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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 the mystery person, my colleague, Jamie Catherwood.
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I thought I signed you out to the History Channel and you were in Peru going in the mountains, but you're here- Jamie Catherwood: Back from the dead. Jim O'Shaughnessy: Yeah. Back from the dead.
1:56
But the real excitement I have today is our guest, Matt Clifford, who is the co-founder and CEO of Entrepreneur First, an international talent investor, which basically funds extraordinary people to build tech companies.
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He's also a fantastic author.
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I love his Thoughts in Between, which is a newsletter writing about everything that's going on.
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And as listeners know, I think that we are in a period called the Great Reshuffle.
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I think you definitely need to subscribe to Matt's newsletter Thoughts in Between to, as he puts it, make use of his vagabond intelligence. Matt, welcome.
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Matt Clifford: Thank you for having me. I'm excited to be here.
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Jim O'Shaughnessy: Very excited to have you.
2:43
And first off, happy birthday.
2:46
Matt Clifford: Thank you.
2:47
Jim O'Shaughnessy: The wonders of the Internet for the win.
2:48
One of the things that I wanted to start out with was you've written about, and I love the way you put it too, because you just, bam.
2:55
Why has the world gotten so fucking weird? So, I like weird.
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I'm an anomaly, I guess, and because I'm 61 and I love weird, but I'm super excited about what's going on.
3:09
I think that we are on the cusp of a golden age, not just in one sector, but in many, many sectors.
3:15
But to get there, you have to go with some turbulence.
3:24
You basically tell us that we are in the middle of this turbulence.
3:31
And so what I'd like you to do is explain your thesis for what got us here, what should we expect?
3:39
Matt Clifford: That's a big question.
3:40
I think the way I would think about this is if you zoom out, maybe the first question should be, how did the world get to be not weird?
3:46
Why should we take that the natural state of affairs is non-weirdness?
3:52
One way of thinking about this is to say that modernity, however you want to define that...
3:58
let's say the last 250ish years, is really about the triumph of non-weirdness.
4:05
It's about constant or apparently constant, apparently unstoppable motion towards the reduction of variance in our lives.
4:13
And you see this across almost every domain of human activity, the economy, health, health and wellbeing.
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I don't just mean healthcare, but how we live, how our bodies work, politics, business, all these things like you can think of, modernists, the existence of a series of what I would call variance dampening institutions.
4:32
And variance dampening institutions mean the things that we collectively created to rescue our species from what was before, which is, to steal the Hobbs line, a life that was nasty, brutish, violent and short.
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And if you want to get out of that Hobbsian nightmare, you need to find ways to reduce variance.
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Liberal democracy, incredible reducer of variance.
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No longer do you hand over power by having a war or an assassination, you have an election. It's reduced variance.
5:04
Monetary economics is a way to tame the business cycle over some period of time.
5:12
Reduced variance, reduced variance...
5:12
we've developed all these institutions, the rule of law, constitutional rights, all these things make life somewhat more predictable.
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And so for most of, let's say, the second half of the 20th century post Second World War, anyone who lived in, for one of a better term, the west, had a life of far less variance than say 3, 4, 5, 10 generations before that.
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You could call that the triumph of modernity.
5:38
And then something happened in the midst of these fantastic variance dampening institutions, we somewhat accidentally unleashed the mother of all variance amplifying institutions, and it's called the Internet.
5:50
And what the Internet does, is it selects the weird and amplifies it.
5:50
And so I'll stop talking, but I think the brief history of the last decade is that we suddenly introduced this variance amplifying institution right into the middle of our somewhat peaceful variance dampened lives and chaos has ensued.
6:07
Jim O'Shaughnessy: And well put, I agree.
6:10
I'm reading a book right now called The Genius of the Beast by a guy by the name of Howard Bloom.
6:16
And his thesis is that we have so allowed the variance dampening to make everything much more narrow, much more predictable, but that, in his opinion, has killed the creative genius, the Promethean aspect of creation and that to get back to really incredible creativity, we need to join the emotional in our feelings with our reason and our logic.
6:45
Now, of course, Iain McGilchrist has the Master and His Emissary.
6:52
And so I think it's a little bit like Pandora's box.
6:52
Now, I know hope is at the bottom, right?
7:01
But you make a point that Rome basically was at a peak that was not dissimilar to Western democracies at their peaks, but that they declined because the wrong things were prestigious in Rome and being a high activity troublemaker, maybe you might call it, was a very low on the status totem pole.
7:24
So I'm interested in your thoughts on this whole idea of former hierarchies, because I've studied hierarchies. They exist everywhere.
7:30
So you go down to bacteria. This I did not know.
7:38
There are hierarchies in bacteria and they do not like to be alone, but I won't go too far down that, but in every little thing there's a hierarchy and that seems to be a changing.
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The elites of today are freaking out because nothing is what...
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this lever used to mean that they stopped doing that.
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And this lever only increases that.
8:05
Is that part of what's going on here?
8:05
Matt Clifford: Yeah, I think that's absolutely right.
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I mean, one slightly provocative framing would be that the rise of modernity, the rise of variance dampening institutions was really bad for ambitious people.
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It was really good for the average person and if you're a utilitarian, maybe on balance, that's a trade that we want to take.
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But why is it bad for ambitious people?
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Because one of the main ways to reduce variance is to stop a Napoleon invading Europe every time they want show you how smart they are.
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Insert your favorite example here.
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And so the apotheosis of this, if you like, is the idea of the career.
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Napoleon, didn't set out to have a career.
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He wasn't looking to impress his boss.
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And yet if you look at what the 20th century was about from the perspective of work and ambition, it was really about having these more or less formalized tracks for ambitious people to climb.
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And it doesn't mean that if you got to the top of that, you couldn't be wealthy, powerful, insert your favorite adjective here.
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But what it did mean was that we more or less knew what someone at the top of that hierarchy could do and what they couldn't do.
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In the age of variance amplifying institutions, what you see is the Internet select for people that are not willing to have careers.
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Like if you take Donald Trump, Elon Musk, these are people that were not built to have 20th century careers.
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They were not built to make their boss look good, to fill in the engagement performance review card at the end of every project and climb up the ladder.
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And so, one of the reasons...
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it's a slightly different point, but one of the reasons I think there's been such an enormous Renaissance of founding an entrepreneurship.
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I mean, it was partly technologically determined.
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Partly it's just that if you're a super ambitious person today, you actually look back historically, I think, and look, well, actually it was possible to do more as an ambitious person.
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It was possible to find more leverage, to have fewer constrains in the past.
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It was then a period of about 50 years, like the great moderation, if you'd like, where a lot of that was constrained.
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And again, I'm not totally against that, despite both being an ambitious person and spending my entire career, trying to amplify the ambitions of ambitious people.
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I think in some ways it's a good thing for the world, but we're now in this new era where Elon Musk can tweet what he likes and send the pigeons flying and several regulatory agencies flying.
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Or Donald Trump can be the most powerful man in the world and do what he likes.
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And these are examples of the Internet as sort of a anti-career institution.
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An institution that breaks a lot of the assumptions of what ambition should look like. Jim O'Shaughnessy: Yeah. Yeah.
10:35
And back to Bloom, he was talking about complex adaptive learning systems.
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And one of the elements of those, he says, is conformity enforcers.
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And that's your idea of the variance dampening part, because I agree with you, by the way, I think we need to find a balance between pure chaos and strict regimen.
10:56
So I've been studying the history of Athens and Sparta and the reality is, we need to be both Athens and Sparta and we need to be Aristotle and Socrates.
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And so that's back to McGilchrist's idea of letting the brain unite again.
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Because what's happened is, we have so given over much of society to the logical part of the brain...
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and remember this is coming from a quant. Okay? Matt Clifford: Right.
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Jim O'Shaughnessy: So the idea though, that creativity is something that we really need to let bloom is frightening to a lot of people.
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And you bring up Elon Musk, and I had somebody call me and ask me about this.
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They're like, okay, you're pretty good at analyzing these things. What the fuck?
11:39
He just said to a sitting Senator that his profile picture makes it look like he just came and the guy, he's an old timer and he's in Florida and he's like... what? Explain this to me.
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And so I said, well, a little bit of what you just said.
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I said, we are in a chaotic age.
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I mean, Whitehead said that every great age is a chaotic age.
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And that what you're seeing here is a shot across the bow. And that is this...
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and I want to see if you agree or disagree.
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I think that private enterprise has gotten so far ahead of our government and structures of government that basically, and I don't know that this is a great thing by the way, but basically they can say, fuck you, man, you can't touch me.
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I've always had great respect for the United States federal government, because they got a lot of guns and they have repeatedly demonstrated that if they want you, you get got.
