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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 yet another Infinite Loops in 2022. Happy new year everyone.
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I am delighted to have my friend Frederick Gieschen on.
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He is the proprietor of Neckar's Insecurity Analysis. Frederick, welcome.
2:02
Frederik Gieschen: Thank you so much for having me, Jim. I really appreciate it.
2:04
Jim O'Shaughnessy: So I love your newsletter, as you know.
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I actually do read every one of them and find them really interesting.
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And you and I have had conversations, or texts back and forth.
2:12
So we know each other pretty well.
2:18
But you sent me this earlier and my first question really does have to be about your choice of art.
2:23
Behind you is a lovely, which I find lovely, picture of Mr. Patrick Bateman.
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And for kids who don't get that reference, Mr.
2:30
Patrick Bateman was a Wall Streeter who also had a side hobby of being a serial killer. Okay.
2:37
So Frederick, I don't want to play Dr. Freud or Dr. Jung here, but explain. Frederik Gieschen: Yeah.
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So I was actually advised by a friend that the picture is too intense as a background, however, it's too big for me to just put it somewhere else.
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This apartment is not that big and it's too big to cover up.
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So I thought, let's just go with it.
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And to me, this wasn't on the wall for a few years, but it's back up for two reasons.
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One is, I really relate to a scene in the movie where...
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So Bateman sits in the back of the cab with his fiancé and the fiancé says, "You know, we should just get married now.
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We should just finally do it."
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And he says, "No, I can't do it.
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I can't take time of work."
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And the fiancé goes, "Well, you don't even like that job and you don't need the money.
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Why do you care so much?" And what does he say?
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"Because I want to fit in."
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And you know, for many years I really related to that.
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I was that person who wanted to fit in.
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And I thought if I just put on the right suit and the right tie and learn the jargon and I'm in the right firm, I hang out with the right people; I could mold myself into the person that I thought I should be, right?
3:39
Like a really good analyst or deal maker or portfolio manager, what have you.
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I had sort of this desire to sort of be some somebody else.
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That didn't work, but still the line and this sort of disconnect of the person behind that face and the outside world, that stuck with me.
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And frankly, now there's another reason why it's up, which is just, I don't know if you can tell, but it's...
3:59
That's a little bit unfortunate microphone placement.
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But it's sort of this silent scream, right.
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He's sort of in that painting and I can hear the painting. Right.
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I can hear it's very audible to me.
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I can hear that scream and there is that theme of him being sort of in that void, in pain, right.
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And his way to channel that is violence and that's part of the movie and I guess it's a little unfortunate and maybe triggering to some people, or who just have really bad associations with the movie.
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But to me, it's very relatable to think of him as, you're sort of trapped in there, you're the observer and you sort of have to figure out a way to relate to this world that you may feel disconnected from.
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And where you feel like, what is my way to connect my essence with the world? How do I fit in?
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And if you don't, it does become, at least for me, there is that terror of, is that ever going to resolve itself?
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Right now, that's still sort of a reflection of my mood.
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At some point, it might be that the painting at some point will find its way to a quieter place and not sit right behind me.
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But right now it's still up.
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And it does also relate to the newsletter in a way, because I think I finally found, after sort of a decade of different jobs where, like I said, I'd try to fit in, I'd try to be somebody who I wasn't and I never really excelled.
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I just had the sequence of trying and it wasn't working, and I still held onto it.
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Now I finally, I think, found something that really resonates. Right?
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Where I know on a deep level, it's not always great, it's not always fun, but sometimes it is.
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And on a very deep level, I know if I just keep going in that direction, I don't know exactly what will happen, but I know it's sort of the right path.
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And I know I'll get somewhere.
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I just have to keep going, have to keep learning, have to keep trying things out.
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And so on the one hand, there's this deep resonance and that's great.
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On the other hand, there is this sort of uncertainty and anxiety of, well, am I going to be able to sustain myself with that?
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Is there going to be a career and a job in it?
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It's not something that's very straightforward, writing online, even though you've talked about the great reshuffle, and I agree with you, but I think there's sort of nuance to that where it's not always as clear.
5:56
Jim O'Shaughnessy: So very, very true.
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And as I was preparing for our conversation, the connections that weave their way through, and we're going to get to it later, one of your pieces named, I think three, maybe four people who I'd had on the podcast as guests.
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And I was very struck by that.
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But you know, the one that's up right now is the one with Tom Morgan and which we talk about, the real importance of following the art, follow the artists.
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What you just said resonates with me, even though we are really different people.
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It resonates with me on several levels.
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The first one being, yeah, you're doing the right thing.
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You're becoming aware of your situation and your surroundings, and that's the way to break the feeling of that Patrick Bateman. He hasn't done that.
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And so he almost feels like he has locked in syndrome and his release is murdering people. Right?
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Frederik Gieschen: Right.
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Jim O'Shaughnessy: And until we get to the end where we really don't know if this has all been just a big fantasy- Frederik Gieschen: Yes. Sure.
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Jim O'Shaughnessy: And so I read the book and I saw the movie.
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I use the gift all the time.
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I use it, ironically, because I want to fit in.
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To me what you said really resonates because, A: you're following the art, which I think people absolutely have to do.
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B: you said something else, which really struck me, which is, you are now looking for the flow. Right.
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And for all of my life, since I was 18, Daoism has been very important to me.
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And the idea of flow is so central to the thesis of Daoism.
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I say that, and then I laugh, because there is no thesis of Daoism. Not really.
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It's like Jed McKenna says, "You don't want to get a PhD in waking up.
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You want to wake up, you stupid fucker." Right?
7:43
You and I had a text exchange though, and I had sent you something from Howard Bloom's Global Brain.
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And it was about this idea of about what he calls Faustian introverts.
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What I read again, that I hope that you took in, was they are the ones who often achieve incredible things, because unlike extroverts who like the shiny things, right.
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And they kind of rush to the shiny thing, introverts are, it's very well documented, that they can apply themselves in ways and with focus that a lot of extroverts really have to train themselves to do.
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I literally had to do that.
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I sat alone in a room for three years, dreaming up What Works on Wall Street and Invest Like the Best.
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I think what's cool about that is that we're living in a world now where everything is in public and I think it's great.
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You did a piece called The Rise of the Media-First Investors.
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And I noted too, "Cool story, bro, but that's the way it's always been," with guys like Marty White with David Dremen, me- Frederik Gieschen: Right.
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I can't believe I forgot you in the piece.
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It was staring me right in the face.
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And as soon as you DM me, I thought, no, there's no way.
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Jim O'Shaughnessy: No, no, no.
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You have Patrick O'Shaughnessy, who's my son in there.
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So as long as you get one O'Shaughnessy in there, we're cool with it.
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Frederik Gieschen: Right.
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Jim O'Shaughnessy: But one of the things that I wanted to talk about and get your opinion on is, back when I had to do it, it was different, right.
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Because we had gatekeepers.
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And back then, if you wanted anyone to notice you at all, you had to be an expert on something.
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And really the only way to be an expert, and I can't remember whose quote it was, but it was like, if you really want to learn a subject, write a book about it.
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And so I got this bright idea, I'm going to write a book.
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And my far more practical wife was like, "You do realize that you're going to have to get a publisher, right, Jeff?"
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But you got to do that; or we had to do that, and then mentioned CNBC. Right?
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I got a lot of benefits from early CNBC.
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It's changed dramatically.
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And I haven't watched TV, in maybe 10 years, but that kind of TV.
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But I would argue, and I think I noted this in my DM to you, that the people doing it today, it could be arguably scarier.
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And scarier because the way it's done today is basically learning in public, failures and all, mistakes and all, which I think if you're doing it the right way, it's fantastic because mistakes are opportunities to learn.
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But your audience, maybe they don't know that.
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Talk to me about, about writing that piece and then how you fit in.
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Frederik Gieschen: Right.
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So I totally agree with you.
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The way this piece came to me is I saw this podcast of Harry Stebbings, who does 20VC, which is a popular venture capital and the technology podcast. Terrific. Very young though. Right.
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And he raised a very substantial venture capital fund.
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And I saw that and I thought, wait a second.
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My first instinct was kind of just, "Oh, this is a bull market and everybody's just giving out money.
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This is just a sign of the times."
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And then I thought about it a little bit and thought, "No, this actually makes perfect sense," for several reasons.
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First of all, having a podcast or writing a book or having any of those ways to create an audience, it's the perfect presale to raise a fund or raise any kind of capital, because people trust you, they see you as an authority. They like you.
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And so it's natural that that kind of transition would happen.
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But also at least in venture, there are tangible things you can do with that audience and with that asset to source deals and to also improve the outcomes in the portfolio by helping your companies get the message out, shape the narrative, hire, find more capital.
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And I think to your point about the gatekeepers, right?
11:29
So I can see how it used to be very different in that you to get, in order to be seen as an authority, you needed to get the book out.
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And there's sort of all these steps that you have to go through.
