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So the two frameworks, number one is iPhone and mainframe.
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So if you think about our conscious mind, it has a processor a lot of sensors our eyes, you know, C here, etcetera That's and it has a processor of iPhone and it has a very limited storage.
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And then you think about a subconscious mind.
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It's a mainframe it's IBM mainframe.
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Uh, It has a huge processing and enormous storage.
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However, that storage is not accessible to us in real time.
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And, um, and when we, uh, when we do something creative, this is when this is what creates connection between conscious mind and subconscious mind.
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Hi, I'm Jim O'Shaughnessy and welcome to Infinite Loops.
0:49
Sometimes we get caught up in what feel like infinite loops when trying to figure things out.
0:54
Markets go up and down, research is presented and then refuted, and we find ourselves right back where we started.
1:00
The goal of this podcast is to learn how we can reset our thinking on issues that hopefully leaves us with a better understanding as to why we think the way we think and how we might be able to change that to avoid going in infinite loops of thought.
1:19
We hope to offer our listeners a fresh perspective on a variety of issues and look at them through a multifaceted lens — including history, philosophy, art, science, linguistics, and yes, also through quantitative analysis.
1:31
And through these discussions help you not only become a better investor, but also become a more nuanced thinker.
1:38
With each episode we hope to bring you along with us as we learn together.
1:44
Thanks for joining us, now please enjoy this episode of Infinite Loops.
1:51
Disclaimer: Jim O'Shaughnessy is chairman and Co-Chief Investment Officer of O'Shaughnessy Asset Management, where Jamie Catherwood is an associate.
2:01
All opinions expressed by Jim, Jamie and podcast guests are solely their own opinions and do not reflect the opinions of O'Shaughnessy Asset Management.
2:06
This podcast is for informational purposes only, and should not be relied upon as a basis for investment decisions.
2:17
Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.
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Jim O'Shaughnessy: Well, hello everyone.
2:24
It's Jim O'Shaughnessy with yet another Infinite Loops. How many, who knows?
2:30
Maybe we'll get to a thousand.
2:30
Maybe I'll just decide that I'm bored with it and stop doing it altogether.
2:36
Now I would never do that, because it gives me the opportunity to talk to some of the smartest people in some of the most interesting fields.
2:41
And today I have one of those people with me.
2:46
I am absolutely delighted to welcome Vitaliy Katsenelson, who is like...
2:55
Vitaliy, I think in an alternate universe, we may actually be brothers because...
3:04
So you're a value investor.
3:04
I played both sides of that, because momentum and I do the empirical research.
3:10
You're the CEO of IMA, which is a manager.
3:10
What we're going to talk mostly about is your book, Soul in the Game, which you very thoughtfully sent me and which I read and loved, but also just like, we share so many of the same passions, classical music, travel, art, the Stoicism, oh my God. Welcome. And this'll be fun.
3:31
Vitaliy Katsenelson: Jim, it's such a pleasure.
3:36
And I'll tell you, I really get to know you a lot more.
3:36
And I feel like I know you now through Twitter and I feel like you are, there are certain observations I have about you there.
3:45
Number one, you are like the statesman.
3:45
You are the person who sets the tone for Twitter.
3:51
This is how you should behave on Twitter. Okay. That's number one.
3:51
Number two, I don't think I've seen anybody do memes as well as you do.
3:55
You're the king of memes.
4:02
But aside from that, I think just, you are so right.
4:02
You and I have so much in common and a lot of times...
4:07
And I learn a lot you just...
4:07
If somebody doesn't follow you on Twitter, which is unlikely, if they listen to your podcast, they should.
4:11
Because if I only had to follow one person, I would be following you on Twitter.
4:16
Jim O'Shaughnessy: Oh, I'm very flattered. Thank you.
4:18
And I am susceptible to flattery so...
4:18
Well, this is going to be just so much fun.
4:23
I told you before we start recording, that my wife often asked me who I'm having on.
4:28
And she goes, "Oh, the guy who wrote Soul in the Game, right?" I went, "Yeah."
4:33
And she goes, "You're just going to have a intuitive, fun conversation with him."
4:33
And I think that's exactly what we're going to do.
4:38
But for people who might not have read the book and might not know your background, you were born in Russia, you made it to America.
4:44
And I want to start there. I want to jump in there.
4:52
Vitaliy Katsenelson: Sure.
4:54
Jim O'Shaughnessy: Because it's such an interesting story.
4:54
And I'd like you to also concentrate on something that I picked up from the book, which was when your aunt moved to America- Vitaliy Katsenelson: Yeah.
5:04
Jim O'Shaughnessy: Prior to you.
5:04
You initially kind of labeled her a traitor, a spy.
5:08
Vitaliy Katsenelson: Yes.
5:10
Jim O'Shaughnessy: And then there was a transformation, but I'm going to leave it to you because you tell the story so much better.
5:14
Vitaliy Katsenelson: Yeah.
5:16
So it's very important to understand.
5:16
So I was growing up in this Soviet Union, kind of a Soviet Russia.
5:22
And I cannot, now looking back, it's amazing how brainwashed I was.
5:29
It's just incredibly, in fact, what I realized how important movies are as a medium of brainwash.
5:29
I remember there was a movie in 19, maybe mid 1980s, where a guy leaves for United States and he's treated like...
5:45
This is the worst person in the world.
5:45
I remember in this movie, you can't do anything worse than that.
5:51
And so this thing's little by little shape you and also when I was, I don't know, 10, 12 years old, they would take us to movie theaters and they would show us these documentaries, which would basically portray Americans as this people without a soul, that only care about money, lynch black people and poisoned everybody with hamburgers and French fries.
6:18
And of course the hamburger story is completely true and French fries.
6:24
And so, my father has two younger sisters.
6:24
The youngest one lived in Moscow and we lived in the Murmansk. So it's far away.
6:31
So I would come to Moscow once or twice a year to see my grandparents.
6:35
And I remember, so I was born in 1973.
6:35
I remember sometime in late 1970s, for some reason my aunt disappeared and my cousins, and a six or seven year old, you kind of don't think about it.
6:48
But then at some point you ask question, where are they?
6:48
And my parents said, "Well, she moved to Siberia.
6:53
They couldn't find a job here.
6:53
They moved to Siberia and it's very far away, that's why we don't see them."
6:57
And as a young mind, you were like, okay, your parents tell this, that's true.
7:02
Fast forward to 1988 or 1989, the Berlin Wall already kind of broken down, maybe either coming down or already came down, I think.
7:11
And I just watched the movie, I just referred to, I just watched it maybe recently, it's still fresh in my head.
7:17
And my father tells me, "You know, we told you about your aunt who lives in Siberia?" I'm like, "Yeah."
7:22
She's like, "Well, she's not in Siberia. She's in United States."
7:26
And the first innate emotion, the reaction is, she's a traitor.
7:33
This is my aunt, my father's sister. I know her parents.
7:33
And that is the first thought that came to me.
7:39
And then my father said, "Well, listen, she lived in 1979." And what happened was...
7:44
And this is very typical story of Russian Jews at the time.
7:44
So you couldn't really leave Russia to go for United States.
7:51
There was impossibility, but the Russia would allow you to immigrate to Israel.
7:57
So a lot of Russians, what they would do, they would get in the plane.
8:03
And luckily there was no direct flight and maybe there was, but I don't think there was direct flight to Israel, but there were direct flights to a lot of European cities.
8:13
So what they would do, they would fly to Vienna or Rome, this is where most immigrants went and they would show up to American embassy and say, "Well, we were going to Israel, but really wanted to come to United States."
8:24
And I think there was some American legislature that made that very, very simple.
8:30
And she ended up in Brooklyn.
8:30
And like when you watch Moscow on the Hudson, that kind of describing your life.
8:38
And what was interesting about this, I just mentioned Moscow on the Hudson.
8:44
I remember when I watched Moscow on the Hudson for the first time.
8:44
And I want you to picture this, imagine a huge apartment building, huge, that has maybe, I don't know, hundreds maybe thousands of apartments.
8:55
And then in the basement, it has a very large space.
8:59
And what people would do, this is like 1980s, now late eighties, they would basically take VCR and connect, maybe several TVs to it.
9:05
And they would play American movies dubbed into Russian.
9:12
And this became our cinema.
9:12
So if you wanted to watch new American movies, if you wanted to watch Rambo, if you wanted to watch whatever Schwarzenegger and Stallone were huge then, or if you wanted to watch Moscow on the Hudson, that's where you would watch it because they would not show it in the movie theater.
9:28
And of course, every single voice there was, the same person played all the parts. It didn't matter.
9:32
And the quality was horrible and everything, but these kind of underground movie theaters changed our perception of what America was.
9:44
Now, this is very interesting. What you don't realize.
9:50
Most American movies are kind of shot on the coasts, either New York or Hollywood or Los Angeles, somewhere there.
9:54
So what was my perception of America?
9:54
Skyscrapers or Palm trees.
10:03
And then so, this is 1991. My aunt invites us.
10:03
So this point I'm already embraced America.
10:11
And my family is coming to America.
10:11
And our trip actually was a, you know most immigrant story has this drama?
10:18
Our story has the opposite of version of this because when we flew from Frankfurt to New York, I think Pan Am, there was a Pan Am flight.
10:24
They oversold economy class.
10:24
So flew first class- Jim O'Shaughnessy: I love it.
10:34
Vitaliy Katsenelson: To reach the United States, but anyway, you arrive to Denver and I have this incredible shock.
10:36
First number one, we just came from Moscow, and in Moscow it was incredibly cold. It's like insanely cold.
10:48
We land in Denver in December 3rd or 4th, whatever.
10:48
And it's 70 something degrees, everybody's wearing shorts, which is a shock because that's [inaudible] But, I look around and this is kind of average, typical America.
10:59
Very little, very few skyscrapers, maybe in downtown, which you don't see at first, just a lot of filet buildings.
11:05
There's a lot of three, four story buildings.
11:09
And that was a shock too.
11:09
So anyways, so that's my coming to America story a little bit.
11:16
Jim O'Shaughnessy: I love this story for so many reasons.
11:19
And one of the big reasons is the idea that you and I think a lot about, and that is this idea of social programming and very few people being aware of how programmed they are.
11:27
It doesn't have to be a totalitarian USSR, it's any culture and some do it intentionally.
11:36
And usually there's ways to figure out when that's going to be filter failure for them.
11:43
And you mentioned it, the underground movies were presenting a very different version of America.
11:49
And so the idea that you can also reprogram your conditioning, I think is something that we both would probably assign a truth to. Yeah?
12:02
Vitaliy Katsenelson: Oh my God. That's...
12:04
Almost we are jumping 20, 50 chapters into the book, but I've been thinking so much about it lately.
12:13
In fact, in the volume two of the book, the stuff I'm working right now, that's all I'm writing about.
12:19
That's all I'm thinking about because...
12:24
So we have, let me give you the couple of frameworks, which actually not, I don't think they're in the book and if they are, I don't remember, they are.
12:28
So we have the conscious subconscious mind. Okay.
12:32
And I'll give you frame...
12:32
And by the way, it's kind of interesting.
12:38
I'm talking about conscious mind and subconscious mind as if I know what I'm talking about.
12:38
And brain is one of the most complex organs we have, and we know a lot about it, but still very little.
12:50
But one thing I realized if you asked me where my liver is, or my kidney is, I may be able to say somewhere behind the walls of my stomach, I kind of know what my mind does more or less. I can...
