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Hi, I'm Jim O'Shaughnessy and welcome to Infinite Loops.
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Sometimes we get caught up in what feel like infinite loops when trying to figure things out.
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Markets go up and down, research is presented and then refuted, and we find ourselves right back where we started.
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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.
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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.
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And through these discussions help you not only become a better investor, but also become a more nuanced thinker.
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With each episode we hope to bring you along with us as we learn together.
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Thanks for joining us, now please enjoy this episode of Infinite Loops.
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Disclaimer: Jim O'Shaughnessy is chairman and Co-Chief Investment Officer of O'Shaughnessy Asset Management, where Jamie Catherwood is an associate.
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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.
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This podcast is for informational purposes only, and should not be relied upon as a basis for investment decisions.
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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.
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It's Jim O'Shaughnessy with another episode of Infinite Loops and I got to tell you, I am super excited for today for a couple of reasons.
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First off, I have two guests.
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I've never had two guests.
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So, I'm thinking they're probably going to double team me, which is okay. That's all right.
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But two of my favorite people as well.
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Bill Brewster, who I've done a podcast with in the past and who is having amazing success with his Business Brew podcast, and then a very special friend, Adam Robinson, who pre-pandemic, we actually got together in physical meet space. Adam Robinson: We did.
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Jim O'Shaughnessy: And I had such a delightful lunch with you, my first question is going to go to you, Adam, because you just seem too modest in your Twitter bio.
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Jim O'Shaughnessy: Let's look at part of it.
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System builder, wizard, shaman to global financial markets, manifest-er and alchemist.
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I got to up my game, man. Welcome.
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Adam Robinson: Wait, I thought you said I was too modest.
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Jim O'Shaughnessy: Teasing. Teasing. Adam Robinson: Yeah.
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Jim O'Shaughnessy: Well, so I've been really looking forward to this because you are such an interesting man.
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Just going over your history, you personally met Bobby Fischer. You are a chess master.
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You went on to found The Princeton Review.
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I mean, it's kind of like you really are an alchemist and a manifest-er. What do you think?
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My first question, I guess, is from the experience, what have you learned from self-learning and then trying to repurpose that with the Princeton Review to help other people do the same?
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Adam Robinson: I think the core thing of what I did at The Princeton Review was teach students how to be resourceful about what they knew.
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So, you're confronted with a question and you don't know what to do.
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You have incomplete information or, perhaps, no information.
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And so what I taught students how to do was to be resourceful about just those situations.
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Before I came along, everyone tried to teach students everything they needed to know for the test.
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If a student by senior year or junior year, hasn't learned the material, it's unlikely in six to eight weeks, he or she is going to. Right?
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But you can teach them how to make much better use of what they already know.
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So, it was sort of mental jujitsu, right?
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I didn't make students that much stronger, but I showed them how to use their strength in novel ways.
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Jim O'Shaughnessy: So, I love it that.
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As you know, I think learning how to think is vastly more important than collecting a bunch of facts that you may or may not be able to synthesize into knowledge.
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And that's one of the things I love about you.
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You're very good at that.
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But you're also a polymath, Who's basically interested in almost everything.
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I think I have a real strong affinity for you there because I am a certified rabbit hold diver.
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How do you decide what to commit to next?
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Is it a process or do you just let your reading, your watching, your listening guide?
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Adam Robinson: So, that's such a good question and I'm going to bifurcate it.
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The first is, what do I consume by way of reading?
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And I have to be very strategic about that because you're quite right. Everything interests me.
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Adam Robinson: I mean, more than interest, everything fascinates me.
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I guess the filter is an organic one.
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In other words, I have a project or several projects I'm working on.
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And then I consume information or ideas, really it's ideas that I consume and mental models with an aim to improving the outcome of whatever projects I'm working on.
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So, it's really organic as opposed to just being curious about everything. I can't do that.
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So, and as for projects, I think the best way is to, for anyone really, is to build on the successes they've already had.
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And so you let's say someone starts off as an accountant, and then they go to consulting and then they go to investing and then they go to podcasting, right?
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And so each new chapter in your life, I assert, I was going to say I believe, but I assert should build on all the previous chapters of your life.
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Jim O'Shaughnessy: I admire you with the assert as opposed to believe, that is something I have been working on very intently because I find...
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And Bill, I'm going to actually bring you in here because we actually worked on this together.
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I find that when people say, I believe they often attach that belief to their description, their self-story, their narrative about themselves, right?
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And then anyone challenging that belief is read by the person as a challenge to them as a human being, which I think is tough.
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And so, I've been trying to retrain myself to present my ideas as saying things like my thesis, my hypothesis, my assertion, et cetera, because models, in my opinion, are designed to be challenged.
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If you think about the underlying system of a model versus a belief, beliefs are often formed based on lack of information I've found, whereas models for the most part, at least the way I've worked with them...
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Jim O'Shaughnessy: And I could be wrong, obviously, but are designed to be challenge.
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Like, oh, I don't think that's right.
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And when you're doing it that way, and then joining it with writing, which I'm going to get to in a bit, because I know you're big on this as well.
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It opens up pathways in your brain that literally work kind of like, that neuro net wasn't there.
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And if you build it, it gets stronger and stronger.
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But Bill, so you and I, we don't have to get deeply into it, but I sent you that piece that I wrote called The Thinker and The Prover.
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What did you think of it?
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Bill Brewster: I think when we work through what we work through and rather than be vague, I'll just say, right, what was going on.
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I was questioning sort of what I wanted to do and how I identified certain things in my own life and where I wanted to take certain things.
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And one of the exercises that Jim helped me with is he said, "For 10 days, you know, just write down in different categories of your life, what you want to accomplish."
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And what I noticed is over time, the same words came out in certain different scenarios.
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Bill Brewster: And it gave me an idea of what I sort of identify with as I guess, who my core person is.
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And the reason that I'm doing certain things that I'm doing.
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And I don't specifically recall The Thinker and The Approver, but I can tell you that as, like the thought that was going on in my head as we were having this conversation, is just how powerful the narrative that I have told myself in the past has been and how hard it has been to change that narrative and how important the words and self-talk have been.
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Bill Brewster: And as I had after interviewing Mr.
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Vandenberg, I've started to get into the subconscious mind and realize how important it is to...
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Tony Robbins talks about it a lot, too.
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And, maybe that was my first introduction, but at the end of the day, I really want to watch the words that I'm talking to myself with. Jim O'Shaughnessy: Yeah.
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They're very important and I'm sure, Adam, I can assert this and I probably not be wrong.
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Were you an early reader of Bandler and neuro-linguistic programming?
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Adam Robinson: Yes, but I arrived at them via Milton Erickson. Jim O'Shaughnessy: Yes. Adam Robinson: Right?
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So, Milton Erickson was truly a genius.
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Jim O'Shaughnessy: I agree.
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Adam Robinson: And those of you who don't know him, he founded hypnotherapy via storytelling.
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So, a patient would come to him and he would tell them stories.
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I don't mean like once upon a time stories, they always seemed like anecdotes.
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But they usually were things he made up on the fly and he induced trance states.
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And so Bandler and, who was the other fellow? Bandler and...
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Jim O'Shaughnessy: Grinder. Adam Robinson: Yeah. Right, right.
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So, neuro linguistic programming, they became students of Milton Erickson.
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And really it's worth anyone who's interested in communication and persuasion should get hold of Milton Erickson's original transcripts.
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Adam Robinson: They're fascinating reading.
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And you really see his nuanced genius.
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I want to jump in though, before we leave that question you threw out to Bill about The Thinker and The Prover. Jim O'Shaughnessy: Yep.
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Adam Robinson: And the reason I don't like the word belief is the same reason I don't like the word think.
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For example, all of us are in the investing world.
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And so it's key around any investment decision to calibrate around risk. Right?
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And so not one of us would say, we think Tesla's going higher. Right?
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Or we feel that Tesla's is going higher, or we believe Tesla's going higher.
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We'd say, we know Tesla's going higher or whatever.
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We're not giving investment advice. Right?
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And calibrate around the state of that knowledge. Right?
