that's the origin story in the book. You know, what's interesting about the book is that it's, it's about behavioral economics, not behavioral finance, meaning it's about a little bit of the broader field, not just money, but, and I have a speaking business that has taken me around the world for 20 years, I speak based on this book. And the number of speeches I've given specifically about behavioral finance is very small. What I ended up talking about is judgment and decision making. Because if you read the book, as you know, it basically applies to almost any decision in which something is at stake. And you don't know the outcome. And that's pretty much almost all decisions that we make in the world. So I often give speeches to consumer groups to businesses in general. I once gave a speech to Bausch and Lomb. And the guy that brought me in told me that my speech, he called me up a week later, he goes, you know, you just saved us $25 million, because of something that you said in your speech to my group, and somebody realized, we were doing x and we should be doing y. So thank you, and I, you know, they, whatever they paid me for the speech, it wasn't $25 million. But it was a very, very, you know, a very nice thing to hear. And, and so the it's a side part of my career. For most of my career, while I've been speaking about the science of judgment and decision making, I was the editor in chief of ESPN magazine and premium website, because I switched from personal finance to sports, right, as this book came out, and it never seem to matter to anybody, although it often made that question and answer still makes the question and answer section of any speech, I get pretty interesting, because sometimes people will ask me about judgment and decision making. And sometimes they'll ask me about the Patriots or the Cardinals. So that's, that's a little bit of my background story.

Andrew Stotz 13:20
That's fascinating. And I'm just looking at the book on Amazon right now. And I'll put a link in the show notes for the listeners out there, you've got it on Kindle, you've got it on paperback. And I got it on paperback, because I love to get the physical book in there. And, you know,

Gary Belsky 13:36
also, you remember things from physical books, you know, that's one of the dirty little secrets about publishing, by the way, physical books still account for the overwhelming majority of publishing industry, sales and revenue. But the best thing about physical books is that your retention from physical books from magazines from newspapers, is much greater than it is from digital experiences. I totally feel that I'm a big digital guy, I consult in the digital space, I ran a website, the internet is here to stay, I'm here to say, but there's a aspect of the physical experience of reading that's much more beneficial to the human brain.

Andrew Stotz 14:14
Yeah, I have about 700 books in my library here in Bangkok in I just constantly am going back and looking at them and looking at what I highlighted at the time, you know, and I'm just seeing, like, I have a lot of little notes in the side where I was writing down, okay, you were explaining something and I was trying to make sure that I understood it. And there's just so many different parts of this. So I really recommend for the listeners out there. You know, whether it's, you know, the sunk cost fallacy, you know, all the endowment effect. I just went through a lot of different things. And I think there's a lot there and it's told in a great storytelling type of manner. And I think that that brings us to the last thing I wanted to ask you about your business. Now I see that you are doing your teaching about in consulting about storytelling. Maybe you just tell us a little bit about what you're doing there.

Gary Belsky 15:10
Yeah, I mean, we solve all sorts of communication problems. And one way or the other, every communication problem is a storytelling problem, right. And so we call ourselves a storytelling studio, because that's a lot shorter than saying what we really are, which is an advertising slash editorial, slash marketing, slash content slash events, slash oral history, slash, strategy consulting firm, so we help people do all sorts of things. The way I try to explain why our business is so interesting to us is that at one point, we had three different clients, a large national brokerage firm in which we were helping them right thought leadership, basically help them talk about risk to businesses, so that people would use their brokerage services to buy insurance for their businesses. We at the same time, we had a large media property that had print, social media, digital and television operations. And we were doing a strategy for them to combine those editorial operations together, just talking to, you know, talking to them and embedding in their operation. And at the same time, as that we were also consulting with a very wealthy, very well known individual who was interested in their legacy and thinking that they wanted to win the Nobel Peace Prize. And they engaged us to come up with a strategy to see whether or not they could. And we came back by the way and said, you don't want to win the Nobel Peace Prize. It's too complex, and you're not going to win it anyway. But maybe you should think about creating a prize so that your legacy lasts long after you're gone, and helps other people. So I don't know what kind of business that is. But it's a fun business. Some of our clients are large, multinational corporations, some of them are individuals. Some of them are nonprofits. Some of them are school districts, we do crisis communications, we do all sorts of things. So I feel very lucky that after a career at ESPN, a career at Money Magazine, a career on television, a career at the St. Louis Business Journal and cranes, New York business, I got to reinvent myself at 50 and, and become an entrepreneur by accident. But so far, it's working out.