13:01
So this frameworks are not perfect, but I think they can help to explain how mind works and this is now... May come to this.
13:06
So the two frameworks, number one is iPhone and mainframe or AWS, if you like.
13:15
So if you think about our conscious mind, it has a processor, a lot of sensors, our eyes, et cetera.
13:22
And it has a processor of iPhone and it has a very limited storage.
13:27
And then you think about a subconscious mind.
13:27
It's AWS, it's a mainframe, it's IBM mainframe that has enormous amount of storage.
13:31
It has a huge processing and enormous storage.
13:36
However, so that storage is not accessible to us in real time.
13:36
And when we do something creative, this is what's create connection between conscious mind and subconscious mind.
13:47
You are right and you know this.
13:57
You sit down to write something and you have a kind of a gist of an idea.
14:02
And then when you finished it and you read what you wrote, it's almost like you read it for the first time.
14:09
It's almost like you did not write it because that came from this dance between conscious mind and subconscious mind. Okay?
14:14
And also when we do something, and this is very important, when we do something many times, the example would be when you drive a car.
14:27
Your kids are a little bit older than mine, but I'm right now, yesterday my 16 year old daughter was driving a car with me for their second time.
14:32
And I'll tell you, we are driving on the road.
14:38
And if she wants to change the volume of the music, suddenly the car goes left or right. Jim O'Shaughnessy: Yeah. Right.
14:45
Vitaliy Katsenelson: Because what's happening, everything is happening in her conscious mind.
14:48
And she's trying to think about what the wheels on, where the hands are on the wheel, all these different things that you and I take for granted, because what happened, in the beginning it was happening in the conscious mind.
14:58
Then it became a routine and conscious mind, basically uploaded or downloaded, whatever you want to look at it, to subconscious mind.
15:09
So now when you are driving to work and at times you don't even know how you got to work because you were day dreaming and subconscious mind basically was taking care of this.
15:19
So this is very important because there are so many implications there.
15:23
But let me, okay, so let me go to the second framework.
15:23
The second framework, and this one is more important to where we're going.
15:28
It's a captain and you have a cruise ship or whatever ship and you have a captain and you have an engine room.
15:34
Our conscious mind is a captain.
15:40
Our conscious mind has judgment, captain has a judgment.
15:40
The engine room, all it does, it keeps the ship going.
15:47
It doesn't know where it's going.
15:47
It gets instructions from the captain now.
15:47
So why is this important?
15:53
Because our subconscious mind does not understand sarcasm.
15:53
So when I say, "Oh, I'm an idiot."
16:03
You basically sending instructions to your subconscious mind, you're an idiot.
16:03
And so we get to, through our conscious mind, through our conscious actions, I would argue and this is very, very important.
16:17
We get to reprogram our subconscious mind.
16:17
And so whenever you have an innate response to something, usually that comes from a subconscious mind, whenever you take a breath and tweak your response, the subconscious mind kicked in, and then...
16:30
The reason this is important, I have this story.
16:38
I have two friends, one is Matt and he lives in Seattle and I call him the Jesus of Seattle.
16:45
And I have another one, Darren. He lives in Denver.
16:48
I call him the Moses of Denver for geographic religious reasons.
16:54
And Jim, they are the nicest people I ever met.
16:54
I never heard a single negative word from them, either one of them and they're my heroes when it comes to being kind.
17:02
And when I say a negative word about, I was talking to Darren, and I'm asking him about this person he works with, I know how I would've responded, but Darren phrased it like you know what?
17:17
He responded in a very neutral way. Why is this important?
17:17
I don't know how Matt and Darren got programmed, but this in their innate subconscious programming is automatically being kind.
17:30
And what I would argue is that the words you use program you.
17:30
Over time you become what you say. Okay?
17:37
So I have this goal in my life and this is real.
17:37
I want to become kind, but I want to be innately kind. I want to be like them.
17:44
And to do this, I need to constantly be kind all the time.
17:52
And this means, is that, when I'm eating dinner at eight o'clock in the evening, and I get a call from a telemarketer, I am as kind to this person as if it was my father.
18:07
Because if I do this enough, then it's going to take very little effort for me to be kind to everybody all the time. So that is... to get to your point.
18:12
I think we have this incredible ability to program ourselves, to reprogram our behavior, once we notice we are doing something that we don't want, something we don't like, we can reprogram that, it just takes a lot of time and effort.
18:34
So anyway, that's- Jim O'Shaughnessy: Yeah, so much to talk about there.
18:37
We are very simpatico, just listening to you I was smiling, as you could see.
18:45
So I did the piece called the thinker and the prover.
18:45
I don't know if you've looked at that.
18:50
I should send it to you because when you look at it, you're going to go, oh my God, this is what I'm talking about.
18:53
Vitaliy Katsenelson: I haven't but I would love to see it, please.
18:56
Jim O'Shaughnessy: I'll send it to you.
18:57
And it is very much a thread to teach people how to do what you've just said.
18:57
I have been obsessed with the so-called unconscious subconscious mind since I was a teenager.
19:05
Back in the seventies, there were a lot of programs that were mostly bullshit, to be honest, but based on some concepts like the one you just outlined that were very, very interesting to me.
19:24
And so I start, I'm huge on self-experimentation.
19:24
So it's got to be like, I've got to do it myself first to see if there's any value there.
19:30
And so there is a tremendous amount of value in what you've just said.
19:36
And the problem, when you read my thinker prover, you're going to see that the thinker can imagine, as you've said, the thinker can imagine that they're going to be kind and they'll get kindness in return.
19:47
If they really believe that, their prover takes over, that would be the unconscious.
19:52
And the prover is like, "Okay, you're kind, I'm going to prove to you that you are kind. And I'm going to..."
19:57
All of a sudden, you are going to, if you wanted to be reductionist and materialistic about this, you could say, all you've done is engaged your reticular activating system.
20:08
When you buy a car and you think it's unique and then all of a sudden you see that same car everywhere.
20:16
Vitaliy Katsenelson: Everywhere, yeah, yep. Jim O'Shaughnessy: Yeah.
20:17
It's because your perception filters controlled mostly by the subconscious, right?
20:18
"Oh, my owner here has decided he likes that green Fiat.
20:27
I'm going to show him all of the green Fiats, because I want him to know what a good decision he's made."
20:33
And so the prover can prove anything you want it to prove.
20:39
And this is the part where so many people just say, "Oh, that's bullshit."
20:45
I got to tell you, 40 years of experimenting with this stuff.
20:45
I know n equals one, but it works.
20:52
And so I love your idea about, "Okay, I'm going to program myself to be kind."
20:58
Vitaliy Katsenelson: Can I give me one example, just something happened to me.
21:00
So I was working on this.
21:00
I have a real data point again, N01, just like yours, but this has happened. This happened to me.
21:04
So I work out twice a week and I found that I have a willpower to give things up.
21:08
I quit smoking, but I have very little willpower to actually do things.
21:17
By the way, me saying this, I should not have been saying what I'm saying, because my subconscious can hear this, which I hate.
21:22
Okay, but now, and for a long time, I was telling people... So I have a trainer.
21:29
So, twice a week, I work out with a trainer and I've been doing it for four years.
21:35
I have an appointment on my calendar, unbreakable, unless I'm traveling or something, it has to be huge emergency.
21:43
And I've been like, this worked for me.
21:43
Now, I've been telling people for a long time, how much I hate working out, but I'm working out because I have a trainer.
21:48
And then I realized I'm basically programming myself to keep working out. Jim O'Shaughnessy: Yep.
21:58
Vitaliy Katsenelson: And so I realized I need to change the language.
22:00
So this happened three weeks ago, I think.
22:00
I started to play with this.
22:05
And the trainer, we've been working out for so long, he became a good friend of mine.
22:10
So I come to work out and I say, how much I love working out.
22:14
And I go over the top and it's just completely... He gives me some weight. I'm like, "This is all? I can do so much more."
22:20
Long story short, that workout, I set old personal records that were 40% more than before.
22:26
I didn't become stronger.
22:32
But I think what happened, I suppressed.
22:32
I just basically suppressed my strength.
22:32
So I'd say, and I tell you now, whenever I talk about... This is the problem.
22:38
I got to be very careful when I say, because they can hear me, but now I become very, very careful what I say.
22:44
And now when I work out, I tell myself, I love working out.
22:51
I'm looking forward to it. And you know what?
22:51
I'm not sure how much of it, I believe it yet.
22:57
But at some point I will and it's going to be just...
22:57
I can't wait to come to the gym.
23:03
Anyway, so my that's my N01.
23:03
Jim O'Shaughnessy: So when I post the picture of our conversation, I usually post a picture of you and talk about what we talked about.
23:12
In this case though, we are so tuned into each other, that the minute you start saying that to me, I also have a thread on how to make anything a habit.
23:24
And by the way, the answer is exactly what you're doing.
23:24
And I tried it on myself, of course, because I like you, hated working out and reprogrammed myself in 15 days.
23:35
And here, with me though, I didn't even notice.
23:35
My wife and I were away at an engagement, an early dinner because it was with family and I have grandkids.
23:42
So I hadn't exercised that day.
23:48
And without thinking about, this is what's key.
23:48
I just went up to my bedroom, put on my workout gear and started heading down to our lower level, where our gym is.
23:55
And my wife looks at me and she goes, "What are you doing?"
24:01
And I'm like, "I haven't worked out today."
24:01
And she's like, "But that's not you.
24:06
You would use this as an excuse to say, oh God, it's too late or whatever."
24:13
And so my aha moment, which I also cover in the thread was, holy shit I reprogrammed myself so much, I wasn't even aware of it. Right?
24:19
Vitaliy Katsenelson: Oh my god. Yeah, yeah, I love it.
24:21
Jim O'Shaughnessy: So I am just a huge believer in human operating system.
24:23
That's been what I've spent most of my life trying to understand, because no owner's manual man.
24:29
And you mentioned it earlier.
24:35
Vitaliy Katsenelson: Yeah.
24:35
Jim O'Shaughnessy: We're walking around with these quantum computers in our skulls and we don't have a user's manual and I tend to err on the side of practicality.
24:45
And so what am I going to reprogram myself to do?
24:45
I'm going to reprogram myself to do these positive things because there's many, many studies on willpower and it really dissipates very quickly.
24:58
And also the idea of the unconscious subconscious, obviously Jung was the master, I think of that.
25:07
But there's also studies that show that the unconscious portion of our brain consumes a ridiculous amount of the energy of the brain.
25:15
And we always use the best analogy or metaphor that everyone gets.
25:23
So when Plato was talking about it, he talked about the mind as Charioteers.
25:30
Because everybody knew what a charioteer was in the Athens of Plato.
25:30
And now the convenient one that we use, that you've used both, and it's convenient because everyone instantly understands what you're saying.
25:40
So the thing that people don't know so much that I have through research and through, luckily learning from super smart guests like yourself on this podcast, that the idea that our executive mind, the newest part of the human brain, which is the prefrontal cortex.
26:02
So I've always thought of it, like you mentioned the captain.
26:02
My friend, Rory Sutherland who's an Ad man in London.
26:05
And I think he's quoting someone else here, but he's like, "No, no, Jim," he goes, "Your conscious mind, that's the press office.
26:18
It's not the oval office".
26:18
Vitaliy Katsenelson: That's right. That's right. Yes. Yeah.
26:19
Jim O'Shaughnessy: And I would add that you've got to get the thoughts out of your head, onto paper, and there's a reason why.
