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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'm very happy to say my now in real life friend, Max Arbitrage, which is his handle on Twitter, is my guest today. Welcome again, Max. Max Arbitrage: Thanks.
1:58
I didn't even know life was real, this is good to know.
2:00
Jim O'Shaughnessy: Yes, it is.
2:00
We, we discovered life was real when we got together a couple of weeks back and I felt like the Pinocchio thing where they turn him into a real boy.
2:09
And I'm like, "You're a real boy, Max."
2:09
Except, I called you by your real name.
2:14
Max Arbitrage: That's right.
2:16
That was the coolest metaverse I've ever been.
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I felt sensations of wind that I've read about before.
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I saw people walking in what looked like three dimensions. It was amazing actually. It was crazy.
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It came out of the plane.
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Jim O'Shaughnessy: I got to tell you, that's ours.
2:29
We've been working on it, and we have only that one little area of Manhattan, man, because if you noticed, when you got out of that area, you were right back in flatland, right?
2:39
Max Arbitrage: Absolutely.
2:39
It was rendering in real time at the speed of light.
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I was watching it as I walked.
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I saw it rendering slowly.
2:46
Jim O'Shaughnessy: So what I loved about talking to you is we can go for two hours just on what gets brought up, so we're going to talk about rendering and all that shit in a minute. Max Arbitrage: Sure.
2:55
Jim O'Shaughnessy: But here's what I want you to do, you're cool with...
2:56
Everyone knows you're a doctor, right?
2:59
I mean- Max Arbitrage: Yeah, absolutely. Not a problem.
3:00
Jim O'Shaughnessy: Okay, so that's not a problem.
3:01
So I have been studiously avoiding all of the online shit, the anti-vaxxers, the pro-vaxxers, the anti-maskers, the pro...
3:08
just because I think it's idiocy just all around, and people have just like lost their minds, honestly.
3:14
So what I'm going to ask you to do is a public service and that is, can you describe just in a very straightforward way...
3:27
And then I'm going to tell you what I think about it.
3:27
You already kind of know...
3:31
but a very straightforward way, can you explain what I call technology platform of mRNA, which is being given right now as the vaccine? Max Arbitrage: Sure.
3:44
So we are not going to go deep in the science, we're going to use metaphors because it'll be a little bit more interesting.
3:48
So a couple things to realize is, there's a genetic code which is pieces of information.
3:52
It's almost like a string of letters.
3:52
And that turns and creates proteins, and proteins act on cells and they do the real work of what we consider life.
4:01
And if you think about a place like Toyota, you think about a car factory.
4:06
They have a bunch of machinery in there, there are things that are moving around.
4:06
Each one of those machine parts has a written instruction behind it, the code.
4:10
So it's important to realize that those are two separate things, there's a code that exists in ones and zeros or in letters, and there is the actual reality of what that does once it's printed out.
4:25
Now you can think about this in terms of words, think about a simple word like the word dog and the word dig.
4:29
They're separated by one letter.
4:29
So technically, at the letter level, there's only a tiny difference between those two words.
4:34
At the real level, they mean something totally different.
4:38
They're not related at all.
4:38
Now, if you were to enter into the world and nobody told you that those two words were related and all you did was see somebody digging and you saw a dog, you might not be able to immediately realize that both of those had a word that's fairly similar to each other.
4:52
And that's been the problem with proteins for basically decades or centuries.
4:56
We see proteins, we see what they do.
4:56
We can figure out what the code is, we could never figure out how do you get from that code to this particular protein.
5:05
Two proteins could be totally different, doing totally different things, the genetic code might be just very slightly different from one to the next. That's a big problem.
5:13
That's probably the biggest problem that we have in biology today.
5:17
And what mRNA allows us to do basically, is it allows us to create genetic codes and snippets of things that turn into proteins that can then act physically in the physical world, and it's several decades.
5:28
So when people talk about Moderna, and all these things like, "Oh, they just did this."
5:33
No, this has been going on...
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I was a TA for genetics in the mid-nineties, we were talking about this then.
5:40
The question was, can you...
5:40
So now you can think about it going backwards in two directions, can you create a genetic snippet, run it, create a protein, and then see what the protein does?
5:48
Or, can you also find a protein that exists in the wild and work backwards to see what the genetic code is?
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Both of these things are very important.
5:52
AlphaFold at Google's working on the lateral and figuring how can you take proteins and figure out what the genetic code is leading to them.
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And a lot of genetic companies like Moderna and stuff are saying, how do we create something with a genetic code?
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Now, a simple way to think about it is, your body's full of shapes.
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These are immunoglobulins.
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All these things are shapes.
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COVID goes in your body, it inserts a bunch of different shapes.
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Your body doesn't know what these shapes are.
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You really want to know what the shapes are that enter your body, you want to label them as good or bad traditionally, or as, okay, leave it alone, at least.
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And with COVID, what happens is, their bodies doesn't seem to know what those shapes are.
6:27
And so what this allows us to do is give somebody some of those shapes to say, "Look, this is a shape, it's a foreign shape, and you need to create something to protect and cover this shape and basically make it disappear out of your bloodstream."
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And by doing that, by triggering your immunoglobulins, you've now created a factory that knows how to basically put a mask or a hat on top of this thing, a piece of clothing essentially on top of this thing and make it kind of disappear from your immune system.
6:54
So what they're basically doing is printing things that can attach to COVID or different parts of COVID in ways that essentially mask it and allow that labeling process to tell your body, "Okay, this is what this is, this is what you should do with this."
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We've done this other ways in the past, we've done this by traditional vaccines to give people small pieces of essentially the codes.
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They print the proteins, your body sees those.
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Now, you may say to yourself, "What's the difference? Isn't this dangerous? Is it non-dangerous?"
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One of the critical pieces here is, a lot of these viruses, like COVID for example, it's something like 30,000 codons, which is like 10,000, let's say, words, which would be like 25 pages.
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So it's a 25-page pamphlet, that's what you got, and which is causing all this havoc.
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One of the world's worst pamphlets of all time, maybe.
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It's like, it's really creating a lot of havoc.
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So you think out something like that, well, if you run the whole script of the 25 pages, you get a lot of damage.
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If you just happen to pick up two or three pages randomly from the system and just use them and feed your body with that, you might be able to give a small enough amount that it cannot complete its entire set of instructions, but it can only complete enough to give you a little bit of protein so you have something to tag and label that you can use later.
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Now, why is this a problem?
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Which it is a problem is, because the codes are going to constantly change.
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So the words are always changing every time the virus mutates, it's going to change.
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So you're going to have continual creation of new proteins.
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It's almost like a mini war you got going on here, you've got the virus that wants to survive, and it's going to continue not through survival of fittest, but non-survival of the non-fittest.
8:24
It's going to leave behind the viruses that are able to evade your labeling system, and it's going to continue to do that.
8:28
And what our job needs to be is to create new systems to combat these new proteins that it creates.
8:38
And people debate, "What is going to happen? What's going to happen?"
8:38
Probably what's going to happen is the same thing that's happened for the last thousands of years, which is that these things tend to go in circles.
8:44
And eventually, what you end up doing is, there's a dampening effect.
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You'll basically, theoretically, what you should see is it's going to create more and more shapes.
8:52
We're going to have a platform of Moderna and all these other companies create more and more things to protect it.
8:56
Eventually, it should settle down into seasonal pattern.
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And ideally, that's the end result of this thing, that a decade from now, and I'm not saying it's going to take a full decade, I'm skipping giving an answer of how long it's going to take, because by the way, it's going to be different everywhere in the world.
9:11
Depending on where you live, it's going to have different issues.
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Just like you go in parts of Western Africa, yo go parts in India, there's certain problems with polio and stuff, for example.
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So, that's the basic kind of analogy is that there's written pieces of code and there's physical systems, there are physical proteins that can do things.
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And our job is to figure out what's the relationship between these two.
9:31
And eventually, hopefully in the next 30 to 50 years, what we will see is, instead of people talking about creating neural nets with Silicon, we might see the emergence of creating machinery via the biological mechanisms directly.
9:45
Why are we printing stuff in Silicon and trying to trap all these transistors and trying to really make something tiny when nature already has a very low energy version of this already, a very highly efficient version of this already?
9:55
So you could see that in the future, you could see creating nano bots with mRNA.
9:59
I think that's definitely going to happen, it's just a matter of time.
10:03
And how extensive they get is also probably a matter of time.
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Jim O'Shaughnessy: So first off, very excellent explanation.
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I've been trying to get it down to something, and your use of metaphor's perfect.
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Because I'm going to memorize that and tell that to people.
10:21
Because, as you know, I'm pretty bullish on the technology, right?
10:21
Could you spend just a few minutes on...
10:27
You started at the end there though, but there are a lot of other applications for this technology, right? Max Arbitrage: Correct.
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So the obvious ones are the medical ones like cancer, or...
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The simplest way you can think about it, which is kind of crazy to think about it this way, but you can think about a video game and you can think about the fact that people have video games and there's a developer.
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And if a developer wants and he wants to go to Fortnite and he wants to put a knife in everybody's hands, he can.
10:51
And if he wants to change the color of that knife everybody [inaudible], because he's got the code base to do that.
10:54
So in theory, you could actually basically print pretty much anything. So what kind of things?
11:00
You could have an oil spill, you could figure out a biological mechanism to essentially extract the oil from the water in that spill.
11:08
You could create nano bots, dump them into the water, and you could basically use those to clean up oil spills.
11:16
You could do things with cancer.
11:16
You have a cancer cell that basically says, "I don't give a shit about anybody else in this body anymore, I'm going rogue.
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I'm going to live my free life.
11:23
I'm just going to duplicate and use up all the resources."
11:23
And you can figure out what the mechanism is of this cancer cell doing that stuff, and you can create a combatant kind of knife for yourselves, essentially.
11:31
This is a metaphor again, but you can create systems for yourselves and say, "Look, now you have this to combat this cancer cell with. Use that instead."
11:40
Right now, the way we deal with medical problems is, it's almost laughable.
11:44
It's not anybody's fault, it's just people don't realize that medical technology is not that different from it was a 100 years ago or 200 years ago in the sense that we're working at macro levels.
11:55
When somebody has cancer, we will radiate the entire...
11:59
We'll basically blast the entire area. We'll just destroy it.
11:59
When people get chemotherapy, we'll give them drugs that go into the entire bloodstream, they'll go everywhere and essentially kill multiple cells of different types.
12:08
There's new versions of that which are more targeted, of course, so we're getting better at that.
12:12
But what you eventually want to do is you want to get to the point where you can target exactly the molecules exactly where they are.
12:20
And to do that, you really have to shrink things down to that skill.
12:24
There's other diseases, multiple sclerosis, there's all these autoimmune diseases.
12:24
Anything in your body that's informational based is essentially happening upon a layer of proteins and physical structures that you can actually see.
12:34
And anything that we can make that's a physical structure to combat those physical structures, to help those physical structures, will probably get made over the next 20, 30, 40, 50 years.