Andrew Stotz 17:42
I have to ask another question. I know for many, how can I be so damn good looking? Exactly. Yeah. Well, how was it there

Gary Belsky 17:50
was a handsome man.

Andrew Stotz 17:51
Yeah. Yes, I was going to ask how is it that you keep copying my hairstyle, but for the listeners out there, that means we don't have any hair. But the question was,

Gary Belsky 18:04
CBS This Morning segment on baldness remedies and I, in my story, parmesan was very impressed with the phrase that I think I invented follically challenged. We are follically challenged.

Andrew Stotz 18:22
Yes. follically challenged. And I think I had a great question. But I've now it's what do they call that when you're challenged with your age? But we call that old? Old? Yes, exactly. So I think it's better to just get on with the question. Now it's time to share your worst investment ever. And since no one goes into their worst investment thinking it will be. Tell us a bit about the circumstances leading up to it then tell us your story.

Gary Belsky 18:49
Well, I'm gonna fax you a little bit because I'm not going to talk to you about my worst investment ever. I'm going to talk to you about my worst investment never. So the story is I was at cranes, New York business and I had accomplished a fair amount there and was hired after winning an award actually for a long story I co wrote with Phyllis Berman at crains about the rise and fall of crazy Eddie antar. Remember crazy Eddie. And so we did one of the seminal stories about that and

Andrew Stotz 19:23
that's insane is that the prices are insane. I'm crazy Eddie, and my prices are insane.

Gary Belsky 19:29
We were given which for journalists was like the biggest luxury Phyllis and I were given six months to just work on one story and we came out with it and it was pretty good. And I we won an award and at the award ceremony I met the editor in chief of Money Magazine and long story short, he eventually offered me a job and I came to work in Money Magazine. This is in the early 1990s It was 1991 Actually that I started and I was you know I knew a lot about business and Econet MX but didn't know much about personal finance, which is actually very different. I remember the first story I did at Money Magazine when I joined, I wrote it with a guy named Serge Kovaleski, who's still a very accomplished writer for the New York Times, he was the writer that Donald Trump mocked. He was the New York Times reporter that Donald Trump mocked. If you remember, during the 19, the 2016 campaign, Serge and I both joined Money magazine at the same time. And we were literally right when the Iraq War started the Gulf War. And so we were assigned the cover story, I guess, Frank Loli was proud of his two hires. He was like, we're giving you guys a cover story. It's how the Iraq war or how the Gulf War will affect your finances. And I remember I wrote the story it worked out well, there's, there was a ton of really smart people helping us with money. And I wrote the section on mutual funds. And I couldn't really, at the time, even explain to you what a mutual fund was exactly. Because business reporting is different than personal finance reporting. And I'm stressing that because the embarrassing story that I'm going to tell you. Part of my defense is that like, I don't know, I do business. I didn't understand personal finance. So very shortly after I joined after that cover story, I ended up being assigned a story about an investor that was pretty well known to super hardcore business people, but not very well known to America. That investors name was Warren Buffett. My assignment was to travel to Omaha was to interview Buffett and explain his secrets to his investing, which again, at the time, he was not a household name.

Andrew Stotz 21:36
What year was that? Again?

Gary Belsky 21:38
1991 or 92?

Andrew Stotz 21:41
I believe, okay, got it.

