Episode summary
Why Entrepreneurs Are the Worst Investors I've Watched in 35 Years
Summary
Dylan Jovine argues that entrepreneurs are often the worst investors he has seen in 35 years, even though they should have an advantage because they understand how businesses work. He contrasts that with the old Wall Street stereotype that doctors, dentists, engineers, and lawyers make poor investors, but says his own experience points elsewhere.
His core point is that entrepreneurs tend to misread public stocks because they treat them differently from their own private businesses. He says good investing is really about the cash a business can generate, the durability of that cash flow, and the likelihood it will keep coming over time, much like valuing a bond coupon.
He also walks through how to diagnose businesses using the income statement: cost of goods sold, operating expenses, and non-operating items. He says cost of goods problems are the hardest to fix, while operating expense problems are easier to repair. He points to Alphabet, Microsoft, Visa, MasterCard, and Republic Services as examples of businesses with strong, durable cash generation and limited competition.
Key takeaways
- Jovine says entrepreneurs are the worst investors he has observed in 35 years, despite being strong business operators.
- He argues that stock picking should start with free cash flow, not flashy labels or accounting complexity.
- He says cost of goods sold problems are the hardest business problem to fix because they leave razor-thin margins.
- He treats strong businesses like Alphabet, Microsoft, Visa, MasterCard, and Republic Services as near-bond-like cash generators with durable moats.
- He says investors should ask how much cash they can pull out of a business and how likely that cash is to continue growing.
Notable quotes
“I think out of all of them, entrepreneurs have been the worst investors that I've observed in my life”
“The most important thing when you're looking at a business is net net net, no matter what, the amount of cash you can pull out of that business every single month, quarter, year”
“what we do as investors, we look at the amount of cash you can pull out of the business and the certainty or likelihood that that cash will grow over time and will continue to come”
“the hardest problem to solve is a cost of good problem”
“When you look at a company like Alphabet or Microsoft or Google or Visa or MasterCard or Republic Services, Republic Services, we talked about Bill Gates' largest position outside of tech, Republic Services, garbage company”
How the episode opens
Good morning. This is Dylan Jovine with Behind the Markets. Happy Monday.
Today is Monday, September 7th. I was talking to a buddy of mine this weekend who owns a very large business. He's an entrepreneur.
And we were talking about investing. And I was really amazed. I've always been amazed at how bad entrepreneurs are as investors.
Now, when I started working on Wall Street, they used to say doctors were bad, dentists were bad, engineers were bad, lawyers were bad investors. But I think out of all of them, entrepreneurs have been the worst investors that I've observed in my life. And that's very odd to me because basically me being an entrepreneur has made me such a better investor.
And being an investor has made me such a better entrepreneur. It's really kind of parallel. But you know, when I started on Wall Street, they used to say there was an old saying, "Doctors are the worst kinds of investors.
A, they're overconfident. And B, you know, they're trained by training to fight for the outcome until the very end, which is great when you're dealing with patients. Not good if you need to cut losses and get out of a position.
They used to say dentists were bad because isolation and echo chamber. They don't have that kind of a circular area where they can bounce ideas around. They used to say engineers were bad because they tend to overanalyze things, analysis paralysis.
They feel lawyers were bad investors, confirmation bias. When a stock drops, they tend to defend it. And because they're so smart, they think everybody else is wrong except them.
But in my view, so basically what everybody on Wall Street said is that everybody's a bad investor because these aren't career types.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- entrepreneurial investing mistakes
- free cash flow valuation
- income statement analysis
- balance sheet risk
- long-term cash flow growth
Companies and tickers mentioned
- GOOGL
- GOOG
- MSFT
- V
- MA
- RSG
- Alphabet
- Microsoft
- Visa
- Mastercard
- Republic Services
Watch the episode
Watch “Why Entrepreneurs Are the Worst Investors I've Watched in 35 Years” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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