12:43
But in the chemical engineering world, a lot of chemical engineering is just doing transformations of one thing to the next.
12:54
And again, you could use mRNA printing to create a protein and the protein could do something like that.
12:58
You think about a company like Desktop Metal, they have to do things right now, not in a biological way, but in a kind of an innate atomic substrate way.
13:07
Eventually, you could have printers that did all sorts of kind of things.
13:09
And so if you wanted me to get into the list of things that you could do with this, I think you could make a 100 pages of just things like...
13:14
and you could dream up an insane amount of stuff.
13:18
And the reason this is important is that, you can look at all the computers in the world today, and you can basically calculate that the amount of neural nets you could create from the computational power we have today, it's just like a few people's worth.
13:29
It's not like one human has this equivalent of that type of computational power, but we're running on like 20 to 100 watts.
13:34
We're running on a very tiny amount of energy and we're using a massive amount of energy to simulate this.
13:42
So clearly, the algorithms we're using in the Silicon world are not the algorithms that the biological carbon-based world are using.
13:47
Because otherwise, we would be running through solar energy...
13:51
The world would be using the energy that the sun creates at a factor of quadrillions X of what it is.
13:55
So that's where the secret comes is, how do we steal the algorithms of nature at those high energy efficient levels?
14:00
This is probably the best way we'll probably be able to do it for a long period of time.
14:05
And so I'm pretty excited about it as you can tell.
14:09
The valuations of these companies, I have no clue.
14:09
I tend to not buy individual publicly traded stocks, mainly because my goal in life is to compete with the dumbest people, not the smartest people.
14:19
And so I avoid publicly traded markets, because one of my strategies in life is simply try to find easy battles to win, don't find difficult battles to win. That's very exciting. It's exciting.
14:31
Jim O'Shaughnessy: It is very exciting.
14:31
That's a very good strategy actually.
14:35
But a follow-up question there, so I had Robert Plomin, who wrote the book Blueprint, How DNA Makes Us Who We Are.
14:40
He's a genetic behaviorist and he's a professor over at Kings College in London. He's an American.
14:46
But he is a genetic expert obviously, and one of the things that he was really kind of at pains to get across is, there are very few diseases, for example, that are caused by a single gene.
15:04
Max Arbitrage: Yes, he's correct.
15:06
Jim O'Shaughnessy: He said most of the bad ones are caused by an interaction of multiple genes.
15:10
How do we tackle the multiple gene problem in the description you just gave of building using nature's code as opposed to what we're building with Silicon?
15:25
Max Arbitrage: So it's a great question, and actually that's a 100% correct, and it's one of the problems people have.
15:27
One of the things, if you have a genetics background, it's painful is listening to people talk about, "Well, this is genetic and that's genetic."
15:34
Well, most of the time, there's so many genes involved in these things, it's a little bit like people use shorthand like the company Apple, the company go...
15:43
Well, it's not really bad.
15:43
It's a bunch of different people, and all sorts of things are happening internally.
15:46
So that's the case with multifactor genetics.
15:49
Now ,there's two ways you can break that.
15:49
One way is, all those multifactor genetics do lead to protein type cascades.
15:54
And so ultimately, even though there might be a 100 genes that encode for the behavior of one protein at the protein level, it may actually be fairly simplistic.
16:05
In other words, at the protein level, you may able to isolate that these are the proteins that are causing the problem.
16:08
Sure, there's thousands of different genes that are related to this, but you could create robotic arms that essentially affect that protein in a way that essentially get rid of that problem.
16:16
I wish that was most problems, but it won't be that.
16:21
But that's going to be some subset in the same way that single gene problems are one small subset of all gene problems, single protein problems are likely a small subset of all problems.
16:29
Something like pain, for example, and things...
16:32
I'll break it down, there's kind of two ways you can think of medicine.
16:32
You can think of physical processes, the heart, the diaphragm and the lungs, things that are essentially biophysical in nature, like a heart's a pump.
16:40
Then you can think about the informational part of the bio, things like the neurosciences, things like the GI Biome, the bacteria and the gut, things like the endocrine system, which is informational signaling systems.
16:53
Those are informational processing systems.
16:53
These problems that I'm talking about initially, about what things we can solve, the informational processes are going to be much more difficult than any of those things because the informational processes are going to be happening at the informational plane.
17:08
They're not going to be happening necessarily at the structural plane.
17:12
And so that is going to be an issue.
17:12
In other words, solving the pain problem, which is, as you know probably, a lot of people in this country have pain.
17:17
A lot of people in the world have pain.
17:21
A lot of people have chronic diseases that are essentially never solved.
17:25
And that's one of the reasons I think a lot of people hate doctors or not hate them, but are very frustrated is because nobody wants to be in pain.
17:28
And we don't have any system, we're just like, "Take some opiates. You didn't like that?
17:31
Here's some marijuana, you want to try that?"
17:34
We're basically throwing random things at it, like maybe that'll work, and maybe people will chill out for a decade and will wait until they get angry.
17:38
Again, that's kind of the way we're dealing with it because we don't know how to attack the informational plane of pain in the brain.
17:45
And so those types of things are probably going to take a lot longer.
17:50
There there's going to be these complex systems that are multiple proteins in informational cascades that you're not going to be able to attack simply, I call it kind of like the Middle East of problems in the sense like some of these things may take a long, long time to figure out.
18:02
You may have to create neural nets that essentially take the data out of our bodies and eventually take that information and try to work backwards to figure out where in the system, in the gene cascade, can we attack one set of these genes in the multifactorial complex that can really knock out the target?
18:22
We might have to do stuff like that.
18:22
So I don't think the mRNA problem is going to solve necessarily all of the diseases.
18:25
And probably like maybe let's say 10 or 20% of things that we're struggling with right now might figure out.
18:32
But a lot of these things are going to be very difficult, neurological, endocrine issues are going to last for a while, I think.
18:38
Jim O'Shaughnessy: So then the obvious question becomes obviously with any progress come risks, right?
18:39
And so what do you see as the risks of this technology, encompassing all the things that we've been discussing?
18:52
Max Arbitrage: The biggest risk is we don't understand how the informational cascades in the body works.
18:56
So if you want to take a big whiteboard and draw out all the chemical reactions in a plant, or on a bacteria, or on a human body, you actually can't draw the entire thing.
19:00
You can't even do it for single cell completely.
19:05
And those cascades that I'm talking about, all feed back into each other.
19:09
So even if you could figure everything out, how are you going to create an algorithm to iterate that process forward?
19:14
It's not clear to me that there is an algorithm.
19:17
Nature might be that algorithm.
19:17
So the issue there becomes is, you don't have the full biochemical pathway that exists in the human body.
19:21
And we're going to start tinkering and putting stuff into the system, there's always a risk that we'll trigger some new type of cascade of informational systems inside our body that does something that's negative, and it may take a while to figure that out.
19:36
There's definitely the risk of that even with a COVID mRNA vaccine.
19:36
I took the vaccine without even thinking about it, knowing fully well that, that could be potentially the case.
19:44
And the reason I don't worry about it is because most of these informational cascade systems tend to trigger almost immediately, meaning you give somebody something and your body starts to go into this progress of, you're going to start to notice things that start to come up.
19:57
And over a period of time, as time goes further along, you kind of get an exponential decay of something, which is true of everything you take in your body.
20:02
You eat some food, initially it causes a glucose spike and you have insulin.
20:05
A year later, your body is not really reacting to that piece of food that you had a year ago, not necessarily that specific meal.
20:14
So I think that's part of what's going to happen to a lot of stuff, is they're going to have to test it in animals.
20:17
They're going to have to see what happens at that level.
20:19
Then they're going to have to do safety trials, and that's the part where if you're an investor, you really need to understand what you're doing.
20:26
Because what a lot of people do not understand about medicine is, it's a much more slow moving process than people realize.
20:30
You got to get through phase one, which is safety trials.
20:33
You got to get to phase two, which is larger trials to show that it actually works and it's still safe.
20:37
And you're still monitoring phase one patients then, a year or two years later.
20:41
And then you got the phase three, multicenter, massive kind of trusts.
20:45
The COVID thing is a rare time period where you actually see the regulators kind of say, "Okay, we're going to try this thing."
20:49
I don't think that's going to be their de facto situation.
20:54
So a lot of these things I'm talking about, unfortunately, they're going to have to go through real tests with people and we're going to have to see how they play out.
20:57
And sometimes they're not going to work and they're going to cause bad side effects and the ratio is going to be too high.
21:04
And whatever that researcher is, is going to have to start all over again, and they're going to basically have to scrap it.
21:08
I think something like of 500 chemicals that we come up with or molecules we come up with to put in the body, something like one actually hits the commercial marketplace.
21:15
Now, you can decide if the ratio is 100 to one, or a 1,000 to one, the point is, it's a lot.
21:19
There's a lot of failure in that process.
21:24
There's a Twitter account that's something like Research And Mice, or something, and it's almost like a joke.
21:27
It's like everything that they say is research and mice, they keep on tweeting it.
21:31
But the joke is obviously that most of those things are not going to do anything for us.
21:35
We're not mice, so it doesn't really do great for us.
21:35
I don't even think people care that much about mice, but we have to try something, and you can't do [inaudible] research that easily.
21:42
That's very difficult and it's very ethically questionable how much you should do at that level.
21:45
So a lot of this stuff's just going to have to be tested unfortunately.
21:48
And the COVID thing is being great in the sense that we have at our hospitals in the city, for example, a ratio of the people that have side effects so far versus in the actual virus.
21:56
And it's massively low, the amount of side effects there are.
22:02
It's so low that many of these side effects are basically higher in the population that doesn't have the vaccine than they do from the actual vaccine.
22:09
In other words, they're basically baseline noise, so that's a great sign.
22:14
I was nervous about that.
22:19
I'm like, what if they release this thing and the ratio of side effects ends up being massively high?
22:23
It's going to set back that field for 50 years probably, kind of like Fukushima did to nuclear.
22:28
It'll probably take decades.
22:28
The fact we made it this far, is really, really promising.
22:32
Every doctor that I know that's in that space, geneticist...
22:36
People are very happy as to the overall statistical results of this process so far, but there's going to be testing. Jim O'Shaughnessy: Yeah.
22:43
I was just talking to a friend earlier and it brings in the complication of, this is not in a bubble.
22:45
This is not isolated to doctors and researchers.
22:51
You've got insurance companies, right? Max Arbitrage: Right.
22:55
Jim O'Shaughnessy: Come on, let's be honest about this, I'm not going to paint them all as evil, but let's not even use a pejorative term.
22:58
They're looking at this from a business point of view, which I understand, right?
23:07
Max Arbitrage: Yes, of course.
23:08
Jim O'Shaughnessy: I've even used it as an example when trying to explain factor investing, I say, okay, so if you think about an insurance company and there is one that bases your rates, bases on all of the actuarial tables and your medical results, right?
23:23
That company's going to give fairer overall rates to everybody versus a company that says, "Hey, Tom, your dad died of a heart attack at 42, so did your grandfather.
