Small Bets: Lifeguarding Advice

Marc Cohodes is a short seller. Cohodes is candid. He’s active on Twitter (@AlderLaneEggs) and even creates websites for whistleblowers to report fraud at companies he suspects. He’ll swear in interviews. He’s a reckless guy.

Except he’s not. To short a stock, Cohodes borrows a share at one price with a promise to repay at a later date. In theory his downside is infinite while his upside is capped - at zero. Though brash, he’s cautious and Cohodes said that he uses the lifeguarding motto he was taught as a way to think about how he invests. Lifeguards are taught to Reach, Throw, Row, Go.

Though it makes for good television, running into the surf, diving into a pool, or swimming through the water is the path of last resort.

Caution saves lives. The Red Cross has even adapted the rhyme to instruct most people; Reach or Throw, don’t Go. The point is to nibble new ideas, not gulp them down.

Charlie Munger is an investor, but not a short seller like Cohodes. Munger has worked with Warren Buffett for four decades. Buffett said that Munger has the best brains in the business. Reflecting on his early investing career, Munger told a group of University of Michigan students, “I was not a courageous, adventuresome admirable man. I was a cautious little squirrel.”

There are many ways to take big swings but those are often the moments that expose us most. Sam Walton took calculated risks by getting cheap rents and copying best practices. His weird ideas were small things, like introducing Walmart shoppers to flip flops or buying an ice cream cart to use for promotions.

It’s not big swings that change our course but new ideas. As they say, a change in POV is worth 40IQ.