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I don't know whether that is still strictly true, number one.
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And number two, do you have any ideas for...
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and I'm sure you do, for how we can upgrade if you will, the governing structures, because clearly they're broken. What do you think?
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Matt Clifford: I think the interesting question here is, what does the equilibrium look like?
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Where does this land up?
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And I actually suspect that one of the perhaps counterintuitive things that's going to happen over the next decade is actually a flow of talent back into some of these institutions.
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And the reason is that, as you say, there is a lot residual formal power in the US federal government, where I live in the UK, in the UK government.
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And actually I think the equilibrium is to say, well, I got to decide how to compete in this world of chaos.
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One thing you would have to say about the world of variance amplifying institutions, is it's not kind to people whose skillset is actually adapted for variance dampening.
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But my guess is the plot of world history in the next decade probably is not on like a macroscopic version of the plot of the TV show, Billions, in that you've sort of got the chaos monkey hedge fund guy, and then you got the guy who's, well, I'm never going to be as rich as you and I'm never going to have as much informal power as you, but watch me use the power I do have.
14:23
And I think one of the interesting things is...
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anyway, there's a bigger topic here, but to keep it small for now, assuming that we remain living in these political communities, we broadly believe that we should democratically set the rules of the game.
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I think there will be a path to power for people that want to point to the amplification of variance and say, "Hey, this is not what you signed up for."
14:43
And it's interesting in a way that the first person to say that was Trump.
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But weirdly, he said it almost from the other side of the table.
14:53
It's like, "Hey, this is not what you signed up for," talking to actually this more traditional, formalized power.
14:57
But I think one of the interesting rules of democracy is the sort of median voter theorem.
15:03
In other words, political coalitions are not static.
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They adapt to the circumstances of the time.
15:08
And so, when things get chaotic enough, I think there is a constituency who'll be willing to say, "Hey, you know what?
15:18
We're going to be on the side on variance dampening."
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Now, do I think that's going to be a successful program? I'm not sure.
15:23
I'm not sure you can actually constrain the Internet age to national boundaries, which is ultimately what this requires, but I wouldn't be surprised if we see a lot...
15:33
A good example that maybe illustrates it is, I think many of the world's most ambitious people over the next 10 years are going to want to be Central bankers.
15:40
I've written about this quite a lot, but you look at who are the most powerful people in the world right now?
15:44
Central bankers are right up there.
15:48
And yet, okay, Crypto notwithstanding, we can come back to that.
15:48
It's interesting, that is going to be firmly in the hands of traditional institutions, I think, for a long time.
15:57
And so I'm really interested in what the equilibrium is.
15:57
I think the reason we're all sitting around staring at what happens on Twitter at any given day and saying, this is just so weird.
16:07
Whether it's Elon Musk or the whole game stop thing, or any of these things, is because it's new and weird.
16:13
But that means that we're not in equilibrium.
16:17
That means we're in the point where existing institutions and political coalitions are still forming.
16:22
But my guess is you're going to see a resurgence of people being like, "Hey, I can put the chaos away."
16:26
I don't think that's right.
16:26
But I think you'll hear people say that. Jim O'Shaughnessy: Yeah.
16:30
I think that that is a part of this that has fascinated me for a while, as I'm planning this series called The Great Reshuffle, because I think time, space and geography have collapsed, especially geography.
16:37
And that sped up something that I thought would take more seven to 10 years and it happened in a year.
16:43
By that I mean, as an employer, my potential list of people who might want to work with me just went up by about a billion people and you can see it in my hiring for Infinite Loops.
16:56
I hired my first external hire was Vatsal, who lives in India, and who demonstrated his talent on the Internet, on Twitter. And I watched him for...
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I don't know, nine months and every day was his CV, so to speak.
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And one of the things that I really believe, as an old, is my degree only suggests competence.
17:30
The idea that you are constrained at all by where you live, by what your race or color or creed or sex or any of that is, is gone.
17:38
And people, especially forward looking people, are going to really take advantage of that.
17:45
But the cool thing here is now this whole group of people who are enormously and immensely talented, but we're bound by their geography, that's gone.
17:59
And so I personally believe the dampening variance folks have got a big job ahead of them and it's not going to happen [inaudible] And right now, the old elites are having the biggest temper tantrum I've ever seen in my 61 years.
18:14
Like journalists, especially man, they used to make a deal, right?
18:20
The deal was, we are the fifth estate.
18:20
We understand that we're not going to ever have as much money or power as the people we cover, but we're willing to make that trade for access and some control, which way to point society.
18:34
I think that the last time this kind of change in humanity was bubbling up, was in the sixties and seventies.
18:44
I mean, before joining you, I was listening to Harry Nielsen's Jump into the Fire.
18:51
I don't know whether you ever heard that song, but if you really want to understand what's going on now, go and listen to sixties rock. Unbelievable.
19:00
Okay, but there were three networks in the US, which controlled everything.
19:08
Talk about an agenda, right?
19:08
Nobody knew that FDR who was a president of the United States was a cripple.
19:15
Nobody knew that he had a wheelchair and literally couldn't walk.
19:24
Now some will say, and I might be sympathetic, that maybe that's a good thing because we've been focus on the stupid, silly stuff.
19:33
We focused on his ability as a politician.
19:33
What do you think about that?
19:40
We are living what I have come to be calling, we are living naked, and everyone can say, "Ooh, that emperor doesn't have any clothes."
19:46
Does that get dampened or no?
19:52
Matt Clifford: Well, I think you're exactly right.
19:52
That the challenge with that belief that maybe it was better that people didn't know, is who decides?
19:59
And clearly what people have lost faith in, in a lot of the world is that the people who were doing the deciding ought to be doing the deciding.
20:05
And, actually, I think you can make an argument that on simple democratic principles, there's a good point. Who put them in charge?
20:10
And I think what's interesting though, and going back a little bit to some of our classical world illusions that we've been talking about.
20:20
I think the bit that maybe is missing is that, to make democracy work in the sense of...
20:27
and I don't mean the system of electing governments through elections.
20:27
I mean the sense that everything is up for grabs, everything needs to be decided by everyone.
20:38
You do need a different political culture to the one that we have.
20:38
And if you think about the tradition of small republicanism, the sort of like Roman republicanism, which obviously a bit like Athenian democracy was built on extreme elitism and massive and horrific exclusion of nearly everyone from the political community.
20:56
But if you ignore that for a second, and we should, I think it's somewhat ignorable in the sense that if we really want everything to be up for grabs, if you want everything to fall within the realm of politics, then you need a culture of political participation such that we can have those conversations sensibly.
21:12
I think the challenge that we have right now is we've decided that we want everything to be within the realm of politics without any culture of how do we do participation.
21:21
And so we have politicized everything, but through the medium of Twitter or whatever, and that is not how it worked in the forum or whatever.
21:28
And I'm not romanticizing that period, as I said, there's lots of challenges to that.
21:33
But I think we abandon the idea of individual constitutional rights or otherwise plus liberal democracy as a pretty solid way of guaranteeing a certain degree of predictability in our lives.
21:44
I think actually both left and right broadly in the 20th century agreed on that idea.
21:55
I think part of the challenge we have is that we didn't realize how many institutions that seemed like they weren't part of politics actually underpinned that, including a somewhat collusive relationship between political and media elites.
22:08
And now, there is something to be said for that.
22:12
If you have a relatively shared view of what counts as extremism, and you want to exclude that from public life.
22:17
Collusion between political and media elites could be a good thing.
22:17
And God knows the 20th century has enough examples of where that would've been vastly better than what actually turned out.
22:26
I think the challenge today is there is no status quo [inaudible] to return to.
22:31
You cannot put the Internet back in the bottle.
22:31
And so I suppose the challenge is, can we develop a political culture that can cope with the Internet age, where we can actually have the conversations we need to have and make the collective decisions we need make without going collectively crazy.
22:49
And unfortunately, the early evidence seems to be, no.
22:54
Now I'm a big believer, as I've already mentioned, in institutional adaptation.
22:58
I think we'll see these things play out over the next decade, but I suppose the question is, is this achievable while maintaining the current scope of the political, as in what is up for grabs in debate. My guess is no.
23:11
I think we're going to have to really radically...
23:15
I think when the history of political thought of this entry is written, I suspect this will be a crucible moment where ideas about what could, and couldn't be politicized, have to change in order for the world to stay sane. Jim O'Shaughnessy: Yeah. I agree.
23:26
I just recorded an episode with Nicholas Gruen, who's the [crosstalk]. Right.
23:26
So, his idea is we should do citizen juries selected by lot, and he's looking for funding and the more I talk to him and the more I'm like, I should probably support this guy because essentially what he wants to do is draw citizen juries only to monitor right originally.