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Today, I think you fight a very different obstacle, which is sort of this infinite wall of noise or information, right.
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And getting attention is the battle.
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Anybody can start a podcast, but there's only one 20VC.
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There's only one Invest Like the Best, there's only one Infinite Loop.
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So there's a long tail of people who would like to participate in that and just can't poke through the noise.
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So I do think it creates a lot of opportunity.
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In terms of the risk, I struggle with that because I think it's easy.
12:06
I can see what you're saying.
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I think, yes, if you fail publicly, that's I guess worse than failing privately and failing in general, right?
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If you can avoid it you try to do that.
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But I think we over overestimate the cost of failure.
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First of all, I think the Internet for the most part, unless it's really meme-able, forgets very quickly.
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That people just move on and there's something new happening every day, every week.
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I think what you might find is you might find yourself with people who are envious of your success and who become sort of public detractors, right?
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I think that does happen.
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Whether you call it trolls or something else, right?
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You might have specific people who will keep pointing out your failure.
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But I think in general, at least the way I feel about it and the way I've seen it on Twitter is, I think people are in general somewhat forgiving of failure.
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Unless you're stealing, or you're doing something that's obviously wrong.
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But if you had the best intentions and people follow along in your journey, my hope is that people are forgiving and that it overall creates a better culture to try things out.
13:00
What I thought was, the theme of the piece was, this is sort of different at scale.
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It's much easier because there aren't these gatekeepers to do this, but it's not new, like you pointed out.
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And I think it dates back all the way to A. W.
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Jones who raised the first hedge fund after he wrote a magazine piece on market forecasting, and then found that making money in journalism is it's not that easy and why not use these insights to raise some money and start the first modern hedge fund.
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And then other people like Carl Icahn or Ray Dalio, there's a long line of people who used writing or content to get the business.
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Michael Morris at Sequoia is another great example of a journalist.
13:39
To me, they still felt sort of one off, right?
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This person establishes themselves as an authority in their own way, but it felt a little bit like a rarity.
13:44
And now it seems to me like there is a shift where this has becoming more commonplace, at least on the technology and venture side. Jim O'Shaughnessy: Yeah.
13:55
It actually bleeds into the other piece that I want to...
13:57
I have several that I want to talk about, but The Reading Obsession, which I think was one of your more popular pieces. Frederik Gieschen: Yes.
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Jim O'Shaughnessy: And it was about Buffet and sort of the mythology that Buffet has created himself.
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I have mad respect for Buffet.
14:09
I really do, but I like the real Buffet, as opposed to the ukulele playing grandpa who says that he lives in, what we would call flyover land here in New York.
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And hey, I grew up in flyover land.
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And he does, by the way, he does live there, but he's got places, other places.
14:28
Frederik Gieschen: Laguna Beach and all that kind of stuff.
14:30
Jim O'Shaughnessy: And New York City. And so on.
14:31
One of the things that you mentioned that I completely agree with is idea of the value of the network.
14:37
And so I had a couple of things that I thought about and wanted to get your take on, because I think that success, both earlier and today, is a bit what like my friend Roy Sutherland called: the value is not in the thing, it is in the perceiver's perception of the thing.
14:57
I've been doing a ton of research into complex adaptive learning systems, and what just keeps popping up again and again and again is people, and we can call them nodes.
15:13
They achieve a place in the collective unconscious as Jung would call it, or in the Zeitgeist or whatever, and they snap up real estate in everyone's mind.
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But that gets to the other part that people really don't like to talk about complex adaptive learning systems, is this idea of the Matthew effect, that's from the Bible.
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I'm not really a biblical guy, but I looked it up because I heard it so much.
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And it's like, "From he who hath much more will be given.
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From he who hath not what little he hath shall be taken."
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And that is a description of watching an AI, a complex adaptive learning system work.
15:54
In other words, the nodes that are getting it right, attract all of the other nodes.
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And this node over here that isn't getting it right, dies.
16:09
What's really interesting, to me at least, is that it actually also happens in real life, apoptosis, which is cell death.
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And I didn't know that ourselves were programmed to commit harry carry if they weren't doing any good, but they were.
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And so you start like looking and you start seeing, if you start studying biological systems, guess what?
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They do it exactly the same way.
16:35
And so finally, I'm fascinated by the value of networks just in general because your network is your filter.
16:42
That's not original with me.
16:42
I think that's Don Tapscott.
16:42
But you think about Basquiat, the artist, right?
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I love art and collect art, and so most people don't know that Basquiat was part of a partnership called SAMO, S-A-M-O.
16:55
He and his friend Al Diaz did all of the original graffiti artwork.
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And people of the time who knew them well said, you could not distinguish between their work.
17:10
Literally, you could not know if Basquiat did it, or whether Al Diaz did it.
17:16
Well, Basquiat decided to plug himself into the network; Andy Warhol, the whole deal became, as we know, and tragically died young, but became incredibly famous.
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Al Diaz, who you could not tell the difference between his work and Basquiat's work, did not plug in- Frederik Gieschen: That's fantastic. Yeah. That's a great example. Yeah, no. And you're right.
17:37
I think it was the single most popular piece that I wrote, which is very ironic because it just sort of effort and input and sort of the amount of work you do correlates in no shape or form with how popular something is.
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And I thought maybe I should just write more about Warren Buffet.
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Maybe that's just what the people like.
17:55
But I really like the piece because it hit on a few things that I was thinking about.
18:00
And the first thing is this mythology, as you mentioned around people like Buffet or pretty much anybody else who's successful, who often is...
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That narrative or that a mythology is often shaped by that person.
18:08
There's a book called From Predators to Icons, which sort of deals a little bit with that and the thesis is that the people who we look at as icons were often predators, or just very different early in their career.
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And later once they become successful, they sort of try to obfuscate or change that origin story and make it more palatable, more exciting, more bootstrapped.
18:27
And so I think there's two things at work.
18:27
One is, look at what they say versus what they do.
18:33
And I think there are just so many quotes from value investors about the value of reading.
18:37
And it just struck me that people who collected those and there's like dozens of pages of just everybody says, you have to read all the time.
18:41
And granted I enjoy reading. I want to have readers. Reading is fantastic.
18:45
Yes, it is how we build knowledge.
18:51
But if you take it to this cartoonish extreme of I'm going to out read my competition, right?
18:51
And reading is all I'm going to do, and that's how I'm going to be successful.
18:57
Then I think you'll get very lopsided and just completely miss the other parts that made Buffet or anybody else successful.
19:07
And that gets to the other point, which is, you have to look at somebody in the context of the stage of their career, right.
19:11
And looking at Buffet today, having 30,000 people attending the annual meeting at least before COVID, that's a very different Buffet with very different constraints and goals and opportunities than young Buffet who started out, and yes, who read all the time, but who also constantly proactively went out into the world and engaged with people; asked them questions, built networks, found the right people.
19:34
And he did it in his own way. Right?
19:34
He didn't go to a conference and give everybody his business card. Right?
19:38
He had his bridge players, or he had a group of investors, sort of the Grahamites, which turned into the public group that he went on vacations with and they had speeches and everything.
19:46
But I thought the best example was sort of how he found GEICO, where his mentor Ben Graham had been on the board.
19:49
And it's not like he spent an entire year just reading the annual reports and reading all the filings.
19:55
He got some baseline knowledge and then he went to the GEICO office on a Saturday and knocked on the door and he said, "Is there somebody here who can explain this business to me? I don't really get it.
20:03
But there's probably somebody there who can teach me." And that happened.
20:07
He found somebody who kind of explained the core of the business model, the cost advantage and the advantage in the underwriting by focusing sort of a lower risk group.
20:16
That model, I've never seen those annual reports.
20:16
I'm not sure if it's obvious, but it wasn't obvious to Buffet.
20:23
And he had to find sort of this teacher figure.
20:28
And I think for a long time in my own career, I really underestimated sort of the value of the network.
20:35
It was not something that I cultivated and sort of build in the way that I thought.
20:35
And I think part of it was because, to go back to sort of this earlier point is like, you have to sort of find resonance and you have to find people that you connect with.
20:45
And I think just going around, quote, unquote, networking for the sake of doing it, is ridiculous.
20:51
Nobody wants that, it's transactional, right?
20:55
So you have to find people where you can bond over sort of the same interest, the same ideas, just explore the same curiosity or whatever it is that you enjoy.
21:04
And that, for me, really, at least in a professional sense, I don't think it really happened really until Twitter; until I became active in sharing. Right.
21:08
And so to the point of learning in public, I think one of the biggest benefits for me was just with learning in public and with publishing, you sort of get access to more and more layers of people in the serendipity of somebody sending you an email back and saying, "Oh, I love this piece.
21:28
I've been thinking about the same question.
21:28
What do you think about this?"
21:28
And these are often people you would just never meet in real life, so to speak.
21:31
Although I think that distinction is sort of obsolete at this point.