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And you talked about proving and I'm going to flip it and think of disproving? Right?
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Adam Robinson: Falsifying a thesis.
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So ,once I know something, for example, I know that a gold is going higher or the dollar, yen is going lower.
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Once I know something via some chain of analysis, then all I'm thinking about is, what do I need to see to change my view?
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So, I'm always looking to disprove, always actively looking to disprove anything that I know.
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So, I'm dogmatically, flexible. Flexibly dogmatic.
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Jim O'Shaughnessy: I love it.
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And I follow the same process.
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I think I take it even further.
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I very rarely assert that I know what's going to go on in markets.
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I have a directional idea and I have some pretty good evidence that hasn't been falsified yet for keeping to that directional idea.
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But I think it's one of the things that I actually wanted to get into.
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So, this is a great segue.
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I cherish the ability to have reached a point in my career where I can simply answer, honestly, I don't know, and try to learn. Right?
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So, I've been a huge fan of The Beginning of Infinity by David Deutsche.
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And I re-read it recently, and I did a thing on Twitter about it.
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And what it reminded me of was the idea of we get caught up in this trap, right?
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Where we think we know something and Malthus is a great example here. Right?
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So, Malthus got part of it, right?
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He actually did get part of it right.
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That population going up, if the foods supply remains the same, everybody's going to starve.
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What he got wrong, which is significant, was he believed that he could prophesize future inventions in knowledge. And we can't do that.
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And one of the things that Deutsche is so brilliant at is reminding us that there's this thing in our Human O S that sort of believes that we know. Whereas we don't know.
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And one of his great examples was in the book, what do you think physicists were saying about the internet back in 1900?
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They weren't saying anything about the internet in 1900, because it hadn't been invented.
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And so, it's a very subtle thing, I think, but constantly reminding yourself that you can't prophesize future knowledge, that you need to have an open mind.
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You need to take criticism and you need to continually correct your errors. Right?
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When people get headstrong and you know, I'm not going to pick anyone in particular, but I don't watch TV news. I think it's poison.
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But let's just say I had it on.
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Jim O'Shaughnessy: And who often are people going to listen to and believe?
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They're going to believe the guy or lady whose, Tesla is going to X or a crash is coming, stated very categorically, stated with emphasis, proselytizing, et cetera.
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Well, that's exactly the person you shouldn't believe. In my opinion.
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You should, whenever you hear that, if you can train yourself, this is another trick that I managed to do with thinking about things.
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Why am I hearing this now?
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What if I inverted what he was saying, would that make sense?
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And just the constant questioning, but the fact is it's tiring, right?
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I mean, Adam, you think for a living.
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What word are we going to use instead of think, Adam?
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Adam Robinson: So, in that sense, thinking is two different things.
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Adam Robinson: The process of thinking by which we arrive at knowledge. Jim O'Shaughnessy: Yeah.
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Adam Robinson: And then whether we think something or know something or believe or feel, and just to clarify, because I agree with you a thousand percent, which is why I said, always calibrate around your knowledge and then set up benchmarks.
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What do I need to see to tell me I'm wrong?
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But otherwise, I know this to be a fact, and it's a useful tool also for fighting as, Bill and I discussed, confirmation bias, right?
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Because most people, when they state a belief they're just looking for evidence that they're right, I'm continually looking for evidence that I'm wrong.
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Jim O'Shaughnessy: Which is one of the central keys to Nullius in Verba, take no one's word for it. Even your own. Honestly.
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One of the things that I advocate and have gotten amazing results with is journaling.
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Jim O'Shaughnessy: And if I move the camera, you would see like boxes upon boxes of journals behind me.
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There's nothing quite like being called a liar in your own handwriting.
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I think that one of the kindnesses, our brains do to help us try to maintain an illusion of control, is update what we think are our memories about something we thought a while back.
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I think that we tend to think our memories are solid.
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I look at memories as unreliable narrators at best. What do you think?
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Adam Robinson: Well, I agree completely.
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I'm reminded with amusement of Mark Twain saying that, "When I was 15, I couldn't stand my old man.
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And when I was twenty-five, I was amazed at how much he had learned in 10 years."
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Jim O'Shaughnessy: Right?
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Adam Robinson: And of course, I feel the same about myself.
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I look back at each stage in our life, we can say, okay, now we've kind of reached, not the summit of wisdom, but, okay.
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I think I know that domain pretty well.
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And then we learned something new and we realized, oh, no, we're just at the start.
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It was Kurosawa, the director in 1992, received a lifetime Oscar for directing and presented by his two biggest fans, George Lucas and Steven Spielberg.
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And Kurosawa, at the age of 82, 1 of the greatest directors of all time said, "I don't believe I deserve this award because I'm just now getting the hang of this directing thing." Right?
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"I'm just getting the hang of it, but I'm going to accept the award as an inspiration that one day I might truly deserve this award." Adam Robinson: Right?
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And each of us, all three of us are learning continually. Jim O'Shaughnessy: Yeah. I love it.
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And you know, it reminds me of the Samuel Beckett quote, try again, fail again, fail better.
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And, I love that and I want to segue into something else.
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Bill Brewster: Jim, do you mind if I just riff on something real quick that you brought up?
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Jim O'Shaughnessy: Please.
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Bill Brewster: The comment of, why am I hearing this now?
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I tell this story a lot, but it was really meaningful to me when it happened.
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I was at Berkshire and I was fortunate to be sitting at a table with a Wall Street legend.
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And it was interesting, a news story came out and all of us mere mortals were sitting there discussing the facts of the story. And he sat there.
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And the only question he asked is who leaked it and why'd they leak it now?
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That was the only thing that he was really worried about.
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And we were all talking about the story.
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And I think that, somewhere that you and I interact a lot is Twitter.
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And I think something for the younger people that may follow our accounts.
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Bill Brewster: When I see people's position sizes and whatnot, I wish the conversation was, this is my position size.
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This is how much I actually gain from my employment.
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This is how much I think I'm going to earn over time. This is my real risk.
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I have a wife that's super rich.
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So, if I swing and miss, who cares?
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All of the nuance of the conversation, is all of the facts that are not stated.
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And all of those facts, I would assert, are the facts that really, really drive the decision-making behind whatever it is that the peacock-ing, for lack of a better term, that people see is.
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And that day, the way that I watched him ask that question of who leaked it and why'd they leak it now, it changed the way that I look at everything.
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Jim O'Shaughnessy: It's a great way to train yourself, Bill.
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One of the things I always say, and not facetiously, follow the money and follow the patents.
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There's a very, very easy to use patent search that you can use.
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Google, there's some you have to pay for, but if you're reading something and asking yourself or hearing something or whatever, I always say, "Wow, okay.
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So, why am I hearing about this now?"
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And then, especially if it gets amplified, then I'm like, "Okay, the mice are busy, let's see why the mice are busy."
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And so that segues though into another question that I had for you, Adam.
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So you're a rated chess player.
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You're an incredible chess player.
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I- Adam Robinson: Rated chess master. Jim O'Shaughnessy: ... played chess but, right? I play chess.
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My son, Patrick was an amazing chess player until he hit puberty. And then that was done.
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Played on the chess team for his local school.
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But do you ever find Adam any conflict...
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well, let me rephrase this.
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How you think about playing chess as a rational thought model?
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Or am I wrong there, and is it more intuitive?
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And if so, I'd love to hear you explain that.
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Adam Robinson: So well, that's a good... okay.
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So there are lots of branches to your question.
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It's intuitive in the sense that your rationality can only take you so far.
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So the way to think about it is, is a chess board has 64 squares.
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I have 16 pieces, you have 16 pieces.
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And when I make a move, I have to consider any number of your responses.
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And for each of your responses, so much I've got to keep this in my head.
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Each of your responses, so I go down one branch, that then branches again.
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So for each of your responses, I might have half a dozen responses.
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So you wind up following a branch and then deciding, that move is no good.
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And then you've got to come back to the beginning and go down another branch.
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And you've got to do that within the space of a few minutes.
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So this is really fascinating.
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Adam Robinson: So intuition comes in because we can't calculate so far.