23:49
But his point is well taken, which is the political process as we experienced right now is broken in Western democracies.
23:56
And the idea is sitting right there in front of us, the jury system, we have believed in for centuries because it is fair, right. They're chosen by lot.
24:10
And, but also because it has to, the very nature of it is compromise.
24:16
And so he gives a lot of really good examples about one in Seattle, here in the United States where a jury was put together to discuss mandatory sentencing Matt Clifford: Right Jim O'Shaughnessy: Which had 70% poll approval before the jury went in to hear the pluses and minuses.
24:30
Well as the final vote was tallied, only three of the 24 participants were in favor.
24:36
So it's not that we're just, epically dumb.
24:36
We're not, we're actually quite a bit smarter than we used to be, but the mechanisms right. Are what's wrong here? What's broken here.
24:52
Matt Clifford: And just, I'll push on that I think that's a great example.
24:53
So when I talk about creating a new culture of democratic participation, that's a great example, as in, it's totally possible to fully participate in democratic small, the life today, in the US or the UK, without ever talking to anyone you disagree with in a genuinely constructive way.
25:12
You know, like you can go vote, you can tweet, you can put up signs, you can write whatever, but it's actually what you're talking about.
25:20
Like participative, deliberative democracy.
25:20
That is actually, it's not just an institution.
25:24
It's a culture, it's a way of being that we forgotten.
25:24
Now, part of the problem is I think it's stigmatized a bit because we associate it with this sort of scale of it was only possible by excluding all women, anyone who didn't have any money and like the vast group of society that you decided were slaves in Athens and actually in Rome as well.
25:44
But I actually think one positive way of thinking about the role of the internet is in theory, it enables the kind of deliberative democracy you are describing at scale across vast distances, potential with anonymity, if that's helpful or pseudonymity, if that's helpful, which in different modes, it may or may not be.
26:00
I see that as a huge potential, but it does require real innovation.
26:05
I don't know enough about exactly what Nicholas is doing, but I think something like that feels to me part of the answer, because it's not just a process, it's a culture.
26:14
Jim O'Shaughnessy: Yes, entirely.
26:14
And I agree with you in terms of, we have the internet, which can enable all of these things, which would've been, impossible, right?
26:23
It's like, I love Talleyrand the French minister who, what a wily guy, this guy was. Right.
26:28
So he survived the reign of terror.
26:28
He survived Napoleon and he was the French representative at the Congress of Vienna in 1815.
26:34
And he got a good deal for the French.
26:40
The idea though, is that was such a tiny subset of the world.
26:40
Everyone else, it was like (beep) off, just you're, we're not going to listen to you at all.
26:48
Which is one of the reasons why we had stasis, I think, in society for so long, we excluded 95% of humanity from any decision making, from any innovation.
27:03
And David Deutsch who wrote the book, The Beginning of Infinity whose I re read and now I'm just like proselytizing about it all over because he points out that the current culture emerged from the scientific method being adopted.
27:21
Right, which is you've got to be willing to have conversations between people who disagree.
27:26
You have to have the rule of law.
27:26
You can't burn the heretic anymore, that's you can't do that anymore.
27:31
And I sort of think that the progress is made kind of by people who are out there, they're in the tails.
27:40
They're really not in the safe middle.
27:40
And so we have to find a way to integrate them into our culture, which is broad, which should be broad, where we allow people to have voices, but you make the excellent point.
27:53
We can be in, we can silo ourselves tribally, which is what's happening.
27:59
One of the reasons for that is people get scared.
28:04
And so they seek out a tribe. It's in our DNA, man.
28:04
We cannot deny it, human operating system and it's the base code.
28:11
And so what we need to be able to do is figure out through conversations like this, but hopefully much higher conversations where people are okay, that's talked, let's, what are some good ideas?
28:24
I love this jury idea but I'm sure there are many more.
28:28
Matt Clifford: Well, one of the interesting, I mean, if you take David Deutsch, I mean, one of his big sort of idea, right, is error correction.
28:32
The error correction is this sort of stunningly powerful force in the history of, I was going to say the species, but actually like broaden that, right.
28:38
It's just like in the history of the universe. And I buy that.
28:41
I think the challenge we have today, and I guess what the age of variance amplification demonstrates is that works as long as you can, correct from an era.
28:46
And we are now living and have been since 1945 in a world where it's possible to imagine errors from which we literally cannot recover as a species.
29:02
And that's new now, fortunately, well, I was going to say, fortunately, we've not come too close to that.
29:09
Actually, when you read the history of new nuclear weapons, like we come pretty close to it. Jim O'Shaughnessy: Very.
29:14
Matt Clifford: And so I'm a huge admirer of David Deutsch, but I think the nuance I would put on the life philosophy of error correction is we need to find some way to constrain what errors are possible, because just as in business the famous Jeff Bezos thing about reversible and irreversible decisions and how fast should we move to make them?
29:29
It would depend on how reversible they're in the same way, the amount of confidence we should put into error correction as a sort of like macro governance principle depends on how reversible the errors are.
29:36
And unfortunately we don't live in a smooth world.
29:42
And so some errors are easier to correct than others and mean sort of thinking back to Talleyrand.
29:46
And I'm sure all your listeners know this but my favorite Talleyrand story is the famous probably (inaudible) thing about when he died and next Nick said Oh, I wonder what he meant by that.
29:58
But the reason that story kind of resonated at the time was the idea, as you sort of already said that there were four or five people in Europe who could make the chess pieces move in these monumental ways.
30:11
Many of which I would argue, turned out to be irreversible.
30:11
I mean if you want to understand the origins of the first world war, you sort of do, hadn't been, well, if Matt Nick, hadn't done this thing in 1848, blah, blah, blah, blah.
30:22
And so I think I'm a big fan of this error correction idea, but I think the thing we have to figure out as a species are what are the constraints that we want to put around that to protect us from irreversible mistakes?
30:37
Jim O'Shaughnessy: So Nick Bostrom has the idea and has written very intelligently on the great filter. Right. Matt Clifford: Right.
30:43
Jim O'Shaughnessy: And so for those who aren't aware of it, Nick Bostrom is a genius.
30:43
Who I guess he's somewhere in Oxbridge?
30:47
Matt Clifford: He's in Oxford.
30:48
Jim O'Shaughnessy: And so the great filter is errors that can't be reversed.
30:48
And one of his parts of the thesis is, the great filter behind us or ahead of us.
30:56
And I think that for people who want our civilization to grow and go on, we have to kind of assume it's in front of us.
31:04
And so at least talking about it and your idea of constraining the errors' correction that we can do is I think a great idea, but then this quote from Proust that I love, because it brings humanity into the equation, which is, always thus impelled by a state of mind, which is destined not to last, we make our irrevocable decisions, right, so that's the emotional part of us.
31:38
That's the part of us that we've got to learn how to bring in and sort of civilize if you will, because that's a big challenge.
31:48
And because I believe that we have gotten too far too into the sort of rationalistic part of the world and the creativity that is everywhere now is bursting forth from maybe different places.
32:00
But, so what happens, how long a conversation is this and who takes part in it Matt Clifford: I think if we take that last part about creativity, I think you can tell a bull and a bear, you can make a bull and a bear case for where we are today in terms of how do we think about allowing each human to fully express all aspects of who they are as you were describing in this sort of internet age.
32:26
I think the bull cases, well, actually, what you're talking about, you already alluded to this earlier in the conversation you're talking about.
32:31
How do you let each person find hierarchies in which they are comfortable in which they can express who they are, but they have a chance to compete and to rise given that in the world at large, it's very hard to do that.
32:52
It's most of us, if we constrained to the physical world, we're just going to be in state hierarchies where we always feel unhappy.
33:01
One of the great things about the internet is it allows these extraordinary niches of interests to come together where, I could be working minimum wage in a job that I hate, but maybe I'm in the top three, most celebrated commenters on this sub Reddit for this interest that I have.
33:14
And I'm not trying to pretend that we don't need to do something about the material conditions that person's life, right.
33:23
That's clearly a different question, but there is an extraordinary, if you think about almost the equivalent of biodiversity for ecosystems of interest, genuine hierarchy, diversity, you can be someone within a particular group.
33:33
I think the internet is the greatest force for that, that there has ever been.
33:38
And you can even extend this idea into this very fashionable idea of the Metaverse.
33:42
We can imagine and creating world, whole worlds in which people can fulfill their ambitions and like the fullness of who they want to be in a way that is less damaging to others potentially.
33:54
I mean, again, like you could say, that's a very bullish case.