23:35
Your mother's side, where all died of cancer.
23:35
But you're such a positive guy, we're going to give you a $10 million policy. Right? Max Arbitrage: Right.
23:41
Jim O'Shaughnessy: That company's out of business, right?
23:42
Max Arbitrage: Right, right.
23:43
Jim O'Shaughnessy: So I totally get the business aspect of it, but you know so much more about this than I do, and are they serving as just like a big thumb on this thing, or no?
23:55
Max Arbitrage: You mean on pushing mRNA research forward, or on the vaccines in general, or just [crosstalk]- Jim O'Shaughnessy: No, no.
24:00
Pushing the research forward.
24:00
Max Arbitrage: Well, so the insurance companies, I don't think have research arms.
24:02
I think most insurance companies still use Windows 98.
24:05
They're not living in the modern world.
24:05
These are people that use Excel.
24:08
And by the way, as a doctor, it's very easy to bash on insurance carriers, but it's basic human nature.
24:13
You have a friend; let's say you make more than your friend; your friend's struggling; you give him some money; he pays you back.
24:17
Next time you give him 500 bucks, the guy goes and buys a pair of $500 sunglasses. And you're like, "Shit. That's not good."
24:24
I want you to have some level of freedom, but there's a limit.
24:24
And I'm like, "How long can I go?"
24:28
So, there's a whole process of insurance that people do not understand.
24:32
That's a very, very touchy thing, which is that people want freedom, which I agree is very critical.
24:37
Of course, freedom is never free.
24:40
Freedom always cost somebody something to breathe every day, your diaphragm has to move, which basically means you need ATP, which means you need energy; and the energy has to come from somewhere.
24:49
To live, you have debt, and that debt is in the form of calories if your diaphragm, primarily your exterior, respiratory muscles create.
24:54
So, that's got to come from somewhere, and whether or not the financial system covers all the nuances of that or not is irrelevant in the sense that you'll never capture all of it; there's always external kind of consequences.
25:05
So, insurance companies generally tend to wait to see what the government and Medicare does.
25:09
So, nobody wants to do medical technology in the US for most countries.
25:14
What you need to do is realize the regulators need to pass this, and then, it's kind of become a code that you can bill to the insurance carriers that they'll accept.
25:21
So, typically, Medicare and CMS, which is the government, will set up that code and say, "This is now the new code that you can use.
25:28
This is a valid kind of form of treatment for XYZ."
25:28
Once that goes into effect, United Healthcare, GHI and all of these people usually fall into line almost immediate; very rarely do they say, "Nah."
25:36
They're just kind of like, "Whatever the government says, we'll accept it."
25:40
Now, from a financial perspective, obviously, a lot of the people timing it on this stuff on the internet, I can see, are work from home individuals, which is great, by the way; I'm a hundred percent supportive of de-centralization of information; get people working everywhere; shit, put people in the, in the sky, connect them to the internet, and let's start decentralizing this. It totally makes sense.
26:01
But, brick and mortar is going to exist.
26:01
People are going to own restaurants; people are going to have parties; people are going to have medical practices where you have to physically be seen, et cetera.
26:07
That cost, I don't see talked about an internet at all.
26:11
I've seen very little people on Twitter actually say, "Well, what do you think people are doing in brick and mortar businesses?"
26:15
So if anything, there's pressure for people in brick and mortar; there's a lot of pressure; they're like, "We got to do something."
26:23
Because, if we don't do something, we're kind of living on the Fritz here.
26:26
Every other day, my entire staff is getting tested for COVID.
26:26
This is kind of unsustainable.
26:31
How are we supposed to know when it happens?
26:31
As soon as somebody tells you, somebody may have had COVID, I can't wait two days now to make a decision.
26:39
I have to basically immediately say, "Stop everything; called everybody; tell nobody to show up to the office; get everybody tested again."
26:42
There's only so many cycles of this a normal person can have before it starts to affect you.
26:46
So, I think the pressure comes a lot more from them than it does from the insurance carriers.
26:51
I think the insurance carriers are almost five to ten years behind on these types of things, in the sense that they kind of lag what's happening in the real world.
26:58
Now, United Health Care is an exception to the rule, because United Healthcare has been gobbling up medical practices in the Northeast.
27:06
They basically own Pro Health through a subsidiary.
27:06
And, so, companies like that obviously know, and they have a lot of data.
27:10
So, I know they know what's going on.
27:10
And, I know that there's debates internally there for sure where they're like, "How much longer can we do this before we start squeezing premiums and start creating a premium differential?"
27:22
And, I don't really see any other way around this.
27:22
And the reason I say that is because we're not living in a world where the US is the only country; this type of thing is going to have implications for decades in terms of which countries have more resources, which countries are running a bad game, running behind.
27:36
Somebody puts this behind them and moves on, they have a much better chance of success than somebody who's got companies that have 10, 15% margins and their revenues off by 30%.
27:44
By the way, the math doesn't work very great if your revenues down 30%, you have a 15% margin.
27:48
And so, so I think that people are sometimes not being realistic about what is going to happen.
27:52
And part of my rule of life is, don't fight things that are going to happen when you know that that's the way that gravity's pulling.
28:02
And, that's true of the NFT craze.
28:02
I don't fight the NFT craze.
28:06
I don't fight this thing either.
28:06
It's the way that things are going to work because the world is competitive and people are going to make competitive decisions, and if you're dealing with this kind of stuff in 2023 and your competitor has put it all behind them, then, you're going to get destroyed.
28:18
By the way, there's one guy that I thought was amazing.
28:22
One restaurant guy in California said, "I'm only going to allow people who come in that say that they have not had the vaccine."
28:27
That's the first guy I actually respected about the argument, because I'm like, "You're putting your skin in the game." Do I agree with it?
28:35
Bad decision probably, but you want to do that, do it; you take the financial hits; you deal with the people yelling at you; you deal with those things.
28:38
That is almost to me an honorable thing to do.
28:42
And in some sense, pick a side in light and put your skin in the game and then you can say...
28:46
But, a lot of what I'm seeing online sometimes is just like, "No, no, we should do things this way.
28:50
Oh, by the way, I won't be affected at all.
28:54
I'm going to just sit on my laptop drinking beer on the beach, and let the rest of the world burn while I sell some eggs."
28:57
And, that to me is like, " It's getting a little cheap."
29:00
You got to put in some skin in the game.
29:00
So, I do think to your point to wrap that up, the insurance companies, I do think are slowly going to push on this a little bit more aggressively at the congressional level; they're going to start eventually trying to create a differential, just like with smoking.
29:13
Jim O'Shaughnessy: So, there's three different areas that, what you just said, I want to pull on a thread.
29:21
The first one though, is, as I'm listening to you, I'm sensing an arbitrage opportunity.
29:27
And, in that, I mean, what about the people who don't need insurance, right?
29:27
Is there an opportunity here for some really, really smart people working in biomedicine to come up with things that they're like, "No, we'll never take insurance. This is a cash only."
29:48
Do you see that as an arbitrage opportunity here?
29:50
Max Arbitrage: I think so.
29:50
I think you'll always have catastrophic layers of insurance.
29:53
You can always create a catastrophic system where it basically says, "Look, you're going to have a $20,000 deductible essentially."
29:57
It's not a real deductible.
30:00
You're just got to pay cash.
30:00
Every year, you're going to pay 10, $20,000 a year.
30:00
If something bad happens, if you go to the hospital, you're going to get covered at the hospital.
30:04
Now, the reason I brought that up is because at the hospital level, things start to add up very, very quickly.
30:12
Even if you have $20 million, you have a bad car accident, you have three or four people in your car, it can become a percentage of your net worth very, very quickly.
30:21
And, so, it's really kind of like one of those things where, on that end of things, there's two problems.
30:24
The first problem is, you're probably going to need the layers for almost everybody, except for a few billionaires or people that are going to just pay for everything.
30:32
Most people are going to probably hit some catastrophic level there.
30:36
The other problem is, and this is like a very frustrating thing, is that people tend to have this weird thought process, that if you do everything right in life, you're going to be healthy.
30:45
So the way you always hear people talk about it is, my grandmother is 80 years old; she's always been healthy; nothing's ever happened to her; she's been great; her heart's been fine and everything.
30:53
And, all of a sudden, she died of a heart attack.
30:55
I don't even know how that's possible.
30:55
And it's like, yeah, because what's happening on the surface is not, what's really happening inside of your body.
31:03
There's no such thing as a perfectly healthy body, in the sense that entropy is trying to rip everything apart and make it random.
31:07
And, you're taking energy to keep these structures alive; you should be happy every day when you wake up; it's like, "Holy shit.
31:12
I beat entropy another days. Screw you." You know?
31:15
But, the thing is, people assume, "Well, if I use some dead lifts and I eat a bunch of steak, that's going to work."
31:20
Someone else is like, "No, you got to eat a vegetarian diet."
31:24
You can go to the hospital; you can look at 70, 80 year old people, and there's people that did everything perfectly, and it didn't really work out that great for them.
31:31
And, there's people who literally drink Coca-Cola, eat ham and cheese egg McMuffins, and they have $150 billion dollars, and their name is Warren Buffet, and they're 90 plus.
31:39
And, so, the ratio of how much you've been affect your own health is actually a lot less than people think it really is.
31:44
It sucks to say that because I understand it feels good for people to tell themselves, "All this stuff I'm doing is..."
31:53
No, but you go to the hospital, it's not like a bunch of weight lifters are just crushing in an ICU.
31:57
They're like, "This guy was bench pressing so much, he's going to rip out the intubation tube and come back to life because the strength he's developed." It's not how it works.
32:04
Your body has a lot of capacity, which is incredible.
32:04
Unfortunately, humans have decided this last economic cycle to not build back capacity in their supply chains.
32:15
Thankfully, our body's supply chains are incredible.
32:15
You can lose a third or almost an entire lower half of your lung, essentially, and be fine.
32:22
You can lose about 20, 30% of your liver and be fine; maybe even 40%.
32:22
you can literally be born without one kidney and be fine.
32:27
So, we have these redundant systems built in, and, what that means is, when you see a decline of processing of your body in an organ, you don't actually notice that it's dropping constantly because you have this reserve goal.
32:39
It's only when the reserve goes out, that you actually noticed that something got back, right?
32:44
So, the problem with this idea of the arbitrage of insurance come down to is, you would have to get a really good sense of how your body is really doing, number one.
32:52
Number two, you have to kind of predict what happens in the external environment, which you can't do.
33:01
You don't know that the person who thinks they're really healthy is going to have cancer or something tomorrow and endocrine problems tomorrow.
33:07
And, one of the things I love about being a doctor is, because I know that, it's changed the way I view the world.
33:11
I don't sit around every day being pissed off about things, because I understand that I'm lucky every day that I can get up and things are going well, that I'm lucky.
33:21
And it doesn't depress me either, because I've also learned, it's just the way that life is.
33:24
I didn't do anything special to be born. I was just born.