Gary Belsky 21:44
But Buffett wouldn't talk to me. For some reason, you know, he was more publicity shy than he was then he generally was only talking on a regular basis to sort of Omaha papers and to Carol Loomis, who was like his Johnson or his Boswell, I always forget which one is which. And she was at Fortune Magazine, one of the great legendary financial journalist and she regularly talked to Warren Buffett, but not many other people did. And so I don't know why. But I had an editor named Michael civvy, who was like, you know, he's supposed to be a really nice guy, go out to Omaha. And see maybe if you go there, if he'll talk to you, and I was like, okay, so I went to Omaha, which is unusual to go to a place to interview somebody who doesn't want to interview. So I went there, and I made it, you know, I went to a call when I was there and talked to his secretary or his assistant, and she was like, I'm sorry, he still, you know, he appreciates the effort, but, and then I even went to the building, I think I called up from the lobby. And at that point, I remember I went to a payphone and called my New York offices. And Michael had this idea, or Michael and, and I had a conference call with Michael and his boss, whose name was Caroline Donnelly. These were two legendary editors at Money Magazine in the 1990s. And Caroline was like, I have an idea. Let's don't try to meet buffet. I was like, what? She goes, Do you remember the movie? Roger and me. And I was like, that was pretty recent. It was a movie in which Michael Moore basically tries to interview the chairman of General Motors who won't meet with them. And the whole documentary is sort of about that. He was like, let's do a story that I already know the headline for it. It's going to be called Warren and me. And instead of trying to learn Warren Buffett's investment secrets from him, why don't you basically report the hell out of the story in Omaha. And when you come down, I am