33:58
There's lots to critique in that, but there is something about the idea of virtualization as a way to enable many more people to achieve what they want to achieve, because we move from scarcity to abundance or potentially to abundance.
34:07
Again, lots of footnotes on that, whether actually the metaverse as it is to actually emerging will permit that.
34:17
I think the bear cases well, actually what the internet does is exposes us to, as you've already said, like a global competition where previously there was a local one, it sort of amplifies inequalities rather than dampening them.
34:27
And so, really, I think the question is, can we get to material abundance quickly enough that the sort of satisfaction of people's holistic needs beyond the material world is enough where actually being, finding your tribe on the internet is enough because we have co selected, successfully created enough material, abundance that people aren't worried about where the next meal is coming from.
34:49
I think if we can, I actually feel very optimistic about the internet as a way of providing outlets for exactly what you're describing.
34:58
Jim O'Shaughnessy: I think that, the other thing about complex adaptive learning systems is the Matthew effect is everywhere. Right?
35:05
Matt Clifford: Absolutely.
35:07
Jim O'Shaughnessy: So, and that's just the way networks work.
35:08
It's not just human beings, it's any complex adaptive learning system.
35:14
The nodes that are finding the right answers, get the most connections and the nodes that are not finding the right answers die.
35:20
And so, I've really had to sit and think about that one for a long time, because, so for example, I changed my opinion about universal basic income, because I think for the first time, really in human history, there is going to be a group of people.
35:40
And the UN part I underline is through no fault of their own, who have a harder time adjusting and thriving in this new environment.
35:48
And so your point that you just made, we can't have them worried about where their next meal is coming from, because that human is a desperate human and desperate humans are destructive humans and violent, and listen, you don't really even have to know too much about history to understand that.
36:08
So there's a lot of reasons why, universal basic income is not liked by both sides of the political spectrum in person.
36:21
But I think that the term that I've often used is symbol manipulators.
36:21
So I am a symbol manipulator.
36:29
I don't make anything with my hands.
36:29
And so if you look at the Forbes 400, the list of the wealthiest people, if you look at the original one in 82, it was all physical things.
36:42
That generated wealth, it was real estate, it was steel.
36:42
It was, shipping and or inherited.
36:50
In fact, I think the majority of the list was inherited sort of this dynastic wealth being passed down and down, which creates an aristocracy, whether you have a formal one or not.
37:02
Look at the list today, there are, there's virtually no one on that list who is not a symbol manipulator. Right.
37:06
I personally think that's great. You know what? I love Amazon.
37:12
I love the fact that I can get any (beep) thing I want in at most two days.
37:12
And if I'm in the city in 15 minutes, right.
37:18
So I like that, but we do have to figure out a way, which, and I guess maybe it's just like these conversations bleeding into higher conversations, bleeding in, because without that there could be chaos that we don't come back from. Matt Clifford: Totally.
37:37
Well, I think its worth sort of thinking about what are the objections that we might have to growing economic inequality and I'm not going to be comprehensive because I'm sure there are people who would have others, but I think one is actually political as though with great economic inequality, be kind of calms, great political inequality.
37:53
And most of us have an instinctive sense that how rich you are, shouldn't be the measure of political power that you have.
37:58
And most of us have a pretty intuitive affinity for the idea of one person, one vote.
38:03
And so, I think there's like a set of things that we should worry about as people gain wealth, particularly extreme wealth, does it mean too powerful.
38:12
And there's then like a sort of almost like aesthetic thing of what do we do about a world where, like Bezos can fly to space and there are people that can't eat or whatever.
38:23
I call that aesthetic because I think it's, you could frame it as justice, but I think it's just, for most of us, the idea of sort of waste or maybe that's actually a bad example that, but frivolous consumption versus like people not being able to eat that feels wrong.
38:32
And then I guess there's a thing about sort of lock in, does it get to the point where a sufficient level of economic advantage closes off the ability for others to ever compete.
38:42
Because I think most of us have an instinct that dynamism is good and mobility is good.
38:47
Now I think what's interesting about all those three things is they're not actually in my view, objections to economic inequality per se.
38:59
They're actually to the conditions within which it occurs.
38:59
So if we can find ways to have our politics less influenced by economic power, if, as you've already said, we can get to the point of economic abundance that no one starts however many rockets, Elon and Jeff flying to space, whatever.
39:17
And if we can figure out what are the rules of the game, that mean that however wealthy people become, you don't have to be them or be related to them to be successful.
39:22
Now I'm not saying they're easy problems, but I think that sometimes, you see people default, the idea that we have to break the underlying creators of variance, the underlying economic engine, that's allowed people to build in Amazon or a Microsoft or an apple or whatever.
39:40
I think that's the wrong instinct.
39:44
I think it comes back to this, how do we make sure error correction actually functions?
39:44
Well, we can't have any of these things that are irreversible, we don't want to have a static society.
39:53
And so I would, I think people like you and me should be using our energy to think about how can we craft the rules of the game, such that we still allow people to build enormous companies and therefore enormous fortunes, but they don't break the system.
40:06
And it's the second bit that I think we sort of let go of and I think they're, without getting too political, I think we are missing a trick.
40:11
If we jump straight to the idea that there's something intrinsically broken, if someone becomes a billionaire that that's not what we should care about, what we should care about, or what are the consequences of that.
40:23
I don't think every billionaire is a policy failure, but I do think that if only the children of billionaires can become billionaires, as you were saying, if it, then that's a policy failure.
40:29
And so I think it's how do we harness wealth creation in a way that doesn't violate those things that we kind of, most of us in intrinsically care about.
40:38
Jim O'Shaughnessy: So that leads me into, you've written about the idea that our descendants are going to think that we were a bunch of (beep) reactionaries, expand on that a little bit.
40:46
Matt Clifford: Well, I think there's an empirical point here and a theoretical point here.
40:48
So like I think the empirical point is that, for a number of reasons that we can explore, it is very hard to think of a point in history, at least over the last couple of 100 years where the social views of the mainstream would not have been horrifying in some way to their grandparents and vice versa to their grandchildren.
41:11
So, I think there's this extremely powerful, I think this used to get described at a history under graduate degree.
41:18
And we were all warned off what was called, like the wig interpretation of history.
41:22
The idea that Liberty and progress were inevitable and the March of history was just this endless intrinsically March towards a better and better future.
41:31
I think that's now a very unfashionable view.
41:31
And we were certainly taught that it was that it was wrong.
41:36
And I do, I think I was taught correctly, but what I would say is that what it touches on is this idea that it's very rare for social and cultural views to remain static.
41:46
And so we should really assume that we are doing things now that will horrify our grandchildren.
41:50
You already have grandchildren.
41:50
I know, but certainly your great-grandchildren, I'm sure will be horrified by some of your views.
41:58
Jim O'Shaughnessy: I hope so.
41:58
I mean, I won't be doing the job. And if they're not.
42:00
Matt Clifford: And the thing that when you look at history, it's interesting how often, almost like the, if you take the idea that history is written by the winners, it's amazing how, if you go back and read what the losers wrote often, they're parities of what would happen if the winners won, turned out to not be extreme enough.
42:20
In fact, it turned like, go back to this was my sort of specialist thing, go back to debates around the formation in Europe, in the 16th century, you got to say the Catholic reactionaries were right in the sense that what they predicted about what it would do to the practice of religion in Europe. Hey, guess what?
42:36
We live in an almost 20 secular Europe now, you could say where they're right for the right reasons.
42:41
But I suppose the point I'm making is we tend to sort of think that because in our political vocabulary, reactionary is a bad word.
42:46
And to be clear, I'm not a reactionary at all.
42:51
We sort of forget that usually on its own terms, the analysis is correct because there is, I'm not saying that the direction is pretty determined, but once history moves on, there tends to be a drift in a particular direction.
43:00
And the way I phrased it in the past is that it's sort of a French revolution idea that in the end we are all the downs.
43:10
These were the kind of revolutionaries who seemed pretty hardcore, but in the end, went to the guillotine because they weren't hardcore enough.
43:15
And I think what we should expect is that whatever we believe, this is not political point.
43:22
We should expect that it's very rapid indeed.
43:29
The new consensus of emerges and to use a modern example again, without getting political, it's really striking how the Barack Obama's 2008 social platform would have him drummed out of, even past the Republican party today.
43:42
I mean, he was openly against gay marriage in 2008, which is not unacceptable view, certainly for a democratic politician to hold today.
43:52
Now he is, I don't think anyone would say, he's not a liberal guy and it's not a long time ago, right. It's 13 years ago.
43:55
And so that's not even a generation, it's half a generation and you have that drift now, personally, I think it's a very good and fully supportive of that drift, but it should, surprises because a lot of people were big supporters of Barack Obama back in 2008, who would now be horrified by someone with the same views as he had then.
