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b'Episode 14 is easily one of our most interesting so far. While there\\u2019s great content about trend following, Eric and Meb also delve into the psychological side of investing. There\\u2019s a fascinating tension between what people say they want from investing, versus what they actually do. For instance, investors say that want diversification, but very few, in practice, are willing to implement a truly diversified portfolio. Why? The psychological trauma that people experience when they diversify (and watch parts of their portfolio draw down) is simply too painful. This leads into a discussion about one of Eric and Meb\\u2019s favorite ways to diversify a portfolio: managed futures. The numbers suggest managed futures are a fantastic addition to a portfolio. Eric ran an experiment with his clients involving portfolio construction. He presented clients the returns and volatility numbers of a handful of asset classes \\u2013 without revealing what those asset classes were. 100% of the time, when presented blind, people chose managed futures as their core holding. Eric and Meb then move on to the returns of great fund managers like Buffett and Soros. Eric studied these managers with the thesis that they must have done something other investors are uncomfortable doing (which is the source of their long-term alpha). He concludes that this differentiator is actually \\u201cunderperforming their benchmark.\\u201d Eric says Berkshire Hathaway is a \\u201cglaring\\u201d example. An investor in Berkshire would have underperformed the S&P more than half the time (over various time-periods), but would have made tremendously more money than investing in the S&P. This leads Eric and Meb back to the psychological side of investing, specifically, the pain of relative performance. Meb recalls the Buffett or Munger idea that it\\u2019s not greed and fear that drives the investment world; it\\u2019s envy. Meb then turns the focus toward playing defense, which leads Eric to tell us how few people realize the impact on their returns of avoiding drawdowns. Avoiding the big losers has more impact on your compounded returns than catching the big winners. In other words, defense is what wins championships. There\\u2019s far more: how 80% of all stocks effectively return 0%, while just 20% of stocks account for all market gains\\u2026 a pointed warning from Meb to listeners about the fees associated with managed future \\u201cfund of funds\\u201d\\u2026 and of course, plenty more on Eric\\u2019s trend following approach. All of this and more in Episode #14.\\nLearn more about your ad choices. Visit megaphone.fm/adchoices'