ISMS 18: Dave Collum – What Makes Your Investments Good or Bad
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Quick take
In this episode of Investment Strategy Made Simple (ISMS), Dave joins Andrew again as he shares more about his good and bad investments, among other things.
“Most of the books I read that helped me invest are not about investing but about history.”
Dave Collum
Listen to Dave’s previous interview Ep660: What Should the US Be Doing in Ukraine? He shares his views about the UK, the US, and what the US should do about Ukraine.
Dave’s early investment journey
In 1980, when Dave started investing, it was nothing but bonds because interest rates were humongous, and investors could get a great return. Dave didn’t know what he was doing. He just depended on recency bias to make his investment decisions. Luckily, the bonds did great. After the 1987 crash in equities, Dave found himself sitting in the faculty lounge with an old guy who convinced him to buy equities. He looked into it, liked the idea, went in, and flipped equities. Dave was in equities until the mid-90s when he got enthusiastic after starting to accrue some wealth and was very bullish.
Dave had a contact who was a traveling pharma salesman who would tell him what all the CEOs and staff were telling him. The connection had good information and gave Dave some ideas, one of which was a small company in Mississippi. The company did well and started acquiring everything under the sun.
In early 1998, Dave started getting a little queasy about the markets because he’d read enough books now and better understood investing. At the beginning of July 1998, Dave emptied half of his equities. Then the economy went right into the Asian crisis. At this point, Dave had dumped everything and made 700%, and everything had worked great. So he thought he was a genius.
Dave then got into gold. He had no clue what he was doing and simply white-knuckled gold for two years. Prices went from $256 to $1,900 at one point. Energy soared, too, and the decade following the tech boom was Dave’s best decade relative to the world. While the world was getting pounded by two nasty bear markets, Dave compounded 13% a year—that was extraordinary.
Dave’s recommendations
Dave recommends reading history books to understand investing. He highly recommends The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War.
Andrew’s takeaways
- It’s important to understand that the returns in the stock market are a function of two things. The first part of the return is what you’re getting for a company’s earnings which are paid in dividends. The second part is the premium people are willing to pay for those earnings.
- We have had fantastic times for decades. It’s time to pay attention and think about a different way of looking at things.
About Dave Collum
Dave Collum is a professor of Organic Chemistry at Cornell University who developed an interest in markets, which, in turn, led to an interest in geopolitics. He enjoys the human folly of it all. He has a natural predilection for being contrarian, which makes him a “denier” on almost all hot topics.