In one sentence: Phil and Danielle talk about how scary and foreign investing feels at the start (Danielle's view) and how it felt to Phil (an apprenticeship he jumped into), and they conclude that a beginner should build a practice around subjects they enjoy before doing the heavy analysis, then use Michael Burry as a reminder that contrarian investors need a calm mind and patient clients.
Key ideas
- Investing as a practice, and the "bridge". Danielle says she needed a bridge between "I'm terrified and don't know how this fits my life" and the nuts and bolts of valuing a company. Her course (Mostly Invested, then not yet out) is that bridge; Phil's workshop is the "what to do" step. [03:00–08:00]
- Rule #1 is learnable quickly but not easy. Phil's analogy is that you can learn snowboarding in three days, but that doesn't put you on the double-black run. The concepts are simple; applying them correctly is the work. [05:00–06:00]
- The hardest part is staying inside the circle. Once you start learning, everything looks like a potential investment. The discipline is to stay in the narrow range you have committed to understand. [05:30–07:00]
- Not everyone starts with Phil's temperament. Phil describes his start as landing in a foreign country with no language, but says his military years left him comfortable with discomfort. He notes that many veterans and special forces students take to investing quickly, and Danielle says she did not perceive the risk the way he does. Neither response is wrong. [08:00–14:00]
- Follow the joy, ignore the pain. Danielle's rule for building a practice: read about what interests you (for her, yoga companies and organic food) and skip what feels like a chore. Her friend who promised to read the whole WSJ business section daily quit after about ten days and was left with a pile of newspapers. A practice you can keep beats a heroic one you drop. [14:00–18:00]
- Pain is not proof it's working. Danielle rejects the idea that if investing doesn't hurt it isn't real. Do the practice for a month or two and it becomes integrated. [15:00–17:30]
- The market is emotional. Phil and Danielle point to analysts on CNBC arguing both a Dow at 36,000 and a drop to 10,000, with recession worries and calls for lower rates in September 2019. Price swings on political headlines show the market is moved by fear and optimism. [19:00–22:00]
- Burry's story as a cautionary tale. Michael Burry made roughly $100 million personally and, per Phil, over $700 million for investors by betting against subprime real estate in 2006–07. The investors sued or were furious before the crash and did not thank him afterward. He closed his fund and later reopened it with investors who share his view. [22:00–25:30]
- Great contrarians often shut their funds. Phil adds Julian Robertson (closed 1999, reopened later) and Buffett (closed his partnerships in 1969) as others who walked away from clients who pushed them the wrong way. To buy when others are afraid you must be emotionally strong and certain you understand the business. [25:30–27:30]
- The calm comes from understanding. If you know the business is protected and will be bigger in ten years, bumps in price are chances to buy more, not reasons to worry. [27:00–28:00]
How it maps to RuleOne
- The site gives you a place to start narrow: filter /stocks/ to companies you already use or like, which is the "follow the joy" practice in tool form.
- Burry's lesson fits the E (event) step: you only get a good price when people are afraid, and the screen's drawdown and event watch shows when that happens. The site cannot supply the emotional strength.
- Nothing here changes how the screen computes anything; this is a mindset episode.
Buffett, Munger and Graham links
- Circle of competence: Buffett's 1996 Berkshire letter says that knowing the edges matters more than the size of the circle (see 001).
- Graham's Mr. Market (The Intelligent Investor, ch. 8) is the standard picture of an emotional market that offers prices you may take or ignore.
- Buffett closed his partnerships in 1969; the partnership letters from that period explain his reasons, in his words.
Words to know
- Practice (investing as a practice): a small, repeatable habit of reading and thinking about businesses, which builds familiarity over time.
- Contrarian: an investor who buys what others are afraid of, once they understand it.
- Short position: a bet that a security will fall.
Try this
Spend 20 minutes making a list of ten brands or industries you enjoy reading about. Open /stocks/, find at least three of them, and write one sentence on what each business sells and to whom. Do this three times this week rather than once for a long session.
Check yourself
- Why did Danielle's friend stop her WSJ reading practice?
Answer
It was too big and not enjoyable, so it was set up to fail. A practice should follow your interests so you can keep it up. - What did Burry do before the 2008 crash that upset his investors, and what happened to them afterwards?
Answer
He paid for protection against subprime mortgage bonds for about two years, which cost his investors money in the meantime. When the market crashed it paid off hugely, yet they still did not thank him and he closed the fund. - According to Phil, what lets you hold through price drops?
Answer
Being sure you understand a business that will be bigger in ten years. Then drops are opportunities to buy more.
Short quotes
"It's okay for it to feel hard." (Danielle, ~04:00, auto-transcribed)