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So the intuition is not the intuition of a mystical kind of intuition.
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It's a trained intuition, right?
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It's because I've seen this position so many times, I've developed heuristics for this position, right?
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And, I know in this kind of situation, this kind of plan tends to work.
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So we're forced to rely on our intuition.
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Which is to say heuristics that we've developed over time.
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And what's really fascinating about the game, is a lot of these heuristics have been handed down by grand masters, and world champions throughout the centuries.
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And about 6, 7, 8 years ago Google, through its subsidiary, deep mind decided what if we gave a computer a neural net, just the moves.
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Sorry, just the rules of the game.
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And we didn't program it with any human games.
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What would it figure out?
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And in four hours, mind you, a computer working from scratch, leapfrogged all existing knowledge of the game. Jim O'Shaughnessy: Yep.
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Adam Robinson: And so what was fascinating with that is, and it has applications way beyond chess.
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Is that most of what we knew about the game was correct.
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In other words the heuristics the intuitive rules that you referred to.
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That masters and grandmasters have derived over centuries, most of them were right.
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But some of them were not.
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And so you've got a computer that's way better than any human being.
22:28
Playing moves that look like human moves until they don't.
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Then it looks like it's playing alien chess for four or five moves.
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And then boom, checkmate!
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And you go, "What the heck! How did that happen?"
22:38
And so the intuition, and Gladwell talked about this in his book Blink, right?
22:43
Which is a little bit of a misrepresentation.
22:49
Because you know how to think without thinking is, well, you can think without thinking when you've trained your intuition over a decade or so.
22:57
The intuitive decisions Bill makes and you make, and I make about markets.
22:57
That's informed by lots of thinking.
23:03
Jim O'Shaughnessy: So that leads me into the question.
23:06
So I've been talking, and actually I'm going to do a series on Infinite Loops about this, what I'm calling the great reshuffle.
23:11
Which is happening right now.
23:16
And I think that our world is going to change more in the next 20 years than certainly during my lifetime. Adam Robinson: Yep.
23:26
Jim O'Shaughnessy: And I think that a lot of good is going to come out of that.
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And a lot of scary things are going to come out of that.
23:32
And I think that some of the central pennants that I see is, we have collapsed geography, space, and time.
23:36
And as we move from the physical universe to the digital universe, with no geography.
23:44
A whole new way of people learning, of people working, of people creating art, of people playing games is going to open up.
23:59
Jim O'Shaughnessy: And so Adam when you and I got our degrees, I always thought of it as our degree suggested competence, right? It didn't confirm it.
24:03
Now I see Twitter, and it's why I'm so active there.
24:13
I think that Twitter is this snarling point.
24:19
And I think that it has the ability if properly curated, let's be careful.
24:19
Because there's a lot of noise in that system still.
24:26
But I think it has the ability to emerge as a global intelligence network, and as a living breathing CV.
24:32
Where you can watch people do their work.
24:39
Well, for example; Bill, I mean, I watched Bill on Twitter.
24:39
I'm like, "Oh, this guy's pretty cool."
24:44
Which led me to listening to his podcast, which led me to inviting him on my podcast.
24:51
And so I think that on the one hand, this is very good for people who are already naturally good at nonlinear thought, as opposed to linear thought.
25:00
And I think that this is especially good for people who are knowledge synthesizers, as opposed to information collectors, right?
25:14
So I'm sure you probably share, but I could be wrong.
25:19
Claude, Shannon, the father of [crosstalk] the Information Theory.
25:22
Bill Brewster: Of course.
25:23
Jim O'Shaughnessy: Right?
25:23
I think we're bumping up against the Shannon Limit.
25:24
And I think we're going to find a way around that by our tools.
25:24
And that's the way I look at technology, by the way. It's an extension of us.
25:30
And yes, what's the great quote that Marshall McLuhan or somebody?
25:35
I'm sure I'm getting the attribution wrong but, first we shape our tools and then our tools shape us.
25:40
And I think that- Adam Robinson: Yeah, it might be Buckminster Fuller or someone like that.
25:47
Jim O'Shaughnessy: I love both those guys.
25:48
Bill Brewster: Hey, Jim can you define the Shannon Limit? Jim O'Shaughnessy: Yes.
25:53
According to Claude Shannon, who by the way, I think should be as famous as Einstein.
25:58
Adam Robinson: It's crazy!
25:59
Jim O'Shaughnessy: And is not, because everything that we're doing right now, Bill, is because of Claude Shannon.
26:02
This is because of Claude Shannon and his Information Theory.
26:08
And plus much like one of my heroes, Richard Feynman, he was a real character and loved lots of different things.
26:14
The Shannon Limit, Bill is the amount of information that our human brains can take in before tilting.
26:27
Bill Brewster: Yeah, okay.
26:28
Jim O'Shaughnessy: And- Bill Brewster: That's what I thought it was. Jim O'Shaughnessy: Yeah.
26:31
And this is one of my problems, and I'm going to be interested in both of your points of view here.
26:36
One of the reasons I am so draconian about what I will and will not read, or watch, or listen to.
26:39
Is because our attention is the new gold, or if you're into Bitcoin, it's the new Bitcoin.
26:48
And your ability to focus that attention is I think one of your greatest assets.
26:54
And so for example, people make fun of me.
27:03
I have no interest in sports.
27:03
I have no interest in celebrities.
27:07
I have no interest in a lot of things that occupies a lot of people's time.
27:07
I'm not saying that people who are interested in sports are wrong. God bless them.
27:14
I mean, if that's one of the passions, there's a lot you can learn from sportsmanship, et cetera, et cetera.
27:24
I like the lessons, right?
27:24
But it's like, I do this though, because I got to leave room to make sure that my Shannon Limit doesn't fill up.
27:32
First you Bill, I mean what do you think about thinking that way?
27:37
Bill Brewster: I think that a lot of what I'm doing right now, trying to promote some sort of financial media business on Twitter, probably damages my brain as much as it helps my brand.
27:45
But the other side of that is, I mean, I have two major reasons that I love FinTwit.
27:51
One is, when my cousin-in-law committed suicide, it was my platform for piecing together something, and then getting a message out.
28:03
So that was a moment in my life that I could never have had without that platform.
28:08
And it was a highly emotional one.
28:08
And I'll never forget that connection that I have with the platform for that.
28:14
So if you ever hear me say that I own put our shares, for instance.
28:19
Be fully aware that there's endowment bias.
28:19
Second, I came into investing through the thought of traditional value.
28:25
I want to be careful with what I say about value investing, but I really didn't understand growth, right?
28:36
Bill Brewster: It was an element of investment that I for whatever reason, some of the language that I spoke to myself with, right?
28:40
I asserted that the future is completely unknowable, therefore don't even really pay attention to it.
28:49
And the amount of money that that costs me as a mistake, it is just like it makes me sick inside.
28:54
But the community of Twitter helped me realize the error of my ways.
28:54
And is a large reason that I didn't capitulate in 2020.
29:03
I mean, the shifting my framework from 2017 to 2020 was the reason I was able to execute in 2020.
29:10
And I think that when used correctly, the ability to train or to learn things, I mean, I think FinTwit has been every bit as valuable to me as an MBA would have been.
29:23
But I think for myself managing the addiction to the dopamine, and managing the amount of time that I burn on it is probably the biggest downside. Jim O'Shaughnessy: Adam.
29:38
Adam Robinson: Well, Claude Shannon, I'm going to tie what this question back to your first question, in fact. Jim O'Shaughnessy: Okay.
29:46
Adam Robinson: And so Shannon was a direct culmination of the pragmatists and Bayesian probability, right? Jim O'Shaughnessy: Yep. Mm-hmm (affirmative).
29:53
Adam Robinson: And so for me, I'm keenly aware of that Shannon Limit.
29:54
And you said before, how do you read?
30:00
And I talked about an organic process.
30:00
I read very little, I can read one of your tweets, Jim or you Bill.
30:08
Or one quote and sit with that for a day, or a week and mine that.
30:08
And so I read very little.
30:15
I'm very conscious of the limits of my working memory.
30:15
Our working memory is actually what we're doing the thinking with.
