In the past, when I lectured on various investment topics to audiences of all types (professionals, students, MBAs, bankers, active traders, pension funds, retirees etc.) I have often been asked the two questions that many people in my field receive:
- What are some of your greatest successes?
- What are some of your greatest failures?
I like to talk about failures more because I believe failure is the greatest teacher of all.
Of course, I have made some horrible investments. I have made bad decisions…. bought too late…. sold to early (like selling my Apple shares 3 years ago, for $40!) and I have failed to do my homework on some investments (which always leads to sub-optimal results).
But the single biggest mistake, one that has likely cost me a six-figure sum of money (or more!) is my lack of optimism. In fact, for much of my investing career, I was way too pessimistic. Although I have done well – and absent a catastrophic event, should enjoy a nice retirement – I could have done substantially better had I not focused on the negative. I always harped on the national debt issue and thought it would bring us down someday (I still think it will… see the pessimism is hard to extinguish!) and would focus too much on our inept politicians who have no courage to do what is truly right for the long-term interest of our country. The budget deficits, the social security and pension crisis and a myriad of other looming issues, always grabbed my attention. While it took a few decades to swing away from the dark side, I now realize that —
Every time I ripped Nancy Pelosi, Barack Obama, Harry Reid and others—Republicans and Democrats—I should have thought of Mark Zuckerberg, Sergei Brin, Jeff Bezos and Warren Buffett. All of them are optimists and all have built amazing enterprises, creating vast wealth for themselves and their shareholders DESPITE the ineptitude in Washington, D.C.
Every time I thought of our pension crises, I should have remembered that prices in real estate and stocks, have marched relentlessly upward for centuries. Yes, there have been occasional swan dives into the abyss in all asset classes, but being a pessimist has cost me more opportunities than you can imagine. Instead of worrying about Y2K, I should have told myself that this great nation of ours made it through two World Wars, the Depression, the Civil War, numerous recessions and the financial crisis.
I think I turned the corner when I heard Warren Buffett comment that no one ever did well by selling short the United States. As a recurring member of the Forbes 400, Buffett was overheard saying that the list of the richest people, published annually, is interesting in that all 400 have two things in common: all have great wealth, and none of the members on the list made their fortune from short selling (a bet on lower prices) the United States. I finally realized this when I thought of my successes with Johnson and Johnson stock. Despite all the downgrades, lawsuits and earnings misses over time… and all the bear markets and healthcare scares… and the horrific Tylenol tragedy… Johnson and Johnson has made 12 times your money since the early 1990s.
So, take my advice. While pessimism did save me from several crashes and the financial crises, having too large of a cash balance over the course of a few decades destroyed more potential wealth than all my bad investing decisions put together.
Be careful out there.
David Lerman / Jodie Warner