21:37
I don't know if you want to talk about it, but the other piece I had on networks, which is sort of me trying to figure out how can I learn this, was Michael Milken who- Jim O'Shaughnessy: Oh, yeah, yeah.
21:47
Frederik Gieschen: Is a little bit of a controversial figure.
21:47
But to me, was sort of the embodiment of somebody who didn't think about it or didn’t do it the way I perceive it as networking, but building an ecosystem.
21:58
And so he's famous for building up the asset class of high yield debt and enabling entire industries that sort of were built on that, like cable and casinos and other telecom businesses.
22:07
And I think the genius for him was he sort of found this vacant lodge, right.
22:12
There was some empty space, there were some weeds growing, but like not much was happening.
22:16
And if he could only add liquidity, right.
22:16
If he could make things tradable and transactional by taking inventory, and by knowing all the players in the space, and by becoming sort of the central repository of all the data.
22:25
So he sort of laid the groundwork of becoming that central node.
22:30
And then he started adding both sides of the network, both the investors, the insurance companies, the mutual funds, and people was just kind of entrepreneurs that he overfunded.
22:39
And on the other side, the deal makers.
22:39
He put sort of these seeds into the ground, right.
22:43
He found Steve Wynn who wanted to build a casino, but didn't have the capital.
22:43
So well, I'm going to fund that person and I'm going to grow with him as he does bigger and bigger deals.
22:51
And so I think he was, for me, it's sort of the best example of somebody who benefited by creating this garden, where everybody around him also kind of flourished and he helped everybody, but he remained sort of in the center, and was able then both as a trader and as an investor to take a cut of that.
23:06
And it came together for me because he went to prison, was released, had cancer, prostate cancer, and beat that.
23:12
And in the process sort of replicated that entire process of building an ecosystem, but in healthcare.
23:17
Again, he found all the doctors, all the hospitals and he created sort of liquidity around ideas.
23:21
He rechanneled his philanthropic effort towards cancer, but with the condition that, "Well, if I'm going to fund you, I want you all to share ideas.
23:31
I want you all to go to the same conference."
23:31
Just like he'd had the Predators Ball in high yield debt or in takeovers, he would sort of create that same space, that same ecosystem, where everybody could share ideas and get to know each other.
23:41
And so why I just thought...
23:41
And now he has the MILK and Global conference, which is, to me, I just thought, there's such an amount of high quality people for somebody who, as a public figure, at least in the past was somewhat controversial: how did that happen?
23:51
And I realized he built his life in such a way that he had all these ecosystems.
23:55
I have met him, but if you met him, I'm sure there's something he could do for you.
24:00
Meaning there's somebody who could introduce you to, or some piece of information or something where he could add value to your life, because he's so embedded in these different ecosystems.
24:09
And I think I'm never going to be like him, but there were sort of very tangible lessons that I could draw from that.
24:14
And think, there's something here that you can apply in your own life that I completely missed in the past. Jim O'Shaughnessy: Yeah.
24:22
But one of the things that I do have as a thesis is, what you've just described with Michael Milken, the only thing I would add was you need a spark.
24:33
And the spark that he had was his seminal paper showing that so-called junk bonds were no more risky than rated bonds, at least of the lower rating variety.
24:40
Which was for the time a seminal piece of work. Nobody knew that.
24:49
And so he had this great lightning strike, but then you're absolutely right the way you describe the rest of his career.
24:59
Very, very good it at world building.
24:59
And my thought is that, well, hello, welcome to the next 3,300 years, if things go right.
25:06
And that is, we now have this system where I have access to people I would've never met.
25:17
Like I probably would've never met you.
25:17
Lily Francus, who I put on who got a job in this, but she just was doing it for fun.
25:22
I would've never met her. And Liberty...
25:28
I mean, I can just keep going on and on and on.
25:28
And so I think that the leverage inherent in a global intelligence network, which I still think the probabilities are still that Twitter will be that network, unless Jack just really fucks it up and Web 3. 0, replaces him.
25:50
Which by the way, you have to list that as a probability, not just a possibility.
25:50
Now I think the probabilities are still in Jack's favor, but hello, Myspace. Hello, Ask Jeeves. Frederik Gieschen: Yeah.
26:04
It's a field that I'm sort of an interested observer and I've sort of gotten my first experience in a DAO.
26:05
One of these decentralized autonomous- Jim O'Shaughnessy: Autonomous networks, right?
26:13
Frederik Gieschen: Networks.
26:14
And it's fascinating and there's so much enthusiasm, but it's also, you realize how challenging it can be to coordinate people sort of globally, remotely.
26:22
And sometimes it works amazingly well.
26:28
And sometimes, you realize how important it is to communicate efficiently and if you have to learn each other's sort of styles and the outcomes, I think you'll end up with a very wide range of outcomes.
26:37
With some things that work just amazingly well, and a lot of things where it gets tried and discarded again, at least in my experience so far has been it's... [crosstalk].
26:46
Jim O'Shaughnessy: Yeah, no, but I would say that if you study, like I just mentioned that I've been doing a deep dive on biological systems as learning mechanisms. Guess what?
26:52
That's exactly what happens there too.
26:59
They try a bunch of different stuff. Most of it doesn't work. Most of it fails.
27:06
But then they continue to survive because the few that did work, worked pretty well.
27:12
And so, I don't think that we're going to get away from the Pareto distribution.
27:12
I think power laws do rule.
27:19
That's the Matthew effect again, right?
27:19
It is baked into our very biology.
27:19
I'm currently reading a book by Howard Bloom where he tries to reimagine capitalism because A: he makes the correct claim that what all of the other religions and ideologies and whatnot promised, capitalism actually delivered on.
27:42
In other words, in raising the living standards of the average human being capitalism is a runaway success.
27:49
Now, does that mean it does everything right? Of course not.
27:49
But why I'm reading the book is because he makes the argument that it's built into our DNA and that- Frederik Gieschen: Capitalism. Jim O'Shaughnessy: Yeah. Boom and bust. Free markets.
28:03
And I'm not done with it yet, so I'm not going to talk too much about it, but it is amazing to me that we still need...
28:08
So what I think, and I think you're a good example of this actually and so is Tom Morgan and so is Liberty.
28:15
And you can see a pattern here, right? What's pattern?
28:21
The pattern is you all are excellent at the distilling and synthesizing knowledge.
28:30
As you yourself pointed out, right?
28:30
So your average person with a job isn't going to be able to read all the things that you read.
28:35
They're not going to be able to do the deep dives that you do.
28:43
That makes you very valuable.
28:43
Frederik Gieschen: Yeah, no, that's really interesting.
28:45
Oh my God, there's so much to it to pick up on here.
28:47
But so just first of all, I think we all have...
28:47
Anybody, the Internet to me is sort of the best and worst thing ever to happen to curious people, right?
28:51
Because I have access to so many brilliant minds and so much information that's fantastic.
28:56
I also have constant FOMO, fear of missing out of all that information. I can't keep up.
29:02
And in fact, because the overall sort of human knowledge is increasing so quickly, my relative knowledge, even if I'm constantly learning is kind of declining, right?
29:11
I have to kind of accept that no matter how much effort I put in, I'm always going to be behind.
29:16
And I was talking to a friend about note taking apps and these different systems for just capturing everything that we read, and then using it to later synthesize and put these different pieces to together.
29:24
And it struck me that really the biggest function these note taking apps have for me is just to soothe my own anxiety of, I'm going to collect all these links.
29:32
I'm going to read all of this later. Don't worry.
29:36
But I do agree with you sort of this, both the ability to filter and kind of understand what information is actually important and high quality, that's becoming a lot more important.
29:44
And I just did a deep dive on the letters of the Nomad Investment Partnership, Nicholas Sleep and Zach Zacharia.
29:49
And they wrote about this as sort of look for the long shelf life insights.
29:54
So I tried to get away from all the information that decays very quickly.
29:54
They said there should be, just like on food there's a label that has an expiration date [crosstalk]- Jim O'Shaughnessy: Yeah. Sell by. Yep.
30:04
Frederik Gieschen: On information.
30:06
I mean, synthesis is interesting because naturally I collect all these ideas and all these different threads and half of them I never be able to follow up on.
30:11
But it does create a little bit of attention because I also would like to do something that's original. Right.
30:16
And so I think sometimes I write something and I'm sort of trying to figure out what is the right balance of incorporating everybody else's work and all these beautiful quotes and thoughts and concepts that you find.
30:28
Versus also being present in the piece myself with an opinion, or with an original take.
30:35
Now, having said that truly original ideas, right, are hard to come by.
30:35
It doesn't happen that often.
30:40
And I think that's the other thing I learned from Nick Sleep is sort of, when you have a big idea, you sort of have to really pounce on it.
30:44
And maybe that is the great reshuffle, right?
30:44
There are these big trends and in the past I think I was sometimes negligent, right?
30:48
When I saw something, I said, "Oh, this is interesting, but here's all these other interesting things.
30:53
Here's a new shiny thing." Right.