33:24
So, I should be thankful for that to the best ability I can.
33:28
And, I think one of the things that you're seeing now in the US, and I'm sure it happens everywhere, is people are saying, "Well, if you eat poorly and you're obese, why should you get healthcare?
33:37
Or, if you've done this, and you get [inaudible]."
33:41
Cigarettes, everybody knows cause lung cancer, but 20% of lung cancer, well, 10 to 20% at the time it was calculated, are not for people who smoke any cigarettes.
33:51
And, that number is going up as the number of smokers are going down.
33:55
So, I think one thing I would say is, if we had that system in place, it would probably help out a lot of people.
34:00
So, I'm a hundred percent support of the system; I just don't know how to doit.
34:03
I mean, in New York State, insurance for a family is like $35,000 a year, basically.
34:09
I pay $2,800 a month for me, my wife and a baby, none of which have any serious medical conditions at all.
34:15
And, we're, basically, in our young forties.
34:15
And, so, I think in the long run, that would be great, but there's a lot of regulatory things that you'd have to get to make that really work. But, it's a good point. Jim O'Shaughnessy: Yeah.
34:26
And, we are so incredibly simpatico on the way that we choose to look at life.
34:29
It's like every night when I go to bed, I say, thank you to the universe.
34:35
I'm not a religious person, but I just put it out there.
34:42
It's also really reminiscent of kind of a mixture of the Stoics and Taoism's concept of Wu we, right?
34:47
Why are you going to fight to swim against the tide when you can swim with the tide? Max Arbitrage: Right.
34:56
Jim O'Shaughnessy: And, I try to get people to understand this.
34:57
You understand it intuitively.
34:57
We're living here; this is the way that tide is going; you can scream and you can rant and you can complain and say, "This isn't fair."
35:08
It's not going to change the tide, right? Max Arbitrage: Nope. Nope.
35:13
Jim O'Shaughnessy: And, so, if you put yourself in alignment with the tide, things just get so much clearer and so much easier.
35:15
And, it just baffles me that more people can't...
35:24
I mean, this doesn't seem like a complicated concept to me. And I wrong?
35:29
Max Arbitrage: I think a little bit in the sense that, it's not wrong, but the problem is, you go back to humans and you figure, let's say there's a hundred thousand years of humans; let's go a hundred thousand, a million years of humans, roughly genetically.
35:38
And, then, 10,000 years ago, they were like, "Let's go into agricultural plane."
35:42
So, roughly 1% of evolution of humans has been in the agricultural plan where you sit and you plan things, right?
35:51
The prior time from that period is, basically, just go and figure out; go get some food; eat the food; have some sex; have some fun; dance around; go get some food; do this in cycles, right?
36:00
And so, the goal of humans has always been just to get what's needed to survive, essentially.
36:05
The excess that we've created, which is all of society today, is the world that we live in.
36:10
And, that world has no bearing on really the reality organisms really need.
36:15
So, I think what we're talking about here is, the fact that the reason people are fighting the tide is because, traditionally, there was no real time.
36:22
If there's food over here, you've got the food; you're hungry.
36:22
You're not debating these types of things when you're hungry.
36:26
They're not fighting the system, and somebody's like, " There's some water."
36:30
You're like, "I don't want to get the water."
36:30
They're like, "Well, then, you're going to die."
36:32
Your body is going to take care of that for you, and you're going to walk over there and drink the water.
36:35
As soon as you have the option to walk away, because you have your water, you got your food, then, everything else becomes kind of...
36:44
This is a synthetic fake reality versus most biological organisms where living.
36:48
I was in Santorini, on a boat tour.
36:48
On the back of Santorini, there's a guy who left his wife, disconnected from the reality and lives on a rock there and basically Spearfishes.
36:57
And, he interacts with tourists, occasionally, that come and go, right?
36:57
And, I'm thinking about it.
37:00
I'm like, "He technically has everything, and he's living fairly long."
37:00
The guy's in his sixties now, right?
37:05
And, I'm starting to realize, all these financial people tell you, you need to have 30 X expenses, roughly, to have a 4% withdrawal rate.
37:09
And, I'm like, "But the expenses are literally like rice and beans."
37:12
You don't even need a house.
37:12
And then I was like, "Man, homelessness is really bad from where I sit."
37:16
But then, I'm like, "But people were homeless for a million years."
37:20
I'm not saying that's how it should be today, but the point I'm trying to say is, the fact that I think that's how it should not be today, is a synthetic layer or reality I've placed upon the base reality.
37:32
So, I think that's why people fight these kinds of tides a lot of the time, because they're not the real tides; nobody's fighting when a flood is coming and it's right outside; all of a sudden, they're on the roof.
37:41
You'll see people all the time, they go to the roof.
37:45
It's the other part of society that we parade; it's kind of like abstract informational layer that we've created.
37:51
Now, some people start to understand this as they dig deeper into the information layer.
37:55
As you start going deeper and deeper into the layer, you start to see how things are connected.
37:58
And then, you start to have these senses of things like buying stocks before 1987's crash, and then, accidentally selling them like the [inaudible] part as well.
38:08
That's when you start to figure these things out, and then, learn later how to not to repeat those mistakes.
38:12
But, I think that's what I find interesting about you and a lot of other people.
38:15
A lot of the people that have figured this out have figured part of this out because they manage people; they built businesses, and the businesses beat the living shit out of you, and then, you learn.
38:23
Some people have had children, and the children beat the living shit out of you, and so, you start to learn.
38:26
Somebody told me, if you have seven kids, everything's great; you don't fight anything; you just go with the flow.
38:35
Somebody shit over here; somebody do this over there; just go with the flow.
38:38
It's like the first kid is painful because you have to actually think through stuff; You're still thinking; you're still planning.
38:43
I think that's what's going on in a lot of the world.
38:43
And, I think if you take my analogy further, you'll find a lot of this happening in society.
38:47
So, the mimetic theory that you guys said, "Everybody's talking about the drug."
38:51
It's like when people mimic other people, because you already have the basics; and the basics, we have the mimic anyways, because everybody needed ATP.
38:59
So, all of the stuff we needed in the beginning was the same stuff; it's H2O; it's food; and it's some level of shelter.
39:06
So, we always needed the same things.
39:06
We always looked to each other to help us find the same things.
39:11
Once we got all those things, now, you've got this other world.
39:11
It's like, what are we supposed to do in this other world, which is completely detached from what you need to survive?
39:18
I think that's putting a lot of people in existential crisis.
39:18
That's what I really think is happening.
39:22
And, I think that's the reason that people really will be countries suffer from more depression and different types of things.
39:26
Some of it's also because it's just not picked up, meaning in poor countries, people are not checking these things out.
39:34
Maybe it's different, but I think that's part of what's what's going on in all this stuff.
39:37
Jim O'Shaughnessy: That is absolutely brilliant from my perspective.
39:38
Listen, Human OS, the base code is absolutely right.
39:47
It's for hunting and gathering. Max Arbitrage: Right.
39:49
Jim O'Shaughnessy: And, to be really good at that, right?
39:50
Max Arbitrage: Mm-hmm (affirmative).
39:51
Jim O'Shaughnessy: It's like, "Okay. So that happened.
39:52
This current version It sets up all of these arbitrage opportunities, which we've talked about at length.
39:54
Our arbitrage in human behavior is the only sustaining arbitrage edge, I believe, because we evolve so slowly that we're not going to see it.
40:06
Even your, congratulations on your new child, but they're not going to see it, I don't think. Max Arbitrage: No. Probably not.
40:12
Jim O'Shaughnessy: And so, what we have existing side-by-side, I love the way you put it, we have cumulative cultural evolution, aggregate cultural revolution, which fucking rocks; it is our ability to have this conversation be assumed, the iPhone is what I tend to, whatever power, more powerful than the computers that put us on the moon.
40:35
Max Arbitrage: Mm-hmm (affirmative).
40:37
Jim O'Shaughnessy: And so, humans are very adaptable, right?
40:38
But, when things start happening, and this is kind of my thesis with the great reshuffle, right?
40:44
, it's when things start happening really, really fast, they do go into existential crisis because we are moving into a world where abstraction is increasing, not decreasing, right? Max Arbitrage: Yes.
40:58
Jim O'Shaughnessy: And, I always say I'm a rational optimist.
40:59
That doesn't mean I think everything's going to be good.
41:02
It means that no, quite the contrary. Max Arbitrage: Right.
41:06
Jim O'Shaughnessy: This progress is probably going to form some new problems and we'll deal with those, but that's such a great thesis setting ground because it puts it in a manner that is instantly, at least to me, understandable and graspable, right?
41:21
Max Arbitrage: Mm-hmm (affirmative).
41:22
Jim O'Shaughnessy: It's like, okay. So, that happened.
41:22
This current version of humanity, what we're looking at, not even a minute on the overall clock of the history of humanity, and so, so far, so good.
41:29
We're doing things pretty well.
41:29
Are we fucking a lot of shit up too? Yeah, of course.
41:37
Max Arbitrage: I think gone it's pretty well so far.
41:37
Listen, it depends on your view, right?
41:40
It depends on how you look at these things, but, at the end of the day, if you think about how much more work and how much chaos existed for most people, for most of time, someone, like a random person, could not just click on their thumbs and food comes to their apartment 20 minutes later. It's just insane.
41:54
During COVID, I literally felt many times, I feel like this is probably what it feels like to be a king, because I'm literally buying stuff, and yeah, I'm annoyed that the fees are $15, but that's still insanely small, relative to what's happening in the background for me to get this food to my house.
42:13
Now, the fascinating thing about humans is, we'll never get away from abstractions because the way we were hunting and gathering was abstraction based.
42:20
And the reason we know that is, because most animals tend to stay in a certain type of area in a certain environment.
42:25
Humans are just like everywhere.
42:25
And they're like, "All right, we'll go over here; we'll come up with jackets.
42:29
We'll go over there; we'll take off that clothes; we go over to the water; we'll figure out how to swim.
42:33
We'll teach other people how to swim; We'll make Spears that actually work better in the water."
42:39
So, we've done a lot of modeling of the universe.
42:39
Our brains are basically essentially modelers of the universe, and we use slices of reality and patterns that exist in reality to basically model what we think is going to happen next, and we share that information with each other, and the models get better and better and better and better.
42:56
And, you know, you can kind of see just from the arc of humans, in a basic society with a hundred people, for example, you get information from elders; they give you information, and you basically are passing this along.
43:04
That is algorithms that have taken millennia solely over time to accumulate; their abstract algorithm models of reality.
43:14
The fascinating thing is we started using writing, and that really screws everything up, in a good way and a bad way.
43:18
But one thing is, who gives a shit what your village elder tells you when you've got writing from the best village elder on the planet?
43:22
Your little gentler sucks; he's not Einstein; he's just one in a hundred.
43:26
You got a guy that's one in a billion.
43:30
So, the first thing I think is writing starts to detach people from getting information from their friends, from their family.
43:34
You don't have to listen to your mom; you can go on the internet, and you can figure out what your mom's wrong about.
