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At a New Year’s Eve party, a guy pitched David Leiter on a crypto coin called Luna that was paying 10% interest at a time when banks paid almost nothing. David passed. He had made one of the classic investing mistakes himself two decades earlier, and he recognized the pattern.
In January 2000, while working on Wall Street, he got swept up in the last months of the dot-com bubble and watched a stock fall from $63 to $11. A few months after that party, Luna went to zero.
David is the author of Stop Making Stupid Investments and runs The Ultimate Investor. He has spent decades watching investors get pulled into bad deals by FOMO, charisma, and the next hot thing, including very smart and very successful investors.
In this conversation, he walks through the five levels of investors, from the speculator chasing price movements to the master living off their portfolio, and explains why so many people never get past level one. He also lays out seven rules for avoiding the investing mistakes that set people back for years, from avoiding big losses to never buying a trading system.
His core argument is that investing isn’t a game of intelligence. It’s a game of temperament, and most investing mistakes are emotional ones.
Key Takeaways
The biggest ideas from the conversation
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- Most investors start as speculators, and some never leave: David’s five levels run from speculator/gambler to retail, awakened, professional, and master. The danger at level one is that speculators often study charts and read constantly, so they believe they’re acting like professionals when they’re really just chasing price movements.
- A bargain, by definition, can’t be well liked: Borrowing from Howard Marks, David argues that if everyone is excited about an investment, the price is probably already high. Thinking like a contrarian means asking what people are ignoring, then doing the work to see whether it’s actually a good deal.
- Big losses cost far more than money: Lose 50% and you need a 100% gain just to break even. Big investing mistakes also cost years of compounding, and they often push people out of the market entirely, until they jump back in at the next peak.
- Investing is a game of temperament, not intelligence: Quoting Warren Buffett, David notes that you don’t need a genius IQ to invest well. What matters is noticing your own FOMO and removing emotion from decisions, which is good news, because temperament can be cultivated.
- Liking someone is not a due diligence process: Charisma standing in for research drives many investing mistakes, especially in private deals. David’s rule is to avoid private real estate or private equity deals without audits and a substantial manager track record, and to be wary of social media gurus who flaunt wealth instead of humility.
- Buy for cash flow, not for hope: David’s first Williamsburg building cash flowed from day one. The neighborhood’s transformation was a bonus, not the bet. If an investment only works when a hot neighborhood takes off, the worst case is a loss rather than a reasonable return.
Resources
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Chapters
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Note: Timestamps are approximate and may vary across listening platforms due to dynamically inserted ads.
| 2:12 |
The 10% crypto offer that went to zero |
| 5:14 |
Why most investors start out as gamblers |
| 17:11 |
When a billionaire panicked, he bought more stocks |
| 26:35 |
Why a 50% loss needs a 100% gain to recover |
| 31:47 |
Why investing rewards temperament over IQ |
| 34:57 |
Coworkers called him a slumlord. He kept buying. |
| 40:30 |
Two things to demand before any private deal |
| 53:10 |
$100,000 invested, $80 a month back |
| 55:18 |
Why a falling stock doesn’t mean a failing company |
| 1:02:04 |
Why he bought for cash flow, not neighborhood hype |
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