Big Mistakes

Have you ever lost money on an investment and wondered, “How could I have been so wrong?” In Big Mistakes: The Best Investors and Their Worst Investments, Michael Batnick argues that even the world’s most brilliant investors—Warren Buffett, John Maynard Keynes, Jesse Livermore, Mark Twain, and others—have made mistakes as spectacular as their successes. His central idea is that failure is not just inevitable in investing—it’s the tuition you pay to become wiser.

Batnick contends that understanding the psychology, overconfidence, fear, and emotion behind these failures offers more lasting wisdom than studying success stories alone. Rather than focusing on how to pick the right stock or time the market, he encourages readers to recognize that the best investors succeed not because they avoid mistakes, but because they learn how to survive—and grow stronger—from them.

Why Studying Failure Matters

As Batnick reminds us, most books about investing glorify success. You can easily find guides on how Warren Buffett built Berkshire Hathaway or how George Soros “broke the Bank of England.” Yet for every triumph, there are devastating missteps—the type people quietly bury. By unearthing these failures, Batnick shows how markets expose human frailties: greed, fear, pride, and overconfidence. He illustrates that the difference between amateurs and great investors isn’t the absence of mistakes, but their response to them.

The Psychology Behind Investment Errors

Batnick draws heavily on behavioral finance, the science that explores how emotions distort financial decision-making. Through stories of geniuses like Isaac Newton and economists like John Maynard Keynes, he demonstrates how intelligence alone offers no protection against emotion. Newton, for instance, who could calculate the motion of the planets, couldn’t resist following the crowd during the South Sea Bubble—and lost a fortune doing so. Keynes, one of the greatest economic minds ever, lost 80% of his wealth before realizing he needed to change his short-term speculation into long-term investing. These tales reveal that discipline trumps intellect when emotions run high.

Patterns of Hubris, Overreach, and Reinvention

Throughout the book, Batnick finds a repeating pattern in these investors’ lives: success leads to hubris, hubris leads to overreach, and painful losses force humility and reinvention. Warren Buffett’s ill-fated purchase of Dexter Shoes, a company he thought had an unbeatable moat, cost Berkshire Hathaway nearly $6 billion in lost value. Michael Steinhardt’s foray outside his expertise into European bonds during the 1990s blew up his hedge fund. Bill Ackman’s ego-driven crusade against Herbalife devastated his reputation and returns. In each case, hubris—the belief that past success guarantees future accuracy—proved to be their Achilles’ heel.

Why These Lessons Matter for You

You don’t need to be a fund manager to relate. Every investor grapples with fear, greed, regret, and the temptation to chase performance. By reading how Buffett, Munger, or Druckenmiller fell into the same traps, you gain humility and emotional armor for your own decisions. Batnick’s message is liberating: you can’t avoid mistakes—but you can avoid ruin. By staying humble, managing risk, and understanding your own psychology, you can survive losses that might otherwise knock you out of the game.

Structure of the Book

Each chapter centers on a celebrated figure—from Benjamin Graham to Chris Sacca—and dissects their biggest blunders. We learn how Jesse Livermore, the legendary trader, made and lost multiple fortunes through overtrading; how Mark Twain’s pride and emotional attachment to inventions bankrupted him; and how Charlie Munger and Sequoia’s deep concentration in Valeant Pharmaceuticals reminds us that even great research can’t defeat behavioral bias. The final chapters turn the mirror toward us—showing that we all contain the seeds of these mistakes and that maturity in investing is emotional, not intellectual.

In essence, Big Mistakes offers a philosophy of financial resilience. As Batnick puts it, success in investing means learning how to manage your behavior when fortune, fear, or failure challenge you most. The book is not about never erring—it’s about making errors survivable and wisdom portable. This is why Batnick ends not with Buffett or Keynes, but with himself—confessing his own trading addictions and missteps—to remind readers that being wrong is inevitable, but staying humble, disciplined, and reflective turns mistakes into the very foundation of mastery.

Batnick begins his exploration with Isaac Newton’s collapse during the South Sea Bubble—a story that perfectly symbolizes the theme of the book. Newton wasn’t just intelligent; he helped invent modern physics. Yet when market euphoria hit London in 1720, he let greed and envy override reason. He first doubled his money, sold his shares, and then—seeing friends get richer—jumped back in near the top. The crash wiped out nearly everything. Newton later lamented, “I can calculate the motions of the heavenly bodies, but not the madness of the people.”

Batnick uses Newton to demonstrate how intelligence and rational models fail against crowd psychology. The same pattern reemerged centuries later with John Meriwether’s Long-Term Capital Management (LTCM). Staffed by Nobel Prize–winning economists and armed with mathematical models for risk, LTCM leveraged itself 100 to 1—only to implode when real-world fear didn’t conform to their equations. What Newton and Meriwether shared was faith in rational order in a fundamentally emotional marketplace.