44:09
And so I think we often overstate and overrate the stability of our own views nevermind of society's views.
44:21
So I think that tends to, it causes to underwrite how much things will change over a decade or more.
44:25
Jim O'Shaughnessy: And that dovetails very nicely with my thinking about this, because I think that one of the things that we've lost is context.
44:29
And so I've written about that and I've spoken of about it.
44:36
We need to understand people and ideas in the context of their time, people who during their own time would have been seen as wild bad revolutionaries, are now having their statues torn down because of some current belief, we need to understand that the evolution of these various beliefs will preclude us honoring almost anyone from the past, if we're going to judge them by the standards of today.
45:08
And so I think that's bad because we, Cicero said those who do not understand what happened before they were born remain forever a child.
45:21
And, so you do see that kind of context free judgmental is in some of the, what Rob Henderson, who I've also had on calls, luxury beliefs.
45:30
His point of view is that we've gone from Veblen goods to Veblen beliefs and many of them are really stupid.
45:44
Matt Clifford: And I think the one that is intuitive for most people or that brings to life, is for a lot of people, partly because today it doesn't seem political.
45:50
So thinking about it, doesn't situate you in any one tribe is what will our grandchildren think about the fact that many of us ate meat?
45:55
And again, there's reason to think that there will be drift if that's the right word in this, partly because the alternatives are getting so good.
46:07
And probably by the time that my grandchildren are old enough to condemn me as a reactionary, they'll have pretty great either plant-based or cultured meat that tastes as good as a steak from a cow or whatever.
46:17
And as a result they will become a luxury belief, the luxury of having that technology will make it totally abhorrent that we ever kept animals to kill them, to murder them so that we could eat.
46:28
I'm deliberately using that language, because this is how it will be described.
46:33
And again, I'm not even condemning that perspective.
46:37
I think in the context of its time, that will make a ton of sense.
46:42
And yet most of us today, I mean, I actually don't eat meat partly for this reason that I'm terrified of the moral horror of my grandchildren, although, I love meat.
46:46
I think that's one example, but there will be countless where, we don't think of that as being, we tend not to think of morality as technologically conditioned, but actually what is possibly in any given time to change how we think about the morality of any given set of decisions.
47:02
So in a world where you can get meat that is delicious and cheap without killing an animal, suddenly it does seem much more abhorrent to kill an animal.
47:12
And so most of us are not ready for that world and I'm sure it's coming. Jim O'Shaughnessy: Yeah.
47:18
And, that's a great example to use because, and it brings us back to David Deutsch, doesn't it?
47:21
Because one of the other things that he says is that the classic error that we commit currently and seems to be universal, unless you really train yourself not to do this, which is we make the error of believing that we can prophesize what advances in knowledge and or innovation will have occurred. Right?
47:42
So Malthus is the great example here.
47:49
And for those who don't know, it's called the club of Rome, it's the doom school of the world.
47:55
And Malthus was its patron Saint who wrote an essay about how the fact that given the great growth rate in population, the only outcome was that we would have mass starvation and famine and everybody was going to die.
48:09
And pessimism seems attractive because it almost seems cool right?
48:16
But what Malthus failed to think about was, oh, what happens if we can 10 X the amount of food that we produce, guess what no famine.
48:30
And so I love in Deutsch’s book, he, he highlights this with a very clever and kind of quippy quote, which is, what were physicists in 1900?
48:37
What were their opinions on the internet?
48:37
Well, they didn't have opinions on the internet because there was no fucking internet.
48:43
And so what he highlights so well is that we have this predisposition to thinking that, okay, everything I know today is that's it.
48:58
We know everything, oh my God, we know almost nothing.
48:58
And people don't like admitting that.
49:05
So I trained myself over a long period of time to simply realize that I know nothing in the in the scope of universal time, right.
49:14
And so when you're willing to say, I'm probably wrong and I don't know, and that changes your entire worldview because mistakes become opportunities to learn, error correction gives you the ability to discard things you're wrong about.
49:33
But the emotional anchoring of beliefs precludes a lot of that, right.
49:38
And so I love the idea of that your idea is that, Hey what, what I'm going to do is I'm going to create a model where I intentionally find super ambitious and smart people and fund them.
49:55
And I love that shorthand because by definition almost they're going to be not the type of person who thinks, yep, I know everything.
50:05
I am the smartest man in the world, or smartest woman in the world.
50:09
And therefore I know all.
50:09
Do you have a list or a group of characteristics that you are looking for when you're deciding to fund these individuals? Matt Clifford: We do.
50:24
And I always preface telling people what they are with the idea that they might be slightly disappointing.
50:29
And what I mean by that is that, well, we worked really hard on them, my co-founder Alice did a huge, I would say, probably unprecedented sort of study of all the entrepreneurs that we'd funded all around the world to kind of come up with the list.
50:43
But they're sort of probably underwhelming for two reasons that I think are interesting.
50:43
So I'll tell you what they are, and then I'll tell you why they're underwhelming.
50:48
So we look for four things broadly.
50:52
We look for people who are very smart.
50:52
Now, it doesn't mean that we care about where they went to university or where they went to school or their grades, but entrepreneurship is applied problem solving.
51:01
So if you're not a problem solver, if you don't know how to solve problems, if you're overwhelmed by complexity, that's not going to work.
51:05
So one, you have to be really smart as measured by problem solving.
51:10
Two, you have to be really skilled in some way.
51:13
So every entrepreneur has to be able to do something.
51:13
The old joke about, oh, I really want to start a rock band.
51:18
Well, what instrument do you play?
51:18
So I don't play an instrument. Or can you sing? No.
51:22
So what do you want to start a rock band for then?
51:22
Or rather, what will you do.
51:26
In the same way we want people to bring something to the table.
51:26
Now we're pretty open mind about what that is.
51:31
A lot of people we fund are software developers, but not everyone we fund is a software developer, but anyone who's not, I mean, the nice thing about someone being a software developer is it's pretty easy to answer the question.
51:40
What will you do in the early days of the company?
51:43
I will build the product. Great.
51:43
And that's why we have a very strong, I don't want to say bias, but leaning towards people with software backgrounds.
51:50
But there are lots of other functional skills of course, that you need in a company.
51:50
Do you have just really great marketing instincts that you can back up, showing examples of how you've worked with customers, understood what people want, and I built what they want.
52:00
Are you an amazing designer, for example, increasingly sought after skill in a founding team, et cetera, cetera, lots of skills.
52:11
I was none of those things by the way, but I think what skill do you bring to the table?
52:16
Super important, again, not surprising, but important.
52:16
Third, do you have a really demonstrated drive to achieve, which is some sort of, I guess, shorthand for ambition, can you show in everything you've done big or small?
52:28
We are totally agnostic about what opportunities people might have had to express that ambition, but through everything you've done, given the circumstances you were in and given the resources available, have you just demonstrated drive to achieve again, simple evidence from real life, not interested in resumes, just tell us what you did and then fourth and a crucial sort of counterweight to the one.
52:51
Are you willing to challenge the status quo?
52:51
As we sort of talked about, this is not a great era for careers in the sense of making your boss look good.
52:56
You could have that drive to achieve simply by having ticked every box you ever saw and made every boss, love you, and written every essay to the mark scheme, et cetera, it's probably not going to make you a great entrepreneur.
53:11
We want to see some evidence of challenging the status quo, taking the unstructured path.
53:11
Now, the reason I say like, oh, these are not very surprising is I think sometimes people want this to be, and then there's a fifth one, which you would never guess.
53:19
And it's like sadly, that it not the case.
53:23
And as I said, there are two reasons why I think this is important.
53:27
The first is one of our strongest beliefs is that one of the most commonly held and falsest opinions about entrepreneurs is that entrepreneurs are really, really different.
53:33
I think people, lots of people believe that entrepreneurs are special.
53:40
And I guess we think that entrepreneurs are special after the fact.
53:45
But one myth we want to bust is the idea.
53:45
There's an entrepreneurship gene, or they're a born founder.
53:50
In fact, all the evidences that the opposite is true.
53:56
Founders are just the most talented people applying that talent to starting a company rather than something else.
54:01
And we can kind of prove this.
54:01
We can prove this both through our own evidence now at entrepreneur first, we've been doing it for a while, where we took people who did not think they were founders and they built companies worth hundreds of millions or billions of dollars.
54:13
But also there's a lot of academic evidence.
54:13
One of my favorite ever papers, which I've written about a bit in the newsletter.
54:17
Is called "when bankers become founders."
54:17
Now, at least in some ecosystems around the world, there's a very snide view of bankers.
54:22
The idea that bankers are these cold passionless calculating machines, they're the opposite founders.