26:29
When they're banging around in here, we can think, "Oh yeah, I know what I think about that, blah, blah, blah."
26:37
The minute you've got to write it out, you either discover, you do know what you think about that, or far more often, you find, "I have no fucking idea what that means.
26:49
I better do some homework."
26:49
Vitaliy Katsenelson: Yeah, because you don't see the logical connection.
26:51
The logical connections you think you know, once you put it down, you see, "Oh, there's logical links missing." Yeah, absolutely.
27:00
Can I add one thing, you said something.
27:00
I have this chapter called Abracadabra, and I think this relates to what you've said about thoughts.
27:08
And Abracadabra from Hebrew is, I create as I speak.
27:14
Jim O'Shaughnessy: I love that.
27:16
Vitaliy Katsenelson: And if you think about this, you have to be very careful when you get into an argument with someone, especially in a fresh topic for you, because your beliefs will be completely randomly shaped, a lot of times, based on the first thought that enters into your mind, and the position you took when you started to debate something.
27:39
Because what happens, this is very important, then it will become your identity.
27:46
And this is incredibly important, because we should be so careful when we curate what our identity is, because that is set in stone. That is who we are.
27:58
In fact, the process, me being kind, that is part of my identity, and that's what I'm shaping.
28:07
Because once it's there, the subconscious mind is getting control of that.
28:12
Now, we have to be in a science, and in the chapter, I talk about four modes of communications.
28:16
To be honest, that's probably one of the chapters that had the biggest impact on me, though I say this, and we'll talk about a different chapter and I'll say the same thing, so who knows?
28:24
But see, this is a chapter where, so basically let me talk about this a little bit.
28:30
You have four modes of communications.
28:30
There are three Ps, and they're all externals.
28:35
You have a politician, and a politician is basically, think about you going on a first date, and you basically, when you think about politicians, we think about politicians, they'll lie just for you to like them.
28:46
Well, we do this all the time.
28:46
When we go for a job interview, because we want to be liked, we want people...
28:53
So we tell people what they want to hear.
28:57
Then you have a preacher, somebody who just...
28:57
When I think of preacher, I think...
28:57
By the way, sometimes you want to think of these modes as being negative, and they are not, because we all spend some time with them.
29:08
So, preacher, I think about Steve Jobs and his reality distortion field, how successful that was.
29:14
I'm trying to add a positive connotation to that, though you also know the negatives, what the negatives are.
29:19
And then you have a prosecutor, which is like when somebody in the courtroom trying to get somebody to change their mind.
29:26
I would argue, we spend probably maybe too much time in the prosecutor mode. But here's the problem.
29:31
These modes, they have positive and negatives, but here's the thing, this one commonality they'll have, if you spend all your time in those modes, you're going to learn very little, because they are outward facing modes.
29:39
You're just trying to change somebody's mind, or influence other people.
29:45
And then you have a scientist mode, and this is the mode that you and I, and I'm sure you are already, but people like us should spend 80% of our time in, unless we- Jim O'Shaughnessy: Completely agree, completely agree. Vitaliy Katsenelson: ...
30:00
unless we date a lot, et cetera.
30:00
And in this mode, anything enters your mind is hypothesis, which you examine from different directions, and then for careful for examination, you're like, "Okay, this is what I think."
30:13
And by the way, if somebody else changes my mind, I'm fine to this.
30:18
And I tell you this, there's a funny story to this.
30:18
I wrote this chapter and my son, Jonah and I, who at the time was 20, it's a year ago.
30:27
We flew to Chicago to pick up my daughter from camp.
30:32
And so I gave him this chapter to read on the plane.
30:32
And we get to Chicago and we're walking in the streets and we're talking about something.
30:37
In the end it turns into debate, and he said, "Dad, are you in the scientist mode?"
30:43
And I tell you my first innate reaction was, "Of course I am."
30:50
And then I thought about it, I was like, "No." So you know what I did?
30:50
I gave this chapter to all my friends and all my employees here too while they read the book, because now when we have a debate, and this is a resource shop, this debate stocks, etcetera, all the time when we have some kind of discussion and you can feel we are slipping of the scientist mode, we remind each other, "Let's get back in the scientist mode."
31:17
And I found it to be very important.
31:17
So anyway, so I derailed you into different a direction.
31:22
Jim O'Shaughnessy: No, you didn't derail me at all because there's also a good book that I recommend by Adam Grant called How to Rethink.
31:29
Vitaliy Katsenelson: That's exactly right.
31:30
Jim O'Shaughnessy: He uses similar arguments in there.
31:31
So it absolutely is critical that you understand all of these roles.
31:39
And what I always say to people is, "Listen, I am just as likely to fall prey to these human OS bugs because I'm running human OS.
31:45
And maybe I've managed to reprogram mine a little bit better, but you can too."
31:53
And so I love that idea that you have a shorthand scientist mode that you can immediately go to because it conditions the way people think literally.
32:08
So I had a thing, a long thing that I wrote on the difference between beliefs and theories, thesis and hypothesis.
32:15
And I use the Karl Popper definition basically, is this thing I'm looking at falsifiable or not.
32:23
If it's not falsifiable, I put it in the belief category.
32:31
It's not that I'm opposed to beliefs, I'm not.
32:31
It's that I can't go into science mode on it if I can't falsify it.
32:38
And so there are a lot of things though, that come off as beliefs and opinions that are actually hypotheses and thesis and those you can test. And so I do.
32:57
One of my biggest aha moments, because when I was young, I was a real proselytizer.
32:57
I mean, I believed in the power of quantitative factor investing.
33:03
I was just, I wasn't hearing it.
33:12
If somebody told me that, "You're an artist and..."
33:12
And I was younger and I was filled with testosterone and the ego was way too big.
33:16
What I realized was that guy was wrong, not entirely wrong, you do have to spend some time in the proselytizer or preacher mode, but it's just, I had the great, good fortune of really failing badly with a startup called Netfolio.
33:40
And I just learned so much about how I was wrong, but where that leads you to, if you let it, is to the place you're talking about, which is kindness, open-mindedness, and realizing that you're probably wrong, are such power.
33:57
They're almost super powers, honestly, because you can talk about kindness as putting good karma out.
34:06
Whatever your reference set, that's fine.
34:13
And then I took it a step further and I'm like, " I bet I could test all of this."
34:18
And so Wittgenstein, I think said, "Don't look for meaning, look for use."
34:18
Meaning, is this useful or not?
34:25
And I always think of the Ptolemaic astronomy system that was completely wrong, completely wrong.
34:32
And yet, it was useful because they were able to navigate ships much more successfully using Ptolemy's astrophysics.
34:40
Well, then along comes all these folks like Copernicus and say, "This is totally wrong.
34:46
It's actually the sun that's the center of our solar system and not the earth."
34:52
And of course, all of the faithful [inaudible] and say, "It's heresy.
35:00
And progress happens one funeral at a time."
35:00
But the point is, I'm not making the point to say, "Oh, look at those idiots who followed Ptolemy." Not at all.
35:07
I'm saying, "He was wrong, but he gave the world an extraordinarily useful tool that allowed for our expansion, for our traveling, for everything."
35:25
And so even though, getting hooked up in meaning, gets to the other points you've made, which I have made like a religion of trying to avoid.
35:33
And that is, I'll die on this hill.
35:39
When something becomes part of your identity.
35:39
And if you read Influence, you know that that is one of the first hacks into human OS, is get them to state something publicly because then they will put it with their identity and they will become very protective of it. Not me.
35:59
I always answer on Twitter when they say, "I'll die on this hill."
35:59
And it's about, what type of ranch dressing is better. Yeah. Yeah. No.
36:05
And I always quote George C.
36:05
Scott, which is, "No, no, no, no, no, no.
36:12
What you want to do is make the other poor dumb bastard die on his hill."
36:20
Vitaliy Katsenelson: Oh my God. No, no. Jim O'Shaughnessy: Yeah.
36:24
Vitaliy Katsenelson: No, I was going to say just, this is why when I write investment, when I write articles about stocks, I'm so cognizant of that because I just put my theses out and then it's so you want to make sure it doesn't become your identity.
36:33
That I'm the guy who thinks this stock can only go up.
36:42
And what was amazing, and actually I really enjoyed it actually, surprisingly, when I wrote on both theses on the company, things changed and I wrote, "This is why I was wrong. This is what changed."
36:57
And actually received tremendous amount of intellectual satisfaction.
37:01
But I think this is not innate to us. We have to program it.
37:08
Jim O'Shaughnessy: Totally agree.
37:08
One of the things that I got in the habit of doing a long time ago was writing out...
37:11
So say, I believe, I don't.
37:11
Let's just take free speech.
37:16
I'm a free speech absolutist, that doesn't mean that I don't understand that there are situations like yelling, "Fire," in a crowded movie theater, that is not free speech. That is agitation.
37:29
That is, you're being a bad boy.
37:29
And so I understand those limits on free speech, but I also got in the habit of writing the opposing view up.
37:35
And I did that because A, I know that a lot of things I believe are probably wrong.
37:43
And so I at least should know what the other side of this is thinking.
37:49
Sometimes there's not a unified other, in fact, I find that a lot.
37:56
There's not a unified side on either thing.
37:56
I would say though, that like my friend, Chris Williamson says, "If I can infer all of your political beliefs by you telling me one of them, you are an ideologue who in my opinion is brain dead."
38:09
And so the importance of writing out the other side is A, you see all the holes in your own argument, which don't readily make themselves apparent to you, but B, it doesn't happen often, but sometimes I've written out the other side and I'm like, "They're right."
38:26
But it creates a straw man and I think the reason you, or a steel man, sorry, not a straw man.
38:33
And I think you got that intellectual satisfaction because that's what you were doing.
38:38
And the thing that I can't believe, but here we are, I am always willing to say, "I don't know."
38:44
Or like, "Jim, what's your opinion on crypto?" "I don't have one."
38:52
I have a little bit more of one now, I'm developing one, but I am not well informed enough to speak on that topic.
39:00
I have a lot of friends who are my generation and they're like, "You really ought to be talking about the dangers of..." Listen, okay. Yeah. They exist.
39:11
I articulated them in many thoughts and talks with people, but I don't know the flip side and the good use case side.
39:18
And so I'm just maintaining, we'll see.
39:27
One of my favorite authors, Robert Anton Wilson, who have not read his stuff, you would love his stuff.
39:33
And he was 50 years ahead of his time and he's quoting somebody else.
39:33
And I think I put it up on Twitter not too long ago.
39:38
It's, "Do not decide that you understand things too quickly, because you are probably wrong and you are murdering what could be a great idea in its infancy and entombing it."
39:51
Because again, that's the prover saying, "That's wrong.
39:51
I'm not going to even look into that any further."
39:56
And that's the other thing about your writing that I really enjoy and share is that you that's the way, at least unless I'm reading you wrong, that is the way that you think.
40:08
And kudos man, because A, it's not easy to do.
40:16
B, it becomes a little addictive when you start thinking that way and you start running everything through that, right?
40:22
Vitaliy Katsenelson: Yes.
40:23
It's interesting, one downside of that, it's horrible for marketing.
40:33
Because when you see people on CNBC and they talk about something without a single doubt in their mind, because they have this confidence just bleeding from...
40:39
In reality, if you've been investing for a long time, you realize things are a lot more complex, lot more nuanced.
40:46
In fact, one of my favorite words became nuance because- Jim O'Shaughnessy: Absolutely. Vitaliy Katsenelson: ...
40:56
because nuance basically says when [inaudible] things are complex and therefore yes, there is this side and there is another side.
