Adam Butler is Chief Investment Officer of ReSolve Asset Management. Adam is an author of the book Adaptive Asset Allocation: Dynamic Global Portfolios to Profit in Good Times and Bad and contributed to the best investment writing volumes one and two, and he is ranked in the top one percent of authors by papers downloaded on SSRN. Adam also holds a CFA and CAIA charters.
In this episode, we will hear Adam's ironic realization he got from his worst investment experience - that you can be right for a very long time before you are wrong. His jarring investment experience affected his confidence and made him doubt his expertise and the value that he could do for his clients. Learn how he regained his confidence and bounced back into the investment game armed with the takeaways he got from this worst investment ever.
“The absolute number one fundamental takeaway I would like to share is that diversification is the best protection against ignorance.”
-Adam Butler
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Topics Covered:
00:29 – Andrew telling us all about Adam Butler's career background and what he does at the moment
03:07 – Adam sharing the whole story of his worst investment ever
07:06 – How that failed investment kept him rudderless for months and why he still held on for the longterm reason
08:10 – Lessons learned from his failed investment and narration of Dr. Tetlock's work on the accuracy of forecasts
11:18 – Andrew sharing his own story of a study he made himself about forecast accuracy
12:36 – Adam discussing the books of James Montier about behavioral investing and the folly of forecasting and expounding more on Dr. Philip Tetlock's studies about forecasts
19:17 – Adam on what his views are on researching thoroughly about a particular subject about what happened to his failed investments
22:02 – The concept of diversification
24:14 – The idea of randomness and the awareness of randomness
Main Takeaways:
Lesson 1: "One of the most disruptive and ironic things about investing is that you can be right for a very, very long time before you are catastrophically wrong.” – Adam Butler
Lesson 2: "It was a shocking and jarring experience, and I came out of it doubting my expertise in the value that I could produce for clients in this business. And as a result of that, I became receptive. I was at a state where I was receptive to alternative ways to think about the problem.” – Adam Butler
Lesson 3: "Some other more concerning results, experts that were cited most frequently in media or papers are less well calibrated than those who toil in obscurity.” – Adam Butler
Lesson 4:"One of the most important points being that the more you investigate, the more you invest your time and energy and effort into gaining a better understanding of the thesis, the more you want that thesis to play out, and therefore the more you're likely to seek confirmation or confirmatory data and the less likely you are to absorb or internalize disconfirmatory data..” – Adam Butler
Lesson 5: "And I think that one of the things that I take away from this is that we have to be careful because sometimes just the longer that we research a particular area or thesis, it can, we can become more convinced, not because the evidence is any more or less powerful, but because we become more and more familiar with the thesis.” – Adam Butler
Lesson 6: “So I think one of the things that I would like to take away myself and for the listeners is that just knowing a subject more deeply and more deeply and more deeply does not mean that you're going to be able to correctly and accurately predict it.” – Andrew Stotz
Lesson 7: ”And so I think the lesson that I take away from that is it's great to have your supercycle understand it very well, but know that other countervailing forces can go against it at times.” – Andrew Stotz
You can also check out Andrew’s books
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My Worst Investment Ever Podcast