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Be Boring To Get Rich
Nobody wants to get rich slowly
Tim Vollans
September 13, 2023 ā¢ Estimated Reading Time: 8 minutes
The world is saturated with stories about people who make INSANE bets that pay off. Those outliers that bet big & get lucky richā¦
(Nobody cares about the boring ones)
Every high profile gazillionaire has a back story. Cults sprout from the seeds of their mythical success.
How did they do it?
Maybe I could do it tooā¦
Thereās usually a load of missing, inconvenient details, but who cares?
We celebrate winners.
My favourite of the genre is this guy:
A cult hero, worshipped by Big Short followers, Burryās often lauded as a genius.
Maybe he is. Even a genius needs a bit of luck thoughā¦
See, people tend to forget the part where he nearly blew up.
The premiums on those (eventually profitable) swaps were leeches on Scionās Capital, sucking away the lifeblood of the fund.
Then Burry gated withdrawals because āhe knew he was rightā.
Things couldāve turned out VERY differently.
The banks were marking the value of those contracts themselves, ensuring the premiums Scion paid remained high.
If it had taken another year for the subprime crisis to start, would Scion have made it?
Burry flirted with risk of ruin. Fortunately, it worked out in the end.
Another guy who made similar bets to Burry, lost BIG. Although surprisingly few have heard of himā¦
Benny Kleeger / Howie Hubler
Howie gets a couple of tiny mentions in the film (under the alias Benny Kleeger), but we never meet him.
He should have had the starring role.
See, when the SHTF, Howie Hubler was responsible for the largest trading loss ever recorded: Nine billion dollars.
(Howie held that title for 13 years until Archegosā Bill Hwang saw his massive levered bets liquidated in 2021)
Hubler, like Burry, saw that the housing market was in trouble. However, Burry only started to get interested in 2004/5.
Hubler was already working on it in 2003.
In 2003, Morgan Stanley created a proprietary credit default swap for the purpose of shorting bad subprime mortgage bonds. When a group was being formed in 2003 to short subprime mortgages, Hubler was co-opted as the group's manager and placed in charge of the team.
Things were going so well, that Hubler was promoted.
After early successes shorting subprime mortgage bonds, as well as selling bonds, he was promoted to run the newly created Global Proprietary Credit Group (GPCG) in 2006.
So where did it all go wrong?
He made a successful short trade in risky subprime mortgages in the U.S., but to fund his trade he sold insurance on AAA-rated mortgage-backed collateralized debt obligations that market analysts considered less risky, but also turned out to be worthless, resulting in a massive net loss on his trades.
Yep. While Burry funded his premiums by freezing withdrawals. Hubler sold insurance on the top tier tranches. The ones that everyone assumed to be safe.
That was his fatal error.
Little Brownhole Capital saw what Howie didnātā¦ š
Burry & Hubler both bet BIG on the same outcome. Only one of them achieved fame & fortune.
Big Isnāt Always Best
See, we obsess over success stories, but only the big ones.
Millions of people play the lottery every day, yet nobody cares about the ones who make life-changing money by winning second prize.
Euromillions
Every week (on average), 3.5 people win over ā¬400k on the euromillions.
8.3 people win ā¬46k.
To a lot of people, thatās life changing money. Pay off the mortgage, buy a new car, take a dream holidayā¦
But we never hear about it.
Go big or go home. We only care about the jackpot.
Howie Hubler needed to be more boring
More like Howard. Less like Howieā¦
Howard Marks is always worth reading & this gem comes from his latest note
David VanBenschoten, head of the General Mills pension fund told me that, in his 14 years in the job, the fundās equity return had never ranked above the 27th percentile of the pension fund universe or below the 47th percentile. And where did those solidly second-quartile annual returns place the fund for the 14 years overall?
Fourth percentile!
I was wowed. It turns out that most investors aiming for top-decile performance eventually shoot themselves in the foot, but Dave never did.
Itās the age-old story of the tortoise and the hare.
Slow & steady wins the race.
Dave was consistently in the middle of the bell curve. Could barely be more middle of the road. Mr Average personified.
Boring, consistent progress.
But if you repeat that performance consistently across 14 years, you end up doing better than 96% of your peersā¦
Marks continues:
Around the same time, a prominent value investing firm reported terrible results, causing its president to issue an easy rationalization:
āIf you want to be in the top 5% of money managers, you have to be willing to be in the bottom 5%, too.ā
My reaction was immediate: āMy clients donāt care whether Iām in the top 5% in any single year, and they (and I) have absolutely no interest in me ever being in the bottom 5%.ā
Iāll never sit here and say that people shouldnāt be ambitious. You absolutely should. Risk-taking makes the world work.
Just keep in mind the game youāre playing.
Compounding is a superpower. But you have to stay in the game long enough for it to work.
Alsoā¦ know when the game is up!
This couple bought 10k of Bitcoin in 2013. Cashed it out for Ā£3 million in 2021/22. Now earning 86k per month in Dubaiā¦ (click pic to read thread)
Thereās an old Hemingway quote about going broke.
āHow did you go bankrupt?ā Bill asked. āTwo ways,ā Mike said. āGradually and then suddenly.ā
This is the exact opposite:
āHow did you get rich?ā Bill asked. āTwo ways,ā Mike said. āGradually and then suddenly.ā
One final point on being boringā¦
There are roughly 2,640 billionaires in the world.
How many could you name? How many of their stories do you know?
Most of these are as boring as you could get.
Heard of Pang Kang?
Worth $16 billion and chairman of a food flavouring company.
BORING.
Stefan Persson?
Thatās an easier one. Former chairman of H&M. Still owns 36% of the business.
H&M was founded in 1947 - a single shop in Stockholm.
The next store opened in Norway in 1964. Seventeen years after the first.
Nowadays? 4,800 stores around the world.
Gradually, then suddenly.