30:21
And occasionally we access the hard drive, right? Our long-term memory.
30:26
But most of our thinking is done with our working memory.
30:31
Which is very limited capacity, right?
30:31
Jim O'Shaughnessy: Mm-hmm (affirmative).
30:32
Adam Robinson: And it's seven items.
30:33
So, when I analyze global markets, I reduce all the complexity of stocks, and bonds, and currencies, and commodities down to two or three variables.
30:41
And I just track those variables.
30:46
And so when I read, if I get an idea, one idea from a book like, [Dulge's] book on Infinity.
30:53
I probably I've read Shannon's Information Theory, and which he did when he was 26.
30:58
I think he's [crosstalk]- Jim O'Shaughnessy: I know, that's amazing. It's just amazing. Adam Robinson: Right? Incredible!
31:04
And by the way, there's a great book Fortune's Formula.
31:04
I don't know if it's- Jim O'Shaughnessy: I've read it. Yeah. It's a great book. Adam Robinson: Yeah.
31:09
Because it talks about, he was a great investor, right?
31:09
With Kelly and the other guys from Bell Labs, right? Jim O'Shaughnessy: Yep.
31:14
Adam Robinson: They put those brains to work.
31:15
So yeah, I think it's really important that each of us, no matter what his or her domain, is restricts the amount of information that you take in.
31:27
Because you can't deal with too much, right?
31:27
I really, I don't understand people that read a book a week, or two books a week.
31:30
I'm more likely if I've read a book to want to go back and reread it the second time an annotated.
31:35
Than I will, "Well, what's the next book I'm going to read?"
31:40
Jim O'Shaughnessy: So- Bill Brewster: That's so interesting to me because in my circle, there's so much pressure to hit the 500 pages a day, or a week, or whatever the legend has turned into, right?
31:46
And if that's really the goal, and that's truly what people are striving to.
31:51
To your point, how much retention is in that, versus just being able to do that to say, "Hey, this is what I do."
31:56
And sell an idea of who you are rather than reality, right? Jim O'Shaughnessy: Yeah.
32:05
Bill Brewster: In an interesting thought.
32:06
Jim O'Shaughnessy: So, that's one of my hot buttons, these prescriptions, these lists.
32:11
I actually did a thread on it, because I got so irate reading, this is the four things millionaires do every morning. Fuck that!
32:16
It is not what millionaires do every morning.
32:23
That- Adam Robinson: Do they not talk to you, Jim?
32:25
Jim O'Shaughnessy: Well, number one, and actually Adam, that brings up a wonderful point.
32:28
I have a real thing about the book, The Millionaire Next Door.
32:34
And the reason that I have this thing, is it was a self-selected sample.
32:39
Meaning the people who chose to be interviewed were people who agreed to a daylong interview process to get paid $200, or whatever it was.
32:48
They self-select it, and in fact, in the thread that I'm referring to.
32:58
I'll put it up after we're done. I'm like you probably... Mr. Person trying, or Ms.
33:02
Person trying to better yourself, you probably have more in common with a real millionaire than these people.
33:09
These people will waste a day of their lives for a couple 100 bucks. That's insane! Why would you do that?
33:20
And so- Adam Robinson: They would make the 500? Is that it?
33:21
They wouldn't get to 500 [inaudible]?
33:25
Jim O'Shaughnessy: No, But my point is what makes me irate about this, is that these people are actually trying to better themselves. Which I admire.
33:31
And into this tsunami of clickbait about, you have to do X, Y, and Z, you have to do your morning notes, and do your deep breathing, and... it's all bullshit.
33:46
And what you're doing I think, is you're sending them down a path that they didn't design, right?
33:52
I'm a passionate believer in, listen, I can't change you, Adam. I can't change you Bill.
34:05
Maybe if I write something that you find works for you, and you decide you want to change yourself, great! Then I've help.
34:09
But you got to work on yourself.
34:09
And you've got to find a method that's right for you, in my opinion.
34:14
Jim O'Shaughnessy: But Bill, I think that as a young guy, one of the things that you could really do to be really helpful to your contemporaries.
34:23
Is have people in your podcast who debunk this stuff. Bill Brewster: Yeah.
34:30
Jim O'Shaughnessy: Because to me, I would be so impressed, right?
34:31
If a month from now and you had somebody on, who's like really good at saying, " Yeah, you don't want to do that."
34:37
I mean- Bill Brewster: Well, I might have someone that you know pretty well on, shortly.
34:47
But I would like- Jim O'Shaughnessy: I think people are tired of listening to that guy.
34:49
Bill Brewster: I don't know. I think they like it.
34:49
I would love to do that with the podcast.
34:51
And Adam, and I had actually talked about really what the right model, and education lens for the podcast is.
34:56
And it's part of why I really liked taking a break.
35:03
Was it allowed me to take a step back and think, what am I really trying to do here?
35:07
And I would like to debunk a lot of that stuff.
35:07
It's part of why I really like when people come on and they talk about some hard parts of their career.
35:13
Because I think so often there's this perception, of everything this person touches on a podcast, right? Turned to gold.
35:23
And they never had adversity.
35:23
And it wasn't a struggle.
35:23
And look at how great their career is.
35:28
Bill Brewster: And it's like all of the sacrifice that led up to why they're being interviewed now is forgotten in many ways.
35:35
And I would like to have people that are willing to debunk that.
35:42
And talk about what it really costs them.
35:42
Some people it's their family. Some people it's health. Whatever it is, right?
35:47
I think those are interesting conversations.
35:47
And they may not be ones that people want to hear.
35:51
But I think that they're very very important.
35:55
Because the one thing that I will assert here, is if you want to envy the person's life who you're listening to, you've got to take the whole life.
36:02
You can't just take the parts that you really, really like to think exist.
36:06
And I talked to people about Buffett about that a lot.
36:12
I really, really love Buffett.
36:12
He has taught me an immense amount.
36:12
But trading places with him that would be really tough, I have a really great family life.
36:17
And that means a lot to me.
36:21
And I think we'll probably tell different stories when we're 80, about what that meant.
36:26
And if I leave some chips on the table, I'm pretty okay with that.
36:29
Jim O'Shaughnessy: As it should be. Go a head. Adam Robinson: Yes.
36:31
So, I want to riff on what you just said, Jim about lists, right?
36:32
And how to books in general, right?
36:32
And most how to books are...
36:38
first, they're not how to, they're what to.
36:38
They give you a list of things to do.
36:38
But they don't actually show you how to do it.
36:42
But to your point about lists, and they tell us what someone does, or some group of people does.
36:47
But the really important thing is what they've chosen not to do, right?
36:52
And if you think about someone like, I don't know.
36:52
An artists like Picasso, or a director like Korusawa, or an investor like Jim O'Shaughnessy, right?
37:03
And there's a few things you do, but there are hundreds of things you've learned not to do.
37:08
And that's really what makes the difference.
37:08
There should be a book, what millionaires don't ever do.
37:14
And- Jim O'Shaughnessy: Now, that's one I would read.
37:18
Adam Robinson: Because people read, say an article about Frank Brady, and he's vegan.
37:21
And he wakes up at 4:00 AM.
37:26
And people make notes, okay, got to be a vegan if want to win a Super Bowl, and got to wake up at 4:00 AM, and marry a supermodel.
37:32
Half & half with a [crosstalk].
37:37
Jim O'Shaughnessy: That one might be a bit.
37:39
Adam Robinson: And so they look at all that they do, but they don't look at what that genius, and any achiever in any domain is a true genius.
37:41
And it doesn't matter whether you're Michael Phelps, or one of my favorite sayings by Bruce Lee is, hack away at the inessentials, right?
37:51
And it's just chop, chop, chop, chop, chop.
37:56
And focus on a few things that you do really well.
37:56
And it brings me back to my favorite quote from Charlie Munger, "Take a simple idea and take it seriously." Just work it to death.
38:06
Doesn't have to be complicated.
38:06
Jim O'Shaughnessy: I agree completely [crosstalk] Bill Brewster: Sorry, Jim, but Adam, when you and I had spoken in the past, you said think about that sentence, right, and decompose that sentence.