43:40
So, that's the first kind of step of detachment of humans from, now, you're not just an abstract mind; now, everything, the information that's going into you, can come from a distance; it comes from an abstract world, and essentially, that has no bearing on physical reality.
43:53
Then, you can look at the industrialization, which is essentially converting our physical output into an abstract output.
43:57
In other words, the amount that your finger presses a button, the amount of ATP it uses, the amount of energy it uses is much less than the output that the machines can do along the way.
44:05
So now you've essentially moved yourself out of that process.
44:09
Now you look at the middle.
44:09
So there's input, which I'm saying writing is basically a way to get rid of traditional means of information from people verbally, and output, which is industrialization.
44:20
Factories are a way to abstract out your physical output.
44:24
Now computers are doing the middle part, the processing.
44:26
We're not even going to do the middle part.
44:26
We're going to get rid of that.
44:30
So you literally find a system where we essentially have stepped out of the entire input processing, output chain.
44:34
Now we're all just hanging around, like, "Listen, do you have a digital rock?
44:39
Does anybody have anything that they can give me that will make me excited for a second?" Everything else is done.
44:42
So I do think that the more you automate this universe out and you just automate stuff, like that movie, WALL.
44:47
E, I think the guy is like sitting in a chair.
44:51
It's like, "Yeah, that's going to happen, and everybody's got to figure that out on their own as to how do you deal with all these things disappearing out of your life?
44:59
What are you going to find interesting?
44:59
And the common thing you hear today is, "Follow your passion."
45:03
Well, passion's all bullshit, and I'll tell you why it's.
45:03
And I'm not against it, by the way.
45:06
I'm for this, but it's also bullshit.
45:06
The reason it is, everything people say they want to do is stuff that didn't even exist for most of the time.
45:10
But I'm like, "Oh, I wish I was an electronic music producer instead of..."
45:13
There's not even such a thing as an electronic music producer.
45:17
That's a human created system that I've walked into and I'm like, "I want to be this guy and this group of...
45:21
In this video game, I want to play this character."
45:24
That's really what following your passion is.
45:24
It's like, "In this video game, what character would you like to play?"
45:28
That's what we're saying.
45:31
That's not really the reality of what exists.
45:31
So we're creating a fake theatrical world that we're living in. I think it's awesome.
45:36
I mean, I think this is inevitable.
45:36
I think of other animals stumbled upon this, they would end up in the same place.
45:40
If you have a bunch of beavers making dams and one of them has a higher, more efficient method to make it, and he can write that down, automate that thing, and then put that output to all the other beavers, all of a sudden, this guy is going to capture share.
45:54
The other one is going to disappear.
45:57
It's going to be a matter of time.
45:57
They're living in this abstract world.
46:01
"How can we make it a little bit better? We can fine-tune this."
46:01
Well, that last one knocked down, that was a five standard deviation event.
46:03
Maybe we could stack it up more.
46:03
Somebody on the side is going to be like, "Let's do some derivative trades on this guy's..."
46:07
I can't build them, but I could do some trades on this side.
46:11
Maybe we can collateralize at the end.
46:15
This is just like inevitable stuff I think that we're bound to have happen, which is why you've just got to enjoy it, be happy to that you get to see some of it because it's hilarious.
46:23
I mean, it's much better than fighting, physically fighting and dealing with this stuff. Jim O'Shaughnessy: Yeah.
46:27
I mean, as you know, I'm very simpatico with that attitude, but it also leads me to something that we chatted about before we hit record that I want to get your thoughts on.
46:36
So I back in a very, very small way, an artist's nonprofit, and it's called Gallery First, I think.
46:45
The man's name is Dan Foster, the son of a great friend of mine.
46:45
He graduated Cooper Union.
46:50
Really, really talented artist, and he pitched me years ago on this idea of getting a cooperative space where artists can work together at a non-usurious rate.
47:02
And so he's got this space that cost him virtually nothing, and it's on 21st street. So it's very hip.
47:07
Old building, big windows, perfect for an artist.
47:07
And he was here over the weekend, giving me an update, and I found this fascinating.
47:13
So he's maybe 23, 24, and so he brought his partner, who I had not met, a tattoo artist expert, and he understands that it's going to take him 15 to 20 years as an apprentice to a real tattoo artist before he can actually stake a claim there.
47:36
And so, first off, I was really impressed by the willingness of this young guy to... Yeah, I get it.
47:42
It's going to be 15 years.
47:42
But here's what really got me.
47:46
So they have no social media footprint at all.
47:46
They are not on Instagram. They are not on Twitter.
47:52
They are not on any of them, Facebook.
47:52
And this is an intentional strategy, and he's like, "What I decided was it's going to be cooler now to have events that are only word-of-mouth," right?
48:10
They don't even print a full liar.
48:14
So their most recent event, 200 people showed up, and he was talking to a woman from NYU.
48:21
She's a student at NYU, and she's going on to dance.
48:21
She's saying, "Do you understand how my social capital soared because of this?"
48:29
What do you think about that?
48:35
Max Arbitrage: First of all, it's cool.
48:35
I love when people do different things, but part of it is, I think I was partly telling you before we started, just the concept of people who are young, wanting to do things that people who are older tell them not to do.
48:45
So whatever becomes in Vogue, there's always a rebellion against that process.
48:50
And I think part of that might just be an inherent thing in humans, that during the times when you're a teenager and you're becoming a young adolescent, there's this simulated warfare mindset that's going on that probably was there for a reason for long period of time.
49:03
So I think there's definitely some of that going on.
49:03
It's like whatever everybody's doing is not going to be cool anymore if you do it.
49:10
We know that happened with Facebook.
49:10
We know that happened with Facebook, where as soon as parents started joining it, people left and went to Instagram, they went to TikTok, they went to Snap, all these things.
49:16
So that's one part of it.
49:16
The other part of it's just good strategy.
49:20
I always think about this.
49:20
You have a school of fish.
49:20
Let's say you have 1,000 fish, and they're all going in the same direction.
49:24
If you ever watch them, they basically move almost mechanically together at a certain breath and width, and they go to this whale carcass or whatever the hell they're going for.
49:33
Everybody's going for that.
49:33
Now, nobody knows how much material is going to be there before you get there.
49:37
In theory, if there's 10,000, you should have one 10,000th of what you need. And you get there.
49:46
Now, if you break away from that group, while everybody in the ocean is distracted on this one thing, all you need is a couple crumbs.
49:50
You don't need a lot of stuff.
49:50
You don't need a whole whale carcass.
49:53
So my strategy in life has always been, wherever the group is going, I know exactly what I need. It's not that much.
49:58
I don't need 10 million dollars. I need X.
50:02
If I can go in my own direction and find X, it'll be fine.
50:02
There's going to be enough for me in this direction.
50:08
So that, in general, is a very, very smart strategy.
50:08
I immediately knew that when these articles about New York being dead or were coming out, I was like, "That is definitely going to happen."
50:16
People are going to go back to warehouses, people are going to go to large spaces, people are going to go to Bushwick.
50:19
They're already doing that anyways, but there's always been underground raise for a long period of time, and you think of that as it's almost like inevitability, essentially.
50:26
In other words, now everybody's online, so it's like, "How cool is it to really be online?" But I think it's great.
50:36
I think that now that everybody's talking about cities dying and people are moving to the suburbs, I think what's going to happen is a lot of physical space fun is going to be happening.
50:45
There's going to be a lot more concerts when we start to reopen, there's going to be a lot of events that are going on, and I just think that's the pendulum of life, of the human cycle.
50:51
And I'm glad that it's happening because I don't think that just staring in front of a two dimensional screen is the fullness and richness of all that life is.
51:01
I hope that's not what the entire thing is.
51:04
That one time I went on the Metaverse to meet you and I saw the wind, I was like, "This is a pretty cool thing."
51:07
And so I hope more people get to see some sun and some wind in the next decade, but it's also very promising because it also tells you that amongst the youth, they're not necessarily buying into this idea that the only way forward is to live in this digital reality.
51:23
That would be a little bit of a hell escape to me.
51:23
I'm thinking about like my Oculus.
51:28
If I put the Oculus on and I'm young and somebody says something to me in the real world that's annoying, as you get it more power, you can start to shun people that are annoying to you further and further away.
51:39
I've been thinking about this a lot.
51:39
Money and means allows you to basically disintermediate other people in life.
51:44
So divorce is related to wealth in societies.
51:44
As women have some access to money and men have access to money, they're able to split and go different ways.
51:53
So one of the things I think about is, "What's the end result of something like that?"
51:53
If you get annoyed with somebody and, of course, if you don't need them anymore to get your food and your basic day-to-day, you're almost like, "I'm going to delete this person out of my life."
52:04
Before you know it, you can create a bubble of just you and yourself without anybody else you have to talk to.
52:09
Now, if you get into a virtual world, you've got even a bigger problem because in a virtual world, you might be able to create some of your reality yourself.
52:15
So what are you going to do?
52:15
You're going to create avatars or people that annoy you that disagree with everything you say? No.
52:19
You're going to create people that want to make you the king or the queen in that world, and so eventually what's going to happen is you're going to become a Wall.
52:27
E-esque individual that has created this, essentially, a prison for yourself.
52:32
But it's a very pleasant prison.
52:32
But to know that young people are saying, "No, no, no, no.
52:37
That's not the only direction.
52:37
There's another way," that's a really positive, promising thing.
52:40
I think that means that a lot of us that talk a lot on the internet might be wrong about some of what's going to happen in the future, that maybe things are going to bifurcate a little bit more, and we're going to have both realities running at the same time. Jim O'Shaughnessy: Yeah.
52:52
Well, again, there's a reason why we get along so well.
52:52
I think that is absolutely right, and it's like when we met in real life, it's just you honestly cannot describe it in a short phrase.
53:03
I mean, reality is completely different, but there's so much more interesting things going on there.
53:09
I'm a big fan of what will happen, particularly on the business side of things from the digital world.
53:17
And my comedian daughter always says that she is the last tether to reality that I will have.
53:23
She was just here recently, and she's like, " You know, Dad, I have decided that once I know that you have Oculus 5, I probably am going to give up."
53:36
Max Arbitrage: So then when you're doing standup, somewhere, in the middle of nowhere, in your Oculus, she's going to pop in, like, "Hello? I got it set. Are you guys ready?"
53:42
That's probably the future.
53:48
But the crazy thing about all this stuff is the territory is never the territory anyways.
53:52
It's the whole turtles thing.
53:52
People like the maps, not the territory.
53:52
I'm like, "Well, what's the territory?"
53:55
The territory is a map, too.
53:55
So it never ends in that sense, so when people are like, "The map is not the territory," I'm like, "The territory that humans think is the territory has always just been a map."
54:03
So I'm not even sure that there was a there, there to begin with.
54:07
I really think that's what we're rationalizing now, right?
54:13
But there is something real to what we were just talking about, the reality of dealing with humans, which is that we have all these senses.
54:18
You've got all these senses of input that are coming in.