30:57
And you sort of have to balance that exploration and exploitation, that explore exploit algorithm of sometimes you have to just focus and really dig deeply and pursue the idea for all it's worth.
31:07
And sometimes, when something like Web 3.
31:07
0 or if crypto comes around, sometimes it's worth paying real attention and really understanding it.
31:12
And other times it's important to have that open mind.
31:17
And I just wrote a piece about clutter today, because I started to realize that it's so easy to not have that open space, to not have any slack and just fill everything up, whether it's bookshelves or calendars and sort of be caught in that busyness. Jim O'Shaughnessy: Yeah.
31:33
And it is the perennial question, right?
31:33
So I opted to go deep and have a deep domain knowledge on quantitative investing, algorithmic, et cetera.
31:40
But at the cost of ignoring some of the pattern recognitions that were built into me, right.
31:48
I've been doing this a long time and I worked briefly for Bear Stearns, and I was walking around there telling anyone who would listen to me, if you can short your house, short it; but I didn't do anything about it.
31:59
And the reason, Frederick, that I didn't do anything about it was because I had so instilled quant rules into myself that I didn't have a quant rule telling me to short real estate.
32:18
Frederik Gieschen: Right.
32:18
Jim O'Shaughnessy: And so that's kind of my next project, but maybe we'll do it [crosstalk].
32:20
Frederik Gieschen: So shorting real estate or?
32:21
Jim O'Shaughnessy: No, no, no, no, no, no, no, no. A good try.
32:22
Frederik Gieschen: Like, wait, that's a new Jim.
32:28
What did you do with the old Jim?
32:31
Jim O'Shaughnessy: O'Shaughnessy shorting real estate. FOMO.
32:33
You only live once, motherfuckers. No.
32:33
But it is fascinating because you do have to make the decision that this, again, back to flow what we talked about earlier, I found it easy to do that because I was very aware of my own foibles.
32:48
I was very aware that I would fall for every one of those behavioral things.
32:55
Oddly and ironically, the smarter you are, the easier you fall for that stuff.
33:02
And I- Frederik Gieschen: Because you think you won't?
33:05
Jim O'Shaughnessy: A: because you think you won't.
33:06
B: because you, you don't have any armor on.
33:12
You think I am so smart that nobody is going to pull anything over on me. No.
33:12
But then if you are like a connector, or you're a node that a lot of people on the network connect to, guess what else you do as a smart person?
33:29
You come up with the most bulletproof argument for why investment XYZ is going to be right. Right?
33:36
And you indoctrinate yourself first, you're patient zero.
33:43
And then you go indoctrinate everyone in your network. Right.
33:43
And so I was lucky in that I was very, maybe again, my early adherence to Lao Tzu, but boy, I knew that I was just chicken ready to get plucked.
33:54
And that I didn't want that.
33:54
And I had some experiences like selling a put position literally the day before the crash.
34:01
That just- Frederik Gieschen: 1987, you mean. Right? Jim O'Shaughnessy: Yep. Yep. Yep.
34:07
And that was literally my final wake up, you idiot. Go the rules base.
34:10
And by the way, that's not going to be for everybody.
34:17
And also I will stipulate, there are artists who can do this really, really well.
34:25
But for me, that was going to be the right path.
34:25
And so back to, like you and what you're doing, I think that the brilliance of...
34:32
And by the way, I really do read every one of your letters and I often repeat them too.
34:37
Frederik Gieschen: Thank you. I appreciate it. Yeah, I know. I know. Jim O'Shaughnessy: Yeah.
34:41
No, the clean slate one, I really enjoyed because that was something I tried to be good at for a long time...
34:48
The long time should clue you in here.
34:53
My wife can get rid of stuff, [Jettison] Brothers, I call her when she wants to go clean slate. And I'm not that way.
35:00
But what I am good at, which you also mentioned in the article and highlight, is you have to unlearn.
35:05
You lead with a quote from Lao Tzu, and that is something that I learned early on that I cannot tell you the value of: the ability to discard opinions that are no longer valid, or beliefs. Right.
35:20
So I go so far as to say, I quote Robert Anton Wilson, who says, "I don't have any beliefs, but I have many suspicions."
35:28
But the point- Frederik Gieschen: Yep.
35:33
No, I mean, it's interesting, right?
35:33
The words you apply and how you frame something already makes a difference as to how willing you're going to be to discard that.
35:39
And I just thought, I saw all these different parallels, right?
35:42
I mean, Stephen King wrote this great book on writing, sort of on his own writing process on his own life and this sort of line: to kill your darlings.
35:46
That always stuck with me because I, as a writer, I tend to write somewhat longer pieces.
35:51
And I always tell myself, "No, now you're going to be snappy or punchier..." And then what happens?
35:56
No, I want to include all the details that I found out, right?
36:01
So there's a little bit of...
36:01
I see that struggle in myself, of you have to kill your darlings.
36:04
And I realized, so that's a very deliberate process of eliminating things sort of one by one.
36:08
There's two other ways to go about it.
36:12
You can either do a deliberate clean slate.
36:12
So for example, Michael Steinhardt, every once in a while he was just out of touch with the market.
36:16
And he'd say, you know what, he called up Goldman Sachs, and he'd say, "I want out of my entire portfolio.
36:20
I want you to [crosstalk]- Jim O'Shaughnessy: Sorry, but it's such a baller move, man.
36:27
I mean, original gangster.
36:27
Frederik Gieschen: Just, it's [crosstalk]. Yeah. Just get rid of it all.
36:30
I'm going to start from scratch. I'm not feeling it.
36:32
But I could sort of relate to that because I think we've all had those moments where it's like, "This is crazy.
36:36
I need some space, right?
36:36
I need some space for new ideas.
36:36
And I need to get some distance from all the ideas that I bought into in all the positions that I had."
36:46
And then, I think what happens is if you don't do that...
36:46
I pulled out the example of Louis CK, who he gave this talk on sort of a memorial for George Carlin.
36:51
He basically said that he sort of the early part of his career, he was stuck for 15 years.
36:57
And he was sort of clinging onto material that wasn't working.
37:00
And he was basically failing and ready sort of to give up, but what else was he going to do?
37:05
And because George Carlin once explained his own process of discarding all of his material every year, so that he could start from scratch and build up something new and have a new special, and basically also make money, right, with consistently new ideas.
37:18
That sort of triggered him to go through this phase of saying, "Okay, that's crazy. I can't do it. But what if I did?
37:22
What if I got rid of everything and started from scratch?"
37:27
And that forced him to go deeper and to look or deeper material.
37:31
And I think that rebirth can be necessary. If you don't do it... So I didn't do that. Right. I just related to it.
37:38
I was in a career for 10 years where I was also holding onto something that wasn't working and I didn't have that courage or that insight to say, "You know what? This isn't working.
37:48
I got to figure out something else."
37:48
And to do that, I first have to remove myself and let go of the situation that isn't working and create that space to really think about something new.
37:56
So for me, I was basically stopped out of my position, right.
37:56
I drew on the example of Paul Tudor Jones, there's this old fax that somebody once gave me a PDF of, it's a risk manual.
38:02
And basically what he's saying is if my traders have a position, they draw down too much, they're going to be too emotionally invested and messed up. They don't get it.
38:11
I'm going to send them on vacation and close out this person's positions.
38:16
And that happened to me last year when I basically joined the firm and it was already...
38:21
It was a startup hedge fund.
38:21
And then I was supposed to help market the firm and help fundraise.
38:26
And if you know me, that's already a little bit of an interesting proposition that I joined the firm because I had a lot of respect for the people.
38:34
I thought they were very high quality, but the idea that I was really good at selling and marketing, it was a stretch.
38:38
And then with COVID, all of that came to a pretty early end.
38:42
And that was really painful at that point in time, because it was just another failure.
38:47
And I was very sort of frustrated with why couldn't I do a better job?
38:47
Or why couldn't I make that thing work?
38:51
But it took for that base to break that I could find something else in the shambles, right.
38:56
And sort of find new thread that I could pick up on and say, "Oh, now I have all this space and what am I going to do with that?
38:59
Well, I'm doing these things on Twitter, maybe just do a little bit more writing and now no compliance person is going to tap me on their shoulder and say, you can't write about anything that's related to investing."
39:11
And so I could finally sort of pursue that interest.
39:11
And again, going back to the painting, right, it's sort of both a beautiful journey and it's also a little bit scary.
39:18
Because yes, the great reshuffle is happening.
39:18
And there's a ton of opportunity.
39:21
I mean, I think it's wild and this time is different, in that sense, right. It is really different.
39:26
It's creating a lot of opportunity for people all over the world, and it's fantastic, but it's not always trivial.
39:30
I think sometimes it's hard to predict what exactly will work.
39:35
And so you have to go through these phases of experimentation and trying things and just seeing what resonates, and then find the overlap between what you personally are good at and interested in and where there is a market for it.