41:04
So I tried to look at the world in a nuanced way.
41:13
And by the way, you told a story about your book.
41:13
I'll tell you this, let me tell you my story.
41:23
The book is 95% done or something.
41:23
And I sent it to a few friends of mine and some of them give me this very, very negative feedback.
41:30
It was really negative feedback.
41:30
One of them said, "You should not publish the book."
41:36
And another said, "Well, so I pick up the book and what do I do with that? Where does it take me?"
41:41
Here's the interesting part.
41:41
And this is meditation and it comes in a little bit.
41:47
I observe myself getting angry at them and I observe this negative reaction, but the good thing is I was observing this and I thought, "Okay, what if they're right?"
41:58
And then I started to think about what they said, that version of the book did not have an introductory chapter.
42:04
And the introductory chapter, which I wrote after that basically provided the map for the book, because guess what?
42:18
This book is not your traditional book.
42:18
And so, because the person picks up the book starts reading, some them jumping to somewhere else.
42:24
And so that feedback from my friends made the book a lot better.
42:30
And some other ones suggested I move the chapters around, this kind of thing.
42:36
And actually, and I ended up writing the breaking the fourth wall at the very end because of that.
42:40
But I think even our innate response is negative.
42:49
We should observe that, and identify that and then give it to yourself, a few minutes a day, whatever, and just come back and fix it. Jim O'Shaughnessy: Yeah.
42:57
So again, I honestly don't think we're going to find something where our thoughts are not similar, but so being dispassionate is something that you absolutely have to learn.
43:09
And being dispassionate and the ability to...
43:09
I often do this, I often think of myself as a character in a movie that I'm watching.
43:16
And then I think, "What am I going to actually say when he does and says this?"
43:24
And more times than not, I'm going to be like, "What a fucking idiot that guy is."
43:32
Vitaliy Katsenelson: You know what's the scariest thing? This is very instant.
43:35
I started to play chess over the last couple years and because of my daughter, but there was something very interesting.
43:42
So I started to watch a lot more chess videos.
43:45
And what I observed is this, when you play the game and then what often happens, actually, I've seen this happen at tournaments a lot.
43:57
Two people play the game, and then after this, this is a bit of chess.
44:01
They go back, somebody won, somebody lost or whatever, a draw.
44:06
They go back and study the game.
44:06
Both of them, the two opponents.
44:06
But then here is the very interesting trick.
44:12
They don't say, "You," or, "Me," they say, "Black," or, "White."
44:17
And what it does, it's basically, it's now, it's not about you or them. It's about the game.
44:23
And it's about white pieces and black pieces, because chess is a lot more, you can be completely in a scientist mode because it's math. So, yeah.
44:29
So that's like when you observe yourself as a character or they just basically depersonalize it and say, "Black," or, "White." Jim O'Shaughnessy: Yeah.
44:42
And if you do it enough, it just becomes an automatic thing that you do.
44:45
I find that what you really have to be is, if you have a very difficult time, your very doctrinaire in your beliefs, then none of this is going to work for you because you will just feed, like you said, your subconscious is listening when you say I'm an idiot.
45:04
And according to my thinker, prover thing, the prover is going to start proving to you that you are in fact an idiot.
45:10
Vitaliy Katsenelson: No, that's fine.
45:11
Jim O'Shaughnessy: And so thoughts become things, things become words, words become reality.
45:12
But when I was young, I did a little mathematical formula, which was silly, but the basic nature of it was, so there's energy of thought. This is outcome.
45:26
I'm trying to determine outcomes.
45:26
And I started math formulas on everything.
45:32
I still do it and I really shouldn't.
45:32
I create an algorithm for everything.
45:38
Maybe because I'm just lazy and the algorithms are so good. Anyway.
45:43
So energy of thought, times energy of action, times energy of random occurrences squared.
45:52
And if you think about that for a minute, two things come out immediately.
45:52
Number one, you can be the most brilliant thinker in the world, if all of that energy of thought number is a 100, but the energy of action is 0, 0 times a 100 equals 0.
46:07
So thus was that gave me the impetus to put everything out, put it on paper, say it, get people talking about it, because that's the way you bring it into the world.
46:24
I love the Abracadabra, I create as I speak.
46:29
I'm going to steal that from you for sure.
46:29
I will give you initial attribution, but then over time.
46:36
But the other thing that's really interesting about this is that when you push them out of your head, you A, understand, whether you understand or not, oftentimes you don't.
46:49
You B, understand, is this something I actually believe? Oftentimes you don't.
46:49
And what happens then is that gives the hook to maybe my mom and dad or my friends or society gave me this idea.
47:02
And so it's very, again, iterative and it allows you to clarify your thoughts.
47:08
and so I'm passionate about my belief that if you can't explain something in a simple, not simplistic.
47:16
People often hear simplistic.
47:16
Simple, straightforward manner.
47:23
And my hero in this is Feynman.
47:23
The physicist, Richard P Feynman.
47:23
This guy could do this better than anyone, him and Claude Shannon are gods and they would go on my Mount Olympus.
47:35
But it also bleeds over into what you're talking about.
47:35
You said, hang on emotional reaction, anger, because we're human beings.
47:44
If people say something that we've done is shit, we might take that personally.
47:50
And I get it, but if you're going to be long in our game, you have to have a very thick skin because hero, goat, hero, goat, hero, goat.
47:56
And so I'm absolutely fine with that, but I want to turn this into a question. Is that a rule? Because this is new. I like this.
48:13
Is that a rule that has changed other areas of your life or your behavior?
48:13
The standing back saying, " I would be angry, but I got to see why they've said..." Yeah. Tell me about that.
48:29
Vitaliy Katsenelson: Before I answer this, I actually I want to make one comment because there is a lot of gigs, investment gigs listening to you.
48:35
And I want to make one elaboration on what you just said before. And then I'll...
48:39
So when we do research here and we build financial models, a lot of times we start with what I call a table cloth model.
48:45
Everything you can have, we throw into this model in the spreadsheet.
48:50
But we don't buy the stock, unless we fold this model into what we call napkin model, something incredibly simple. And you know what?
48:56
Because at this point means we identified what really matters. See? Okay.
49:03
So now, so let me answer your question there.
49:10
That has a tremendous impact on me because there is this framework, event, judgment, reaction.
49:20
What I try to do is to... Event happens.
49:20
Jim O'Shaughnessy: You're going to say reframe, right?
49:25
Vitaliy Katsenelson: Yep.
49:27
No- Jim O'Shaughnessy: I think the ability to reframe is a superpower. Continue, please.
49:32
Vitaliy Katsenelson: No, absolutely.
49:34
I try to reframe and if it's a negative, I try to reframe into positive because a lot of times would we think are negative are really not negative.
49:39
It could be neutral or positive. Jim O'Shaughnessy: Yep.
49:45
Vitaliy Katsenelson: And then therefore your reaction is going to be different.
49:47
I remember you love my Aikido analogy and that's because the beauty of that is that it consumes so little energy, just reframing.
49:55
All you have to do is look at it differently and suddenly...
50:05
There's a story I tell in the book, which is not that exciting story, but we were driving through the park with my kids and my aunt and et cetera.
50:13
Jim O'Shaughnessy: Yeah, I remember this.
50:14
Vitaliy Katsenelson: We're driving my wife's minivan and I want to stress, it was not my car.
50:16
It was my wife's minivan.
50:20
Jim O'Shaughnessy: I have a friend David Rhoiney, who I put on the podcast and I'm doing some stuff with now, he's this amazingly skilled, massive skill stack guy.
50:28
And that's his current thing.
50:28
The wife is saying, "I think we need a minivan."
50:28
And he's like, "It's not going to be my minivan."
50:33
Vitaliy Katsenelson: That's right.
50:35
No, but I, but I was stressing it for a different reason, because we ran out of gas.
50:40
And I was driving her car.
50:40
And so we went out, we were in the middle of this beautiful park.
50:47
I have my kids and suddenly we're out of gas, stuck in the middle of nowhere.
50:54
I don't know why I reacted this way.
50:54
And because my wife is, "Oh, we're out of gas."
50:54
And I'm like, "Well, listen, if we are in the middle of this beautiful park, if we did not run out gas, but if we just stopped here and spent 30 minutes, an hour, would we look at it as a problem?" No.
51:12
Also, and this is something I told her.
51:12
I said, "Imagine we drove to the park and nothing happened.
51:19
We would have absolutely nothing to talk about.
51:19
This would be just another time we drove to the park. Now we have a story."
51:23
And you know what's interesting?
51:23
There is another part to it.
51:29
I remember my son, Jonah, I think 18, 19 years old, he got his, he got a speeding ticket, his first speeding ticket. And it became a rule.
51:35
If he got a speeding ticket, he's paying for it himself.
51:40
I'm talking to him and he's visibly upset.
51:46
But what I was shocked about, he was not upset about the money because he had to pay $250, which was most of his money.
51:51
He's like, "Dad, I got pulled over.
51:51
I got a ticket and there is no story. It was so boring."
52:01
And I'm thinking, "My God, this is awesome.
52:01
This is exactly, you should be going through life and looking at life as if you are..."
52:09
When something happens to you, a lot of times this is just...
52:14
Like you were talking about, you're a character in a story.
52:20
I'm as a writer and you as well, we're programmed for that because we are looking for this.
52:25
My father, the painting's behind me.
52:25
And my father's- Jim O'Shaughnessy: Yeah, no, I read you all the time.
52:29
And so I see you're showing your dad's work all the time.
52:31
Vitaliy Katsenelson: When we traveled, and he always painted when we go on vacation, et cetera.
52:34
He would always put his fingers like this and look for things to paint.
52:39
That's the painter in him looking for beautiful things to paint.
52:46
And so therefore that's how he saw beauty a lot more than I did, because he always looked for it.
52:53
And I would argue as a writer, reprogrammed me to always look for stories and that's another upside of writing by the way. Anyway.
53:02
Jim O'Shaughnessy: It's totally true.
53:02
And people would often ask me, "Why are you still doing this? Why?"
53:04
We sold our company, I'm retiring from OSAM and I'm starting another company.
53:11
They know that by the way.
53:11
Obviously it had to all be pre-approved. But they're like, "What? Why?"
53:14
And I'm like, "I live for the stories, man."
53:14
Some of the experiences that I've had would technically be looked at negatively by many people because they judged it on that particular outcome.
53:29
But I love that section of the book too, because I was just again, I'm just like, "Man, it's like we are quantum-ly entangled or something because...
53:41
And I have another good friend, Dave Chilton, and it I'm going to briefly tell the story because it just fits so perfectly here. So his dad is like...
53:46
I want to have his dad on the podcast because he is one of the most harmonious inflow person that exists, and Dave illustrates it with this story.
54:02
Vitaliy Katsenelson: Is it wealthy barber story?
54:02
Is it the wealthy barber?
54:03
Jim O'Shaughnessy: Yeah, he is.
54:04
Yeah, he's the wealthy barber.
54:04
Vitaliy Katsenelson: Oh, I love this. Please do. I love this story. Please do. I love this story. Jim O'Shaughnessy: Yeah.
54:10
So Dave's been a good friend for almost 30 years.
54:14
He's the one who got us to go up to Canada with the O'Shaughnessy method. Just a great guy.
54:19
His dad though, is like a [inaudible] sage.
54:19
And Dave tells this story where Dave's dad has Dave's son with him in Paris and this is pre-email, pre-texting, and he gets this excited voicemail from his dad.
