The Library of Mistakes with Russell Napier, Ep #48

If there was ever an industry where history repeats itself, finance is at the top of the list. Russell Napier has worked in investing for over 30 years. He’s written exceptional books, including “The Anatomy of the Bear” and “The Asian Financial Crisis.” He’s the Founder and Course Director for the Practical History of Financial Markets, an online course at the Edinburgh Business School. 

In 2014, he founded the charitable venture, “The Library of Mistakes,” a business and financial history library based in Scotland with branches in India and Switzerland. They recently threw their “Mistake of the Year Awards.” Listen to our conversation to learn from the mistakes that were made so that history doesn’t have to repeat itself. 

You will want to hear this episode if you are interested in...

Learn more about the Library of Mistakes [1:57] 4
The Mistake of the Year Awards nominations [8:42]
How quickly money can be lost [11:05] 
European governments backing pensions [13:09] 
The rapid decline of Farfetch [15:49] 
3rd Place: Credit Suisse [19:33] 
2nd Place: FTX [25:46] 
1st place: The Silicon Valley Bank [32:33] 
The lessons learned from great mistakes [42:45] 

What is the Library of Mistakes?

Russell came to financial markets as a lawyer. He took courses but didn’t feel like they taught him much about what he was witnessing in the markets. He felt that reading financial history was the fastest way to overcome the learning curve. It’s often easier to learn from past mistakes. “The Library of Mistakes” is a business and financial history library full of books that modern investors can learn from (dating back to the 17th century). They recently threw some awards to highlight—and learn from—some of the biggest mistakes in recent years.

3rd Place: The downfall of Credit Suisse

Many banks aren’t content with being a local bank. They desire to grow so they can’t be taken over. The Swiss wanted to be a big player, so they put money on the line to play ball in the US Capital Market. They acquired service companies and overpaid for most—if not all—of them. They had depositors and a large wealth management business. The funds began to depart. It threatened the valuation of the bank. The second biggest bank in Switzerland was lost in a weekend and disappeared. Could this have been anticipated? 

2nd Place: The Bankruptcy of FTX 

FTX raised $2 billion from investors, i.e. the “smartest” guys in the room. But they had no control over the investment and no oversight. Instead, they relied on the “geniuses” in the company. Without oversight, something going wrong was inevitable. The CEO was funding a different business with deposits. When depositors quickly started to withdraw funds, the missing money quickly became apparent and the company folded. This should have been prevented. 

1st place: The Silicon Valley Bank

The Silicon Valley Bank held a portfolio that was overly concentrated in long-term government bonds. In the summer of 2020, the yield on government bonds was at 5,000-year low. They lost 15 billion dollars. 85% of the deposit base wasn’t guaranteed. 

A bank has assets and liabilities. When your liabilities are worth more than your assets, it’s negative equity. If your asset price falls dramatically, people will notice. A bank without capital means a higher risk of your deposits being frozen. Numbers are declared to the stock market quarterly. Everyone saw how much the bank was losing on government bonds. 

Panic was spread via social media, which was part of the reason why the bank collapsed. More and more people attempted to withdraw their money until there was nothing left. Unfortunately, many of the accounts weren’t FDIC-insured. 

What can we learn from these great mistakes? How can we make things better? Listen to hear Russell’s professional opinion. 

Russell Napier is not affiliated with or endorsed by LPL Financial or Capital Investment Advisers.

Securities and Advisory services offered through LPL Financial. A registered investment advisor. Member FINRA & SIPC.

The financial professionals associated with LPL Financial may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state. 

Resources & People Mentioned

The Mistake of the Year Award: https://www.youtube.com/watch?v=Tkisy3P-kxA&t=1716s
The Library of Mistakes: https://www.libraryofmistakes.com/
The Library of Mistakes Podcasts: https://www.libraryofmistakes.com/podcasts/
The Psychopath Test: https://www.amazon.com/Psychopath-Test-Journey-Through-Industry/dp/1594485755

Connect With Russell Napier

Connect on LinkedIn: https://www.linkedin.com/in/russell-napier-81292846/
The Solid Ground Newsletter: https://russellnapier.co.uk/

Connect with Emerson Fersch

Capital Investment Advisers:
http://www.ciadvisers.com/

On LinkedIn: https://www.linkedin.com/in/emerson-fersch-50128b21

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