Andrew Stotz 23:42
on the ground in Omaha. And so

Gary Belsky 23:44
that's what I did. I went I mean, the story is, I'm really proud of it. It's probably one of the 10 best stories I ever wrote. Because it you know, I crafted I made a conceit out of it. So basically, it has me talking to the lot to interviewing the guard. And the story when it finally emerged is basically I tell Warren Buffett story with backed up by real reporting, but I also intersperse it with a conversation I had with the security guard at the lobby of the building where his offices were a conversation I had at the steakhouse. Grats where he always goes when for steak and Diet Coke, you know, and diet. Pepsi Cola, I think Jericho, cherry, cherry, Cherry Coke. I basically went to Nebraska Furniture Mart, which is one of his great investments. And I talked to Rose Blumpkin, who at the time was 98 years old, and had recently sold her business to him. And so I went, I talked to everybody but Warren Buffett about Warren Buffett, weirdly, I was able to talk to the chairman of Coca Cola and Katharine Graham, one of his best friends. And what I found out later was that he actually gave them permission to talk to me, he's got a pretty good sense of humor. So I think once he realized what I was up to, he must have heard from the lobby guard he must have heard from rose bumpkin he was became I think He was a winking participant because he was curious about the story. And, and I remember so I talked to all these people. And I came out with this story about Warren Buffett. And I think the story was fantastic. I'm not bragging as much as I got a lot of help from the people around me. Money Magazine, I'm very not I'm very proud of it. But the reason I'm talking to you about that story, is that one of the significant factors about Warren Buffett at the time, then and now was that he didn't believe in stock splits. Right, because he knows correctly that whilst that stock splits are kind of a little bit of a mirage, they basically, in theory, make you more make a stock more available to individual investors, but they don't really have any benefit aside. For there's no such thing as an expensive stock based on price. There's an expensive stock based on price to earnings ratio. Right. Right. And I don't I don't probably don't have to explain that to your listeners. But so at the time, I became convinced that Warren Buffett was in fact investing genius. And I was like, Gosh, darn it, I don't have a lot of money, but I'm going to invest in Berkshire Hathaway stock. Nobody's heard of it. I had never heard of it. I mean, people that heard of it, but not widely. And the stock was selling at about $8,000 per share. At a time, probably when the typical stock. New York Stock Exchange share was probably I'm guessing, selling for $25 a share, or $30 a share or $110 a share. Berkshire Hathaway stock was selling for $8,000 a share, give or take at the time. And I was like, God, that's expensive. I'll wait for it to come down. Oops. Ladies and gentlemen, I can tell you right now that if I had waited to buy Berkshire Hathaway stock until it came down, I would not be an owner of Berkshire Hathaway stock, which I am. But I didn't buy it until about 2009. And as you know, and I bought the B shares, which were invented, basically to make it a little bit more accessible to individual investor, what what you know, is that right now, Berkshire Hathaway stock, which I thought was too expensive at $8,000, a share, is selling for about $560,000 a share. So my $8,000 would have been worth about, you know, 70 times more than it's worth today. I would have managed to scrape together $10,000 I'd have $7 million, right? No, $700,000, right. I don't know what I'd have. But you know, I'd have a lot of money, a lot of money, just in Berkshire Hathaway stock. And so I the reason I'm bringing that up, because that's a short story is that in a lot, I talked about this a lot, because it allows me to talk about so many things personal allows me to talk fundamentally about the nature of the value of a share of stock, that it is a real share of ownership in a business, which is one of Buffett's basic principles, but that you don't care about the stock price, a stock isn't cheap, because the stock is $5. A share a stock is cheap, because its ratio to how much earnings it has per share is low. And at the time, I don't remember what the price to earnings ratio was for Berkshire Hathaway stock, but it was a little bit low. It was probably like 11 or 12. Right? That was a perfectly average or even below average price to earnings ratio. So that's one reason I talked about it. Another reason to talk about it is that there's a lesson about stock splits, which is that stock splits are gimmicks, Buffett doesn't, Buffett doesn't resist splitting his stock into more affordable shares because he's a crank, it's because he knows it doesn't matter, there's sometimes is a bit of a bump, if you have $100 share of stock of a company, and they split it five to one, and then you have five shares worth $20, you still have $100 worth of value. And it is true that for a brief period of time, as you know, Andrew, the stock might rise in value a little bit because more people can afford a $20 share of stock than can afford $100 share of stock. But the fact of the matter is that over time that goes away, and so there's no value to splitting a stock and there is a major deficit, which is that in general, very expensive stocks that don't split are more likely to have longer term ownership by investors. And as Buffett knows, and is very much the truth. The way people lose money in the stock market is not nearly so much about making bad investments. It's about trading too often. And the significant factor about the owners of Berkshire Hathaway shares is that most of them have owned him. If you talk to an 80 year old investor in Berkshire Hathaway, they've probably owned it for 60 yours, write long term ownership. Long term patience is the key to success in the stock market really in many investment spheres. You know, Buffett has a famous phrase, I think he stole it from Ben Graham, except it's not counting as stealing because he credits Ben Graham. And I quote it all the time, which is in the short term, the stock market is a voting machine. In the long term, it's a weighing machine, right, and a voting machine is about popularity. And stock splits are about a popularity contest that's influenced by the stock looks a little bit more approachable than a more expensive stock. So it becomes more popular. But anyway, so you know, and and the reason the story resonates for me, because I'm a human being, but for other people, because they're human beings, is you remember, there's a pretty large section in my book about a topic that may be the most important topic in decision making, therefore in risk taking, which is regret. Right, that one of the ways you can understand how people make decisions is by trying to get a sense as to how they feel about regret. Because the more people are prone to regret, I'm not by the way, I'm still human, so I can regret things. I can regret not buying Berkshire Hathaway stock at $1,000 a share, but it doesn't consume me. And it doesn't keep me from making other decisions and taking risks, because I don't have a lot of regret aversion. And regret aversion is a very important concept for us to talk about, if that's okay. Yeah. Because regret aversion is the thing that often keeps people from taking risks. And the reason it's the phrase regret aversion is important is that it's not so much that people don't take risks, because they're afraid though, something bad will happen. It's because they're afraid they're going to feel bad about something bad happening. People often avoid risks, not because they're afraid of a bad outcome. But because they're afraid of feeling bad about an outcome. Right? It's the reason why there's the herd mentality. Do you think if you ask most people who are following the crowd, and in an investment are following the crowd in any kind of behavior, if you actually stopped and said, Do you think all those people are so smart? Do you think in fact, they're smarter than you? Most people would say no, as we know, most people think they're above average intelligence. So when you look at people's behavior, you realize the reason they're following the herd is not because they think the herd is smart. But rather because not unconsciously, they know that if the decision turns out to be bad, they're going to have company and misery loves company. The regret aversion makes people more likely to do what other people are doing. Because they'll have company if things goes wrong, so they won't feel as bad. And it makes people less likely to do things that will leave them out on a limb. Because then they can then they'll have to say, Garnett, I made a mistake. And they don't fear the mistake nearly as much as they fear feeling bad about the mistake. And so it's no coincidence that Buffett, again, not to go back to him. But there's a reason why he is who he is. He'll often say that the people who are the most successful are the people who can sell when everybody's buying and who can buy when everybody's selling. Right, right. So I remember my worst investment that never was, because it more often than not leads me to take risks, especially in investing, when I would otherwise try to outsmart myself, right? Because there's almost if you're smart investor, there's almost no risk that even if it goes badly is going to bankrupt you are going to ruin you. If it could, you probably shouldn't be putting everything into it. Obviously, that's not true if you're an entrepreneur, but even entrepreneurs over time. And Tom, my co author has done some of the most important research on this, even entrepreneurs over time. Don't regret their bankruptcies, their failures. That's an interesting thing. And I'll stop talking after this that I want to tell your listeners, that's okay. Yeah. Which is that one of the big takeaways from research into regret is that in the short run, people regret actions, but in the long run, they regret inactions. And the way that I explain that to large crowds is this. If I'm in a room of 100 people and I ask everybody to write down on a note card, five things they regret over the past year. So I'm going to get five 500 answers right? Chances are the research shows that 400 of the answers will be actions, things people in the room did over the past year that they regret. But if instead of a bet if instead I asked those people, here's a note card, write down five things you regret over the past 20 years, I'm gonna get 500 answers, about 400 of them are going to be things they didn't do. Hmm, I couldn't even when you first reached out to me, I couldn't even remember, a stock investment or real estate investment, or a business investment that went wrong, not because I don't have them. But because they're not that memorable. What I could remember was the one investment that I didn't make,