54:27
They're these sort of corporate suit and tie kind of greasy pole climbing, they're not entrepreneurs.
54:40
The best evidence we have is that bankers are some of the most talented people in our society.
54:44
It's really hard to become a banker.
54:44
They're very selective processes.
54:44
So what happens in the years that bankers hire few people for some exogenous large industry reason like a financial crisis.
54:55
Well, one thing which is not that surprising is a lot of more people become entrepreneurs.
54:59
The thing that is surprising to people is you tell people that story and they're yeah, and those bankers, they're not real entrepreneurs.
55:03
They're going to fail at a higher rate.
55:03
They're going to fail because they're bankers.
55:07
Actually they succeed at a higher rate. Why?
55:12
Because, and this is the bit no one likes to hear.
55:12
At the margin, maybe not in Silicon valley, but in most ecosystems around the world, the average banker is more talented than the average entrepreneur, because in that society, it is more celebrated, more lucrative, more prestigious to become a banker.
55:24
So if you can persuade some of those people at the margin to become entrepreneurs, they're more likely to succeed.
55:29
Now, take banker and insert career of choice in place of choice.
55:32
We do a lot of work in Singapore, probably the only country in the world where the equivalent is going into the civil service.
55:42
It's what the most talented, ambitious people in that society do.
55:42
So if you persuade them to be entrepreneurs, guess what, they succeed at a higher rate.
55:46
So that's the first reason why it shouldn't be that surprising that our criteria are not that weird.
55:50
The second one, which I think is actually even more interesting is that most people overrate their ability to select anything.
56:01
Interviews, structured interviews are the best tool most of us have.
56:01
And even they are not very good.
56:06
And all the literature suggest that.
56:06
What is the number one thing you want to be able to do if you really want to be able to select, watch someone do the work that you want them to do.
56:14
All the evidence is if you want to actually hire well, do a work test the longer, and the more real, the better.
56:19
One way of thinking about what we've built at entrepreneur first is a way of actually being able to say yes to more people at the top of the funnel than ever before, and then watch them.
56:29
So it's a six month experience, the first three months of which yes, we do pay.
56:34
We pay a stipend, which it's pretty small relative to the total amount of capital that we deploy, even relative to the amount that we'll deploy if they succeed, it's a percent, 1% maybe of the total amount, but what it means is we get for three months to watch these people and see what they can do.
56:49
And so rather than being super tight at the top of the funnel and trying to come up with these clever tests to keep people out, we try and make it so we can say yes to as many people and as cheaply as possible at the top of the funnel, and then be pretty selective after we've watched them for three months.
57:03
And actually we get way more out watching them for three months than any combination of interviews and tests that we could put, right at the top of the funnel.
57:10
Jim O'Shaughnessy: With the ability to watch I could not agree with your assessment more in terms of the A erroneous beliefs that people have about selecting the next winner.
57:20
I mean, one of my heroes is Richard Fineman and the rule is, the first and most important rule is don't fool yourself.
57:29
And you are the easiest person to fool and oh, I'm so good at X, Y, and Z. No, I'm not.
57:38
I mean, I start every hypothesis with a null set, right? I'm wrong.
57:38
And so I love this idea of let the top of the funnel...
57:43
But the experience that I wanted to tell you about is a perfect example of this.
57:50
So the internship program to get into one of the big investment banks is extremely competitive and you are dealing with the best and the brightest, and it's no joke, right?
58:05
So one year they asked me, so I was a senior managing director at bear Sterns.
58:11
So they asked me, to do the interviews.
58:11
You'll understand why they only asked me one time.
58:21
So the candidates came in expecting, well, where do you see yourself in five years?
58:21
I mean, literally one of the stupidest questions you could ever ask, because what are they going to tell you?
58:32
Another stupid question, what are your greatest weaknesses? I just care too much.
58:36
Or I'm just too hard of a worker.
58:36
So I had, I'm big on empirical evidence.
58:43
And all of the evidence I'd ever found was those kinds of interviews subtract from your ability to find the best.
58:50
So I went the other way.
58:50
And so, the only person that I recommended was the person, because the next question that I asked people was, okay, the S&P 500 is a cap weighted index that reinvests dividends. Okay.
59:07
The Dow Jones industrial average is 30 stocks usually selected rather randomly by the editors of the wall street journal.
59:16
It is a price weighted index that does not reinvest dividends.
59:25
What would the Dow Jones industrial average be today?
59:25
And so this was back in 2004, 2005, what would the Dow Jones industrial average be if it reinvested dividends?
59:39
I didn't expect anyone to give me the right answer.
59:39
What I wanted to do was watch what they did.
59:44
And so the guy who I recommended, and I only recommended one, and it was this guy because he sat for a minute and he's like can I have a calculator? And I went, yeah.
59:57
He goes, can I have paper? And I went, of course.
59:57
So he goes, okay, can I get a calculator and paper?
1:00:03
And can I ask you a question?
1:00:03
And I'm like sure, you can ask me a question.
1:00:03
What was the average dividend on the Dow Jones stock, going back to 1927?
1:00:08
What I loved by the way was he knew that prior to 19, I think it was 27 or 28, the Dow wasn't a 30 stock index. It was 14 stocks. Right.
1:00:24
And so anyway, and I was like kudos for knowing that he also knew that the S&P 500 didn't exist back in the twenties and that it was reconstructed, and it was the S&P 90. Right.
1:00:29
So to other people, this is boring to people who are actually doing this kind of research.
1:00:40
You better fucking know this or...
1:00:40
Matt Clifford: And you better care.
1:00:43
If you don't care enough to yeah... [crosstalk].
1:00:44
Jim O'Shaughnessy: Exactly.
1:00:44
So he spent 15 minutes working out the problem.
1:00:47
He showed me all his work.
1:00:47
I think the Dow was at, I don't know, 10,000 or 9,000.
1:00:54
I don't remember where it was.
1:00:58
the actual answer of where it would be if you reinvested the dividends was 66,000. Right.
1:00:58
So showing the power of dividends and everything, but everyone else melted at that question.
1:01:10
That's the only way, right. At least to me. I'm sure I'm wrong.
1:01:10
I'm sure I'm missing things.
1:01:15
I'm sure that there are a lot of different ways is that you can identify successful people.
1:01:15
I think of Josh Wolf who, science fiction goes to science fact, and you should have a chip on your shoulder.
1:01:26
I don't agree with him on that particular thing.
1:01:26
I agree with him on science fiction, going to science fact, I love that one.
1:01:31
Matt Clifford: And I think the bit that a lot of organizations haven't thought hard enough about, and I realize it's easy for me to say in my business, but it's not how do you get better at selecting, but how do you make it structurally cheaper to take the bet in the first place?
1:01:43
And actually I think some organizations do this reasonably well.
1:01:49
So, I mean, I have been working for probably less long than you, but I've also only worked for one other organization.
1:01:54
I started entrepreneur first when I was very young, but I did two years at McKinsey before this.
1:01:59
And McKinsey's actually really good at this...
1:02:04
Jim O'Shaughnessy: Super good. Matt Clifford: Right?
1:02:07
I mean, they do have a pretty tough selection bar at the top, but they're not picking partners, they're picking analysts to go through a period of extreme attrition.
1:02:15
And the ones that make it to the end are the right partners.
1:02:15
And they've made it structurally really cheap to be wrong.
1:02:20
There were definitely analysts in my class who were the wrong call and it mattered to McKinsey, not at all.
1:02:26
They'd structure themselves so that they could take more bets, some of which would be wrong, but it didn't matter.
1:02:30
And I think, if the success of your organization actually involves you having to stack rank accurately at the point of interview, you're going to have some real problems and we have probably more data on this than most organizations.
1:02:45
Because we stack rank compulsively. We stack rank at entry.
1:02:45
We stack rank after three months, we stack rank after six months.
1:02:51
What we find is we are very, very proud of our after six months stack rank. It's not perfect.
1:02:57
But after six months of watching entrepreneurs, about 80 something, percent of the total value created at entrepreneur first has been created by teams that we stack ranked in the top quartile before we got any feedback from any outside parties. We're not cheating.
1:03:14
We're not using the fact that Sakaya wanted to do the seed or whatever to be okay, that's a good one, Mike. This is just internal.
1:03:18
And so we're like oh wow, we're pretty good at this. This is great.
1:03:22
We should run our investments based on this stack rank and that's into the [inaudible], actually that's not that useful, because we've already invested by this point.
1:03:30
Can we do it for after three months?
1:03:30
Because if we this good after six months, we must be pretty good after three months, right?
1:03:33
You look at it after three months, turns out we're pretty stupid after three months and it's not long enough to do the watching.