39:45
But to get to that point, something else had to sort of break first and kind of release me.
39:50
And I think if I had been more self-aware perhaps...
39:50
I think it's incredibly self-aware that in 1987, you had this loss.
39:57
And me, I think if I had had some puts on and then the crash happens and I'm missing out, I think I would've been pretty frustrated and maybe try it again.
40:07
So I think it's very self-aware to say, "You know what, this isn't working.
40:11
My human operating system is not designed for this.
40:11
I'm going to go the rules based way."
40:15
I think that's very self-aware and that's sort of a theme that I've been trying to get better at.
40:19
Just having more awareness of what I'm good at, and what resonates, and what to follow and what to sort of ignore and let go of. Jim O'Shaughnessy: Yeah.
40:27
And you make several excellent points there.
40:27
And the one thread that I'd pick up on is, I don't know a single successful person who has not had a failure; many times a pretty big one somewhere in his or her past.
40:42
In fact, honestly, Frederick, I cannot think of a single...
40:42
And I've been incredibly lucky in the amount of people that I've been able to meet, not some really, really big success stories.
40:53
And I honestly, I cannot think of a single person who did not have a huge, in many times, failure, mistake, et cetera, that everyone has.
41:02
But it's how you react to that that determines whether you're going to be a big success or not, in my opinion.
41:13
I think of Larry Fink with BlackRock.
41:13
And you know how BlackRock got started?
41:18
Frederik Gieschen: So I read this story once, but enlighten me. Jim O'Shaughnessy: Yeah.
41:20
So Larry Fink was working at First Boston and he was trader and he lost a hundred million dollars, and they cashiered him that day. "Larry, here's your hat. What's your hurry?
41:30
Get the fuck out of here."
41:30
And so basically what Larry did was just obsess on, what did I do wrong?
41:35
And that led to Aladdin.
41:35
That led to him being obsessed with Aladdin, which is a quant, if you will, system.
41:43
Aladdin stands for asset, liability, debt, derivative investment network. Right.
41:50
And he opened up a tiny storefront with the first office for the building.
41:55
And he was obsessed with Aladdin and look at him now. Right.
41:55
So- Frederik Gieschen: This is a story I should dig back into. It might go [crosstalk].
42:02
Jim O'Shaughnessy: Well, you know, actually- Frederik Gieschen: I've forgotten all about this is- Jim O'Shaughnessy: Actually, what's funny about that is when I was preparing for you, I'm like, "I got to tell Frederik.
42:10
He should really write about this."
42:10
Frederik Gieschen: Right.
42:12
[crosstalk] Jim O'Shaughnessy: I'm like, honestly, man, with your abilities to dive deep, you could sell this as a screenplay too, I think.
42:19
Because I honestly think it's such a cool story about perseverance, about loss, about how would you feel...
42:26
Whoops, I lost a hundred million. They just fired me.
42:32
And [crosstalk] Frederik Gieschen: It's also a great illustration of sort of the asymmetry of working at a trading desk at a bank, where you're not personally liable for that. Right.
42:39
You got a certain amount of upside.
42:39
If you do well as a trader, you get your bonus.
42:43
If you do blow up the bank, well, you're going to get fired.
42:47
But it's not- Jim O'Shaughnessy: It's not terminal for you.
42:48
Frederik Gieschen: It's not terminal for you. Yeah. That's interesting.
42:50
So that's encourages the wrong kind of risk taking.
42:52
But to your point about early failure, I think that's absolutely right.
42:56
And I just digging into Michael Bloomberg again, after the merger between Salomon and Phibro, I think it was.
43:00
They let go out a number of partners.
43:00
There he was now granted he had a nest egg from capitalizing his partnership interest in getting paid out.
43:05
It was a failure in one sense, but a comfortable one.
43:11
I do think that plays out in a lot of the stories.
43:17
Kirk Kerkorian is one of my favorite rags to riches story of just somebody who grew up in poverty.
43:21
His father had done real estate speculation in California, gone bust in the '20s.
43:26
Kerkorian dropped out of high school.
43:26
It's really not a great education, not a great preset for somebody to become really successful.
43:30
Then, he stumbled into flying.
43:30
Learned how to fly and flew military planes across the Atlantic during the war and got paid.
43:36
He had a tiny nest egg that he could then turn into an airline, and then start to build hotels in Vegas.
43:46
I was always thinking, "This guy, he saw his dad blow up.
43:46
He must be pretty risk averse."
43:51
My dad was an entrepreneur and he got successful when he was very young and then lost a lot of it on another venture.
43:56
I know what it's like to go through those ups and downs as a family.
43:56
I thought, "That must have really done something to Kirk."
44:02
No, he was leveraged all the time.
44:02
Not in a reckless way, but he constantly put his own name on the line to buy planes or to build something.
44:12
He became a master, he still had to earn his scars.
44:12
He built the biggest hotel in Vegas and he needed European debt to fill up the financing gap.
44:18
This was pre [inaudible].
44:18
He really stretched his way to get that international hotel built.
44:24
When it opened, he ran into trouble.
44:24
He wanted to sell some stock.
44:30
The SEC blocked him because he had some run-ins with the mob before that.
44:34
There's a whole backstory, but he wasn't able to sell the equity.
44:34
He had to sell the hotels in the Hilton family, Richwood cash.
44:39
They came in and they're like, "You we're going to take this off your hand at a very favorable price at a fraction of what it had traded at." He lost out.
44:47
He built the biggest hotel, lost out on that. What does he do?
44:47
I'm going to be resentful, I would mosey around.
44:51
I would be the world is so unfair. No, what does he do?
44:51
He just looks right over there.
44:57
Well, here's the MDM Studio is really undervalued.
44:57
I'm going to take that over and then I'm going to use the brand.
45:00
I'm going to immediately again build the next biggest hotel in Vegas.
45:04
The boundless enthusiasm for risking it again and dealing with the loss and just saying, "This didn't work out or didn't work out as expected. It's a new day.
45:14
What are we going to do today?"
45:14
I really respect it and I love it when I find out in a story.
45:19
Jim O'Shaughnessy: Didn't Churchill say that one part of succeeding is going from failure to failure without a loss of enthusiasm.
45:25
Frederik Gieschen: That's perfect, yes.
45:29
Jim O'Shaughnessy: You and I actually talked a little bit about that, about another issue.
45:31
I had a great guest Robert Plomin on who is probably the leading genetic behaviorists in the world today.
45:44
One of the things, that's a fraught conversation on so many levels, and he handles it so well.
45:44
What if you're on the wrong end of that distribution?
45:51
Take a step back if you haven't heard that episode.
45:56
[crosstalk] I'm talking to our listeners. No worries.
45:56
Frederik Gieschen: I'm only talking to Jim.
45:56
There's nobody else here.
45:57
[crosstalk] Jim O'Shaughnessy: That's right.
45:57
That's a smart way to do it.
45:57
He makes the claim that there is no other single variable than G, which is general intelligence that has correlates with virtually everything in terms of success and outcome like wealth, health, family, you name it.
46:11
He makes a somewhat provocative statement that the best thing you did for your kids was creating them because it's the genes.
46:17
It's not so much the other.
46:17
Now, I don't have a huge point of view.
46:25
I tend to think he's right just through my own experience.
46:31
What I like is he has a great section where we're talking about this and he goes, "You do not have to make the idea that your genes are your destiny your mantra here and quite the opposite."
46:43
He uses himself as an example.
46:43
He's like, "Look, I have the puggy gene.
46:43
I'm going to have the tendency to get fat and that drives my behavior."
46:50
He's rather draconian about it.
46:50
No sweets, no goodies in the house, and all that.
46:58
I think that I am fascinated by this idea.
46:58
You and I had a conversation about it, about some of the other people that I've met.
47:09
One of the things we talked about was the idea of an inner judge.
47:09
Then after studying about genetics and everything, I came to the conclusion about myself that I was just a lucky person.
47:21
I was incredibly lucky to get the genetic mix that I got.
47:21
One of the things that I sent you was something that I wrote when I was 23 years old.
47:29
Basically, it was something along the lines of ever since I was a child, I have thought that I would control and shape my destiny.
47:41
It was inconceivable to me that what I planned for wouldn't happen.
47:41
I think I sent that to you because of the David Gapen article.
47:48
Frederik Gieschen: That's right.
47:51
Jim O'Shaughnessy: Then, we got into a really interesting conversation.
47:51
Of course, for the course that's going to be, but that is biased by looking only at the successes. Yeah, it is.
47:57
When you start seeing this trait and when you're lucky to have to be able to meet enough of these people, and you start hearing the same stories, it gets a little interesting.
48:18
Yes, survivorship bias, if you were going to be a completely rational person you'd say, "Well, Jim, you're not going to spend any time with the 99 people who also believe that and failed.
48:30
You are only going to spend time with the one person who believed that and succeeded." Go.
48:34
Frederik Gieschen: It might be necessary, but not sufficient or maybe not necessary, but very helpful.