Andrew Stotz 35:52
ah, there's so much there. And for the listeners out there, you know, this is part of the reason why you need to get the book and I, I want to share a little bit experience that I had, I remember when I was about 18 years old, I read a book, I keep a section of books that are kind of like books that flipped my mind. And that book was called, it was by Scott Peck, and it was called the road less traveled. And it was pretty popular at the time when I was young. And it really, I really found it, you know, mind blowing at the time. I didn't touch that book for 30 years. And then one day, I pulled it off my bookshelf. And I was like, Gosh, I really resonate with this book. Well, of course, I've resonated with it because I adopted what was in the book into my life. And now I'm looking back as a reader who has adopted some of these principles. And now, I didn't think about it that way, I just thought, wow, I really relate with this book. Well, I didn't relate to that book when I read it, because I just didn't, I wasn't behaving along the lines of that book. The reason why I explained that is because when I went through, and I've been going through your book and looking at my marks, and looking at what it was, I have a investment strategy that I do here in Thailand for my clients. And I set up an investment framework. And I've set up a structure where I only trade every three months, I do not, I've segmented I put my mind, I'm gonna do all my research and work there, I'm going to put my positions on, and I'm going to wait three months, and I try to also avoid looking at the market. I've gotten to that my trades work. I also if it's a stock portfolio, I put in stop losses to say, yeah, if I was wrong, and I was extremely wrong, boom, something's gonna happen to shut off that decision. And I just look at a lot of the behaviors that I built in and I communicate to my clients. Now, you know, after going back through it, I realized that your book, along with some other great ones, like your money in your brain, as an example was another one that really helped me, but this, you know, help. So I really want to, first of all, thank you for the effort that you did in the book number one, and obviously, thanks, Tom also. And I also want to urge the listeners out there, whether you know, get this book and understand the behavioral biases number one, but the point is, is that when you learn something, write it down and internalize it and implement it, you'll be amazed when you look back 10 years later to think, wow, I actually implemented what was in that book. So I just You made me think a lot about that. So I just wanted to share that.