54:40
And it's like, "Dave, it's dad.
54:40
You're not going to believe what happened to us today.
54:46
Two of the most skilled pick pockets in the world, they got everything from us.
54:54
They got our wallets, they got our passports, they got all of our money, and isn't that wonderful? Isn't that amazing?"
55:02
And David's like, "That would ruin my entire day."
55:02
And then he talks to his dad.
55:08
He goes, "Well, why would I look at it like that? I have this great story.
55:14
Your son thinks it's so cool.
55:14
We get to go to the Canadian consulate because we need new passports and we would never go on there, and we met some very nice people there."
55:24
And he just re-frames everything.
55:24
Vitaliy Katsenelson: That is a gift.
55:29
That is an incredible gift.
55:29
Jim O'Shaughnessy: It really, really is.
55:31
Vitaliy Katsenelson: By the way, I listened to that interview, that podcast. That was phenomenal. I really love Dave. So that was phenomenal.
55:36
Jim O'Shaughnessy: Dave is a wonderful guy.
55:38
I want to shift because we could talk about this all day.
55:38
And it's a bit more to coming to America, et cetera.
55:44
Do you think that right now, if you had some friends in Russia, would you urge them to move here, or has the world passed us by?
55:52
This is something, I wouldn't die on the hill, but it's something that I view very importantly.
55:59
I think that we have botched our immigration policy to the point where I believe, and I want to see if you don't, if you disagree with me.
56:10
I believe that despite all of our problems, we still are the place where the majority of the world's smart, competent, eager to create new things, people want to live.
56:23
And my point is we should let them.
56:23
Obviously background checks, obviously all that stuff.
56:30
But if we are giving an advanced degree in STEM, I think we should staple a green card onto the diploma.
56:36
Do you still think that's right?
56:36
Or has the world made another place a better destination?
56:42
Vitaliy Katsenelson: No, I think the difference between U. S.
56:46
And other countries was so great in this, that it may be shrunk a little bit.
56:55
But it's still the place you want to go to if you want to take risks. Jim O'Shaughnessy: Yes.
57:02
Vitaliy Katsenelson: And I think because taking risks is what really kind of...
57:07
Ability to take risks and ability to fail, get up and keep going forward.
57:07
And I think in the Silicon Valley they call it pivot or something.
57:15
I think there is a name for this. Jim O'Shaughnessy: Yes. Pivot.
57:21
Vitaliy Katsenelson: Yeah. No, but absolutely.
57:21
No, I think this is still...
57:23
The America today, I would argue I like the America 30 years ago when I moved here more, but it's still such a wonderful country and it's still, yeah.
57:40
There's a joke where there's a, as an economist you understand this, right?
57:40
When you look at the globe and you kind of say where you want to move and then you ask you, "Can I have another globe?"
57:53
We are by far the best house in the in the neighborhood. We may be getting worse. So in general and yeah. Jim O'Shaughnessy: Yeah.
58:07
Maybe come and maybe needs a paint job and maybe it needs some fixing up. But yeah. So I concur with you.
58:14
I think that regime changes happen in investing, but they also happen in society.
58:22
They also happen in the way that people reach a maximum point and they're like, then the pendulum has to swing back.
58:27
Vitaliy Katsenelson: That's the word I was going to use. Yeah.
58:30
I think pendulum is the right word here.
58:33
We go from one extreme to another.
58:33
So I'm hoping the pendulum is going to start swinging the other way.
58:37
Jim O'Shaughnessy: Yeah, I think it's going to be.
58:38
I would much rather find things to root for than against.
58:46
Vitaliy Katsenelson: Yeah.
58:47
Jim O'Shaughnessy: And I just think that we are now in a very unique place in history with the tools that are becoming available to smart, talented people, are unprecedented.
58:57
They're really unprecedented.
58:57
And I just think that the world is going to be such an interesting, exciting place over the next 20 years, but we do need for the pendulum to swing back on some of the... The tribalism is bad. I just think it's bad. And well story again.
59:16
I just did a big interview with him for [inaudible] and you guys will probably get released close to the same time.
59:23
But this whole idea that the need for...
59:23
He said, "You want to see how deeply embedded in human OS tribalism is?
59:34
Take a hundred people, randomly assign them to group A or group B, and then watch what happens."
59:41
All the group A people are going to say, "Group A is the best."
59:47
Vitaliy Katsenelson: Oh God.
59:50
Jim O'Shaughnessy: And then they descend into what I call brain death orthodoxy.
59:50
And all they do is talking points at each other and it is a meaningless exercise.
59:56
So I think if we can moderate the tribalism a little bit by starting organizations that become idea labs, as opposed to propaganda labs, I think that there are enough people.
1:00:10
I certainly, I know enough people like you, Will Storr, my colleagues at Infinite Loops, who would love to be part of an ideal lab.
1:00:24
They would love to have serious discussions without disrespecting their conversion.
1:00:30
Vitaliy Katsenelson: So let me give you this example and you observed it on Twitter.
1:00:32
There's a TSLA and there's TSLAQ.
1:00:38
And TSLA, the TSLA bulls, and TSLAQ at TSLA bears. Jim O'Shaughnessy: Yeah.
1:00:43
Vitaliy Katsenelson: Again, we're just talking about a company, a stock.
1:00:45
And if you observe two groups, there's complete animosity against each other.
1:00:53
And there is token points.
1:00:53
And I did this write up on Tesla.
1:01:04
Actually I wrote this, I wrote the nine part series of articles.
1:01:04
Let me turn into a kind of book on Amazon, where it would Tesla analysis. And both groups hate me.
1:01:10
Because my analysis was nuanced. F.
1:01:19
Scott Fitzgerald has this quote which I love, and I'm going to butcher.
1:01:25
Jim O'Shaughnessy: "But keeping two opposing ideas in their mind- Vitaliy Katsenelson: Exactly. Exactly. Jim O'Shaughnessy: ...
1:01:29
And Still not go insane."
1:01:31
Vitaliy Katsenelson: And that was the very first line in my book.
1:01:31
And I said, "When you analyze this, you have to keep two opposing ideas," because you can have a love mask who has changed the world for better, as much as Steve Jobs did.
1:01:41
But at the same time, he will do things that are incredibly questionable, unethical, and maybe illegal when it comes to a lot of his deals, some of his deals. And guess what?
1:01:55
This is the complexity of, human complexity.
1:02:04
You can have a person who has a good side and a bad side, and the same thing...
1:02:04
My conclusion was I love the car.
1:02:12
I absolutely love the Tesla I have, I absolutely love this car.
1:02:16
And I had it for three years and I still enjoy it every single day.
1:02:16
But at the same time, this was few years ago, and I basically said, "This is a path dependent company," which means that if good things happen, if they get to escape velocity, I think they'll be very successful.
1:02:35
If we have this severe recession, if they can't refinance that death, they may have to issue a lot of shares.
1:02:40
And I basically said, "I have no idea how it's going to work out."
1:02:40
And that was my conclusion.
1:02:44
Both sides hated me because I was near the bull number.
1:02:44
And I think in investing this is extremely important, kind of be able to look at things from nuance perspective.
1:02:51
One person I really like in the politics is Ian Bremmer.
1:02:56
And the reason I really him, because he is able to look at the issue from different sides.
1:03:05
And that is a very unique ability.
1:03:05
And this is why he could...
1:03:14
I'll give you an example.
1:03:14
He's the person who came out and he was anti-Trump.
1:03:14
However, he also pointed out the positive things in Trump's policy.
1:03:21
And I think that takes intellectual honesty.
1:03:27
And I think that's something, that's a quality I admire.
1:03:27
And he may be critical of Biden on some things, that's where the nuance leaves. Jim O'Shaughnessy: Yeah. Totally agree.
1:03:41
And I love the, because you could set it up that both sides hate you, because you are a heretic, you are an apostate to them.
1:03:49
And if you understand this tribalism, in terms of the layers it puts on a person's personality, then you bring in religion, then you bring in all of these things where people have literally defined themselves as this person, this guy, right? Or woman.
1:04:11
And overcoming that, and reprogramming yourself to be much more dispassionate is far the results from that vastly better.
1:04:19
And the problem is that the world is not black and white.
1:04:28
As you say, the world is nuanced.
1:04:28
The world is not 0/100, yes/ no.
1:04:36
What the world is is mostly maybe.
1:04:36
Vitaliy Katsenelson: I love it.
1:04:38
Jim O'Shaughnessy: And what you have to be willing to understand is that, and yet still aggressively pursue opportunities that you think are going to be great, even though you still have it in the maybe category, right?
1:04:50
And for us, I watch, because it's just amusing, I'm incredibly amused by, in Elon Musk.
1:04:58
Listen, I don't care what you think about him.
1:04:58
He is entertaining as hell, and, okay.
1:05:07
I once put a tweet up, which is, "Everything starts as a marketing campaign.
1:05:13
The ability to reframe is a superpower.
1:05:13
And we're all in the entertainment business whether we know it or not."
1:05:19
Because people love stories, right?
1:05:19
Vitaliy Katsenelson: Yeah.
1:05:21
The thing about when the General Motors CEO writes a tweet, it goes through 20 departments and there's legal, there's 20 lawyers looks through the whole thing.
1:05:28
Elon Musk basically tweets from his bathroom.
1:05:33
Jim O'Shaughnessy: Right.
1:05:33
Vitaliy Katsenelson: And yeah, that's why he has 50 million flowers on Twitter.
1:05:35
Jim O'Shaughnessy: Exactly. Unvarnished. Distinctive. Are you kidding me?
1:05:37
This is a very distinctive guy.
1:05:37
And if you're looking for the attributes of who's the type of person who's going to succeed in this new environment, I think it's the antithesis of the old company man.
1:05:49
And I think that you've got to be brave enough to A, fuck up things in public, learn from them hopefully, move on.
1:05:57
But you have to also be distinctive.
1:06:06
You have to have a particular je ne sais quoi.
1:06:06
And that's hard because so many people fashion themselves.
1:06:12
I work with a lot of younger people, not just in finance by the way, in a variety of industries.
1:06:17
And the first one that I have to try to get them to overcome is, no, fuck your brand. Let's work on you.
1:06:24
Let's let's work on you presenting yourself as an interesting person that other people...
1:06:30
Because people, yeah, they love brands. Yes.
1:06:35
I understand advertising, and yes, I drink Coke.
1:06:35
If I do drink Coke or one of those sweet drinks, I will always pick a Coke because I've been programmed to, I get it. I understand.
1:06:47
But it's sugar water, right?
1:06:47
So if you can be yourself distinctively, I think that's really great, which leads me to my question about another one of our shared loves, which is classical music.
1:07:00
I've loved classical music since I was five years old, which is highly unusual.
1:07:07
That only happened because my father loved not only classically loved big band, he loved swing. He loved jazz.
1:07:15
And we didn't see eye to eye on much, but one of the things that this gift that he gave me was he was a big believer that walking was the only good exercise, and so he got in the habit of walking half an hour a day, four times a day.
1:07:35
Well, I grew up in Minnesota, which would be the United States Siberia, right? So that's where we...
1:07:40
Vitaliy Katsenelson: Where I grew up with Murmansk.
1:07:42
Jim O'Shaughnessy: Yeah, exactly, right?
1:07:44
Vitaliy Katsenelson: Exactly.
1:07:45
Jim O'Shaughnessy: So cold as Siberia.
1:07:45
But in the house I grew up in, we had a very long hallway.