38:15
He didn't say take a couple ideas, he said take a simple idea, and that is the key.
38:19
Jim O'Shaughnessy: So yeah, that's kind of what I did.
38:23
I became obsessed with what works on Wall Street and that was my obsession.
38:31
And it was a simple idea.
38:31
It was, okay I got to get the data from these people who don't want to give it to me, who they've never given it to anyone outside their company before ever.
38:39
I've got to figure out a way to make it understandable to my reader.
38:45
I've got to do this as scientifically as possible i. e.
38:45
the rules need to be spelled out so that if you, Bill, got the same data set and you ran the models, you're going to get the same, it's going to not be falsified, right?
38:59
Bill Brewster: So Jim, what was the incentive that you approach it?
39:02
How did you get the people to give you the data?
39:02
What was the desire that you identified and then to share?
39:08
Jim O'Shaughnessy: I'm Irish. Bill Brewster: Okay.
39:14
Jim O'Shaughnessy: I'm pretty good at persuading people things.
39:16
I've read a couple of books about it as well.
39:22
Actually persistence honestly, persistence, and willingness to do whatever it took Compustat, which is the data set I'm referring to, was headquartered in Englewood, Colorado.
39:28
And I continually asked, got on a plane and asked in person, got to know their director of research who was not predisposed to letting me have this data, and then ultimately reframed it for the then CEO by saying the following: so you're a subsidiary of McGraw-Hill, right?
39:57
And he's like, well, Standard & Poors, McGraw-Hill and Standard & Poors.
39:57
And I'm like, okay, so can I take a guess here and guess that the sales projections they give you are in your way of looking at the world, unreasonable?
40:10
And he kind of was shifting back and forth and I read that as a yes.
40:18
And I said, why don't you just become the database of record?
40:23
And the only way that's going to happen is if you have somebody who has nothing to do with Standard & Poors use your data as the gold source.
40:34
Jim O'Shaughnessy: And it was funny because this is back in the early nineties and I for several years was their best error finder because I had to literally walk the data.
40:46
And Adam, I want to bring you in, in a second on this, because I'm sure you've done this, especially when training for some of your chess, but walking the data is such an interesting thing because A.
40:57
You see all the mistakes.
40:57
You see where they've inverted, when it's supposed to be the price to book, but they put in the book to price, and you see all of these things, and literally you start dreaming about them.
41:09
But you know the data so well because of this, I was giving an interview once and the guy's just looking at me like, how the fuck do you know all of this stuff?
41:23
And I'm like, it took me several years to do this, but the simple answer is persistence and making sure that it was a win-win situation.
41:34
Jim O'Shaughnessy: You're not going to get anywhere in life, I don't think, if you just say, I want your data and you're going to give it to me.
41:39
What you want to do is you want to play infinite games where everybody can win multiple rounds. And that's how I got it.
41:45
Adam, do you find something similar when you're studying for chess or for the global market for that matter?
41:58
Adam Robinson: Global markets, sure.
41:58
So what I really specialize in, Jim, my stock and trade is finding anomalies, and then setting up base camp at an anomaly, and I'm going to figure out what that anomaly is telling me about the model or the world.
42:15
Adam Robinson: So for example, copper and oil tend to move together, right?
42:19
They're both industrial commodities.
42:19
And so if I see oil at a three-month high and copper at a three-month low, I ask myself, well, that's an anomaly, that shouldn't happen too often. So what does that mean?
42:30
If I go back in history what does that tell me?
42:30
And I've started to automate the tests that I run, because really every day at this point I've now automated it.
42:40
So I create in any given day, a couple hundred hypotheses.
42:40
So I'll ask myself, is there a connection between banking stocks, the dollar and interest rates?
42:52
And then remove the dollar as a variable and I'll check making stocks and interest rates.
42:57
And by the way, actually there's a really cool relationship when you throw in the dollar into that mix.
43:00
Adam Robinson: So every day I'm testing literally hundreds of hypotheses.
43:01
I just come up with an idea where I'll notice something in the market and I go, let's see what happened when I go back.
43:11
You talk about walking forward, but same thing, I go back in time and see when these conditions happened before, if they ever happened before, what happened going forward.
43:21
But before I automated that, I used to do it on Excel spreadsheets.
43:27
Jim O'Shaughnessy: Oh wow.
43:29
Adam Robinson: Which is more automated than when we were in college, [inaudible] do it by hand.
43:32
Talking about walking forward and with the data, when I was a teenager at Wharton, I did work study for a professor, a finance professor, and my job was transcribe the futures prices by hand from the Wall Street Journal and the Financial Times by hand.
43:53
[crosstalk] So what the hell is going on with Brent oil versus the goal?
44:02
Cause I was right there with the data.
44:02
And I think that's lost today, that intuitive sense of relationships.
44:10
Adam Robinson: So I still sometimes like to do things by hand on an Excel spreadsheet, but I've automated it and I can run a test really in three seconds going back twenty, thirty years on any kind of hypothesis.
44:23
Jim O'Shaughnessy: One of the least glamorous things that we do at OSAM is data cleansing, and I insist upon it, because it would make your hair stand up on the back of your neck if you saw some massive ticker symbols, that everybody knows, and then you looked at five different data sources and three of them differ.
44:43
Is this like a silent little bomb waiting to go off, with people just assuming that, oh yeah, all of this data's right, boom, boom, boom, boom. What do you think? Adam, you first.
45:00
Adam Robinson: Well, a couple things.
45:02
One is, when you've put in the work then you actually know.
45:02
Like if I told you the price of IBM is at 10 day high, or whatever.
45:08
Then in a sense, you guys know that only because Adam has told you that, right?
45:15
You haven't actually checked it out.
45:21
Now, you know me, so I have some credibility and Adam tends to be right about things so, probably IBM is at a 10 day high.
45:27
Are you going to make an investment decision based on your belief in me?
45:31
Cause I'm fallible, right?
45:35
Adam Robinson: And so I think it's really important to put in the work.
45:37
But there's a more subtle thing, which is checking out what you think you know.
45:45
I think we spoke about this Bill, in our podcast, but this is really fascinating, Jim.
45:45
So, it was exactly four years ago, summer of 2017, and a few of my clients, and these are all named guys you would know, asked me the same question in the summer of 2017.
45:57
This was when the market was melting up.
46:03
And they said, Adam, why is the dollar keep going lower?
46:08
Adam Robinson: So I said oh, and I was fascinated that they were puzzled by that.
46:13
And I had a hunch and I said, well I tell you what, why don't I come into the office and we'll discuss the dollar. And they said great.
46:18
So I went into the office and every conversation went exactly like this, Jim, and it'll blow you away.
46:21
And it should blow everyone away, whether you're interested in finance.
46:29
Adam Robinson: So I arrive at the first office and he says, so Adam, what's with the dollar?
46:33
Why's it keep going lower?
46:33
And I said, well, I have an answer for you, but first I'd like to give you a pop quiz.
46:37
He said sure, shoot, what is it?
46:42
I said US interest rates, year to date, are they higher or lower?
46:42
And he didn't roll his eyes, he said Adam, come on, they're higher, what are you asking me for?
46:49
I want to talk about the dollar.
46:53
I said, okay, US tenure yields are higher year to date, that's what you're saying?
46:57
Yeah, come on, what about the dollar?
46:59
Adam Robinson: I said, okay, we'll get to that in a sec.
47:02
Now pop quiz number two, German bund yields, Euro zone yields, tenure yields, are they higher or lower year to date?
47:08
He's like, oh come on, Adam they're lower.
47:08
What are we talking about that I want to know about the dollar.
47:12
I said, okay, let's just check it out.
47:12
Let's go fire up your Bloomberg.
47:15
Let's take a look at tenure yields for the last two years.
47:15
So the first guy does, and he pulls up tenure yields and the look of bewilderment on his face when he goes, but I'll be damned, they're lower.
47:29
Adam Robinson: And I said okay, now pop quiz number two, you get to change your answer.
47:33
Bund yields, are they higher or lower year to date?