1:03:39
And I think this is the thing is, we get more data points than most.
1:03:39
Because we actually work in the same offices of these entrepreneurs and we structured ourselves entirely to allow this.
1:03:44
And even after a hundred days of shared cohabitation in a single workplace pre and hopefully post COVID, after three months, we don't have enough data to actually stack rank these people well enough to invest. After six we do.
1:03:59
But to me that should be the most humbling thing in the world because that is more data than any selection process is ever going to give you in the wild.
1:04:09
And yet most people are obsessed with looking like they've got a really narrow top of the funnel. That to me is crazy.
1:04:13
Jim O'Shaughnessy: I totally agree. And it's in our...
1:04:14
Again, arbitraging human nature.
1:04:14
If you can understand that we're all running the same human OS, right.
1:04:19
Like a guy I love, he's an enlightenment writer named Jed McKenna, but one of his great quotes is, "The best thing, best decision I ever made was to decide to stop being smart."
1:04:33
And what he means by that, obviously, at least to me is if you think you're smart, you have so many blind spots.
1:04:42
You create way more blind spots for yourself and your efficacy declines rapidly, because guess what?
1:04:53
Who are the easiest people to fool? Smart people. Why? Because they're smart.
1:05:02
So, smart people, once they've alighted on something, and your idea of trying to make the funnel much, much more narrow, right?
1:05:08
They're going to build killer narratives about why that's the right way to go.
1:05:16
And those narratives are going to be almost bulletproof.
1:05:16
They're going to steel man them.
1:05:22
They're not going to straw man them. They're going to...
1:05:22
It's going to be like the best deck you've ever seen and they're going to convince themself.
1:05:25
And then they're going to be fully indoctrinated by themselves.
1:05:33
And then they're going to go indoctrinate others who aren't so smart, and they're like in awe of these people because they're so smart.
1:05:44
And then we get Elizabeth Holmes, right?
1:05:44
And we get that board of directors where people are like, how in God's name was some of the smartest, most accomplished people in the world were duped?
1:05:58
Because they were the smartest, most accomplished people in the world. Right?
1:05:58
And so I think that's a liability, right?
1:06:05
The idea that the Robert Anton Wilson is a great...
1:06:10
He was 50 years ahead of his time.
1:06:10
I've read everything he's written.
1:06:14
I suggest you'd love him.
1:06:14
But he has this theory that as you get up the hierarchy, the flow of useful information to you declines, until when you are at the top of the hierarchy, all of the information you are getting is bad. It's all wrong.
1:06:29
And you can see why, of course.
1:06:37
When you are at the top of the hierarchy, you can fuck up everyone beneath you, their life, where their kids go to school, the house they live in, whether their wife or husband decides to ditch them because the Uber guy up here has said you are bad, right?
1:06:49
And so they give you information that they think you're going to want to hear.
1:06:57
So the great classic example of this is Robert McNamara, who was a legitimate genius running US policy during the Vietnam War.
1:07:02
Everything he got was wrong, and he framed the problem wrong.
1:07:10
He didn't think about the fact that for every Viet Cong we killed, we created 10 new Viet Cong, because, well, we were killing their people indiscriminately.
1:07:24
And the whole thing got executed incorrectly. We fucked up badly.
1:07:34
Now, thankfully that made the military rethink the way they did things.
1:07:39
So this ability to invert and to fund a lot of creative people, I think is genius.
1:07:39
The question that it leads me to though, is one of geography.
1:07:47
You say that all of them are physically in your space.
1:07:53
Is that limiting you to all of the other- Matt Clifford: It's a great question.
1:07:58
I mean, the way we think about it is one of our goals.
1:07:58
If we achieve our mission as an organization, one of the ways of thinking about what we'll be doing is removing the effective geography as the primary or a primary determinant of life outcomes for people.
1:08:15
So the reality today is that if you are the smartest kid in Mongolia, your life outcomes, probabilistically, are going to be much worse than if you are at the 20...
1:08:22
I don't know, 80th percentile in New York or whatever, right?
1:08:25
And geography is a huge determinant.
1:08:25
And so we absolutely believe that we want to be an organization that makes a measurable difference to changing that. We want...
1:08:34
There's no reason why the next Jeff Bezos shouldn't be Mongolian or from anywhere in the world. Right?
1:08:37
So how do we think about that?
1:08:42
Well, we just went through an 18 month enforced experiment with whether we should do this remote. Right?
1:08:47
And our takeaway from that is it's quite hard. We were very lucky.
1:08:52
It wasn't debilitating for us, but what we did learn was that the experience of building a co-founding team was much, much more difficult.
1:08:58
And so the way we increasingly think about geography is not that you can do this fully remote, but that you need to be in what I would call natural sites of aggregation, places that already aggregate talent and where you can facilitate the aggregation of talent.
1:09:17
So we decided in a sort of post-pandemic world, we're going to be back in the office in our six sites.
1:09:23
But one thing we're very lucky in, and I guess also we chose to do is to pick sites where people come anyway, like London.
1:09:29
London is one of the great town magnets of the world.
1:09:34
And two, in places where we have governments that are willing to back people who want to relocate there.
1:09:40
Our first two sites were London and Singapore.
1:09:45
We've been super lucky that both those places have visas for aspiring entrepreneurs, that are really generous for a given level of talent.
1:09:51
And so I don't know if it's true anymore, but there was certainly a time when in the UK, we were one of the biggest users of the Exceptional Talent Visa, which is the category of visa that we used.
1:10:00
And one of my favorite stories, which I confess I did actually tell when I was with Patrick on Invest Like the Best, but I'll tell it anyway, because it's just, to me, it's an amazing story is that if you look at the list of nationalities by how frequently we've invested in people of that nationality, it's quite surprising.
1:10:16
I guess in some places, not that surprising.
1:10:22
Like in Bangalore, it's nearly all people who are Indian.
1:10:26
But in Singapore, it's quite surprising.
1:10:26
So, actually in Singapore, the number one nationality we fund is Indian.
1:10:30
The number two is Singapore.
1:10:30
I think third might be Indonesian. I forget.
1:10:35
But in the top four is Iranians, people from Iran.
1:10:35
That's kind of crazy, right?
1:10:35
Because how come there are so many Iranians in Singapore?
1:10:42
And the answer is there aren't.
1:10:42
I think there's only about 250 Iranians in Singapore, and we funded about 50 of them. Why is that?
1:10:46
Well, basically because if you are an incredibly smart, ambitious Iranian, the single biggest drag on your life outcome, sadly, is that you were born in Iran.
1:10:59
And so getting out is very important for a certain type of person.
1:11:04
And in particular, if you skew technical, which is a lot of what we do, good luck getting a visa these days to study, I don't know, nuclear physics in the US or whatever.
1:11:16
Maybe slightly facetious, but not very.
1:11:16
If you write a list out of the world's top universities and start to cross off the ones where Iranian grad students will struggle to get a visa, the number one university left in the world is the National University of Singapore, which is actually a very good university anyway.
1:11:30
It's top 20 globally even before you do the crossing out, but it's the number one that's very accessible to really smart Iranian science grads.
1:11:39
And so there's this very tight knit community of exceptionally smart graduate students from Iran in Singapore.
1:11:45
And we've ended up funding as a sort of nontrivial proportion of them.
1:11:45
Now, why do I tell that story?
1:11:50
Because to me, it points to the ability to overcome geography without remote.
1:11:56
Now, actually I'm very bullish on remote as an overall system.
1:11:56
Lots of our companies are remote first.
1:12:00
I think it's very possible to do.
1:12:00
But I think for the act of building, co-founding teams from strangers, which is the core of our IP, if you like, we really believe in the power of the physical for that, at least for now.
1:12:13
So I think watch this space, probably some experimentation to come on that, but we think there are lots of ways to transcend geography while retaining the sort of physicality of what we do.
1:12:21
Jim O'Shaughnessy: But I have found that, at least thus far, personal meetings, yeah, very important.
1:12:28
And luckily I live in a place where everyone wants to come as you point.
1:12:28
Locate yourself in a Schelling point and you're going to do okay.
1:12:33
But I'm going to watch your experience very closely because you might be right.
1:12:38
And given my normal mantra, I'm probably wrong.
1:12:43
Matt Clifford: Well, the bull case, again, to go back to a point we were making much earlier, these things aren't static, of course.
1:12:45
Like to me, the bull case is that actually what the pandemic did was see a huge amount of talent and capital go into improving the infrastructure and tooling for remote working collaboration.
1:13:02
So actually like my July 2020 answer is, hey, it's not there yet to help two strangers reliably form partnerships.