48:37
It's still not sufficient.
48:37
A lot of other things may have to go right too, but it may really help the outcome if you have this unshakable belief that you're going to succeed, or you're going to shape your own path and make it happen.
48:51
I think in those moments, when you really doubt the mission or the path that you're on, or you're feeling you failed and you have to come back for that, I do think that's really, really important.
48:59
I love that episode because it was, yes, DNA is important.
48:59
Genes are important, but don't take it as your destiny.
49:03
It comes back to being aware of who you are and maybe we can in the future, just not be mentally aware, but add data to that, and learn a lot more about our ourselves and our proclivities.
49:13
I do think that's something that I struggled with for a long time, these inner, I don't want to call them inner voices, but there is a system.
49:21
Jim O'Shaughnessy: Then, that Patrick Bateman thing might make some of our listeners [crosstalk] Frederik Gieschen: Time to get concerned.
49:31
That inner critical inner voice that has these different beliefs.
49:31
I think in my case, when things came up like writing for example, things that would go take me into a very different directions.
49:41
There was just a voice that maybe very harshly discounted that and said, "You're never going to make money with that.
49:46
That's not a real career."
49:46
What helped me a lot is between meditation and reading some of the books that you recommend, which by the way, I have a very long reading list after being a listener.
49:55
One day I will make my way through it, but there are some real, real gems.
49:59
Just being aware of meditating and creating that distance between myself the observer and the emotions, the thoughts that all come and go. Also, those beliefs.
50:05
Maybe it is difficult to make a living of that.
50:12
That doesn't mean I need to think about that right now.
50:12
It's not necessarily true.
50:17
To observe everything that's going on and maybe change it.
50:17
What I'm less sure about yet is to what extent you can actively shape all of these voice or those belief systems.
50:29
I think it's possible, but it hasn't been straightforward, but I think if I could get the handle on that and I followed the thinker prover thread and did the exercise of writing down all of those what do you want in life?
50:38
It's interesting, I came out at a paradox with that.
50:43
I realized that a lot what I want in life was not really about financial success.
50:49
A lot of it had to do with not having to think about money and doing all the other things that with some sort of baseline amount of money would be unlocked.
50:53
What happened is because I didn't want to think about money because I wanted to just have this baseline amount of success, all I thought about was money.
51:02
I didn't want to worry, then all I did was worry about my security and making enough money and it became very, big instead of minimizing it took over my life.
51:13
Then I wasn't able to even think, "Could I leave a stable career and do something else?" That was unthinkable. That was so scary.
51:18
That's an unwritten piece.
51:18
That's a draft that one day I'll write about that paradox.
51:23
Jim O'Shaughnessy: Don't think about an elephant.
51:26
The shysters and con artists of the Middle Ages used to sell lead to peasants and guarantee that it would turn to gold if they didn't think about it.
51:41
Frederik Gieschen: Good luck.
51:43
Jim O'Shaughnessy: Good luck.
51:43
The extended part of the thinker and the prover is you have to think about substituting, don't go for negatives.
51:48
Don't say, "I don't want to worry about money."
51:48
Rather, "I want a career in which I'm growing happy and making the best use of my talents."
51:56
That's happened to you, I think.
52:02
One of the things that's interesting is that as you, again, now we're back to the DOW bit here.
52:08
You got to let go of the tiller and letting go of the tiller or Zorba the Greek would say, "Boss, you'll never make it because you don't have the courage to let go of the rope and be free."
52:21
Of course, Zorba is a Bodhisattva and a [inaudible] masquerading as a Greek day laborer. Great book.
52:29
If you haven't read it by Kazantzakis, Zorba the Greek. That's scary.
52:33
That's the other part that I think people need to understand is that it's not that other people don't get scared, they do get scared.
52:42
I see with you, the other thing that's cool about this that I have experienced, and I think you will experience is that as your letter, for example, becomes better known, hopefully people know more about you after listening to this podcast, what happens is a whole new opportunity set opens and you got to choose.
53:04
You can't do all of the opportunities, but the fact is that if you have a growth mindset, and I hate because that's a cliche and I try to avoid saying them.
53:17
In this instance, it's true.
53:17
If you have a zero-sum worldview, you're just not going to make it in what you want to do.
53:25
I think the point is the world we're going into is designed for people like you.
53:31
You can do the deep work, the deep thinking, and then serve it up through your own interpretation of it to people who are interested, but don't have the time.
53:43
Frederik Gieschen: I certainly hope so and it feels that way.
53:47
I wrote about the scarcity versus this abundance mindset.
53:47
I think you're absolutely right, but I think it's not 100% our own choice.
53:52
I think we get shaped in that mindset by our environment.
53:59
For example, I think Twitter or the internet at large, the different communities operate according to different mindsets.
54:04
If you go into value investing Twitter and people have been beaten up by the market for a few years.
54:10
Jim O'Shaughnessy: A few? Frederik Gieschen: Yeah.
54:13
They are, by design, I think the stress investors are probably the best example where you have an asset, it goes into chapter 11, and you have people who buy up the debt to get a piece of the company as it emerges. That's a zero-sum game. That's a knife fight.
54:27
You're fighting with these other people over control and over the value of that asset.
54:31
That is totally different from being in a community like venture capital or crypto, where at least right now, the opportunity set is pretty substantial.
54:35
You're all working on this together.
54:40
It's much easier to have an abundance mindset.
54:40
If everybody around you is also in this optimistic and cheerful way, pulling, thinking, the move the same thing forward.
54:51
Versus if you know for my job, my opportunity is because somebody else is making a mistake.
54:57
The other thing you said about letting go of the tiller, I don't know if you've watched Dune.
55:01
Jim O'Shaughnessy: Yes, I did. I'm a huge Dune fan.
55:03
Frederik Gieschen: There's this scene where they're in the, what is it called?
55:05
The ornithopter, the tiny helicopter with the wings.
55:05
He goes into the sandstorm.
55:11
Part of his journey, part of his evolution is to let go of the tiller and finally go with the flow and accept that force of nature in that case.
55:17
There's something bigger at work and I'm not going to be able to control this.
55:21
I'm going to just have to trust the process here for a moment.
55:25
I think that finding that balance when you have to push and go with the ego, and actually make something happen.
55:31
When you have to be sensitive to the environment.
55:35
Say, "Now, let's just see where the flow takes us.
55:35
See what doors open up, and trust that it's going to work out."
55:41
I think there's a, there's a balance there, or that's at least for me, I can see it.
55:44
It's not always straightforward because I think for me, there are often moments when, from an ego perspective, I'm like, "No, I want this to work a different way, but just with ease, elegance, it's going to be a lot easier.
55:55
On history, because you mentioned it.
55:55
I think we talked about this what are the lessons of history.
55:58
Sometimes it feels to me, if you were unaware of history for the last few years, knowing your history and financial markets was inversely correlated with success in the markets, because you're just shy away from a lot of these things.
56:12
I don't know that I've changed my opinion on that. I love reading history.
56:12
I think it's very valuable to be aware of history.
56:16
I think again, it's something where you have to be careful not to draw to analogy too directly from history and say, "This market looks exactly in 1987 after the crash, there were people were like, "This was exactly like 1929."
56:29
This was the opening bell, there was too much leverage and now we're going to see the next Great Depression.
56:32
The danger is just to get fixed to these narratives that come out of history.
56:38
I think you should be aware of history, but then you have to be open to the fact that, you have to still do the work today and not get sucked into a story into something that's a pretty overlay chart, the way Paul Tudor Jones supposedly predicted the crash.
56:52
He was so in tune with the market, he had a good feeling that the market was going to crash and he was short.
56:56
He had this overlay chart that compared the market in 1929 with 1987, but that chart had been fudged, it had been made fit.
57:02
That wasn't really the explanation.
57:08
If you'd gotten stuck with that explanation, then you would just subsequently miss out on the recovery and the bull market.
57:12
You're stuck in the same in the wrong mental model.
57:12
I've seen a bunch of those stories where people draw a parallel to history and use it to invest that way.
57:25
I think that's very treacherous.
57:25
Jim O'Shaughnessy: I think that's an excellent point and it's a very nuanced point.
57:32
You should not get tied to a narrative that has a beginning, middle, and end, and then say that is going to duplicate with that chart.
57:39
What you should do in my opinion is you should really try to understand that the driving parts of the story that ends up being written and the narrative that ends up being written is us, we human beings.
57:58
If you can understand history from the point of view of, "I want to better understand human operating system and it would be great if there was a user's manual and there's not.
58:12
What I try to do in all these rabbit holes, I jump down and the histories, by the way, if you want to become a bestseller, just read a lot of ancient history.
58:28
There's so many great stories there.
58:28
My friend, Tom Morgan would say it's just a hero's journey.
58:34
It's just all of [crosstalk] Frederik Gieschen: Over and over again.
58:36
Jim O'Shaughnessy: Over and over again.