The Limits of Genius

As Batnick writes, markets don’t compensate you for being smart. They compensate you for being disciplined when everyone else is emotional. Intelligence creates the illusion of control, but unpredictability rules markets. The LTCM team modeled “value at risk” with breathtaking precision—and lost $4 billion in five weeks when Russia defaulted and correlations broke. Their downfall showed that even mathematical certainty can’t contain human panic. Genius failed because it left no margin for humility.

The Paradox of Skill

Borrowing from behavioral scholar Michael Mauboussin, Batnick describes the “paradox of skill”: as participants become more skilled, luck plays a bigger role in determining who wins. When everyone has access to models, data, and analysis, success depends not on knowing more but on controlling behavior better. This is why Batnick concludes that discipline, not intellect, separates long-term winners from short-term casualties.

The takeaway for you is clear: even if you master spreadsheets, valuation models, or macroeconomic theories, you’ll still lose if you cannot master your emotions. Humility is worth more than IQ points in the real market.

Mark Twain provides one of Batnick’s most human stories. The brilliant writer of Huckleberry Finn treated investing like storytelling—a mix of optimism and imagination. He poured himself into new inventions, most famously a mechanical typesetter that consumed $5 million in today’s money and bankrupted him. Twain wasn’t greedy; he was attached. His mistake was emotional attachment to ideas and the unwillingness to admit failure—a trait Batnick calls the “Mark Twain problem.”

The Pain of Letting Go

Twain’s pride turned losses into identity crises. He kept paying for a machine even experts condemned as flawed because he wanted to prove himself right. This, Batnick explains, mirrors the modern investor’s refusal to sell a losing stock until it “comes back.” The psychology is identical: cutting losses means admitting error. Twain’s spiral shows how easily creative confidence morphs into financial self-destruction.

Hope vs. Discipline

Twain described business failure as a moral failing, not just a financial one. Yet his eventual recovery—paying back every creditor through a global lecture tour—proved resilience matters more than brilliance. The lesson is timeless: losses can be redeemed through honesty, discipline, and humility. Twain’s story warns you: don’t confuse stubbornness for conviction. Hope is not a strategy; selling too late is often worse than selling early.

By recognizing when an investment drains your emotional energy more than it earns returns, you keep your financial and psychological capital intact.

Warren Buffett, celebrated as the Oracle of Omaha, spends his life warning against overconfidence—yet his biggest loss came from ignoring his own advice. In 1993, Buffett bought Dexter Shoes for $433 million, believing it had a strong brand moat. He paid not in cash but with Berkshire Hathaway stock. When Chinese manufacturing crushed the American shoe industry, Dexter became worthless. Those shares would later be worth over $6 billion. Buffett called it “the worst deal of my life.”

How Success Breeds Overreach

Buffett’s mistake stemmed from an old investor bias: anchoring future judgments to past success. His wins in similar shoe companies like H.H. Brown blinded him to new competition from low-cost imports. He relied on pattern recognition—“What worked before will work again”—a mental shortcut Daniel Kahneman calls representativeness bias. Confidence became complacency, proving that even rational frameworks deteriorate without self-doubt.

Owning Errors Publicly

To his credit, Buffett publicly dissected the failure for decades, calling it a “Guinness-worthy blunder.” His honesty illustrates Batnick’s deeper message: mature investors treat mistakes as assets. By admitting them, Buffett fortified his credibility and institutional resilience. You can apply the same strategy—turn transparency into strength, and document lessons learned to prevent repeats.

Buffett’s “20-punch card rule”—imagining you only get 20 lifetime investments—forces slowing down and reflection. The antidote to overconfidence isn’t caution but constrained decision-making that keeps ego in check.

Michael Steinhardt, one of the earliest hedge fund titans, earned 24.5% annually over nearly three decades. His downfall came when he left the familiar terrain of U.S. equities for European bonds in 1994. Drawn by potential gains, he deployed billions into foreign debt markets he didn’t fully grasp. When the Federal Reserve raised interest rates, global bonds collapsed, and Steinhardt lost $800 million in four days. It was a devastating blow to his psyche and career.

Why Leaving Your Expertise Hurts

Steinhardt’s story captures the cost of ignoring Buffett’s advice to “stay within your circle of competence.” His high intelligence convinced him boundaries didn’t apply. But every market culture—currencies, commodities, or bonds—demands unique skills and networks. Without this, even brilliant analysis equals gambling. As Charlie Munger put it, “If you play games where others have the aptitudes and you don’t, you’re going to lose.”

The Discipline of Staying Put

Batnick highlights how success invites overexpansion—the urge to conquer new fields instead of deepening existing strengths. When hubris replaces specialization, risk multiplies. Steinhardt recovered his finances but admitted the emotional cost was irreparable: “It had taken a part of me that could not be retrieved.” His advice now mirrors Batnick’s thesis: the hardest thing for seasoned investors is knowing what not to touch.

For your own portfolio, define where you genuinely understand the players, the data, and the risks. The discipline to sit still, not the impulse to explore, often defines longevity.