1:07:45
It was kind of a Frank Lloyd Wright style house.
1:07:54
And so very long hallway, he was also into music and stereos.
1:07:54
So in one section of the house was the family room, that was at one end of this very long hallway.
1:08:06
And the other section was the formal dining room where my dad would spend most of his time.
1:08:10
But when he was walking during the winter, he walked from living room to family room.
1:08:10
It was a little reasonable walk, right?
1:08:15
Vitaliy Katsenelson: Yeah.
1:08:17
Jim O'Shaughnessy: And so he would put music on.
1:08:17
And I only know this because he told me this, but it fits.
1:08:25
He said, "One time I came in, you were about five years old, and you were sitting in the family room with your eyes closed.
1:08:29
And you went "Jim," and you looked at me and you go, "What are you doing?"
1:08:36
And he had Bach, Johann Sebastian Bach.
1:08:36
And he said, I looked at him and I said, "Daddy, what is this beautiful, almost magical music?""
1:08:45
Vitaliy Katsenelson: My God.
1:08:49
Jim O'Shaughnessy: And I'm like, so I just dove in, I loved it.
1:08:50
To me, it's speaking another language almost, because I saw a fun quote where it said that the reason that music evolved really was that mathematicians wanted to hear what math sounded.
1:09:07
Vitaliy Katsenelson: Let ask a question. Let me ask a question.
1:09:09
I hate when people ask me this question, because I struggle with the answer, but I'm going to ask you anyway.
1:09:14
Who is your favorite composer? Jim O'Shaughnessy: Yeah.
1:09:18
It is literally, this is a no win, because I honestly don't have a favorite composer.
1:09:24
So I turn into a quant and I say, "Well, I'll tell myself who my favorite composer is- Vitaliy Katsenelson: Spotify. Spotify. Jim O'Shaughnessy: ... By Spotify."
1:09:36
Vitaliy Katsenelson: Yep.
1:09:37
Jim O'Shaughnessy: And then the answer is Bach.
1:09:38
Vitaliy Katsenelson: Bach. Yeah.
1:09:40
Jim O'Shaughnessy: I love the mathematics of Bach.
1:09:42
That does not make me not appreciate the romantics.
1:09:42
That does not make me not appreciate newer music. I love it all.
1:09:48
And so, wait a minute, I thought you were a Mozart guy and again, see what we're doing?
1:09:56
We're trying to divide into groupings, right?
1:09:56
You can't be both a Bach guy and a Mozart guy. Of course you can.
1:10:03
And you can have tremendous admiration for, fill in the blank.
1:10:09
I know that you have a different answer.
1:10:09
So you're going to tell me now.
1:10:13
Vitaliy Katsenelson: No, so it's kind of interesting. I have many answers.
1:10:14
So when I write, a lot of times I listen to Bach. Jim O'Shaughnessy: Yes.
1:10:22
Vitaliy Katsenelson: And the reason for that, because it's just somehow it works.
1:10:24
When I'm stuck, really stuck, and maybe I just trick my subconscious to believe that, I listen to the opera because I feel it works like a plunger for the writer's block.
1:10:31
But I think I gravitate towards Russian composers.
1:10:37
Jim O'Shaughnessy: Brilliant composers. Yeah.
1:10:41
Vitaliy Katsenelson: Tchaikovsky and Rachmaninoff because somehow...
1:10:43
Jim O'Shaughnessy: I love both of those composers.
1:10:46
Vitaliy Katsenelson: I think of the emotional content.
1:10:48
Maybe I just need this huge emotional content and that's what they offer me.
1:10:53
But you are so right, because here's why.
1:11:00
Because at different points in my life, I listen to different music.
1:11:00
And actually, I have this long essay where I actually went back 30 years and which music I listened this year.
1:11:07
And I went from, there was a year where I was driving to work and only listened to Bruch's Violin Concerto.
1:11:22
So Spotify at the time would've said that.
1:11:22
That was before Spotify.
1:11:22
And then there was a time where, I want to say late nineties, there was a movie that came out called shine with Geoffrey.
1:11:34
Jim O'Shaughnessy: Loved it. Loved it. Yeah. Geoffrey Rush.
1:11:38
Vitaliy Katsenelson: Geoffrey Rush, yeah.
1:11:38
That was the kind of the Geoffrey Rush coming out, yeah. Jim O'Shaughnessy: Yeah.
1:11:42
Vitaliy Katsenelson: And I remember, I kid you not, for a year, all listened to was Rachmaninoff third piano concerto.
1:11:47
For a year, that's all I listen to.
1:11:47
And I can't do this with all music, because I listen to it so much.
1:11:54
Now I can say this is a good performance, or at least it's a performance I like, this performance I don't like. I can't do this with...
1:12:07
I really have to listen to hundreds and hundreds of times before I can do this. Jim O'Shaughnessy: Yeah. I do the same thing.
1:12:10
And my wife thinks I'm crazy.
1:12:15
And she's like, "Why are you just looping that piece over and over and over again?"
1:12:20
And I said, "Because there's just so much to it."
1:12:20
And one of my favorite poets is T. S.
1:12:27
Eliot and he's got this beautiful section in a poem called Portrait of a Lady.
1:12:33
And they're talking about going to hear pianist, the latest Pole, because show Chopin was Polish.
1:12:42
The latest Pole transmit Chopin's preludes through his fingertips.
1:12:42
And then he goes on to say, "So intimate, this Chopin, like two friends just in a room."
1:12:51
Your statement about the Russian composers, I love them. And you're right.
1:13:01
If I'm in a mood to get the emotions flowing, they do it.
1:13:08
And what I love about that, and it's one of the reasons why I think I love music so much, is that I honestly believe it's the universal language, because you don't need to be Russian to love Rachmaninoff, right?
1:13:21
Vitaliy Katsenelson: Yeah.
1:13:23
Jim O'Shaughnessy: And so, I don't know much about, I've read maybe one biography of him, but I don't know much about J. S.
1:13:32
Bach, other than he had a lot of kids, and that he was still writing his music at a time when his profession was considered a servant.
1:13:40
Vitaliy Katsenelson: Yeah.
1:13:43
Jim O'Shaughnessy: Right?
1:13:44
Vitaliy Katsenelson: That's right.
1:13:47
Jim O'Shaughnessy: And the reason I like him is because he's just so clearly, and obviously mathematical, to the point where Hofstadter named his book, Gödel, Escher, Bach.
1:13:57
So Gödel, the mathematician, the incompleteness serum.
1:13:57
Escher, the wonderful graphic artist where things are folding in upon themselves. And Bach.
1:14:05
And if you haven't read that book, I would recommend it with an asterisk. I get it.
1:14:10
It's really hard to read that book.
1:14:15
Vitaliy Katsenelson: Okay.
1:14:16
Jim O'Shaughnessy: But it's worth it.
1:14:16
I think you'd love it, because you would get what his message is.
1:14:20
And Hofstadter's a genius.
1:14:20
But I am so taken with music and the power that music has.
1:14:29
And it's, by the way, it's not just classical music.
1:14:36
Contemporary forms of rock and roll, of rap, of all of those things.
1:14:36
I love Nas and he's got a song with Damian Marley, I think, called Patience.
1:14:45
And this is a beautiful song and the lyrics are just beautiful.
1:14:51
And I just thought to myself, "You know what's interesting?
1:14:51
Is these guys 150 years ago, they would've been poets."
1:14:57
They would've been, I Contain Multitudes.
1:14:57
Pink Floyd would've been philosophy professors at Oxbridge.
1:15:04
And so the ability to reach people, because music goes, like memes by the way, memes work so well because they bypass many of our filters and they bypass the, "I don't want to see this." The prover filter. So does music.
1:15:22
And so, do you find that your kids also have a love or are they like, "Dad. That's dad's thing."
1:15:35
Vitaliy Katsenelson: So it's complicated. I have three of them. So there's a story.
1:15:39
I have a story about this.
1:15:39
So I'm the youngest, I'm the youngest child, and I have two older brothers.
1:15:47
And my parents took my brothers to music school to study piano.
1:15:57
And my older brothers absolutely hated it.
1:15:57
They hated so much that I think the...
1:15:57
The story ended when my brothers literally broke the piano and pulled all the keys out the piano.
1:16:02
So my parents got the message.
1:16:07
And so they put him out of...
1:16:07
They never really forced me into music.
1:16:17
I think when I was 10, maybe a little bit, maybe 11.
1:16:17
When my mom passed away, my father took me to music lessons.
1:16:22
And I don't think I showed that much interest.
1:16:28
And I think he probably did not have the energy to push me, or he learned his lesson on my older brothers.
1:16:31
So I never really got pushed into playing music.
1:16:38
So if you look at three of us today, my oldest brother who was subjected the most to the piano music torture, piano lessons torture, he does not listen to classical music at all.
1:16:49
Probably would not even listen.
1:16:49
My middle brother, Alex, he enjoys classical music, but he doesn't have this burning desire that I do.
1:16:56
He would go to concerts and he would enjoy it, but he doesn't have this burning desire that I do, even though his daughter is a accomplished [inaudible] in London.
1:17:07
And she went to Royal College of Music.
1:17:07
So when it came to my kids, I had to be very careful.
1:17:16
So I pushed them a little bit to study piano to my oldest two oldest kids.
1:17:22
Neither of them showed an interest.
1:17:22
And I did not push them too much.
1:17:22
But one thing I did, we would listen to classic music in the car.
1:17:28
We would listen to it at home.
1:17:28
And this is very, very important because I think the reason I like classical music and the reason you classical music, because you were introduced to it on the background.
1:17:37
You were not forced into it.
1:17:37
Classical music is complex.
1:17:43
It has many, many layers. If you listen to...
1:17:43
I'll give you very simple example. Tchaikovsky Symphony No. 4.
1:17:50
I was in Sydney, Australia, and I went to this performance of this symphony where David [inaudible] was a conductor, who is the phenomenal conductor. Jim O'Shaughnessy: Yeah.
1:18:03
Vitaliy Katsenelson: I listened to the symphony for the first time, did not do anything for me.
1:18:06
I walked out of the performance and I was... Did nothing for me.
1:18:06
I talked to my father about it.
1:18:14
And he said, "This is weird because this is my favorite symphony."
1:18:18
Jim, for the next three days or four days in Australia, all I listened to for six hours a day, that symphony.
1:18:24
Now it is my favorite symphony, one of my favorite symphonies. Why?
1:18:29
Because classical music is complex.
1:18:29
Not all of it, but Tchaikovsky's symphonies, they're complex.
1:18:36
And for you to see this complexity, you have to listen many times to connect the dots. And here's what happens.
1:18:42
You know this and this, I'm going to run this analogy by you.
1:18:42
Tell me if it makes sense.
1:18:46
You know when you go on vacation?
1:18:46
You're going to go to an island somewhere to the...
1:18:52
You're going to go vacation and you really want to go there.
1:18:52
And the anticipation of going to this vacation brings you as much pleasure as actually when you get there and you get on...
1:19:02
And I think this is what happens to us when we listen to classical music on the micro level, because you'll listen to this and you know the next part is about to come, and this gives you a tiny little dopamine because you're kind of, "I like this part and this little," this again, may take milliseconds, but it happens over and over again.
1:19:20
And I think that's what happens to us when we listen to classical music.
1:19:20
Now I have a third child, Mia. She's eight.
1:19:25
So we took her to classical music.
1:19:25
We took her to piano lessons and she said, "I'm not going to go to piano lessons." That's fine. Fine.