58:36
Anyway, I think your point is well-taken that's why these podcasts are great because you can make that nuanced point.
58:43
The chart, Paul Tudor Jones, he lives here in Greenwich and you're absolutely right, and so Harry Dent, there's another guy.
58:52
He wrote all the books about demographics and demographics are destiny.
59:00
I always was really skeptical about that because, well, directionally you want to know about demographics and the consumption cycle, say, of your average American, and when they're spending their most.
59:11
Then, it's probably pretty helpful to know these things, but he did the same chart kind of thing.
59:22
It worked right up until it stopped working entirely in 1987.
59:22
That was because markets were changing.
59:30
The underlying systems were allowing for all sorts of different instruments to be traded that never had been in the past.
59:37
Then he wrote another book.
59:37
I'm not going to just bang on Harry Dent here.
59:42
Then he wrote another book and said, "Well, you got to understand that it was the NASDAQ."
59:46
Everyone was investing in the NASDAQ.
59:46
It's like, Ptolemy, if you got to keep doing concentric circles around your astrological charts to keep the earth at the center of your system, someone like Copernicus is going to come along and say, "What about just moving the earth over here and all of the elliptical things."
1:00:10
If you've ever seen those maps are great.
1:00:10
With all my insight, I use them as an example of people being stupid.
1:00:13
Frederik Gieschen: It's when you're stuck in a bad explanation and you refuse to discard it and move on, and instead you're adding all these bells and whistles to perpetuate that because you're so invested in the model.
1:00:26
I can't speak to the hero's journey as intelligently as Tom does, but I love the concept and you see it all over the place.
1:00:31
I think that's very prevalent in the Western literature, and sort of there is this focus on the individual as the actor.
1:00:36
And I do think that can trip us up when we look at investing, or just sort of the world, because we always fall into this, "Well, no, this person, or this country, does X and then the other thing happens," and the story unfolds and it sounds good.
1:00:49
It just may have no relation to what will actually happen in reality, but it's easy to create that narrative.
1:00:55
And I think there is sort of more the view of looking at all the forces at the system, right?
1:00:59
And how they interact and sort of taking the foot off the gas on certainty and saying, "I can see this scenario play out because that's how this is aligned, but I don't know, and I'll have to maybe be prepared for different scenarios because it's just impossible, right?
1:01:14
With this company, it's impossible to exactly forecast."
1:01:18
But that doesn't sell as many books.
1:01:18
Jim O'Shaughnessy: But boom!
1:01:20
You've just basically described the way I look at the world at markets, at politics, at everything.
1:01:25
Frederik Gieschen: And you sold a lot of books.
1:01:27
Jim O'Shaughnessy: I did. I did do that.
1:01:30
I'm very good at reframing things, but I want to jump on your thought there because again, I mean you stride about that because almost no one understands that.
1:01:35
Listen, narrative follows price, not the other way around, and so we're really good at creating after the fact, rationalizations, and/or really threads.
1:01:48
Life must be lived forward, but it can only be understood backwards.
1:01:55
I think that Wittgenstein who said that, and that's all well and true, but three examples spring to mind.
1:02:01
The example of demographics, which we've already covered.
1:02:09
Yes, there's an underlying force there, that you should probably know something about, but it's not the be all and end all.
1:02:14
You bring up the investment in Amazon from what...
1:02:14
What invest were you talking about?
1:02:20
Frederik Gieschen: Oh, Bill Miller.
1:02:21
Jim O'Shaughnessy: Yeah, Bill Miller.
1:02:22
So, I wrote a piece in 1999 called The Internet Contrarian in which I said, " 85% of these companies are going to go bankrupt.
1:02:28
Even the winners," and I picked Amazon as one, "Are going to go down 95% in price."
1:02:33
Amazon went down 93%, not 95, but see again, that was just me listening to the numbers, and assigning probabilities, right?
1:02:42
I didn't know, but you also make the great point that I want to underline for everyone listening to this. Frederick has nailed it.
1:02:56
Be a systems thinker, be humble, and realize that you don't know the outcome. You don't know.
1:03:01
It's a probability, and some probabilities are much higher than others.
1:03:07
Like for example, I don't get worried at night that that the suns not coming up tomorrow, because if it doesn't?
1:03:12
Well, we'll all be dead anyway, so we won't remember.
1:03:16
And so yes, there are very high probability events that you can be, in quote, certain about, but if you start to be a systems thinker, which means lots of different things can happen and change, then understand the currents of history, but understand that it's human beings doing that and driving it.
1:03:36
And the story becomes, "You're too young to have remembered the . com era."
1:03:41
You think now is kind of crazy? I mean, back then...
1:03:47
Well, there are a few investments that sound a lot more like religions to me now, but literally I wrote a piece called Mistakes were Made. (And, Yes, by Me.)
1:03:57
And so after writing that thing about The Contrarian being about the internet, what did I do?
1:04:01
I started an internet company.
1:04:01
Frederik Gieschen: Of course, you did. It makes perfect sense.
1:04:04
Jim O'Shaughnessy: Right! Right. Of course.
1:04:09
Of course, I did that, but the idea of being really humble in the face of data.
1:04:16
I don't write a lot of pieces, but you're also absolutely right, and I haven't found a great way to help people with this.
1:04:21
We default to the person who sounds the most certain, and usually they're full of shit.
1:04:28
And it's just so challenging, right? Because it's in our DNA.
1:04:36
I don't think we're ever going to change it, because the illusion of control is something that human beings need so much, that if they don't have it, the results are catastrophic.
1:04:41
They literally either go insane or die.
1:04:47
Frederik Gieschen: If they don't feel like they're in control of the outcome, or having- Jim O'Shaughnessy: Exactly, and it's obviously a continuum, right?
1:04:54
But if you get down to a point where you feel that you have no control over anything, that's a really bad place to be.
1:04:59
Frederik Gieschen: That sounds really unpleasant, yeah.
1:05:03
Jim O'Shaughnessy: Very unpleasant, and so it's just part of our human nature, right?
1:05:05
And there's Romanian orphanage studies, studies of animals, baboons, et cetera, human beings.
1:05:10
It's not a good place, but thus, it makes us easy prey for the people who are like, "I will, 100% guarantee... I'll guarantee it!" No, you won't. You really won't.
1:05:25
Frederik Gieschen: Yeah, it makes it easier to sell. Yeah.
1:05:29
Jim O'Shaughnessy: Yeah, exactly.
1:05:32
The other part of this is you've got to...
1:05:32
And I've got to be careful the way I use this term, you have to be humble in the face of understanding the limitations of your knowledge, right?
1:05:47
So, I joke to you that my mom used to tease me when I was a kid that...
1:05:47
She said, "Jim, I think you suffer from a superiority complex.
1:05:52
That feeling deep down inside that you're just a little bit better than everyone else."
1:05:58
So, we mess up when we think that people...
1:06:02
What we call big ego people are actually really fragile ego people, right?
1:06:02
They need continual stroking. They need continual...
1:06:09
And again, my parents were really good at teasing me. My dad would say...
1:06:14
After a horrible setback that I'd had, he'd go, "I wouldn't worry about it, Jim.
1:06:18
You have a remarkably re-inflatable ego."
1:06:18
Frederik Gieschen: It will come right back, that's hilarious.
1:06:23
It's funny though, because in investing, at least in the short term, right?
1:06:29
Your returns will further inflate that ego, and suggest to you that, yes, you are in fact superior to everyone.
1:06:36
And, yes, I was too young to really consciously live to the .
1:06:42
com bubble, but I think it's fascinating...
1:06:42
And that's why I wrote the Bill Miller piece, because...
1:06:47
So, Miller figured out, through the Santa Fe Institute and other people in his network...
1:06:51
Again, he didn't do this alone and in the darkness, but he figured out that, "Wait, there is actually something happening, and I should really put in the work to understand these technology companies."
1:07:00
And he had a few big wins, and was derided by his own tribe of value investors for going that way because, "Those companies are not profitable, and what is he doing?
1:07:06
And that's not value investing." But the .
1:07:10
com bubble, to me, is sort of this really interesting laboratory of confidence, where first, all the people who are betting on it, all the growth investors, all the momentum investors and the speculators, they're all right.
1:07:20
And the value guys look like idiots, then that thing collapses, right?
1:07:25
And all the people who bet on the old economy, suddenly...
1:07:29
Their entire careers got started on, got built on.
1:07:29
Just because they started at the right time, had a few years of out-performance when the market declined, and looked like geniuses, and were rewarded for this reflexive contrarianism, right?
1:07:38
And if you're coming out of that environment, are you really going to be willing to learn about Amazon and Facebook five, six, seven years down the road while the internet is still changing the world?
1:07:49
And the first iteration, yes, there was a bubble and it collapsed, but the underlying changes continued, and so I think it's very easy to get tripped up in these snapshots where we think we learned the right lesson, right?
1:07:58
The bubble collapsed and I'm still standing, but then you still have to...