47:33
He said, well they must be really low because I know they're lower than US rates and I thought US rates were higher.
47:42
So I said, okay well let's just check it out.
47:42
So he pulls up the bund yields and they're higher.
47:46
And each one of the conversations went exactly like that.
47:56
What they knew about the world, they were so sure it didn't occur to them to check it out.
48:01
You and I would check it out, right?
48:01
It was Bertrand Russell who said of Aristotle, Aristotle asserted that men had more teeth than women.
48:06
Never occurred to him to ask his wife, honey, could you open your mouth?
48:11
I just want to count your molars.
48:14
Adam Robinson: So I'm a big believer in checking things out and doing your homework.
48:19
When I was at Oxford I spent my first week, I was all diligent, just like you, a good Jesuit boy, and I'm going to change my ways, I'm really going to try to study.
48:29
So I spent literally 40 hours on one, I studied law, one case that made no sense to me, one case.
48:36
And I go into my Don, my tutor, cause you're taught by a professor one-on-one, and I said I just don't understand this one case it's really confusing me.
48:43
And he burst out laughing.
48:47
He said, Adam, everybody knows that case is wrongly decided.
48:51
Adam Robinson: And so, that was part of the syllabus.
48:51
Did you notice that it was wrongly decided?
48:55
I spent 40 hours going what?
48:55
This case isn't making any sense to me.
49:00
And anyone who didn't notice that, you got lowered in the professor's esteem.
49:08
So you got to do your work, got to check things out.
49:11
Jim O'Shaughnessy: Totally agree.
49:11
Bill, from the perspective of a younger guy, what do you think?
49:15
We have a mutual friend in Dan McMurtry, I'm an investor with him so full disclosure in his anchor list, venture capital fund.
49:21
You guys are smart, you guys are switched on.
49:27
What are you seeing among your own peer group that you're kind of going, that might be a problem.
49:34
Bill Brewster: So first to be clear, Dan is smarter than me.
49:37
Second, I think that, I'll just talk about where I need to guard against.
49:45
I think that when my personal interaction with people in general, because I'm a bit of an island, is either through the podcast or on Twitter.
49:56
I find confident FinTwit to be one of my emotionally favorite Contra indicators and I need to guard against it.
50:04
But there's just something in me that likes to fade when everybody seems like they're certain of an outcome.
50:10
And I do think that it tends to follow price, and the most specific example, for some reason, that rings out in my head is this company A. O.
50:21
Smith, they make water heaters and stuff.
50:21
When their stock was ripping, I don't know if it was 2018, 2019, whatever, it doesn't really matter.
50:26
But, they were like, could do no wrong.
50:30
Bill Brewster: And there were all these threads about how great A. O. Smith is.
50:31
And then all of a sudden there's a problem in, I believe it was their China distribution.
50:36
The stock gets hammered, silence.
50:42
It's as if the company never existed.
50:42
And I think that, that's probably the idea of riding the momentum.
50:48
I kind of view the way that stocks get pitched through a story arc.
50:53
And when the arc gets loud, I get very, very nervous, that may or may not be the correct takeaway.
51:00
Bill Brewster: I think, circling back to your data question, it seems to me that if the data errors are random, then it's okay.
51:06
But if everybody's using the same data errors, that could be a problem.
51:10
So you can't really diversify the error if everybody's looking at the same thing.
51:15
Jim O'Shaughnessy: That's right.
51:16
Bill Brewster: So I guess that's what I try to guard against myself.
51:17
And I think doing the work is harder for me now because there's so much power out there that you can sort of shortcut the work, that saying to myself, slow down and really actually think about this, is probably the biggest thing that I need to guard against.
51:31
Jim O'Shaughnessy: So a couple of interesting, listening to both of you guys.
51:32
So my recurring guest, Alex Danco and I, had a good conversation about Twitter and about FinTwit specifically.
51:39
And he had a really interesting observation that other people who I respect kind of confirm when I asked him the question.
51:44
And he was like, Jim, being good at Twitter is really hard. And I'm like, really?
51:49
I don't find that at all.
51:57
But then I guess, I opened up to that point of view.
51:57
And the reason that I'm saying this is, you sparked it with the emotionally confident Twitter, so it's like one of those things where you just start seeing it everywhere.
52:08
Jim O'Shaughnessy: And so I texted Alex and I'm like, you bastard, because all of these people doing it the wrong way, you're doing it wrong.
52:19
But again, back to my thesis, I think we're going to see it become an amazing resource, but, like anything, to Adam's point, you got to do the work.
52:28
You got to figure out what's going to work for you, and then do that work.
52:34
The second thing that I would find sort of interesting is this idea, I did a salon for Interintellect, which is really an interesting experience, Adam, you should do one, you'd be fantastic at it.
52:53
And they kept wanting to call me a contrarian and, I'm not a contrarian.
52:53
As a quant what's different, I think that distinguishes us somewhat, is when we go and buy a group of stocks, we know going in that we're going to be wrong about X percent of them.
53:11
Jim O'Shaughnessy: And then when you try to model that mental model for somebody who isn't a quant, can they do that?
53:14
Do you think you know anyone who isn't a quant, accepting an error factor, going in, who's going to say, you know what, I really want to buy ABC here.
53:27
It's probably going to go down in price, but I'm still going to do it.
53:33
So, the reason I bring this up is because I'm a huge believer in the underlying system being able to make predictions about outcomes above it.
53:38
And one of them is this idea that, because I accepted an error factor, because I know I'm going to be wrong X percent of the time, because I know what historical drawdowns were and how badly I performed versus my benchmark, whatever that benchmark might be, I'm going in with a whole different set of expectations, I guess, then maybe other people.
54:07
Jim O'Shaughnessy: Adam, what would some of your clients say if you came in and said, maybe you do, I don't know, you came in and said, all right, so I think that these ten things are going to happen, I'm pretty certain I'm going to be wrong about four of them.
54:19
Adam Robinson: Well, see, I don't say that.
54:21
What I do say is, this is what I expect to happen, and this is what we'll see going forward that'll tell us I'm wrong.
54:30
Jim O'Shaughnessy: Ah, that's good. I like that.
54:32
Adam Robinson: So, I have a thesis say, that interest rates are going to go down, which was my thesis at the beginning of the year, is that interest rates are not going to go up, inflation is not going to go through the roof, because tenure yields weren't confirming them. So that was my thesis.
54:46
By the way, I'm not offering investment advice here, nuts ...
54:52
but what would I need to see to tell me that I was wrong?
54:56
I'd need to see 10 year yields zoom above two percent.
54:56
But they stalled out on March 15.
55:02
Jim O'Shaughnessy: Mm-hmm.
55:03
(affirmative)- Adam Robinson: Right?
55:04
By the way, the same time small caps peaked year to date, back on March 15.
55:04
A bunch of things peaked on March 15.
55:10
Adam Robinson: So 10 year yields were not confirming everyone's projection of oh, inflation's going to go to the moon.
55:18
Because if it did, we'd see 10 year yields going to the moon, and they weren't.
55:24
And that was a sign they were headed lower. So I had a thesis ...
55:24
and again, any time I articulate something to clients, I always say exactly what I need to ...
55:28
I mean exactly what I need to see to tell me, oh, we're going to take the other side of a trade.
55:38
Adam Robinson: And I generally don't say anything until I am least leaning high conviction; so leaning high conviction, high conviction, highest conviction.
55:49
I'm really calibrated because then you have to deal with position sizing and stuff, right?
55:53
Jim O'Shaughnessy: Mm-hmm.
55:54
(affirmative)- Adam Robinson: And so yeah.
55:55
It's always a game of probabilities, but what's not a probability is we will know that that assessment was incorrect if we see one of the following three things. Jim O'Shaughnessy: Yeah.
56:06
Adam Robinson: And if we don't ...
56:06
otherwise, our thesis is correct.
56:08
Jim O'Shaughnessy: So that's one of my favorite things to say, which is we are deterministic thinkers living in a probabilistic world: Hilarity or tragedy often ensue.
56:21
Jim O'Shaughnessy: And it's very funny, because I had a friend who's anonymous on Twitter, but he's a great investor.
