On Humility and Bill Brewster
On Bill Brewster and Humility
Having started my ‘value investing’ journey in January 2021, I’m coming up to two years of fundamental investing. With my degree now finished and Christmas around the corner I’ve been getting very self-reflective on my own personal growth over the past few years. I’ve decided for this journal entry I would like to look at the framework of the person who’s been one of, if not the most influential people on my investing journey so far: Bill Brewster. For those of you who don’t know, Bill Brewster is an investor who became known for his appearances on Tobias Carlisle’s Value After Hours Podcast before starting his own podcast; The Business Brew. Bill is a weird source of influence for me. I’m sure he wouldn’t take issue with me saying he’s not an especially stand out investor. He doesn’t have any incredible insight into a specific field, or have one of the sharpest minds in the industry. However, I know he would be ok with me saying that because a trait he does have, a trait that does make him stand out amongst the finance community: humility.
I got into value investing after a year of getting waxed speculating on random stocks (with no fundamental analysis) during one of the biggest bull markets in history. I knuckled down, spent a lot of time reading, listening to podcasts, and valuing stocks, it all seemed very straightforward. The market is irrational, find stocks that people are getting wrong, it’s easy if you’re smart and do your research. Then I got wrecked again. Then I recalibrated my strategy, and then got wrecked again… and again. Somewhere in the wreckage I started listening to a charming little podcast called Value After Hours. The way I’ve always seen the dynamic is Jake as the fundamentals guy and Toby the quant, leaving Bill often to fill the role of the entertainer and audience surrogate (a bit of an oversimplification). I believe his combination of market knowledge, charm and humility perfectly complements the other boys and is a big part of why VAH was my most watched podcast of the year. Watching him significantly helped me gain a bit of perspective, craft my own investment style and deal with failure, and his own recent journey somewhat mirrors my own. While I believe he is general humble in his personality and rhetoric, there are a few key ways I want to highlight specifically in which humility manifests within Bill’s investing that I believe most investors can learn from.
Open Mindedness: Growth Stocks and NFT’s:
Throughout the bubble of 2021 Bill got a lot of flack from the audience with regard to his openness to many of the highlights of the bubble. As the other two dunked on them, Bill consistently found himself playing devil’s advocate for growth stocks such as Peloton, investors like David Gardner and crypto related concepts like Bored Apes. Now in hindsight, Bill's points ended up being wrong (Note: I’m not saying David Gardner’s a bad investor, more commenting on his style at that specific point in time), but Bill was never defending them with conviction, just offering up the possibility that the ‘other side’ might be right. Pointing out right or wrong misses the point, that we as investors should entertain the possibility that our fundamental beliefs are flawed and work to steelman our opposing arguments.. Many of the same people who were yelling about the bubble were also complaining about QE destroying the economy in 2010, complaining about tech valuations in 2015 and missed the huge rebound in 2020. They certainly all missed the insane gains in crypto in the decade pre-2021. Many of these people will be crowing about interest rates and downside risk when the market bottoms in the next few years and will miss the megatrends of the future. I’m not a growth investor, and certainly not a crypto investor but what I am is aware that there are many different ways to make money and being open to new ones (with a critical eye) will only serve to make you a better investor. While these ideas may not have worked out this time, there will be other ridiculous ideas that appear in the future that will, like an online bookstore that morphs into the everything store, or an online scrapbook to post stupid pictures of you and your friends. Have humility, remain open to the possibility of being wrong. Open your circle up to people who can challenge your beliefs (like Bill with David Gardner and Austin Lieberman) and you will be a better investor and a better human for it.
Owning Failure: Qurate
For me personally, late 2021 was a big investing wake up call. After a year of learning I was feeling pretty good about myself, before proceeding to almost blow up my account overleveraging into shipping and Alibaba. At the same time as I was going through that, Bill was suffering a huge drawdown in Qurate amongst other things as the market was continuing to reach all time highs. As a public figure and ‘the King of Qurate’ I think it could have been very easy to implode in an ego driven ball of excuses and frustration (like what we see happening with public Tesla bulls at the moment). Instead, through his twitter and VAH we got to see Bill do a lot of self-reflection and soul searching. He looked critically at his own investment approach and came to some tough conclusions. He followed this up by significantly reducing his position, a decision that proceeded to save him a significant amount of money as Qurate’s share price collapsed. I’m of the opinion that selling a high conviction position is one of the hardest decisions to make in investing, and I’m sure that’s compounded by his love for the business and being such a high profile bull. It’s such a simple takeaway, but when things are going wrong we should look at ourselves critically and if appropriate, change course. When the world’s telling you that you’re wrong many people will dig their heels in for the sake of contrarianism. Be hard on yourself, actively challenge your thesis and don’t be afraid to admit defeat when the facts change. It takes humility to realise and admit that you’re wrong, but it will benefit you in the long term.
Circle of Competence: Commodities
So far I haven’t really painted Bill’s actual investing in the best light so I wanted to finish these examples with a more positive one. I have a fantastic history of getting waxed investing in commodities. At various times over the past 2 years I’ve been in gold, oil, tin, coal, shipping (which basically behaves like a commodity) and lumber, coming out of most of them worse off. The problem is as Bill says, when commodities look cheap it’s often the worst time to buy them. The specialists buy when it’s good value and by the time the generalists are joining in the trade is probably done. Furthermore, as a generalist how do you know when you’re wrong? How do you distinguish between good luck and a good thesis, and adversely between market noise and a bad one? A key aspect of Bill’s investing (at least as I’ve seen it) has been sticking strictly to his circle of confidence and being comfortable letting other people make money in their own way, whether that be growth stocks or commodities. While many people say they stick to their circle of competence, in reality I think often people will break that for a particularly interesting idea. I’m of the opinion that most people don’t have the capacity to evaluate whether an idea is good outside of their circle of competence. While sometimes there are legitimate mispricings, often when things are cheap it’s because the people that understand the business have decided it’s not good value. As a tourist, the likelihood of unlocking hidden value in complex industries you don’t understand is low and it takes humility to recognise that you simply don’t have the knowledge to evaluate an idea.
So what should we take away from this? Firstly, what we shouldn’t take away is a lack of confidence. I’m not saying that you should be pessimistic about your own investing and I’m not saying you shouldn’t have conviction in your ideas. What I am saying is not to let your self-confidence overpower your rationality, and more importantly you should have personal checks in place to avoid that. Surround yourself with smart, different-minded people who can critique your ideas. Don’t dismiss ideas just because they go against your worldview. Form convicted opinions, but be open to changing them with new information. When things are going badly don’t charge forward with blind conviction. Question yourself, re-evaluate your opinions and look for flaws in your own logic. Finally, recognise your own circle of competence. We can’t know it all, and we shouldn’t be expected to. Recognise when you don’t have the capacity to hold an opinion because you simply don’t have the base knowledge. I believe that Bill is a fantastic model for all these things and I believe at the core of it is his humility, a trait often lacked within the field of finance. It takes humility to be open to new ideas, to recognise your own mistakes and recognise when you just don’t understand a topic adequately. I believe that if you can practise humility in your investing, and in life you will be a better person for it.