Gary Belsky 38:24
By the way, I, you know, I say yes, a lot. So that's why

Andrew Stotz 38:29
I might end up on weird places like this.

Gary Belsky 38:33
But also, you know, your the concept of the podcast resonated with me, because I'm always interested in how people learn. And what you know, I think because you're, I can tell in just the 40 minutes, we've been on, Zoom together, people are much more likely to learn from failure than they are from successes because successes, we tend to have the fundamental attribution error, which is we tend to under estimate the role of luck and other people's effects on our successes, and we kind of think like, well, our dad's successful, were with failures. We might be overly harsh on ourselves, but we most people remember them longer and are able to retain the lessons from longer some lessons depending on good or bad, because they're just they resonate much more and so I thought the whole idea of my worst investment ever is kind of genius, because it speaks to something that is a very powerful motivator, teacher. Coach, even through someone's life if they can, if they can channel it productively. So bravo to you.

Andrew Stotz 39:51
Thanks. I appreciate that. And I know the listeners appreciate that. I another part of learning is summarizing and kind of reveal sitting. So I just want to ask you this question is how would you summarize the lessons you learned from this experience?

Gary Belsky 40:12
Well, one thing is, and I talked out loud to anybody about this, who knew what they were talking about? I might have somebody might have said, Dude, what does that mean? It's expensive. Because I remember, by the time I left Money Magazine, I understood price earnings ratios really well. I knew what expensive stock was, and what wasn't. I didn't ask anybody else I was because I was embarrassed. Right? So the big takeaway was I, you know, at the time was I needed, I was a little bit afraid to show my vulnerability and sort of say to somebody, you know, this was early in my Money Magazine career, I grew up with parents who did their bills every month at the table so that their five children would, this wasn't the reason but they were comfortable with their five children. Sometimes you sit down typically, what are you guys doing? And asking lots of questions about bills and finance. And my parents were always open when so that, you know, eventually their kids asked, What do you make a year and they told us like, I knew what my parents made when I was 10 years old. I knew what my mom made more money than my dad. And I remember thinking like, why my dad seems very cool with my mom making more money than he does. And I don't even know why I thought he shouldn't be cool. But America and the system, but so I was comfortable with money. But people were not comfortable talking about money out loud. So I thought it would almost be inappropriate for me to like, go to an editor of Money Magazine and say, like, Hey, I'm thinking about making an investment in this company. I just, you know, you couldn't own it, you couldn't write about a stock you own. So I had to do it after the story was published. But I was embarrassed to start talking a lot about money. And one of the things I learned about money in the next seven years was how important it is to talk about money out loud, how important it is to share information, how important it is for you to know what your friends make, and for them to know what you make. Because you can't get people career advice, if you don't understand the entire picture. And that if you trust people, you with your most personal information, you should be able to trust them with your financial information, too. I don't mean like given the codes to your accounts, but I mean, be able to have real conversations with people and not be embarrassed. There's a whole shame factor around money that I that I'm that I've often brought to remember when I think back on that story. But mostly, it's that the biggest mistakes I was without before I knew what regret aversion was, I had already learned some lessons about it. From this story, I was aware that most of the mistakes you'll make in your life that you will regret are the ones where you don't try something. Every once in a while there's a decision where maybe you shouldn't share a dirty needle in an alleyway with a potential drug addict who may have a deadly disease, maybe you should really think long and hard about that decision. Maybe you shouldn't, you know, take the wheel of that private airplane that your friend is taking you out for the first time, take the take the you know, take over control the cabin, maybe you want to think long and hard about that, but very few decisions are is life and death as we make them. Yeah. And so in general, I just try to remember that that's one of the big takeaways, which is that you really have to I mean, the narrow takeaway is, stocks are expensive, only based on their relationship to their earnings. But the broader takeaway is, bring people into your decision. Even if it's just one other person, you will almost assuredly the decision will become better. They have biases, sure. But their biases probably outweigh your biases in a different way. And more importantly, they have other information that you don't have, as you can imagine, if I would have randomly asked anybody had Money magazine at the time, if they thought Berkshire Hathaway stock was more was expensive, most of them would have known like, What do you mean expensive? It's a high price, but it has earnings that compare to it.