56:26
He's a doctor, lives in Manhattan.
56:31
His handle is Max Arbitrage and he's actually ...
56:31
if you're interested, there's an Infinite Loops podcast with him.
56:35
And one of the things that he said to me really made me really rethink ... and I love that.
56:41
Jim O'Shaughnessy: So we were doing our podcast and he's like, "Jim, Jim, Jim.
56:43
Let me just put something to you" and I went, "Okay."
56:46
And he goes, "You have to be a probabilistic thinker. That's right.
56:51
You are the Khan sitting up on your elephant, examining the game space."
56:51
He goes, "But do you want the people working for you, or your models ...
56:56
do you want them to be probabilistic, too?
57:01
Because if they are, they might glance up at you and say"- Bill Brewster: There's a chance this guy's nuts.
57:08
Jim O'Shaughnessy: "Huh, there's a chance this guy is fucking, barking mad, and I'm going to throw my spear down and run into the woods to live."
57:16
Bill Brewster: That's funny.
57:17
Jim O'Shaughnessy: And so I chuckled.
57:17
And then he goes, "And the other thing, Jim, you got to think about, is what percentage do you think of the investing public ...
57:26
or just the public at large ...
57:26
what percentage do you think is long vol?"
57:30
Jim O'Shaughnessy: I'm like, "I don't know, maybe 10 percent?"
57:34
And he goes, "I would submit it's five percent."
57:34
I'm like, "Okay, I'll accept that."
57:34
He goes, "Let's just do the math, shall we?
57:41
There's five percent of us who are long vol; there's 95 percent who are short vol.
57:46
Who is going to have all of the asymmetric opportunities land in their lap?"
57:53
Jim O'Shaughnessy: And when you reframe this and you think about it as I did, it's like imagine a world where it was 50/50: Bezos isn't going up in his penis shaped rocket, that's for sure.
58:03
Tesla doesn't exist, because we have an efficient market.
58:09
If half the people are long vol and half want to sell vol, markets are going to clear.
58:18
Jim O'Shaughnessy: But one of the first mistakes I made was designing my portfolios for my risk tolerance. And finally ...
58:22
one of my first clients was this salt of the earth man who had made his fortune in gold and had sold his company to a large gold company and came into this huge fortune.
58:39
Jim O'Shaughnessy: And anyway, I'm taking him through it and he's probably 75 at the time.
58:42
So he's like, "Yeah, I want this one, this one, this one," and they were my riskiest, most volatile strategies.
58:54
And I'm like, "Um, I just feel compelled, I'm a fiduciary here.
58:54
You know, somebody who's 75; maybe not."
59:00
Jim O'Shaughnessy: He pointed at a picture on the table next to us with all his grandkids, and he's like, "I have an infinite time horizon."
59:05
I stole that from him and I changed my time horizon to infinite.
59:11
Adam Robinson: Beautiful.
59:12
Jim O'Shaughnessy: But then he brought up another thing which is really good because ...
59:13
oh, the cowboys, man, there's so much wisdom often there ...
59:16
anyway, he's looking at me and he's looking at all the strategies.
59:32
And he's like, "Jim, can I give you a piece of advice?" I went, "Sure."
59:33
He goes, "You're going to meet almost no one like me."
59:33
He goes, "And I got to tell you, my friend, if I showed this to nine of my fellow miners, they would say that you were insane."
59:40
Jim O'Shaughnessy: And he was the first to get me to think, oh, that's right; I've got to design this for the ride, because it's the ride that bucks people, I think.
59:53
Adam Robinson: You know, let me jump in here, because the theme here ...
59:55
because you mentioned that you're insane and I think Bill and I can attest to that ...
1:00:00
and you've been accused of being a contrarian.
1:00:00
When you think about it, the opportunities in the market come about when you take a ...
1:00:06
I don't mean you, Jim ...
1:00:06
but when- Jim O'Shaughnessy: I know what you mean.
1:00:13
Adam Robinson: An investor takes a contrary position.
1:00:14
And it was Sir John Templeton, the legendary investor, who said if you want to outperform the crowd, you've got to do things differently, right?
1:00:23
Adam Robinson: And most people don't.
1:00:23
They've been to the same business schools, they think the same way, they've taken the same courses and read the same books and stuff.
1:00:30
And they don't do things differently. So to be successful ...
1:00:30
and I think this is true, not just in investing ...
1:00:35
I'm going to lay this down as a life principle ...
1:00:40
is you have to be willing to go your own way.
1:00:42
Jim O'Shaughnessy: Oh, yeah. Adam Robinson: Right?
1:00:43
And so Bill with his podcast, you with your investing, me in my world; we've gone our own ways and played to our strengths.
1:00:52
That requires a certain fortitude and a willingness on your part to be thought insane.
1:00:52
And you have such a sense of humor about it.
1:01:00
It's part of your insanity, or your charm, your Irish charm, something like that.
1:01:11
Bill Brewster: Well, and Adam, the other thing that it requires in my opinion is ... or I'll assert ...
1:01:15
is when you do something different and it goes wrong, everyone will say of course it went wrong. Right?
1:01:27
It was clear that it was going to go wrong, it was not the thing that everybody does.
1:01:30
And that's why they don't do it.
1:01:30
Bill Brewster: So there's an element of true self-belief and conviction that's required to see it through.
1:01:39
Adam Robinson: No question.
1:01:39
When you're going your own way, the opportunities are often in things that people dismiss, and one of the sure tells when you articulate a thesis ...
1:01:49
when one of us articulates a thesis about investing or anything to someone ...
1:01:53
if you want to find out whether they're open or not, I'll tell you how you can tell that they're not open to the thesis, which means it's a really good one.
1:02:03
They're not thinking about it, they've already- Jim O'Shaughnessy: Right.
1:02:05
Adam Robinson: Is they'll go, "But isn't it possible" XYZ? Jim O'Shaughnessy: Yeah. Adam Robinson: Right?
1:02:08
It's the 'Isn't it possible' school of argumentation.
1:02:10
Adam Robinson: Which reminds me of "Ancient Aliens", the TV show, "Ancient Aliens", and that the refrain always is they'll point to some marvel and they'll go, "Isn't it possible that aliens built that?"
1:02:22
And you go, well, I suppose it's possible.
1:02:22
Like, "Isn't it possible aliens helped Jefferson with the Declaration of Independence?" Uh, yeah. What's your point?
1:02:30
But 'Isn't is possible' is the reflexive effusion of someone who's closed off to your idea.
1:02:39
Like you say, "I think I should short something that everyone thinks is going to the moon."
1:02:47
They go, "But isn't it possible ..." Right?
1:02:51
You articulate your thesis, and you go yeah, it's possible aliens ...
1:02:56
Jim O'Shaughnessy: I love that. I'm taking it down.
1:02:57
And that's another one of my favorite rants: Possible versus probable.
1:03:02
They're very different things. Bill Brewster: Mm-hmm.
1:03:05
(affirmative)- Jim O'Shaughnessy: If we lived in a world of possible, we would never leave our houses because we'd be terrified that the plane was going to fall on us, or someone was going to knife us, or we'd get into a car accident; all of these things are possible. They're not probable. Adam Robinson: Right.
1:03:22
Jim O'Shaughnessy: And what I always try to train myself now is, hey, what's probable?
1:03:24
And just to answer the question on the contrarian, I agree with you, by the way, Adam.
1:03:30
What annoys me is people who are contrarian just to be contrarian.
1:03:37
Jim O'Shaughnessy: There's a lot of things which I share ideas with a lot of smart people, but hey, I agree with.
1:03:41
I don't need to be contrarian.
1:03:41
Good Lord knows that I'm contrarian enough in terms of the way I frame things.
1:03:50
Bill Brewster: Well, the contrarian that's always contrarian thinks about as much as the person that just goes along with consensus, right?
1:03:56
Jim O'Shaughnessy: Exactly.
1:03:57
Bill Brewster: It's not actually thought.
1:03:59
Jim O'Shaughnessy: Exactly right.