54:18
You've got smell, you've got taste, you've got eyesight, you've got hearing.
54:22
When you go out in a three dimensional world, it's a very, very rich world.
54:25
And of course, what you do is you process that in multiple parallel layers at different places, and then that collapses down into your tiny consciousness, and that tiny consciousness of small bits of information is running this a stock market screen at the bottom. What are they called?
54:37
Chyron or whatever, Tyron, at the bottom of CNN.
54:40
Jim O'Shaughnessy: Chyron. Yeah, that's right.
54:41
Max Arbitrage: Chyron, yeah.
54:42
And you're just watching this little ticker of crap that's coming in, and that is supposed to be...
54:45
The ticker on CNN or whatever channels do it now, at the bottom of the stocks, that stock ticker of AAPL represents so many things underneath it, the processing needed to make the iPhone, the [inaudible], all the things that existed to get to that point, now it's just this tiny little set of words on your screen just scrolling by like, "Here's everything in one number.
55:05
Do what you can with this piece of information." Here's more, by the way.
55:09
Here's more universes I think that have existed.
55:09
Absorb them all in a minute or two.
55:13
I'm sure you'll make great decisions with this information.
55:13
So that's what's happened in the real world.
55:17
You're getting all of that stuff and your consciousness is collapsing it, and now what's happening in this cell phone or two dimensional plane we're getting information is the written information you're reading is a collapsed version of that already that's out in society.
55:31
Essentially, people are collapsing their realities into small segments and snippets and sending you these informational statements, which are essentially small snippets of reality.
55:38
And if you get too deep into that plane, what ends up happen is you're just reading other people's snippets.
55:42
They're zip files of the universe, essentially.
55:46
You're just looking at zip files constantly.
55:49
If you want to open up one of those zip files, unzip it and go deep into a rabbit hole, that's great.
55:53
But at the same time, there's a lot of things you can experience yourself that are not zip files.
55:57
You can go experience all the files that exist, essentially, in the world, and then you will actually probably get access to a lot more interesting insights because you are then processing things, first derivative level.
56:05
You're not waiting for somebody else to tell you to do stuff.
56:10
Then you can apply things directly to your own personal life, which is what really matters, what you guys are doing I think with Canvas.
56:14
Just the concept in general of people should be able to focus.
56:21
You're not doing a four percent withdrawal rate because it works.
56:21
It's because it was a simple thing that we could collapse into a number that allowed everybody to get 60, 40 hits. It's round numbers.
56:29
I wonder, what are the odds of that?
56:29
Is it because it's scientifically accurate?
56:33
No, it's because it's simple.
56:33
It's easy to say, but it doesn't work for everybody.
56:38
So part of what all of us need to remember is that all these things that people are giving us are tiny snippets of information that are collapsed, and what really matters is the stuff they're not telling us, and that's for us to figure out.
56:46
We need to go out and figure out what these other things are.
56:50
Non-information is more important than information, and that's a very weird thing.
56:53
But when somebody gives you a mix tape or a CD in the '90s with 10 songs on it, that has a lot more value than a playlist with a million songs on it.
57:02
It has more information, which is very paradoxical because by the bits, the million-song playlist has more information, but that's not how meaning really works.
57:07
It's the 10 songs, the fact they got rid of all the other stuff, that they edited all out and gave you this, that's where the meaning is.
57:16
So people need to start looking more for non-information.
57:16
Not just information, but non-information.
57:20
Jim O'Shaughnessy: Bingo.
57:22
You've hit on the whole idea of where I see this going is if you can't train yourself to synthesize information, to speak to your 10 CD, right?
57:30
So the process that gets you to those 10 songs is really important because what we are sitting with, and you understand completely and intuitively, is the million songs up here, right?
57:44
If you're add value, in my opinion, you have to be able to curate and synthesize it down to a list of 10 songs, which oddly contains a shit-ton more information in it than all of the information up here because of the process that you had to go through to do this.
58:11
So one of the things I always try to do is I very rarely read from my own field, right?
58:17
Most of the insights that I'm able to gather and synthesize come from evolutionary biology, psychology, genetic biology, all of these things that you need to be able to synthesize, and the idea that gets back to the existential crisis, I think this ties in there, too, because there is so much, and I'm a huge Claude Shannon fan who came up with information theory, so a lot of us are at our Shannon limits of just the raw information.
58:42
And raw information is, essentially, in my opinion, of really little value right now.
58:48
It is what you said, you have to look at the non-information side of things, and that requires nuance, that requires your ability to drive down a lot of fucking rabbit holes and come up with a null set.
59:05
You and I have talked about this when I was talking to you about my idea for using machine learning to find if we can confirm a black swan has occurred.
59:09
Not predict, just confirm.
59:15
I shared with you at the time, every one of these theses that I have, my expectation is a a null set, right?
59:21
It's like, "I'm wrong, but I'm still going to do it."
59:21
I love this idea of the curation process getting down to the 10.
59:26
The thing that I would say about your thought about writing is I agree, Robert Wilson had a really interesting insight about that, though.
59:38
He called writing time binding, and when you can time bind ideas, you're absolutely right, your village elder becomes a lot less useful, right? Max Arbitrage: Yep.
59:49
Jim O'Shaughnessy: Because you have this aggregate social evolution, and there are village elders who are 10,000 times as good, and so I view that as a privilege, though, of our generation in that we have access to the greatest minds, and if we avail ourselves of those, we can make our maps of the maps better because we can error correct.
1:00:15
And as long as you understand that there is no there, there, because this is the other thing that I love talking about, but I lose most people.
1:00:21
Not you, but I lose most people because it's a difficult concept to get across.
1:00:26
People don't understand that...
1:00:33
What I'm looking at right now, I'm looking out the window here, and there's a bunch of trees, but I can't see, what, maybe I'm, as a human being, able to see five percent of what's really there?
1:00:44
Other animals are going to see much different parts of the spectrum.
1:00:49
X-rays revealed this to humans.
1:00:49
And so we've been on this path where the quantum guys were the guys who really were like, "You know all that reality stuff?"
1:00:59
Max Arbitrage: They screwed up everything.
1:01:00
Jim O'Shaughnessy: They really did.
1:01:01
Max Arbitrage: They screwed up everything.
1:01:02
Jim O'Shaughnessy: They really did.
1:01:03
Max Arbitrage: It's a horrible place.
1:01:03
The quantum people are the worst people on the planet.
1:01:04
I say this jokingly, for that reason, by the way.
1:01:07
I'm like, "Why did you do the double [inaudible]?
1:01:07
You know how many hours of my life have been wasted on this thing?
1:01:11
I don't want to know the doubles.
1:01:11
If I could go back at time and delete that out of my mind, I wish I didn't know about that one.
1:01:14
It's the worst piece of information somebody could ever be given.
1:01:18
I can't imagine what their emotions must have been like the day that they started mentally processing what had happened and they started debating it.
1:01:28
Somebody in that group, I guarantee you, was having a drink, was like, "This is the worst.
1:01:32
Don't ever tell me this ever again. Give me the blue pill.
1:01:32
Why did you give me the red pill?"
1:01:37
Jim O'Shaughnessy: But then there are those of us, and I include you as one of them.
1:01:39
I mean, there are certain people who are just like...
1:01:44
Hey, maybe it's just in our nature, as the scorpion said to the frog, right?
1:01:49
I know I want that blue pill.
1:01:49
I know I want to be cipher.
1:01:49
I know I want to be eating the steak that my brain tells me is delicious, and I know that it's bits and bites, but fuck it, I'm going to take the red pill. Max Arbitrage: Yep, yep. That's that's me, man.
1:02:02
I'm eating the red pill every time.
1:02:05
But this writing, time binding thing is interesting, though, because you remember back in the day when information was encyclopedias, for example, and we got an encyclopedia set that came one letter a month. You have to amortize it.
1:02:13
And literally, I don't know anything about zebras because I didn't get that far.
1:02:18
It's just a little bit at a time you're getting this information.
1:02:22
Then we just take everything and dump it all together at once in the same place. "Here's a search box.
1:02:27
Forget about the Dewey Decimal, whatever the hell that crap was.
1:02:31
Just put it in whatever, and things will come back."
1:02:34
So I was thinking, "How am I going to explain to my son," he's five weeks old, "What am I going to explain to this guy about what happened?"
1:02:37
Because I can't explain to him the past.
1:02:40
So I was thinking about it really simply about just the law of numbers.
1:02:40
The Dunbar number, 100, 150, it doesn't matter to me if it's 10 people, 100 people, or 1,000 people.
1:02:49
Let's say very few people have the access and ability to memorize the states of 10,000 people.
1:02:54
A thousand-ish people, you're getting really a few connectors I know, you're probably one of them, that network people have.
1:02:59
You have 1,000, 2000 people you can keep track of.
1:03:01
So then I started thinking, "What if we took the entire United States, 330 million people, and put them in a stadium?"
1:03:04
There's 100,000 people and unless you shrink that population down, well, 200 of those people would be doctors out of 100,000.
1:03:12
Now, if anybody's been to a stadium and seen at the end, when everybody leaves, it's insane.
1:03:17
It's a never-ending stream of people, cars.
1:03:17
You can't mentally process how many people are there.
1:03:23
You just know there's a lot.
1:03:23
You go to Madison Square Garden, there's like 20,000.
1:03:27
You go to a football stadium, there's 100,000.
1:03:27
Your brain doesn't really realize there's five X's. It's very tough.
1:03:30
You lost track of numbers.
1:03:30
It's just a lot, basically, is what your brain [inaudible].
1:03:34
Out of the 200 doctors, about one percent are infectious disease doctors.
1:03:37
In a stadium of 100,000 people, there's two people that have any background in infectious disease applications in humans.
1:03:42
And I hate to say it, but they're not the Kardashians.
1:03:47
It's going to be a relatively boring duo of people, and they have to shout their information out for the rest of us to hear that information, and it's not going to come out.
1:03:55
And so I've been thinking about the size of what we're dealing with, and there's something like 4,000 hedge funds.
1:03:59
So if you do the math and you set a hedge fund, a tax ID is one person, that would be one person out of a 100,000.
1:04:07
Now, anybody who's been in the hedge fund world would say, "How can that be one out of a 100,000 of that set?"
1:04:11
We don't realize how massive the stack of information is and how divided it is.
1:04:17
It's way more divided than people realize, so it's very critical to understand what you say no to because if you do the other thing, which is say, "How long is your life?"
1:04:27
Well, maybe you've got 50 great solid years of processing high-level information.
1:04:27
Maybe 20 to seven, even if it's a 100 years, it doesn't matter.
1:04:31
The point is it's roughly in that range.
1:04:35
You get about 5,000 hours a year of awake time, roughly, about 100 hours a week, approximately.
1:04:40
You're talking about 250,000 hours in your lifetime of processing daily activities.
1:04:45
Maybe 500,000 is the upper limit, 100,000 is the lower limit.
1:04:45
Something like [inaudible].
