The Billion Dollar Mistake: Learning the Art of Investing Through the Missteps of Legendary ... Book

If you are trying to be a better investor, an immensely valuable book, although human biases can make it harder to embrace its key lessons.

As the catchy title suggests, the book examines failed investments of a handful of standout investors. The sympathetic reader who -- rather than dismiss the mistakes as other's folly -- looks to the underlying causes, and asks if perhaps they could fall prey to same issues will be rewarded with some common themes of how incredibly competent investors got a bad result.

The common themes are not hard to guess -- it's things like pattern-matching a situation that evolved to the old situation that worked out well, ego-driven decision making, as well as underestimating how irrational or mispriced the voting machine can get before the weighing machine prevails. I'll leave more -- and the subtlety of the themes listed -- as a pleasure for the reader to discover and analyse.

Each chapter also sketches out a background of a particular investor, and I enjoyed these details in their own right (for example, Pzena, Newberg and Greenblatt were all buddies and co-authors on their early net-net research in the MBA program, which is very "Superinvestors of Graham and Doddsville" since all three became successful value investors). With the stage set, it then describes an expensive and usually unforced error; then it looks at what the takeaways are.

The closing chapter on Madoff, Dreier, etc is about an even worse mistake: people with perfectly wonderful career opportunities wound up bringing jail sentences on themselves and infamy on their families. But the cautionary theme is similar -- let hubris get the better of you and there is no limit to how low you can wind up.

Summary: With perfect armchair wisdom, it was very tempting to think "well I'd never be drawn into doing something so silly". And indeed, simply not being on wall street can help with avoiding Madoff / Dreier trap of defining self by yachts or houses in the Hamptons. But, even final chapter aside, using what Michael J. Mauboussin calls "the outside view", I think one would do well to recognize these traps are harder to avoid than they seem in hindsight.

One would get the most out of this book if one approached it with "would I rather take serious this books lessons -- where smart, experienced people of making bad decisions and winding up with terrible results -- or risk losing big part of my net worth to a similar cognitive failure in the heat of the moment at some time in the future?"

Enjoy the book, and hope you learn for $10 what cost these folks an awful lot more.