Batnick’s chapter on Bill Ackman reads like a study in cognitive dissonance. Ackman, a master of activism, bet billions against Herbalife in 2012, publicly accusing it of being a pyramid scheme in a three-hour, 334-slide presentation. He vowed to see the company “go to zero.” But by shouting his conviction from podiums and TV studios, Ackman trapped himself. When rival billionaire Carl Icahn took the opposite bet, Ackman’s short position turned into a years-long humiliation as the stock soared 70% above his entry price.

Ego vs. Adaptability

Batnick uses this saga to illustrate how public commitments harden private errors. Once you make your belief part of your identity, admitting change feels like betrayal. Kahneman calls this “cognitive dissonance”: the pain of new facts clashing with old beliefs. Ackman valued being right over protecting investors. Had he stayed private, he could have adjusted strategy quietly. But the stage lights of Wall Street magnified pride into paralysis.

The Lesson: Keep Finances Personal

You may not manage billions, but you face the same trap every time you post trades online or brag at dinner. Once ideas become public, flexibility dies. Ackman’s war shows that reputation management can override risk management. Batnick advises: invest quietly, not performatively. The goal is to make money, not make a point.

For you, this means staying detached from identity-based investing—your ego doesn’t have to rise and fall with your portfolio.

The Sequoia Fund, once mentored by Warren Buffett, epitomized disciplined, concentrated value investing. Its managers, Ruane, Cunniff & Goldfarb, spent decades outperforming the market by betting heavily on a handful of stocks. Yet in the 2010s, that strength became its undoing. Their oversized position in Valeant Pharmaceuticals—32% of the fund—imploded when the company was accused of price gouging and accounting fraud. Valeant crashed 90%, slashing Sequoia’s assets in half and erasing a near half-century of trust.

From Conviction to Blindness

Batnick explains that their faith in concentration turned into endowment effect—the bias of overvaluing what you own because it’s yours. They rationalized every red flag, comparing Valeant to Berkshire Hathaway itself. When criticism mounted, they doubled down, quoting Buffett’s maxim “Be greedy when others are fearful.” The fatal flaw: confusing similarity of language with similarity of ethics. Mike Pearson, Valeant’s CEO, wasn’t Buffett; he was “shareholder-focused,” but not moral. Buffett himself later denounced the company.

Diversify or Define Exit Rules

The Sequoia collapse gives a balanced perspective. Concentration creates extraordinary gains—but also existential risk. Batnick suggests writing exit plans before investing large sums, defining in advance when conviction becomes self-delusion. Otherwise, your dedication to an idea morphs into emotional captivity. The reminder for you: write your reasons before you buy, and your stop rules before you panic.

Diversification may feel boring, but it’s what keeps mistakes survivable. The Sequoia Fund forgot Don Quixote’s warning about “all eggs in one basket”—and paid a historic price.

John Maynard Keynes, the father of modern economics, was also an investor who lost—and eventually regained—fortunes. At first, he traded currencies and commodities using macroeconomic predictions, losing 80% of his wealth in a crash. But the failure transformed him. He evolved from a short-term speculator into a long-term value investor, focusing on company fundamentals. Over the next decade, his portfolio at King’s College beat the market by nearly 6% per year—a stunning comeback.

From Macro to Micro

Batnick illustrates how Keynes’s shift demonstrates the futility of forecasting. Even with unmatched intellect and data, Keynes discovered that markets move on “animal spirits”—the unpredictable emotions of the crowd. So he abandoned trying to guess economic cycles and instead concentrated on businesses with intrinsic value. His rule became enduring advice: hold a few good companies for years “through thick and thin.”

Wisdom Over Prediction

Keynes’s transformation aligns with Batnick’s core argument: survival and learning matter more than brilliance. By accepting uncertainty and designing for resilience, you play a different game—one based on patience, not prediction. Investing, Keynes realized, isn’t science; it’s psychology. The real victory is maintaining composure when everyone else loses theirs.

For you, this means focusing on process, not prophecy. Build portfolios you can sleep with even when markets scream. As Keynes showed, adaptability—not foresight—wins across decades.

In closing, Batnick turns the lens inward. After chronicling the giants, he admits his own failures: overtrading, chasing leveraged ETFs, ignoring his goals while trying to ‘beat the market.’ He spent thousands on commissions and gained only stress. It’s a personal confession that completes the thesis—investing mastery begins with self-mastery.

The Real Enemy Within

Batnick explains that our worst financial wounds are self-inflicted. We sell winners too soon, ride losers too long, and let short-term noise dictate long-term goals. His story transitions from self-punishment to self-awareness: the realization that consistency beats cleverness. Guided by mentors like Josh Brown and Barry Ritholtz, he adopts the evidence-based approach he once mocked—indexing, goal alignment, and risk control.

Turning Reflection Into Strength

The book ends where it began—with reflection. Every mistake, Batnick shows, contains data about who you are: your tolerance, your triggers, your temperament. The greatest investors aren’t fortune tellers—they’re self-psychologists. When you admit your weaknesses, you prevent them from endangering your future. As Peter Bernstein said (and Batnick echoes), “Mistakes are an inevitable part of the process.”

The final lesson is sobering yet empowering: you can’t outsmart the market, but you can outlast your emotions. Your edge isn’t knowledge—it’s control.