1:04:50
So if you got that 250,000, and I know Malcolm Gladwell's people make fun of the joke about the 10,000 hours, and it's probably a little bit of... It's a book.
1:04:57
It's not reality, but let's say you just use 10,000 hours as your background.
1:05:02
You can learn about 25 things out of that entire stadium of a 100,000 people.
1:05:07
You've got to figure out what those 25 things are.
1:05:07
I'm not saying everybody needs to do this.
1:05:11
I'm saying that people sometimes, I think, forget about how massive the data dump was all at once, do not understand how heavy it is, and therefore start diving into stuff, not realizing, no, no, no.
1:05:22
You're touching something that people have spent a million hours on in the last decade, and you're looking at this data chart that somebody published on Tesla research, that's saying, "Well, they're going to be self-driving in 2024, blah, blah, blah."
1:05:36
You're just looking at this one table that's showing information, and there's other people that know millions of tables and stats and facts about this thing that you don't even know.
1:05:44
So that humility is so critical in this kind of environment. It's like I TA genetics.
1:05:49
I've got some background in genetics, but I'm not an infectious disease doctor, and am I going to spend 1,000 hours in the last 12 months reading about the details of COVID genetics?
1:06:00
No, because I don't know the other a 100,000 hours to fit everything in, so I'll just be wasting my time in that world.
1:06:05
That's not to say you shouldn't find things that are curious that open you up.
1:06:09
I think people should find things that you're opened up to and you go into a deep dive in those directions.
1:06:12
I think a lot of people don't realize, though, if you think you're going to open 200 tabs of 200 disparate items and go into deep dives on 200 of them, you should go into a calculator and start calculating how many hours you can do relative to the people that are in that field, and you're going to find that you're really barely scraping the surface on these things.
1:06:33
And what I think about people like Musk and Bezos, people are always so focused, "What do they do?"
1:06:37
It's what they don't do that matters.
1:06:37
And what they don't do is they don't get distracted by things that basically lead them down dead ends, and you end up with millions of dead ends in your life.
1:06:44
And I hate saying this, partially because I don't want people to get the wrong idea.
1:06:48
I don't want people to just become siloed either, in their fields.
1:06:52
That's the worst, the quote-unquote expert in their field talking to other experts in their field, eating donuts, having coffees, assuming everything's already been taken care of because nobody in their regulatory world knows what's happening.
1:07:00
Nobody outside knows what's happening.
1:07:03
You have this beautiful black box that's working perfectly, that's not a good reality either.
1:07:06
But people have to be a little bit more methodical now.
1:07:12
I'm going to tell my son that.
1:07:12
It's like, "You got to pick some things you're interested in, in going [inaudible].
1:07:15
Don't assume you're going to one-up every single person, in every single field."
1:07:19
It's not a matter of intelligence.
1:07:19
See, I think people have so much ego about intelligence that they're like, "I could do that."
1:07:26
Somebody said to me once, "You could have been an options trader." I'm like, "No." Because I wasn't.
1:07:30
The fact that I wasn't, tells you I could not have been, because in order to do that, I would've had to dig deeper and deeper and deeper into that field.
1:07:33
The deeper you go, the more the gravity and the resistance gets, the more difficult and boring it gets.
1:07:41
If you don't have the drive to get through it, that's what's stopping you.
1:07:41
It's not that, maybe people don't have the brains to do this stuff.
1:07:45
It's that you don't have the drive to get through the boring bullshit, to the end process.
1:07:49
If you don't have that, then that's not your fuel probably.
1:07:54
So, that's where I think we need to try to...
1:07:54
if I could advise really young people to do this shit.
1:07:58
Pick some things and get really into them, but you have to pass on a lot more things.
1:08:02
You have to really say no to a lot of things.
1:08:07
You don't need to know what's happening in Afghanistan necessarily, and make the policy decisions. You can let it go.
1:08:09
It's been going on for thousands of years.
1:08:09
If you want to go to Wikipedia and start reading it, I guarantee most people will be bored a 10th of the way through, because you're going to be like, "Shit, this is going on for a long time."
1:08:20
Then you're going to give up.
1:08:20
Then later if you do that, you could spend that time instead trying to do to help somebody, to make their lives better.
1:08:25
I think that's a much more useful way to live life.
1:08:30
Or you might go crazy in the modern world.
1:08:30
At least for me, that's [crosstalk].
1:08:34
Jim O'Shaughnessy: Actually that's where this leads to, I think.
1:08:35
Because it leads you to calibrate opportunities better, and say, "Huh.
1:08:41
This way over here looks much easier."
1:08:47
Max Arbitrage: Mm-hmm (affirmative).
1:08:48
Jim O'Shaughnessy: From the point of view, people say to me, is this quant in public markets. Why?
1:08:49
I always joke that I'm really, really lazy and I am.
1:08:58
The fact is, that solves so many of my problems.
1:08:58
I totally negated all of the human foibles, because we don't override our models.
1:09:04
I can completely look at the list and say, "Fuck, I can't believe we are buying this stock." But it doesn't matter.
1:09:10
My opinion doesn't matter, because my opinion on the models matters quite a bit.
1:09:14
Because I give the final approval, but then, I also understand base rates and I understand, when I'm buying a new portfolio.
1:09:26
I know that X percent of those stocks are going to fail.
1:09:26
If you try to make that transfer to a traditional investor, no traditional investor is going to buy a stock knowing it's going to fail. Max Arbitrage: Yes.
1:09:38
That's scary, by the way.
1:09:38
You're a hundred percent right.
1:09:38
But the answer to this, that a friend of mine and I discussed was, if you don't have something that's sucking in your portfolio for the last month or quarter, you have a very dangerous, dangerous, dangerous portfolio.
1:09:50
Because bad news, the world and the universe is not running on weekly cycles.
1:09:56
It doesn't give a crap about the fact that you crushed it for those three months, because unfortunately you have to live a lot longer than that.
1:10:00
As a result of that, you need to be on top of 80 years, times 50 weeks, which is 4,000 weeks of stuff that's going to happen.
1:10:12
All it takes is for you to screw up and drop a figure off the ledge on one of those weeks, and you can come crashing all the way down.
1:10:16
That's why I was drawn to you from the beginning, when I read your book.
1:10:21
To me, this is just logical stuff.
1:10:21
You need to have a portfolio of some things that fail, and you need to realize that if you pull the trigger on things that fail automatically.
1:10:30
Yeah, sometimes it'll be the smart thing to do, a lot of the times it won't be.
1:10:34
You're going to remember the ones where you shouldn't have done it. That's for sure.
1:10:36
But, that I find fascinating in the investment world, because investment world, you can't talk theoretically.
1:10:40
You have to actually do it.
1:10:40
What you said was great, because I was just thinking when you said that, Jim Simons and Renaissance.
1:10:44
What people talk about him as he's the God of Investment, in terms of rates.
1:10:51
He says himself, "I have no clue what is going on."
1:10:51
That to me, is a serious clue.
1:10:51
I turn on a YouTube video of him once giving a lecture about six dimensional manifold...
1:10:57
some crap, I didn't even know what it was.
1:11:01
It was worse than the double slicks room, and I watch it for six minutes and I'm like, "I don't know what this is."
1:11:04
I do understand that now that I saw his yacht at Chelsea Piers, I don't really feel bad that this guy has a yacht that size. I think he deserves it.
1:11:11
Don't tell us about this manifold stuff anymore.
1:11:11
Just make money and do your thing.
1:11:15
I was thinking, if that guy is out in the sense that he doesn't want to even get involved in trying to figure out what's going on anymore, I'm not going to try to compete with this dude. That's the worst.
1:11:26
That's the most aggressive, intelligent thing to do.
1:11:29
I already know that I can't do it, because I tried to watch one of was lectures and I had nothing to comment.
1:11:33
I didn't even understand what the topic was.
1:11:36
I couldn't even summarize the topic.
1:11:36
I want people to start thinking more in terms of both laziness, in other words, efficiency of action.
1:11:42
Which is the other way to put it.
1:11:46
Not just not doing anything, but doing things that have action and meaning.
1:11:46
Whether they're meaning in terms of getting you ahead in what you want in life or enjoying life, whatever it is.
1:11:54
The other part of it is being okay to be just dumb about a lot of stuff.
1:11:54
It should be okay to be stupid about a lot of stuff.
1:11:58
It used to not be cool to be smart.
1:12:04
In the nineties, if you were a nerd, it sucked.
1:12:04
Anybody who was a nerd was like, "Oh man, this sucks.
1:12:08
The jocks, they have it really good."
1:12:08
Now I'm like, maybe they had it right.
1:12:12
Maybe it's better to just keep the nerds in a box, because this one-upping of intelligence defeats the whole point of intelligence.
1:12:17
The whole point of intelligence is to not have to one-up each other, but to build upon each other's work.
1:12:20
If you want to go in that direction, you should just beat the shit out of each other on a field, just knock each other's heads out, in a football game.
1:12:27
But if you want to be intelligent, that's part of the process of being intelligence, is realizing you don't need to solve everything.
1:12:31
Other people are going to solve most of your problems for you.
1:12:36
You just need to figure out what token to exchange with them, to get it done. Jim O'Shaughnessy: Yep.
1:12:40
Max Arbitrage: I love talking to you for that reason.
1:12:40
It's because I know you've done so much in your life, but you recognize that it's not really beneficial to go in these types of directions.
1:12:46
Meaning to waste your time on things that are essentially not going to change much.
1:12:50
You're not going to change them much.
1:12:50
Nobody's going to care if you say Jim's the smartest guy in the world, it's not going to matter.
1:12:56
You're still back with your daughter complaining that you're not listening to her jokes.
1:12:56
That's what you call wisdom.
1:13:03
Jim O'Shaughnessy: But, like you've said, one of your great advantages honestly, is that you do what you do.
1:13:04
It's like, "No, I'm not going to go over here and compete over with these geniuses." Max Arbitrage: Hell no.
1:13:15
Jim O'Shaughnessy: "I'm going over here, where it's like shooting fish in a barrel."
1:13:18
Max Arbitrage: Of course, I don't even understand how people get to the point where they think that way.
1:13:23
Because literally, the first thing I look in a space when I'm investing is, how easy is it?
1:13:27
How many smart people are in that space?
1:13:27
If there's a lot of smart people in that space, I'm not going to generally go too deep in.
1:13:32
Now, what I could do, is I can duplicate bets.
1:13:36
So, dying on a hill is something that happened because you can't duplicate the atoms in your body.
1:13:40
There was a time in the material plane, where you had to make a decision.
1:13:40
You're going to go left, you're going to go right, and you can't duplicate it.
1:13:45
The whole point of things like writing, and software, and currencies is that you can duplicate your bets.
1:13:47
Once you can duplicate your bets, why are you dying on anything?
1:13:54
Just place your bets everywhere.
1:13:54
You don't actually have to ride that horse.
1:13:54
The other guy can ride the horse.
1:13:57
You can bet on all of them, and you can actually even be better.
1:14:02
You can be a casino and be on all of them.