Andrew Stotz 44:01
Yep. Great lessons. Well, maybe I'll share summarize some of the things that I took away. The first thing is while you were talking I made the calculation. And if you had invested in, in Berkshire Hathaway, back in, let's say, 1992, you would have had a average annual return of about 18%. Because you waited until 2009, you only got a 14% average annual return. Now over that period of time, the market was up by about 9%. So you still outperform the market. But you also missed the compounding between 1992 and 2009. And that's the big lesson of Warren Buffett. Obviously, he's a great stock picker, but the track record that he publishes through his annual report basically goes back for 57 years and keeping anybody keeping your money in the market for 57 years is really a huge key. You Even if you're an average stock picker, you're still going to have a massive amount of return. The second thing that I took away was that you talked about the type of shareholders now, stock splits, as you explain, really why companies do stock splits mainly is because of you can call it a kind of a constituency, that they're fearful that they're losing people that don't want to buy a high value or high price. A high, I don't know how you'd call it a high dollar denomination.

Gary Belsky 45:32
high priced is correct. It's just not expensive, necessarily

Andrew Stotz 45:35
correct. They just get there's a certain number of people that don't want to do that. Now, what Buffett does a lot, and he did a lot in the 2001 letter that he wrote, was talking about how he has a problem doing share buybacks, because his buyer, his shareholders don't want to buy back the share. They want to keep holding it. And he talks about this constituent of shareholders. So by not splitting, he's also just, he's just building this hardcore group of people that, you know, that are not necessarily trading in the market. And so that's the other thing. I also was thinking about. Talking about money, and I also want to highlight my worst investment ever was investment in a startup company. And the guy that ran it was a good friend of mine. And his idea was great, he had a very hard time with execution, which I didn't assess properly. But most importantly, he had a relationship with money that I didn't find out until after we started talking, that he simply cannot receive money. And he cannot collect it and accumulate it. It is against his constitution, as given to him by his mother. And I didn't know that until I learned that. And once I really learned that, I realized that, you know, I don't want to do business with this guy. I love him dearly. But I don't want to do business with him. And the last thing that I was want to highlight about this idea about talking about money, is one of the best advice I think that I give to startups in any businesses ultimately, is produce a monthly financial statement, p&l Balance Sheet cash flow, a full financial statement, and talk to your management team about it once a month for just an hour or so. And by bringing it out into the light, it's going to change everything. So those are some of the things I take away. Anything you would add to that.

Gary Belsky 47:37
No, I don't think so. I think those are very good. In fact, I'm a little bit I'm impressed by your ability to summarize. But the main defense you've been, you've been doing this for quite a while. Well, it's better to be objective.

Andrew Stotz 47:50
I take a lot of notes, and I try to write stuff down and I jumping around as you were talking. So I love that aspect. And that's part of learning is reviewing what we're hearing. So let me ask you, based upon what you learned from this story, and what you continue to learn, let's imagine that man or woman out there that's listening in. They're just about to make this same mistake. What action, would you recommend that our listeners take to avoid suffering the same fate?

Gary Belsky 48:19
I think you have to ask yourself, who's the person that is most likely to annoy me? If I asked what they think about this, and then ask them everybody always has that person that they're kind of avoiding. Because they think that person is going to say to them, the thing that says will tell them not to do it. Ask that person figure out who that is. Ask them. You don't have to do what they say. But you just have to hear what they have to say. And you always know that person is the person they don't want to ask because I think they're going to annoy me with their answer, then ask them

Andrew Stotz 48:48
beautiful and very concrete advice. So let me ask you, what's a resource that you'd recommend for the listeners out there about any any, any resource that you feel was valuable? Obviously, the first resource is the book. What else would you say is something valuable for our listeners?

