Michael Batnick of Ritholtz Wealth Management Michael Batnick of Ritholtz Wealth Management.

These we know are certain: death, taxes and making at least one giant blunder when investing long-term. So says Michael Batnick, director of research at Ritholtz Wealth Management and author of the new book “Big Mistakes: The Best Investors and Their Worst Investments” (Wiley June 6, 2018).

In those pages, he examines the costly gaffes of 15 successful, prominent investors. He discusses some of them, along with lessons to be learned, in an interview with ThinkAdvisor.

From Mark Twain — America’s highest paid writer at his peak, but who fell for con men big-time — to the overconfidence of Warren Buffett, Batnick explores what causes even top investors to trip up and incur staggering losses.

The chartered financial analyst, 32, isn’t saying that best investors making big mistakes is unusual. To the contrary, he argues that ”whether you’re managing your own 401(k) or a $1 billion hedge fund, mistakes are unavoidable,” as he notes in the interview.

On the Ritholtz investment committee, Batnick, who writes The Irrelevant Investor blog and co-produces “Animal Spirits,” a weekly podcast, helps to construct client portfolios and run the RIA’s in-house tactical strategy.

Batnick himself made plenty of mistakes when his investment style of choice was stock trading. Indeed, in 2012 alone, he paid about $12,000 in commissions. But that was also a lucky year, the one in which he joined Barry Ritholtz and Josh Brown, then managing $50 million at Fusion Analytics. In 2013, the three launched Ritholtz Wealth Management, now with AUM of $700 million. Batnick, who earlier sold insurance at Massachusetts Mutual, is part-owner of the firm.

ThinkAdvisor recently interviewed Batnick, speaking by phone from his New York City office. The author’s clear message: Investing is hard. Expect to make mistakes. Learn from your own  and those of others — especially if they’re legends like John Bogle and Warren Buffett. Here are excerpts from our conversation:

THINKADVISOR: Mark Twain — aka Samuel Clemens, his legal name — made numerous mistakes — among them, losing money on a mechanical typesetter, his New York Vaporizing Company for steam engines, a milk powder extract — he passed on investing in the telephone — and buying and selling stocks. What lesson can be learned?

MICHAEL BATNICK: Recognizing the limits of your own strength and talent. Mark Twain was an obsessive investor but a terrible one. He couldn’t stay within his circle of confidence, which was being an incredible storyteller and humorist.

What else can be learned from his mistakes?

The first rule when you’re in a hole is to stop digging. He didn’t know when to stop digging. That’s really dangerous. He put good money after bad constantly — in his typesetter, for example. That forced him to do humorous lectures around the world to raise money to repay his debts. When you find yourself in a bad situation, putting more money into a losing investment won’t fix the problem.

Did Twain ever get on his financial feet again?

Even after he was back to even, he still made investments and bought stock. He just couldn’t bring himself to stop. But a dear friend, who worked at Standard Oil, and whom he bounced ideas off, helped him make a lot of money.

What was the big error made by Stanley Druckenmiller, who ran George Soros’ Quantum Fund for more than a decade?

He was one of the best macro investors of all time, reportedly making about a 30% return for 30 years. He invested in things like bonds and currencies. But in the late 90s, he got caught up with what was occurring around him, and he bought tech stocks — a lot of them — at the very top. He lost about $3 billion in six weeks.

Shouldn’t he have known better?

He has said that he knew he shouldn’t have done it but that he was an emotional basket case and got carried away. Even he got swept up and couldn’t control his emotions. Druckenmiller made what I call an “unforced error” — a foolish mistake.

John Paulson, who started his hedge fund, Paulson & Co., in 1994, bet against mortgage-backed securities in 2007 and reportedly made more than $4 billion personally. But later he made a series of bad investments. What’s the lesson?

Paulson’s giant home run was shorting the housing market with credit default swaps. He hit a grand slam — the equivalent of winning the lottery. The problem is that when you win the lottery, winning $10 after that isn’t going to give you the same sort of feeling.

What can we learn from this?

If you win the lottery, stop looking to recreate that. Lightning doesn’t often strike twice. Paulson went searching for the next big trade. In 2011, his fund lost heavily when he became the world’s largest owner of gold. The message here is that if we have a giant win, we should stop playing.

Big Mistakes by Michael Batnick

Chris Sacca, founder-chair of Lowercase Capital, spotted unicorns like Uber and Twitter and became a billionaire before reaching age 40. What was his terrible error?