1:13:10
They're going to be enduring bonds for a decade, but it's quite possible that my summer 2022 answer is very different because of the tooling that was enabled by the fact that we all had to do that for 18 months. Jim O'Shaughnessy: Yeah.
1:13:23
And that's kind of the brilliance that people don't like to talk about it a lot, because a lot of really great innovations come out of really shitty situations.
1:13:31
Matt Clifford: Absolutely.
1:13:32
Jim O'Shaughnessy: So, like COVID, like World War II, World War I, the innovations that came out of particularly World War II, which was I think the most deadly war when you take total population deaths, especially if you throw in all the people Stalin killed in his concentration camps.
1:13:46
During that period, and- Matt Clifford: [inaudible] I think a good thing to pick up here is you just mentioned the idea of Schelling points, and I guess one really interesting thing about the pandemic is that it just reset a bunch of Schelling points. Right?
1:13:57
And so, there's a lot of...
1:14:03
Although the pandemic's clearly been a vast tragedy, like a species level and I wouldn't want to minimize that for a minute, I think to sort of try and find silver linings, I think one is that there's a bunch of norms that had actually become quite calcified that we just got to reset.
1:14:17
I mean, probably, I don't know, but maybe pre-pandemic, we wouldn't have this conversation because it would be like, "Well, I'll tell you when I'm next in New York." Right?
1:14:24
And I confess, I hope it's okay to say this if any of my investors are listening.
1:14:28
I used to very regularly be introduced to an investor and I would say, "Oh, I'm going to be in New York at the end of the month." What did I mean?
1:14:33
Now I'm going to book a flight to New York at the end of the month.
1:14:37
This is an introductory meeting, like 90% chance nothing's going to happen.
1:14:41
And yet it felt like the kind of cultural equilibrium in our world was you get on a plane and you have the meeting. Was I better off? Were they better off? No, absolutely not. But it needed a reset.
1:14:50
It's almost embarrassing how much it required a global pandemic to make us say, maybe actually we can do that first conversation on Zoom. Jim O'Shaughnessy: Yeah.
1:14:59
And again, that is if you study history, you study the rise and fall of various societies, they ossify.
1:15:00
And you need to give them a good kick, and sometimes that kick is something really awful, like the pandemic, which no one wanted to have happen. But wow.
1:15:14
We made advances in protein folding that gave us mRNA technology that I think is going to lead to a golden age. Matt Clifford: Yeah.
1:15:26
I mean, if this mRNA malaria vaccine comes off, it'll be one of the greatest things in the history of the world.
1:15:31
Jim O'Shaughnessy: Exactly. And so I'm a... I love Africa. I love going there.
1:15:32
I love the African people.
1:15:36
If that happens, it's like I can't...
1:15:36
It's just so breathtaking that people don't understand it.
1:15:40
And I am still delighted by things like that.
1:15:40
And the naysayers are going to just keep saying nay, but I got to tell you that is an exciting technology that is going to lead to a golden age and let millions of people live lives that would've been cut short.
1:16:01
And you know, Julian Simon, I'm a big fan.
1:16:01
He's dead, but he wrote The Ultimate Resource, which is us, human beings.
1:16:06
Our creativity and our innovation, and that's the greatest resource.
1:16:06
And if you read David Deutsch, he backs that up with real data and like, look at what you're doing.
1:16:20
And yet you are always going to have those conformity enforcers.
1:16:24
But, so I'm a rational optimist.
1:16:24
And does that mean we're not going to have any problems in the future at all? God no.
1:16:29
We're going to have bigger problems.
1:16:29
Because as we get doing cooler and cooler things, and you get the Elons and Jeffs of the world who want to colonize the galaxy, they just might do it.
1:16:42
And that leads to much greater problems.
1:16:46
But I think that's progress for humanity. Right?
1:16:46
And so this has been fantastic, Matt.
1:16:50
I looked forward to this after reading all of your stuff.
1:16:50
And Patrick didn't even tell me.
1:16:56
It's like, we were just together just a few nights ago and having dinner.
1:17:01
And I think I mentioned that I was interviewing you.
1:17:01
And he was like, "Oh yeah, he's a cool guy.
1:17:05
You'll like that interview."
1:17:05
And I'm like, "Man, you don't give me anything."
1:17:10
But the question that I ask is we're going to wave a wand, Matt, and we're going to create you emperor of the world for one day. There are some rules. You can't kill anybody.
1:17:23
You can't put anybody in a reeducation camp.
1:17:23
But you can incept people.
1:17:23
You've seen the movie Inception, I take it. Okay.
1:17:29
So you can incept people.
1:17:29
And I love this because it works really well with my Taoist leanings.
1:17:34
The greatest leader, when he is done or she has done, the people say, "Look, we did this ourselves."
1:17:41
So, you're able to incept people with two ideas.
1:17:48
They're going to wake up the next morning and think, "I've just had this brilliant idea and I'm going to do X." What you got for me?
1:17:53
Give me two that you're going to incept the global population with.
1:17:58
Matt Clifford: All right.
1:18:00
So the first one is what I believe is the most powerful idea in the history of the world, which is it would need a more user-friendly name, but is combinatorial innovation, the idea that the world is full of building blocks and your job, I think, on this earth is to try putting together some of those building blocks and seeing if a more useful building block emerges.
1:18:24
And you know, all progress in the history of our species, in my view, is just people trying to put building blocks together in ways that are composable, reshapeable, sort of reconfigurable by the next guy. And I...
1:18:35
Is that an idea of incepting people's heads?
1:18:40
I think the playfulness, the willingness to experiment that comes with that is the most important thing we got as a species.
1:18:44
And I think sometimes we're too quick to be like, ah, you know, we tried this, it didn't work.
1:18:48
I think that just sort of relentless, let's just keep trying the combinations because every so often you get a penicillin or a transistor or a mRNA vaccine and it turns out these are the building blocks that we really need.
1:19:04
So like, I think just like an appreciation of that is one of the great things.
1:19:09
And then I think the other is something like the idea of moral luck, meaning I think it's very easy to go through life feeling that you deserve kind of various things, although you don't deserve various things.
1:19:23
And clearly we want to live in a world.
1:19:23
Most of us have an intuition that we want to live in the world where people get their just deserts one way or another.
1:19:32
But I think, we've talked a lot in this conversation about sort of epistemic humility, the idea that we don't really know anything.
1:19:36
I also feel there's a kind of moral luck humility, which is like, we don't really get to choose who we turn out to be in many, many ways.
1:19:42
And I think if that makes us a little bit more humble in the face of the suffering of others, the success of others, the ups and downs, a little more tolerant of like, what are the, you know...
1:19:53
Go back to this idea of error correction.
1:19:58
What are the systemic things that we need to prevent anyone falling too far off the edge in one direction?
1:20:02
There but for the grace of God go I.
1:20:06
I think that's the sort of like powerful and offsetting idea, which for me, if we...
1:20:06
The reason that's so important is I believe in a world where, to my [inaudible] innovation point, anyone should be allowed to try anything.
1:20:16
And if they build something phenomenally valuable, they should be allowed to reap the rewards of that in a pretty unconstrained way.
1:20:24
And I think the offsetting force of that is the reminder that the fact that they were the person that could do that, that's nothing they deserved.
1:20:28
And it doesn't mean that they shouldn't benefit from it, but it should bring with it a humility that allows us to design institutions and systems that mean that none of us can fall too far.
1:20:38
Jim O'Shaughnessy: I absolutely love that.
1:20:40
And that's sort of the Rawlsian idea of the veil of ignorance.
1:20:46
And when you start thinking...
1:20:46
And for those who don't know what that is, it's what kind of rules are you going to advocate if you don't know where you're going to be born, when you're going to be born, what sex you're going to be, what part of the socioeconomic sector you're going to be born into?
1:21:02
And guess what gang, you design very different rules when you don't know that.
1:21:07
And you become far more understanding of, oh shit, what happens if I'm born in Afghanistan in 1979?
1:21:16
What kind of rules am I going to adopt?
1:21:22
What happens if I'm an Iranian who is brilliant at nuclear science and God damn it, the Ayatollah just took over and I got born.
1:21:29
So Matt, I'd love to continue a conversation at some point. This has been fantastic. Happy birthday, sir.
1:21:36
And I hope you're doing something fun for your birthday.
1:21:42
Matt Clifford: Thank you.
1:21:44
It depends what time my kids decide they're actually going to fall asleep tonight, but let's see.
1:21:48
Jim O'Shaughnessy: Ah, okay. How many kids?
1:21:49
Matt Clifford: I got a three-year-old and a one-year-old, two little boys.
1:21:52
Jim O'Shaughnessy: Oh, fantastic. Matt Clifford: Yeah.