1:19:40
And then, literally six months ago, we have a piano in our house, which is basically just a piece of furniture, because I don't play piano.
1:19:45
So it was just, it's kind of relic for my kids.
1:19:45
And Mia sit down and started to kind of tinker with that and started to compose her little thing, her little music.
1:19:54
And then I said, "Well, why don't we take you to piano lessons?"
1:19:54
She's like, "No, I don't want piano lessons."
1:19:58
And my wife says, "Well, you know the music school, there is a yogurt shop right next to it." She's like, "Okay."
1:20:02
And now, and so this gets more interesting.
1:20:07
So she started taking music lessons, then she likes it.
1:20:07
She comes back and this is the funny part.
1:20:14
She had a new music teacher, and the music teacher's trying to get to know her.
1:20:19
And she's like, "What kind of music do you like?
1:20:19
And she's like, "Do you like some music from Disney and listen to songs?"
1:20:24
And Mia says, "No, I like this."
1:20:24
And she starts playing just a few bars of [inaudible], from music from [inaudible]. Jim O'Shaughnessy: Wow.
1:20:34
Vitaliy Katsenelson: And then she plays a few bars from George's Symphony No 9. Jim O'Shaughnessy: Wow.
1:20:40
Vitaliy Katsenelson: Yeah. I don't know.
1:20:40
I don't want to overstate that, but just enough so you can identify what it is.
1:20:46
But here's the key, and if people who are watching us listen to us as parents, I think the lesson here is that you want to listen to classical music in front of your kids, in your car, you take them classical music concerts.
1:21:01
And when you take them to the concerts, they probably will not want to go. I promise.
1:21:06
But then what you do, you offer them bribes.
1:21:10
In my case, I think part of the reason why I got into classical music, because my parents listen to it.
1:21:16
They would take me to a symphony or to operas, and they would buy me desserts during intermissions. And that worked for me.
1:21:22
And that's again, but it's a very gentle.
1:21:22
It has to be very gentle endeavor, because it has to be just because here's what happens after they listen to it enough because it's complex when they're older, they may hear this music and it's going to click with them because it's been deposited in the subconscious already.
1:21:41
So they're not hearing it for the first time and suddenly they're listening too, so my older kids today, they will go to not listen to classical music on their own, but they will go to classical music concerts no problem.
1:21:57
We'll listen to classical music in a car without objections.
1:22:03
But though a lot of times I have to listen to their music as well, but then that's fine.
1:22:07
Jim O'Shaughnessy: So I was a similar unfolding of that with my kids.
1:22:14
I was chairman of the chamber of music society of Lincoln Center.
1:22:14
And so we're constituents.
1:22:14
I was also on the board of Big Lincoln Center.
1:22:22
And one of the fun things that I did that I found my kids were really responsive to was I just made sure there were always tickets there for them, and at the time they were living in Manhattan.
1:22:34
They've subsequently moved out here as my grandchildren were born, and that was it.
1:22:38
It was like, I would invite them to the soirees where we did the concert and it was fun, but I would just make, hey, we've got the tickets.
1:22:52
You just let us know if you want to use them.
1:22:52
And under that, they just felt a lot of freedom to be like...
1:22:58
Oh, my daughter-in-law, married to Patrick, is actually an accomplished pianist.
1:23:06
And so it was her little push with Patrick, but it was a completely noninvasive way to let them enjoy learning about and/or discovering classical.
1:23:17
And so I think you're absolutely right.
1:23:17
I love the tying in to the little treat, because that makes sense to me. I love that.
1:23:22
I'm going to go for that for sure.
1:23:31
I'm looking at our clock here and I'm going to have to have you back on because I haven't even gotten to the central thing that I wanted to talk with you about, which is your book, which is amazing.
1:23:42
But I have a couple other questions.
1:23:42
Obviously we're both finance guys and we're both finance guys who are really interested in a bunch of other stuff.
1:23:48
And by the way, I find that profile again and again and again when I meet people in our industry, but soon after you got married, you said a friend gave you some really simple financial advice, which you yourself say was advice that changed my life.
1:24:06
So I'd love it if you told our listeners what that was.
1:24:14
Vitaliy Katsenelson: Yeah. So I was 28 years old.
1:24:14
My friend Mark was 38, which if you think about it, he was probably double by age because of the amount of wisdom he had.
1:24:25
So he basically sat us down and said, "Listen for you guys to have a happy life, you don't want to be strained by finances.
1:24:34
And it doesn't matter how much money you make.
1:24:39
If you don't spend as wisely, you always going to be running out of money.
1:24:39
You're going to be in debt and debt has its own costs, and interest et cetera.
1:24:44
So you're going to be in a rat race."
1:24:51
He said, "You want to create a budget."
1:24:51
And he's like, you list your rent, your income, your expenses.
1:24:58
And again, Jim, I got to tell you at that time I was a CFA already.
1:25:03
I'm like, listen, I'm a CFA.
1:25:03
I was a bit insulted at first. He kept going.
1:25:10
And he said, "Most people, when you say what your income is, when you say expenses, people would say my cable bill, my rent, my utilities, this kind of thing." He said.
1:25:17
"So those are the things that come to mind to you right away.
1:25:22
However, there are a lot of other expenses that happen.
1:25:22
They don't happen this month or on a regular basis.
1:25:26
They just happen in different timeframes."
1:25:26
And an example, your vacations.
1:25:34
When you go to vacations maybe once or twice a year, but they do happen as an expense.
1:25:42
Every so many years, you're going to buy a car. So that's the expense.
1:25:48
And basically, there's a lot of expenses like that.
1:25:48
You can add your retirement to that, kids college education, all these different things.
1:25:53
And he said, "What's important to do is to create sinking accounts, to identify what these future costs are and bring them into present.
1:26:04
And therefore, when you create a budget, you have the income, you have obvious expenses and then you have those sinking funds and what's left is this is the stuff you can actually spend on stuff that is less important to you."
1:26:18
But there was something else he said.
1:26:18
"And what budget does it helps you to prioritize your expenses, your values."
1:26:25
Let me explain what I mean.
1:26:25
A lot of times we do things in life mindlessly.
1:26:34
We go to Starbucks on the way to work, because at some point in time, we went to Starbucks on the way to work and we buy coffee because that's what we've done.
1:26:41
And we end up spending sometimes thousands of hours.
1:26:47
Now, if you receive a tremendous amount of joy from this, then that goes on a higher level of your expenses.
1:26:55
If this means absolutely nothing to you, it should go on the lower level.
1:27:02
And maybe you find that your vacations are more important than that.
1:27:07
Because no matter who you are, unless you are Bill Gates or whatever, no matter how much money you make, you could still run out of money if you don't spend money wisely.
1:27:18
So basically by prioritizing your expenses, you start...
1:27:26
The money buys the most when it buys things you value.
1:27:26
And I think that's really the key here.
1:27:33
And so by you creating a budget, you mindfully, and this is the key, going through your budget and say, this matters to me.
1:27:36
And therefore there's this waterfall, if I run out of money after I paid for my vacation, my kids' education, whatever that I don't have enough money for Starbucks.
1:27:51
Well, it wasn't that important to me anyway.
1:27:55
But again, I think this was very, very important to me.
1:27:55
And then there was another layer to this. If you look at the...
1:28:06
So money doesn't by happiness or does it?
1:28:06
Well, maybe a little bit.
1:28:16
Money, there is symmetrical relationship here below a certain level, lack of money can cause a lot of unhappiness, but after certain level, the incremental dollar you make brings you a lot less happiness. We agree on this.
1:28:28
However, what you find is that when you spend money on experiences, it buys you more happiness because I was listening to podcast and the guy was telling a story, how...
1:28:43
Arthur Brooks, he was telling a story how, when he got married, him and his wife were broke.
1:28:49
And on their first wedding anniversary, they had this fight, what they going to do because he wanted to buy a couch and she wanted to go on the beach.
1:28:58
And he said they came to an agreement. They went to the beach.
1:29:04
Jim O'Shaughnessy: I could have called that one.
1:29:07
Vitaliy Katsenelson: And he said the interesting part, because this was 30 years ago, and I don't know how many couches we had since.
1:29:15
I don't even remember the couch we bought after that, but that vacation, that the trip to the beach, that actually I can still remember this.
1:29:21
So we make a mistake at times that we think the tangible things are tangible, actually experiences our memories, actually a lot more tangible.
1:29:34
There are certain things, so I'll tell you the things where...
1:29:44
At this point in my life, there are four things when I spend money on, I have a very loose budget: Experiences, time, meaning I buy time, and I got to be so careful because I'm going to sound like this wealthy hedge fund manager.
1:30:00
I'm not even a hedge fund manager, but I'm going to be the typical stereotype, but we have a finite amount of time in a day and I'm going to do it in a way now that I'm not going to sound like a hedge fund manager, I absolutely hate mowing the lawn. I hate doing this. So guess what?
1:30:20
I buy the time because I buy this money time that somebody else comes in and mows my lawn. Okay.
1:30:36
Also, I run an investment firm, so to schedule this interview probably took about 10 emails between your assistant and my assistant.
1:30:42
You could have spent this time doing something creative, high value time, or you and I could have been exchanging emails.
1:30:52
And so that's why you and I have assistants who do scheduling.
1:30:52
So you and I are buying time, and so to me that's important.
1:30:58
Another thing is health.
1:30:58
When it comes to health, I only can live once. So when I go to...
1:31:03
And then this point in my life, I can afford this.
1:31:07
When I go to the store and I buy tomatoes, I don't look at price of tomatoes, and the last thing education.
1:31:14
So this is very important.
1:31:14
I tell my kids that they can buy as many books as they want, as long as they read it.
1:31:20
And that's becomes part of that's why my daughter reads as much as she does because she know as longs as she keeps reading the books when that she buys.
1:31:31
But this is important point I want to stress.
1:31:31
I'm loose in those categories because they are the most valuable to me, but I still live in the same house we bought 18 years ago.
1:31:47
Until recently I had a car for 12 years.
1:31:47
So my point is there are things that I just don't want to...
1:31:55
I'm giving up something as well, because I may be making a living, but it's not an unlimited amount of money. Jim O'Shaughnessy: Yeah.
1:32:05
Well, again, now starting to get a little freaked out because we did everything the same.
1:32:05
I too said to my children that they could buy any amount of books they wanted.
1:32:13
I would always buy them books.
1:32:21
And I didn't even make the condition that they had to read them, and we made our average Saturday when my children were younger, was always to go to the bookstore, the biggest one that we had, and literally we would spend almost the entire day there because the kids would end up...
1:32:43
I'm really not exaggerating.
1:32:43
My middle daughter, well, both of my daughters, my middle daughter is an accomplished author and she has her second book coming out.
1:32:50
My youngest daughter's standup comedian, but it turns out she has a talent for writing as well.
1:32:56
Patrick's written a book. Kate has...
1:33:01
One out, one coming out, two more contracted for.
1:33:01
That also feeds in to experience over a thing, so the experience of all going to the bookstore every Saturday just got them habituated to reading.
1:33:22
And the other thing I did, if you were at my house here, you would say, I have a very, very big library.
1:33:27
And when my kids tried to use me pre-Google as Google, I would point at the bookshelf and say, "Look it up in there."
1:33:34
Because that also just feeds that curiosity, and so I think that- Vitaliy Katsenelson: This is the thing you and I have in common because I make a big deal about going to bookstores with my kids.
1:33:48
Jim O'Shaughnessy: And honestly you can't...
