Invest Like... A Murderer?

What Warren Buffett Has in Common With Criminals

Written by Jimmy Mengel
Posted July 13, 2014 at 8:00PM

I have a bizarre quiz for you Outsiders to take today. I'm going to give you a quote, and you have to guess who said it. Was it A) Warren Buffett or B) A convicted felon serving time for murder?

You'd think it'd be pretty cut-and-dried. How in the world would a convicted murderer who grew up in homeless shelters and never made it past grade school sound anything like the most respected investor in the world? Well, after the quiz, I'll bet you'll think differently not only about convicts, but about Warren Buffett and investing in general.

So let's get down to it...

Quote #1

Psychology runs 70% of the markets”

Quote #2

Investors play follow-the-leader — if they didn’t, we wouldn’t have the 1%.”

Quote #3

I go where the money goes—it’s always been that way.”

And now, drumroll please...

I hate to do this to you, but it was a trick quiz. All of the quotes were from convicted murderer Curtis Carroll, aka 'The Oracle of San Quentin'.

He is making the most of his 54-years to life sentence at the famed San Quentin prison in California. Carroll is currently running finance and investing workshops for his fellow inmates. And he's made quite a name for himself doing so.

Carroll was charged with murder as a teenager after an armed robbery went awry, leaving his victim dead of a gunshot wound. He landed at San Quentin in 2012 to serve the remainder of his time. When he arrived, he began to read the Wall Street Journal and various books about investing to pass the time. As he grew more comfortable trading stocks, he started sharing what he learned with the other inmates, and before he knew it, he had dozens of 'students' in his classes, eager to learn how to secure their finances and make money without falling back into a life of crime.

Marketwatch just did a really interesting profile on him, and it really got me thinking about the different classes of investors. Carroll's advice and recommendations are the same basic principals that billionaire investors use. It's also the same advice that mom-and-pop investors like you and me can use to protect and grow our assets. That's why the above quotes were so funny to me; they could have come straight from the mouth of Warren Buffett himself.

When Carroll says “Psychology runs 70% of the markets”, it's the same as Buffett claiming “Be fearful when others are greedy and greedy only when others are fearful". When Carroll tells a room of prisoners that "I go where the money is", it isn't far off from Buffett telling a room of shareholders "Rule No. 1: never lose money; rule No. 2: don’t forget rule No. 1."

Though when the two talk about “blood in the streets” it probably carries a bit different connotation.

But I digress...

In essence, what I'm saying is anyone can succeed if they just stick to a few basic principles. You don't have to be a billionaire genius — and you certainly don't have to be a convict. You can be anyone, at any income level and still do well in the stock market.

That's why Carroll's approach is so attractive, according to Troy Williams — a fellow prisoner. He told Marketwatch that “most books about investing are 'geared towards people with money,' but Carroll 'has strategies for everyday, common people.'"

That's my philosophy too; because the fact is, successful investing really isn't that hard...

So what are the investing rules Buffett and Carroll can agree on? Let's take a peek at a stock screener Carroll gives his fellow inmates. It holds some great insight.

Rule #1: How Long Has the Company Been in Business?

A crucial consideration for longer-term investors. You'd be shocked at how many people I see pumping money into companies that have only been around a couple months, and are much better at writing press releases than they are — you know — at actually making money.

Buffett is in complete agreement with the Oracle of San Quentin. "Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years."

Rule #2 What Does the Company Sell?

Or as Warren Buffett would say, “Never invest in a business you can’t understand.”

You'd be surprised at some of the 'hot stock tips' I get sometimes. I'll be subjected to an entire pitch about why this stock is going to the moon. But after the hysterics stop, I'll ask: Well what do they do?

If it takes more than a minute to get an answer, I'm usually not interested. I like investing in things I understand, and — at best — products I'd actually use. I know it sounds like “eat your peas” kind of advice, but it is more valuable than a hundred “hot stock tips” from your taxi driver.

Rule 3: Who are the Company's Competitors?

This is something every investor simply has to look at before loading up on shares of any company. Is there another company out there within striking distance to overtake their market share? Is someone else going to creep up and eat their lunch?

Buffett has consistently bought shares in companies that lead their respective industries: Coca-Cola, DOW Chemical, Bank of America, and countless others. While these companies have experienced their ups and downs, they have always led the market in the product that they excel at whether it be cola, chemicals, or banking.

“Buy companies with strong histories of profitability and with a dominant business franchise,” Buffett says.

You may not get rich overnight, but you can rarely go wrong with this kind of tried-and-true solid advice. Nobody went broke investing in Coke.

A quick story about learning from prisoners...

Before starting at Outsider Club, I used to run a creative writing workshop at the Baltimore City Women's Detention Center. Each week I was checked through security and escorted to a large room of about 40 female inmates who were being held until they could be charged or transferred to prison to serve their sentences.

On the first day, they lethargically came down off of their bunk beds and cots to gather around — I assumed most were just happy for a break between lunch and the sole hour of outdoor activity they were allowed for the day. But even the very first day, I could tell that many of my prejudices and misconceptions had to be tossed right out of those barred windows...

After some awkward introductions, the women became immediately engaged in telling their stories — many of which were stranger than the fiction I was there to facilitate. Many cried out that they didn't finish high school, and could barely read. They didn't know how to write a story. They didn't know what they were supposed to write about. They didn't know where to set their story.

Really, the problem was they just didn't know how to get started...

 

But after going over some basic principles — plot, characters, setting — these prisoners wrote some stories that were better than ones I'd read in college writing courses. I was astounded by the insight and profundity of their tales. And all it took was some simple guidelines and the confidence that they could do it.

These are simple topics that everyone can understand, but simply discussing them out loud and putting these rules into practice can be a truly life changing experience.

The same can be said of “The Oracle of San Quentin” and your own portfolios. While his advice may seem easy and obvious, the simple fact is that most people do not adhere to the rules. We get blinded by greed, overwhelmed by the process and flat out cynical of “the game” — just like these convicts that landed themselves in lockdown.

But you don't have to keep your finances on lockdown. You are free to let them thrive and grow based on a few simple principals.

Like Buffett says: "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ."

Stories like this prove it. So get to work. Write your own investing story... one with a happy ending.

Godspeed,
jimmy-mengel-signature-fixed

Jimmy Mengel

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Jimmy is a managing editor for Outsider Club and the investment director of the personal finance advisory, The Crow's Nest, and cannabis stocks advisory, The Marijuana Manifesto. For more on Jimmy, check out his editor's page.

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