Navigating Risk: The Case for Established Businesses in Investing

This chapter explores systemic versus idiosyncratic risks in investing, challenging traditional asset pricing methods centered on beta risk. It highlights the relative safety of established businesses compared to fast-growing companies, emphasizing the significance of market dynamics and the inevitability of disruption.

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William chats with Matthew McLennan about how to achieve resilient wealth creation, which is a central focus of William's book “Richer, Wiser, Happier." This interview was recorded on August 30, 2022.

IN THIS EPISODE, YOU'LL LEARN:

02:36 - How Matthew McLennan grew up off the grid without electricity or hot running water.
12:56 - What he learned as a money manager at Goldman Sachs during the dotcom bubble.
15:57 - Why investors should try to emulate the patient, selective mindset of gardeners.
27:01 - How the most resilient businesses remind Matt of great wines and enduring artworks.
35:01 - Why investors need to respect the phenomenon of entropy as an ironclad law of life.
44:18 - Why investors should be wary of hot growth stocks, which are liable to fade.
46:27 - Why there’s surprising beauty in mundane businesses like bicycle brakes & elevators.
57:14 - How to ask the right “splitting” questions as a way to rule out what you shouldn’t own.
1:07:07 - Why gold might be more attractive than Bitcoin as a potential hedge against chaos.
1:18:25 - Why it’s wise to diversify overseas, where many stocks are much cheaper than in the US.
1:23:33 - Why the high-flying US dollar is at risk of weakening in the years to come.
1:32:59 - Why Matt is wary of Chinese stocks & thinks China’s ascendancy is not inevitable.
1:37:17 - What history can teach us about the growing risk of war between the US & China.
1:38:52 - Why it’s critical to set aside time to read, reflect, & distill what you’re learning.

*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members.
Website for First Eagle Investments.
Fred Schwed’s classic book, Where Are the Customers’ Yachts?
History of the Peloponnesian War by Thucydides.
Hendrik Bessembinder’s study of wealth creation in US stocks from 1926-2019.
William Green’s book, “Richer, Wiser, Happier” – read the reviews of this book.
Follow William Green on Twitter.

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