Gary Belsky 49:11
I mean, the book I most often give people is not specifically about investing, but it's far and away the best gift I can ever be give people is Atul Gawande is The Checklist Manifesto. If you've never read that book, it's extraordinary. You have it there. Oh my god. I think it's in your blew my mind section.

Andrew Stotz 49:32
It definitely is in the blow my mind section along.

Gary Belsky 49:36
Oh, random, is that that that I referenced that you had in your blow your mind section?

Andrew Stotz 49:42
Yep. And this is definitely I totally support your point. He definitely

Gary Belsky 49:49
doesn't just help you organize your life if it makes you. It makes you think differently or at least start to think For me, yep. So if I just want to get any short, you know, in general, I try to collect books that are short, because I think if you get people books, they should not have to, you know, it's like giving people paintings. Like, if you give people a painting, don't give them a big one, because then you're basically saying, I'm going to now curate your house. So we're gonna give them a book, don't say I'm gonna take a week of your time, give them a short book. There's lots of, I mean, The Great Gatsby is one of the greatest books of all time, it will take people three hours to read it, given that book.

Andrew Stotz 50:31
I'll put a link in the show notes for the listeners out there to your book and to your recommended book, The Checklist Manifesto, a fantastic one. Alright, last question. What is your number one goal for the next 12 months?

Gary Belsky 50:46
My goal, for the next 12 months is I have a particular writing project that I want to complete. So I have a I have a writing project. Untitled Gary project 2022 that I want to finish. So if you're gonna email me at the end of the year, and ask me if I did it, just refer to it as untitled. Gary Project 2022. And I'll hopefully be able to say, yep,

Andrew Stotz 51:11
we can add it to the show notes. Exactly. Fantastic. Well,

Gary Belsky 51:17
later, you're good at this. You're very good. Interviewer.

Andrew Stotz 51:19
Thank you. I appreciate that. I received that.

Gary Belsky 51:23
Specifically, by the way, in both being able to be a very good listener and also being able to add to what somebody said, which is, you know, that's a, that's an unusual skill set. So good for you.

Andrew Stotz 51:37
I appreciate that. In fact, I was thinking about adding something that's something that you said, and I thought I wouldn't. But since you mentioned that, recently, I got a call from a friend of mine American guy here in Thailand. He's elderly guy living on a very small amount of money. He's got a lovely Thai wife, who's taking care of him very well. But she recently called me because she said, My husband said that I should call you because I've got this great opportunity to invest. The last of our nest egg, in forex trading. is amazing. And you know, his website's amazing. And Rogers told me to ask you, you know, because you're an expert in finance, no matter what I did. Unfortunately, she was not asking, she was telling. So I just want to highlight something to reinforce make sure when you for the listeners out there, when you are going out and seeking out that person that Gary's told you to look out for to ask the question. The best way to assure that you are listening is to take notes, because we can't competently speak while we're writing. So write down what they say. And they will just add that on to the great advice that you've already

Gary Belsky 52:49
given. It's very good. I like that. So

Andrew Stotz 52:53
listeners, there you have it another story of loss to keep you winning. If you haven't yet taken the risk reduction assessment, I challenge you to go to my worst investment ever.com Right now, and start building wealth the easy way by reducing risk. As we conclude, Gary, I want to thank you again for joining our mission. And on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience? Thank you for the opportunity. I'm very appreciative. And we appreciate that too. And that's a wrap on another great story to help us create, grow and protect our wealth. Fellow risk takers, thank you for joining our mission to help 1 million people reduce risk in their lives. This is your worst podcast host Andrew Stotz saying. I'll see you on the upside.


Connect with Brent Kochuba

Andrew’s books

Andrew’s online programs

Connect with Andrew Stotz:

About the show & host, Andrew Stotz

Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it.

Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth.

Leave a Comment