1:03:59
Exactly right, and I think it might have been Bertrand Russell who said, "Most people think that they're thinking when they're actually just rearranging their prejudices." Bill Brewster: Hmm.
1:04:08
Jim O'Shaughnessy: And the other thing ...
1:04:09
and I bet you find this a ton, Adam, because of your stature and everything else ...
1:04:13
people coming to you and saying they want advice ...
1:04:13
they don't want advice; they want acquiescence.
1:04:18
They want you to agree with them. Do you find that?
1:04:24
Adam Robinson: Yeah, well I ...
1:04:24
with advice, let's say investing advice ...
1:04:27
let's distinguish investing advice from, you know ...
1:04:27
is that there are almost always so many qualifiers that you have to include, and they don't listen to the qualifiers. That's one big problem.
1:04:37
Adam Robinson: But for life advice, I think you're absolutely right.
1:04:38
They've got an idea about what they want to do and they're going to ask you and they're going to ask a dozen other people till they find someone who goes, "Yeah, you are totally right." "Great. Thank you so much."
1:04:52
Adam Robinson: When I seek advice, it's actually ...
1:04:52
it's what am I missing here? What am I wrong about?
1:04:56
Again, I'm always seeking to disprove whatever I think, whether it's about investing or anything. Jim O'Shaughnessy: Yep.
1:05:03
Adam Robinson: So what's ...
1:05:04
how can I be wrong, where are my vulnerabilities? Jim O'Shaughnessy: Yeah.
1:05:06
That's where we are so simpatico and why we get along so well, I think, because I do the same. And a lot of people ...
1:05:08
you brought it up earlier ...
1:05:14
you have to train yourself to think like this.
1:05:14
This is not a natural way of thinking.
1:05:19
I'll give you an example, so Infinite Loops, this podcast.
1:05:24
Jim O'Shaughnessy: I am a very competitive person.
1:05:24
And one of the things that I made an edict when I decided to do this podcast was, I don't want feedback from my producer.
1:05:36
I don't want to know how a show has risen or fallen, and the reason for that is if it gets measured, it gets managed.
1:05:43
And I know that I'm a competitive person, and what I wanted to achieve with this podcast was ...
1:05:50
I'll just be really honest ...
1:05:50
I wanted the ability to talk to smart people like you guys about things that I am interested in.
1:06:01
Bill Brewster: Yeah, and I think that's an important ...
1:06:01
one of the things that I think I have been fairly decent at picking up is defining success. So what is success?
1:06:07
And if you're going to be competitive, what does that truly mean?
1:06:12
If you're not going to play the game of optimizing for listens, then to define success as listens is not ...
1:06:18
you're setting yourself up to be angry.
1:06:21
Jim O'Shaughnessy: Right. Yeah.
1:06:22
Bill Brewster: And that's ...
1:06:22
I mean I've struggled with that.
1:06:23
I've talked about that on my pod because- Jim O'Shaughnessy: Well, yeah- Bill Brewster: I agree, and I'd rather talk to people that no one knows about but I really love talking to and that my audience really connects with, than try to play the game.
1:06:30
But- Adam Robinson: Which is great.
1:06:35
Bill Brewster: But if I can't turn it into a business, that's sort of on me.
1:06:38
Jim O'Shaughnessy: I get that, and I understand that because of my circumstances I can indulge myself. Bill Brewster: Yeah.
1:06:45
Jim O'Shaughnessy: I fully am cognizant of that. But what's fun ...
1:06:48
for me, at least, is like we just did one on the Religion with No Name and the thesis is that perhaps early Christians borrowed psychedelic sacraments from the Cult of Dionysus, that literally helped you talk to the gods.
1:07:02
Jim O'Shaughnessy: So I read the book, fascinated by it, I'm fascinated in Greek history, Greek mythology, etc. ; author ... super, super smart guy. It was a great podcast.
1:07:12
But what was really interesting was I had like almost no expectations for it, right?
1:07:17
It was like well, we're talking about Persephone and Demeter and Dionysus ...
1:07:23
uh, this might not work out.
1:07:29
Jim O'Shaughnessy: The feedback on it has been amazing.
1:07:29
And so it's just one of those 'you never know', and I just think ...
1:07:33
again, it brings me back to this idea that ... put it out there. Learn in public. Be distinctive. Be yourself.
1:07:42
Jim O'Shaughnessy: Well, gentleman, this has been a blast and now I get to ask both of you ...
1:07:48
and I'm going to start with you, Adam, because I think I asked you, Bill, on the other one, and I'm going to see if you come up with some new ones.
1:07:56
So Adam, at the end of all of my podcasts, I always ask my guests, we're going to wave a wand, we're going to make you the Emperor of the World for one day.
1:08:02
You can't kill anyone, you can't put anyone in a re-education camp, but you can incept them.
1:08:12
Adam Robinson: I'm sorry ... but I can what?
1:08:13
Jim O'Shaughnessy: You can incept them; you can put an idea in their mind that when they wake up the next day, they're going to think they had that idea.
1:08:23
And I would like two from you.
1:08:23
Adam Robinson: By the way, should I give you my address so you can send me the check for $200?
1:08:26
We did agree on that, didn't we? I thought that was ...
1:08:35
Bill Brewster: That's what I thought we were doing here.
1:08:37
Adam Robinson: So the first is a lament and a plea of Oliver Cromwell, who said to his accusers, "I pray you in the bowels of Christ, consider the possibility that you are mistaken."
1:08:48
Jim O'Shaughnessy: Hmm, I love that quote.
1:08:51
Adam Robinson: And so the first is ...
1:08:52
the first thought I would incept is 'Are you mistaken?'
1:08:52
Or, better yet, 'What are you mistaken about?' There. That's it.
1:08:57
There is an implicit you are mistaken. So there, that thought.
1:09:01
Bill Brewster: That's a good one. Adam Robinson: And ...
1:09:04
boy, I have to come up with two.
1:09:04
That's a tough one if I'm only allowed one more.
1:09:06
And I can't control them and ... wait.
1:09:06
Is this to any individual or all human beings?
1:09:07
Jim O'Shaughnessy: All human beings.
1:09:08
Adam Robinson: Okay, that one. And ... okay, here's one.
1:09:09
Well, it comes in the form of a question and an answer.
1:09:09
The question is, "What's the most powerful word in the world?"
1:09:12
Bill Brewster: What's your answer? Adam Robinson: Together. Bill Brewster: Hmm. I like that.
1:09:18
Jim O'Shaughnessy: Wasn't it Schrodinger who said, "When you add up all of the minds in the world, it equals one"? Bill Brewster: Hmm. Huh.
1:09:25
Adam Robinson: Might have been his cat.
1:09:26
Jim O'Shaughnessy: Might have been his cat.
1:09:27
And that's the unnamed Tao, my friend.
1:09:27
That's what we're talking about there.
1:09:31
Jim O'Shaughnessy: Those are good, Adam. Those are awesome. Bill? What do you got for me? You got some new ones?
1:09:37
Bill Brewster: I smiled when Adam gave his because he's so much better at articulating a concept than I am.
1:09:41
I was just going to go with 'Embrace the possibility that you're wrong' was exactly what I was thinking.
1:09:49
Jim O'Shaughnessy: That's good.
1:09:50
Bill Brewster: And then he came up with this beautiful way of saying something sort of close but way better.
1:09:55
Jim O'Shaughnessy: Yeah, his way was a little better.
1:09:55
But your- Bill Brewster: His melts the mind, and mine is just very common.
1:10:00
Jim O'Shaughnessy: Well, Mark Twain ...
1:10:02
just another Twain quote: "Getting the word right is the difference between lightning and lightning bug."
1:10:08
Bill Brewster: There you go. That's right.
1:10:11
And I think the other would be, 'Optimize for your happiness.'
1:10:18
If everybody could do that, I think the world would be a better place, and if there were more looking within instead of looking without, the world would probably be better.
1:10:27
Jim O'Shaughnessy: Love it.
1:10:27
This has been a total blast, you guys.
1:10:30
Thank you for indulging me and both coming on.
1:10:33
Bill Brewster: Thanks for having us.
1:10:34
Adam Robinson: It's been a great time.