1:14:02
But I think that's part of where this comes from.
1:14:05
People are thinking in the material planes still like, "I've got to have this decision.
1:14:09
I've got to make this decision.
1:14:09
I've got to be the person that stands for this."
1:14:12
You actually don't, you can literally control-C control-V anything you want today.
1:14:17
So, just make that 5% of decision.
1:14:17
You're not sure if you want Crypto in 2016, and start reading about it.
1:14:21
I don't know what's going on there.
1:14:21
I just know a lot of smart people in it.
1:14:24
I'm just like, "It's not going to kill me to buy a small amount of Bitcoin or Ethereum." So I did it.
1:14:28
You could do that today and you couldn't do that in the material plane.
1:14:31
You couldn't make that one 10th of a percent bet easily.
1:14:31
Just take advantage of what we have today, which is you don't have to put in all your bets in one single place, you don't have to have an idea that you're sure it's going to happen. You can duplicate.
1:14:42
Jim O'Shaughnessy: Which is a fantastic way to explain it, because in the physical plane, that bet might die. Max Arbitrage: Yes.
1:14:53
Jim O'Shaughnessy: The game's over. You're done.
1:14:54
Max Arbitrage: Mm-hmm (affirmative).
1:14:55
Jim O'Shaughnessy: In all of these other planes, you're not done.
1:14:58
That requires a very different computational skill.
1:14:58
It requires a very different way to look at these bets that you're making.
1:15:04
As you put it, I used to say this in every talk I ever gave.
1:15:08
If you're going to be involved in gambling, be the house. Max Arbitrage: Yes.
1:15:14
Jim O'Shaughnessy: Because the odds are in your favor, because being the house is boring. Max Arbitrage: Yes. Totally.
1:15:18
Jim O'Shaughnessy: Being the guy who goes in and wins the million dollars at the craps table, goes home with the prettiest woman, and has the champagne, that's the drama. That's the great story.
1:15:31
If you're going to make a movie about actuaries, nobody's going to watch it man, because it's going to be a really [crosstalk].
1:15:36
Max Arbitrage: They tried, I think he needed a gun, the accountant or something like that.
1:15:40
Jim O'Shaughnessy: Exactly.
1:15:41
Max Arbitrage: They were like, "He needs to have a gun or something.
1:15:42
This is not going to work" [crosstalk]. Jim O'Shaughnessy: Yeah. That was Ben Affleck.
1:15:45
Max Arbitrage: Ben Affleck, right.
1:15:47
Jim O'Shaughnessy: It was called The Accountant.
1:15:48
Not really, he was an assassin.
1:15:48
The things that animate us are great stories, and I have no problem with that, but they lead people to believe that's the way it's got to be for me too. No way, man.
1:16:02
Max Arbitrage: No, definitely not.
1:16:03
Jim O'Shaughnessy: You want your investment strategy, whatever you want.
1:16:07
It should be right for you, but it should be so fucking boring that no one's going to even want to talk about it.
1:16:12
Max Arbitrage: I totally agree with that.
1:16:14
I think Munger and Buffett hammered that in a thousand times.
1:16:18
They hammered it into my head to the point where it became part of who I am, in a sense.
1:16:22
I started thinking about that about a lot of things.
1:16:22
Meaning, the things that are really making the world go around are boring things.
1:16:25
If you want to sell Botox for 300 bucks, easy.
1:16:29
You want to sell echocardiogram for 300 bucks, almost impossible.
1:16:29
Nobody wants to know the intricate, boring details of some shit that takes 85,000 pages to explain to somebody what's going on. Not exciting.
1:16:39
Botox, right in the face, right in the eyes, you see it immediately.
1:16:44
It's superficial, and people can see it.
1:16:44
Boom, you got yourself a winner.
1:16:48
Really where it comes down to is, you don't have to choose one of these sides.
1:16:52
But I think it's important to realize these things exist.
1:16:52
I was at Baha Mar in the Bahamas, right before COVID hit last year, way back in the beginning of the year.
1:16:56
I remember I was at the roulette table, my interest was, a friend of mine was betting there.
1:17:00
This guy makes decent money.
1:17:05
You would think that somebody who has decent money decisions would not make really ridiculous decisions, which is there's a wheel with a zero and a double zero.
1:17:10
I'm like, everybody, there's literally on this table.
1:17:14
They have two middle fingers pointed at you.
1:17:18
I spent all this time watching the numbers because one of the things I was interested is, how long can these runs of black and red go?
1:17:22
So I was watching, can we get 11? Can we 12?
1:17:25
I was just thinking if I watch for three days, and I watched this many sequence of numbers, how many blacks or reds can you get in a row?
1:17:29
Because, that betting system of doubling your bet, whatever.
1:17:33
Jim O'Shaughnessy: Right.
1:17:34
Max Arbitrage: Then later, I started [crosstalk] the Kelly criterion, right.
1:17:35
Later, I start watching people's faces, because now I'm starting to think, what's going on here?
1:17:39
We're at expensive tables, people are spending a lot of money.
1:17:44
So, they have decent amounts of money. Obviously.
1:17:47
I'm not a complete idiot.
1:17:47
I know there's a whole game involved here.
1:17:47
Part of its people hanging out with each other, there's socialization, they're spending money, whatever. But I hate to say it.
1:17:56
A lot of the people who are there, after talking to them, had businesses and probably don't have limitless capital. Okay.
1:18:00
There are people that do have real money and maybe they're having a good run and they're willing to do it.
1:18:05
If shit hits the fan there's a divorce, and there's some shortage of cash.
1:18:08
They're not going to even probably connect that this table is the kind of thinking that leads you in that direction.
1:18:11
But I was watching people for a long time.
1:18:15
I was even watching my friend just staring at him, from the side, what the fuck's going on in your head? What are you thinking?
1:18:20
There's two clear stats on the table.
1:18:23
They were all talking about the mysticism of the numbers, 21's hitting on this number and 19's hitting on that table, and I'm like, "I don't know what's going on."
1:18:34
But this is a thing, it's a very popular thing.
1:18:34
Because there was more of those people than me by a factor of about a thousand to one.
1:18:37
Even the people who were out in the beach, most of them had one partner that was in the casino that was still there, gambling away.
1:18:48
I don't know what to make of that [inaudible].
1:18:48
I think part of it is maybe there's this feeling of, you feel like you should do something.
1:18:52
Sitting on the beach and just staring at the sky, seems like there's nothing happening. It's boring.
1:18:56
This concept you said about boredom, I think it relates to a lot of things in life.
1:19:00
Boredom is really painful for us for whatever reason.
1:19:05
There's a feeling of an need of always doing something with your hands, with your legs, with your mouth, with just constantly doing, doing, doing.
1:19:09
If you walk into a room and you see somebody just staring at the wall, and there's a blank wall, and there's no digital device in their hand, and they're just standing there.
1:19:17
You're going to get the person committed.
1:19:22
You're really going to be like, what is this person doing?
1:19:22
But, so much of human life is what's happening in your brain.
1:19:26
If you don't take time sometimes to peruse those contents, you're probably sitting on a lot of stuff.
1:19:31
Out of that boredom might come something that's interesting, that somebody else hasn't noticed.
1:19:35
I think that's an important thing for people to be able to do.
1:19:39
My cell phone has no notifications at all, zero notifications.
1:19:39
I've got every app, no notifications.
1:19:45
I refuse to let the outside world ping me.
1:19:45
Only way you can get me is if you have my cell phone number, and you're in a list, and you call me and you can break through the "do not disturb".
1:19:54
It's on "do not disturb" 24/7.
1:19:54
I did that because I realized I'm going to push information out, and when I want to get information, I'm going to pull it in myself.
1:20:03
I'm not going to let people just electrically zap me every few minutes, waiting for my response for things.
1:20:06
Because if I do that, I'll basically just become a bacterial automaton, just [crosstalk] responses essentially.
1:20:15
I love the way you put that together, because it's definitely along, same thing.
1:20:15
I totally agree with that general thought process.
1:20:19
Packy McCormick is great by the way, because he has the newsletter called Not Boring.
1:20:23
I like the newsletters, but every time I read the letter, I'm always reading it and I always tell myself, "Wait a minute.
1:20:28
He's literally telling me it's not boring.
1:20:31
I hope there's no zeros, or double zeros in this newsletter."
1:20:35
Because that's part of my [crosstalk].
1:20:35
Jim O'Shaughnessy: His episode goes up on Thursday, but that's how I lead in.
1:20:38
I'm like, "Packy, when I see something called Not Boring, I immediately get suspicious. But you got me."
1:20:52
As far as notifications, same with me.
1:20:52
I have no notifications on at all. Max Arbitrage: Yep.
1:20:57
Jim O'Shaughnessy: I only put "do not disturb" on... it's on now.
1:21:01
Because I'm doing something, and I put it on at night.
1:21:01
I couldn't even imagine like being Pavlov's dog and looking at the fucking phone, that's dinging at me.
1:21:07
That just offends me, it's like, "Fuck you."
1:21:12
Max Arbitrage: It's the default.
1:21:16
There's two billion people, or three billion people on the planet with cell phones.
1:21:19
My guess is, 99% of them are getting massive amounts of notifications a day. That number's made up.
1:21:26
I don't know if it's 99%. I think it's a lot.
1:21:26
Because, you know from the investment world they've done research on, if you're given a fund, the odds of somebody switching it, even to a lower-cost fund is almost very, very minimal.
1:21:38
Jim O'Shaughnessy: Very low.
1:21:39
Max Arbitrage: A few dorks are going to look at it and be like, " 20 basis points is too much.
1:21:42
I need four basis points from Vanguard."
1:21:42
Most people are just like, "Whatever, it's a default.
1:21:44
It says the year I'm retiring, it's got to be correct. How could it be wrong?
1:21:49
It knows the year I'm going to retire. It's got to be right."
1:21:53
I think that part is always one thing I keep on telling people, do not let society determine your defaults.
1:21:57
You figure out your own defaults, never let society tell you your defaults. That'll screw you.
1:22:06
Jim O'Shaughnessy: That will be the end of this particular conversation.
1:22:10
That is going to be exactly where we pick up the conversation for our next talk, because I could not agree with you more.
1:22:16
You cannot, your life will be fundamentally worse off if you let society dictate your defaults for you. In some areas it's fine.
1:22:24
You have to pick your fights, I don't give a shit what kind of gas I use.
1:22:35
Max Arbitrage: I have no clue.
1:22:35
Some things you have to let go.
1:22:39
Jim O'Shaughnessy: You just have to let go.
1:22:40
You have to think, but that, I'm going to actually make a note for our next chat, because that's going to be a great conversation, as well.
1:22:46
Max Arbitrage: Absolutely.
1:22:47
Jim O'Shaughnessy: As always my friend, you are font of wisdom.
1:22:50
Max Arbitrage: I don't about that, buddy.
1:22:50
I had fun, that's for sure.
1:22:53
Hopefully I made you laugh.
1:22:53
As long as somebody laughed, I'm happy. That's the bottom line.