One of the most successful venture capitalists of all time, his big mistake is that he passed on Snapchat, Airbnb and Dropbox. The point is that there’s always something you wish you had bought that you didn’t buy or wish you bought more of. It’s just part of investing — and it’s a “mistake” you just can’t avoid. The lesson is: Tough s—.

John Bogle, the Father of the Index Fund, founded Vanguard. Today the Vanguard 500 Index Fund is the world’s largest mutual fund. When and where did he go wrong?

After working at the Wellington Fund, one of the oldest mutual funds, for years in the 1960s, he was appointed CEO. But under his watch, the fund collapsed. He got caught up in the frenzy of the 1960s go-go years, when people were trading, trading, trading. Instead of staying within his circle of confidence, Bogle brought in a bunch of young investors to keep up with the times, and that destroyed the Wellington Fund’s performance.

By doing what?

They deviated from their main ethos, which was to be conservative. Instead of being long-term investors, they were rapidly turning over the portfolio. And they even had a fund that performed technical analysis, which, when you think about everything Jack Bogle stands for, sounds sort of hilarious. But out of the ashes, Vanguard was born. The lesson is that investing is a long journey.

Charlie Munger is vice chairman of Berkshire Hathaway and Warren Buffett’s partner. His judgment has been indispensable to growing the company. What was his worst mistake?

One of them was that he invested heavily in Blue Chip Stamps [retail loyalty program], which crashed in [1980]. However, Blue Chip recovered and would become an asset that permitted the purchases of See’s Candies, The Buffalo News and Wesco Financial, eventually folded into BH. On a relative basis, in the dot-com bubble, Buffett and Munger got crushed [because they hadn’t jumped into tech], and Berkshire Hathaway was destroyed.

What does that teach us?

At some point, everybody loses a lot of money — a drawdown of 50% is probably a very realistic expectation. So if you’re not able to deal with that unemotionally, then you probably won’t have very good results and aren’t fit to be a stock investor. If you can’t handle periods of losses, then you probably aren’t going to have very good long-term results.

Warren Buffett has the most striking long-term investing track record of all time. But he made some mistakes. What can we learn from them?

The lesson here is to beware of overconfidence. When he bought Dexter Shoes [outright] in 1993, he was overconfident and gave up way too much stock in Berkshire. It was by far his costliest mistake. He learned his lesson in terms of paying [$433 million] with a lot of stock instead of cash. By 2000, Dexter couldn’t compete effectively with shoes made abroad, and Buffett realized he couldn’t turn the company around.

What’s the bottom line?

The stock he paid for Dexter is now worth upwards of $6 billion. So checking your own confidence level whatever you’re doing is supremely important for investors.

How do you guard against overconfidence tripping you up?

Have a plan ahead of time. One of the easiest ways is to write down a thesis of why you bought a stock because if that changes, at least you have proof of what you thought at the time you bought it. If you journal things, it’s really hard to fool yourself when you see it written down on paper.

You say that in trying to beat the market, it took you about five years and paying nearly $20,000 in commissions to realize you “[weren’t] destined to be the next Paul Tudor Jones.”

I’ve made every mistake: I overtraded. I was overconfident. I was unable to insulate myself from normal emotions and investing.

What prompted you to stop all that trading?

How many times can you bang your head against the wall before you realize it hurts? I was trying to be a fundamental analyst. I was trying to do the Ben Graham thing. I tried everything.

What’s your approach to investing now?

I’m an index aficionado. I’m not picking individual stocks; I’m not trying to find the best mutual fund manager. I index. For me, that’s the way to do it.

Trading is a tad more exciting than indexing, though. Don’t you feel frustrated?

No. I feel bliss. I feel the exact opposite of frustration.

Net-net, what did you learn about investing from writing your book?

Investing is really, really, really hard, and that it’s hard for everybody — which I already knew. There are going to be mistakes and unforced errors and market downturns and recessions. And there will be bull markets, where everybody around you is getting rich and you feel like you’re not keeping up.  Just matching the market presents its own challenges.

Any practical advice based on something you’ve learned personally?

Don’t invest right before you know you’re going to incur a big liability.

You did that right ahead of your wedding, which was shortly before you were planning to buy a house.

Right. I wanted to make some money to help pay for it all. But if you have a liability coming due, the market is far too unpredictable to risk that money. You have to make sure it’s there when you need it.