1:33:52
And then it gets to the experiencing self and remembering self.
1:33:52
And Danny [inaudible], I spoke to him.
1:33:58
I was lucky to be sit in on one of his private things, put on by my friend, Annie Duke, and he's very passionate about the difference between the experiencing self and the remembering self, because the remembering self, that's what the experience is.
1:34:14
And I too, just like you, I'm very loose on experienced budgets, especially if they can involve my entire family, so it's not even close.
1:34:22
The trips and we're going to get to this and then I'm going to invite you back because this is going to have to have a part two because I want to talk about your book too.
1:34:36
Well, we actually have been, but the experience just so outweighs anything.
1:34:44
The first time we were in Africa, we had the entire family, and if you haven't been to Africa, oh my God, you got to go to Africa because it's almost a spiritual experience, and I'm not a spiritual guy.
1:34:56
And I was the guy who didn't want to go.
1:34:56
I'm like, "Oh, Africa, ugh."
1:35:03
And of course I just ended up loving it in the African people.
1:35:03
But what the memories are all the memories of our family experiencing all this together and then Cambodia and our guide was exactly my age, and he was one of only two surviving members of his class of 50 because of Pol Pot and the killing fields.
1:35:27
And he gave firsthand accounts that made you weep about what he lived through, and my kids too, it's like whenever we're all together and we're talking about, okay, happiest memory, most interesting thing. It's all experiences.
1:35:42
Not necessarily as a family, there were some in there that were just me and my wife or my son and his wife or my daughters and their husbands.
1:35:55
But so this idea of understanding the experiences so far outweigh getting a new thing.
1:36:02
So we're incredibly simpatico there.
1:36:02
So let's make our last topic, the idea...
1:36:11
We also share a love and just for doing it, but for what one could learn of travel.
1:36:21
Talk to me about why that animates you so much.
1:36:21
Vitaliy Katsenelson: I especially love traveling to Europe.
1:36:26
I've been to South Africa, which is, I'm not sure it's as real Africa as the...
1:36:32
Jim O'Shaughnessy: Yeah, it's not.
1:36:35
Kenya, Botswana- Vitaliy Katsenelson: It's like going to Santa Barbara.
1:36:37
Jim O'Shaughnessy: A little bit.
1:36:39
Vitaliy Katsenelson: Well I think traveling my best memories, some of my best memories are traveling with my family when I was little, but also, so my mom passed away when I was 10.
1:36:50
And that was incredibly, as you can imagine, traumatic experience, but there was this silver lining, which I'm almost embarrassed to say this.
1:37:03
I started to value and appreciate my father so much more because I realized I was afraid that I'm going to lose him, and this became part of my subconscious.
1:37:09
So I always made an effort to spend time with my father, and so therefore as an adult already, when I was married, my father and I would travel together just... Like South Africa.
1:37:21
I gave a speech in South Africa, my father and I went there together.
1:37:26
I gave a speech in Europe.
1:37:26
We went there a few times.
1:37:33
We drove to Santa Fe many, many times.
1:37:33
In fact, I'm going there tomorrow with my daughter and we go to Santa Fe and watch the Santa Fe opera.
1:37:38
I live in Denver, so that's an eight hour trip and it became a family tradition.
1:37:43
And in fact, when we come to Santa Fe now, and we've been doing the for I think 10 years, and my daughter, Hannah, who is coming with me.
1:37:52
My son is in Switzerland right now. He's coming on Saturday.
1:37:57
So just two of us are going.
1:37:57
I remember last time we were in Santa Fe, my kids were...
1:38:03
We would be walking by something.
1:38:03
And my son would say, point of something like, "Dad, do you remember this?"
1:38:10
Because we had dinner there with my father or something funny happened, and so traveling became a very important part of my life because it's almost you experience life.
1:38:24
If you think about our lives right now, you probably have the same monotonous life, and to some degree you go come to the office, there's a lot of repetition.
1:38:28
Traveling interrupts that, and so we just came back from 10 days in Europe with my kids.
1:38:38
And I tell you this, we visited four countries.
1:38:43
I don't know 11 cities, 10, 11 cities.
1:38:43
And I tell you this 10 days felt as I'm thinking about them as a year because every day we did something different, and therefore I didn't even think about it, but that's the way you are kind of slowing down life a little bit because you added new textures to your life that were not there before.
1:39:06
So this is why I never thought about I'm going to try to verbalize my love of traveling, but I think this became a big part of my life.
1:39:11
And one thing actually I realized, and this is a deeper topic, and this is kind of part of American culture, I think, a lot more American culture than European culture is that we think our life will begin when we retire. We going to start.
1:39:25
And I would argue Europeans do a better job doing this.
1:39:33
Jim O'Shaughnessy: I agree.
1:39:38
Vitaliy Katsenelson: In Vienna, you go to a coffee shop and you see somebody sitting there for two hours drinking this little tiny espresso and reading newspaper, and I feel like they learn how to slow down life, and the same thing comes with travel because what happens to us is that, well, we're going to travel when we retire.
1:39:57
We kind of get this attitude.
1:40:05
And I find that, well, when I retire, I may still be traveling, but that doesn't mean that from 20 to 60 to whatever I'm going to retire.
1:40:13
I'm never going to retire anyway, so it doesn't matter.
1:40:18
You and I will never retire because it's not like you and I are lifting heavy boxes and stuff.
1:40:25
But what I found about this is that I have to make an intentional effort to travel because the daily life gets in the way.
1:40:33
And therefore I have to stop and schedule traveling.
1:40:33
Because if I go on autopilot and I'm a workaholic, probably so I'll just keep working.
1:40:42
I'll keep plowing and therefore by forcing myself to travel again, it's just stopping my it's...
1:40:49
I don't want to say forcing meaning like that, oh my God, I'm going to travel. I don't want to do this.
1:40:55
No, quite the opposite, but I have to get off the out of autopilot and schedule traveling.
1:41:05
Jim O'Shaughnessy: Very, very good answer.
1:41:07
I had the same experience.
1:41:07
I just also think that the ability to experience different points of view and different sensitivity to initial conditions and path states, for example, if you're trying to help somebody understand path states and the contingencies that they force upon us is sometimes is helpful to make examples of people who pre-internet, like if they were born in, I don't know, Bangladesh, I invest in Dan McMurtrie's anchor list, Bangladesh [inaudible].
1:41:49
Prior to that, they just didn't have, unless they immigrated to the U. S.
1:41:49
or somewhere in Europe, they just didn't have the opportunity that they now have.
1:41:56
But it's very helpful to understand that there are different constraints on different mental models.
1:42:04
There are different reality tunnels.
1:42:10
And the more that you travel, the more you experience them firsthand.
1:42:10
For example, if you get a chance, if you've never been to go to Bhutan, I highly recommend it.
1:42:20
I totally agree with your point about we Americans being workaholics and you want a people that have nailed lifestyle, the Italians man.
1:42:28
It's hard to kick them, take the crown off their head because we go to Italy...
1:42:37
Well, we didn't go during the epidemic pandemic.
1:42:45
But prior to that, we went to Italy at least once a year, often twice a year, but not just Italy.
1:42:45
So we wanted to go broadly and learn things.
1:42:50
Vitaliy Katsenelson: I have one more answer because I just realized.
1:42:56
It allows you to expand your myopic circles.
1:42:56
And this is what you're talking about. Let me run this by you.
1:43:03
I don't have a single friend who smokes, not a single.
1:43:13
You probably don't have either.
1:43:13
Now, so it's very easy for us to assume that nobody smokes, right?
1:43:21
But interesting part, once you identify somebody who smokes, I'm sure those people know, most of them smoke, and that applies to everything.
1:43:25
You can make the same argument about vaccinations.
1:43:37
And so we live in this little tiny bubble because we surround ourself by people...
1:43:44
We want to socialize with people who are like us.
1:43:52
And I'm really just expanding on the point you made, but by going outside of our myopic and that creates myopia because we see the world through only our environment.
1:43:59
By traveling, it allows you to see the world through...
1:44:06
You expand your circles and see the world from other people's eyes.
1:44:11
You said that, but I'm just giving it from- Jim O'Shaughnessy: No, I love that.
1:44:15
And I often refer to it as opening your aperture.
1:44:15
If you're a photographer, the aperture lets in, so the more open your aperture can be and the less judgemental you are, I often find that people think they're thinking, but they're just judging.
1:44:28
And I'm a fan of thinking.
1:44:36
Well, so when I put this up on Twitter, as I always do saying we did it, I'm going to just say part one because I don't think we touched on any investment things and you're a bit of an expert there.
1:44:48
So I think that we could- Vitaliy Katsenelson: Let's do it. I'm happy.
1:44:53
I would be delighted to do part two.
1:44:55
Jim O'Shaughnessy: You get two bites at this apple because you're going to come on again.
1:44:59
But the question, as you probably know, because you listen that I always ask everyone at the end is we're going to make you the emperor of the world.
1:45:09
You can't incarcerate anyone.
1:45:09
You can't send anyone to a reeducation camp.
1:45:15
You can't kill anyone, but what you can do is you have a magic microphone and you can speak two things into it that will incept the entire population of the world.
1:45:22
They're going to wake up the next day, thinking that these two things are their ideas.
1:45:29
They're not going to know that you implanted these ideas in them and they're going to actually pursue these two things in the way they behave and the way they act and the way they treat people.
1:45:41
What two things are you going to accept as the magical emperor of the world?
1:45:46
Vitaliy Katsenelson: So the first one is easy. Be kind.
1:45:49
And this is just because this is something I realized, the world needs more kindness. Let me put it this way. The first one is easy. The second one, God.
1:46:07
So I would go back to, if I go back to my 18 year old self or 19 year old self I'll tell myself, read Dale Carnegie's book, How to Win Friends and learn that you don't have to win every argument.
1:46:24
That's a very specific message to myself then.
1:46:24
But I feel like I'm trying to get people to listen to classical music. I don't know.
1:46:35
It's almost became this huge passion of mine.
1:46:35
In fact, I have this website called myfavoriteclassical.
1:46:42
com where I just put up articles on classical music.
1:46:47
Jim O'Shaughnessy: I know. I've been there. Yeah.
1:46:49
Vitaliy Katsenelson: And I have this article on the front page, which is basically a playlist I created, which I called The Gateway Drug to Classical Music.
1:47:01
I carefully created this list that if you never heard of classical music before you can listen to it and I promise you're going to love it because it's not going to have Chaikovsky's symphony number four because it that should be the second list after you already became a fan. Okay. That's too difficult.
1:47:20
I guess I would want people to listen to classical music.
1:47:27
Jim O'Shaughnessy: I love both of them.
1:47:27
And you also get the treat of when we do the second half of this, we'll talk more about investments and other things like we're interested in, but what's fun about this is, as I was saying to my wife beforehand.
1:47:38
I said, I really don't have to prepare.
1:47:44
I just know we're going to have a fantastic conversation and it's going to go where it's going to go.
1:47:49
Vitaliy Katsenelson: It's phenomenal.
1:47:52
Jim O'Shaughnessy: So I'm delighted that it went to our shared passions.
1:47:52
Well, this has been fantastic.
1:47:58
Vitaliy Katsenelson: Thanks so much.
1:47:59
Jim O'Shaughnessy: We will make sure that all of those links that you...
1:48:00
I'm going to help you push your gateway drug, so that'll be up on me, so this has been great Vitaliy Katsenelson: Jim, thank you so much.
1:48:09
I really appreciate that was lot fun.