1:08:03
A few years later, you have to reassess and reevaluate, and those lessons can get outdated pretty quickly.
1:08:06
And so that's why I kind of try to hone in on some of those stories from that era, because I feel like it's so easy to have success... I'm sorry.
1:08:14
It's not always easy to have success, but it is in times easy to have success, and still learn sort of the wrong lesson.
1:08:20
And I think that happened in some cases, and was only really discovered a decade later when you're still stuck with the same old thinking, and stopped learning because, you thought your system of the world was just validated, and the people on the other side were categorically wrong.
1:08:35
And I think that death of curiosity and open mindedness is sort of what... That way is doom, right?
1:08:40
But I think it's easy to inflate the ego enough that you think like, "I don't need to learn anymore, I've got it figured out."
1:08:46
Jim O'Shaughnessy: Oh boy.
1:08:48
I mean, literally I call that sinking into your own bullshit or beliefs.
1:08:48
Again, I really worked very hard to present everything I think about as a thesis or a hypothesis, because beliefs get attached to you emotionally, you make them part of who you are, and that's what causes all of that tribalism.
1:09:08
Man, I could talk to you for... Maybe we'll need to...
1:09:08
Because I'm looking at the time, and I've already- Frederik Gieschen: I have all week.
1:09:14
I kept the entire week open, just so I talk to you and [crosstalk].
1:09:18
Jim O'Shaughnessy: I love it, because we didn't get to your thing on Squid Games, which I think is brilliant.
1:09:23
And this was the one where I noticed that you mentioned Tom Morgan, Luke Burgis, Liberty, and I think there was one other guy, and...
1:09:32
I've had all on the podcast, and I think what might be fun is to get that group together and just record, right?
1:09:37
I don't know, I think that's another opportunity for really massive interesting conversations, where you learn a lot, right?
1:09:44
Because Tom has very different ideas than me, and you have very different ideas than me.
1:09:50
That doesn't mean that we shouldn't talk because, out of that grows new knowledge.
1:09:56
Out of that grows a different perspective.
1:09:56
And all of the things that we're talking about here are...
1:10:02
They're hard to get across to people, because people won't believe it.
1:10:07
I remember talking to a guy who was interested in being in asset management, on the portfolio manager side, and I'm like, okay, so...
1:10:16
I'd seen kind of his Twitter feed, and he's a little sensitive, and I'm like, "Listen, I'm just going to give you the unvarnished truth.
1:10:22
If you do not have the thickest skin in the world, you're not going to make it as a portfolio manager."
1:10:29
Because you go from hero to idiot.
1:10:37
Hero, genius, idiot, moron.
1:10:37
Hero, genius, idiot, moron.
1:10:37
And if you can't roll with that, and just, "Sticks and stones may break my bones, but that will never kill me." Right?
1:10:49
Frederik Gieschen: That's an interesting topic though, right?
1:10:51
And coincidentally, I wrote a piece about people starting a hedge fund, but I think it goes back to awareness.
1:10:56
And I think there are a lot of people who find themselves in the role of the analyst, or somebody working in the industry, who would love to be, or idolize, that position of the portfolio manager, right?
1:11:06
The person who's at the helm, taking the risk, navigating the water, and I was that person at the beginning of my career.
1:11:10
I thought like, "That's obviously where you want to be."
1:11:15
I don't think everybody...
1:11:15
I mean, obviously not everybody should be that person.
1:11:18
In fact, probably very, very few people do well in that extreme stress, and having to sort of...
1:11:22
Just dealing with constantly that feedback and volatility, at least in the public markets, and having the right temperament for that.
1:11:28
I think that's rare, but it may be difficult to accept your own skillset, and maybe you're better at something else, right?
1:11:37
Maybe you're better at the analyst job, maybe you're better at something else entirely. I don't know.
1:11:42
But it's hard if you have that...
1:11:42
I don't know how to describe it, but if you're idolizing something like that, I think...
1:11:46
And it's very hard to be open to your advice or anybody else's advice, right?
1:11:52
People, but will tell you, "No, you don't understand how hard it is," and all of these things you have to do, or be, to succeed, I don't think...
1:11:59
And it's like falling in love a little bit.
1:11:59
I think you're just sort of infatuated with that idea, or the abstraction of that person.
1:12:06
You're sort of, "No, I'm going to try this."
1:12:06
And I think in some cases, you just have to learn by experimenting and being taught by life.
1:12:11
I'm trying to step into that situation and I'm wondering, if I asked you for advice, and I really wanted to be a portfolio manager or a chief investment officer, and then somebody said, "No, you don't understand.
1:12:21
You seem a little bit on the sensitive side, you'll have to grow much thicker skin." I'm not even sure... Is that possible? Or to what extent is...
1:12:28
Could I grow enough thick skin?
1:12:28
And also, would I really listen to that?
1:12:28
Or would I not just say like, "Ah, he says that, you know what?
1:12:32
I really want to do that. What does he know?
1:12:32
What does he know about me?
1:12:37
I'm still going to do it." And you know what?
1:12:37
Honestly, maybe you'd fail at that, or maybe not.
1:12:42
You might still feel better for trying, right? In that situation...
1:12:42
I'm just thinking it through.
1:12:48
I'm so confused about what...
1:12:48
You're probably right with your advice, but should the person still accept the advice or should they give it a shot, and figure it out for themselves?
1:12:56
I've come to the conclusion...
1:12:56
I ask my friend a lot more for advice.
1:12:56
I've made a lot of progress with being more open, and authentic, and aware, and talking about it too.
1:13:06
But also advice there's a lot of, everybody's talking from their own experience, and sometimes you take the advice, but then you have to make your own choice.
1:13:13
And sometimes you just have to step into the unknown, and maybe grow the thick skin by stepping into that whirlwind.
1:13:17
I don't know, it's an interesting conversation to think about.
1:13:21
I'm really getting stuck on it. Jim O'Shaughnessy: Yeah.
1:13:22
I agree, and unfortunately, it's a great place for us to have to end.
1:13:22
I'm going to have you on again, because I didn't even get to half of what I wanted to ask you about.
1:13:30
What I love about this though is that, these all end up connecting again to each other, right?
1:13:30
So, we're back to Robert Plomin, aren't we?
1:13:37
So, I took me a long time to understand that most people are not built the way I'm built.
1:13:42
I am pretty much impervious to extreme volatility and risk. My wife said that...
1:13:51
She goes, "I really do want you to hire this cartoonist."
1:13:51
A cartoonist that we both love at The New Yorker. And I went, "Okay, why?"
1:13:53
And she's like, " I want it to be a caricature of you and me, on a raft.
1:14:00
Behind us are the most treacherous waterfalls, and rocks, and everything."
1:14:08
And she said, "I want to be on the raft on my back, passed out from worry.
1:14:08
And I want you to be looking at me with a big smile on your face saying, "Well, that was fun.'"
1:14:20
Frederik Gieschen: "That Was fun!" Right?
1:14:20
But it's true, and I can...
1:14:24
I would be white-knuckled like, "I cannot believe we just did that.
1:14:24
This was so risky, and I'm not like...
1:14:28
Jim, why did you bring me along on this trip? This is insane.
1:14:32
How could you still be smiling?" Right?
1:14:32
Yeah, do hire that cartoonist.
1:14:32
That sounds like a blast. Jim O'Shaughnessy: Yeah. So, this has been great.
1:14:36
I ask everyone at the end of this, and I know you listen to it, so I know you know what I'm going to ask you.
1:14:39
You're emperor of the world for a day.
1:14:43
Can't kill anyone, can't put anyone in a reeducation camp, but you can incept them.
1:14:49
In other words, you can put two ideas in their heads, everyone in the world, and they're going to wake up the next day, and think that that was their idea, and start behaving, or doing things that way.
1:15:02
What two do you got for me?
1:15:02
Frederik Gieschen: Yeah, I'm going to go small scale, and just really from personal experience.
1:15:06
So, something that's helped me, and really transformed my life a lot is, like I said, is just being more vulnerable and sharing more of my own thoughts and feelings, and just what's going on with me, and I think that's worked really well for me.
1:15:19
And I think that's partially because, just the readership, or people...
1:15:24
I put it out in Twitter, for whatever reason, people were very nice about it, but it feels like a risk.
1:15:27
And I think for a lot of people, it feels like a risk not worth taking because, they worry about not being accepted, or ridiculed, or whatever.
1:15:36
And I think we could all do much better in creating an environment that makes that possible, and kind of lowers the risk of that.
1:15:41
For being vulnerable, and authentic, and ourselves, and to sort of lower the barrier, and pretending less that we've got it all figured out, and that you have to be a certain way.
1:15:50
And so sort of taking the ego out of that a little bit.
1:15:50
So, I think the idea would be, look inward, and how can I make it more possible for the people around me?
1:15:58
The people I interact with to be vulnerable, and real, and not be so judgemental.
1:15:58
Actually, that's the second one, which is...
1:16:04
I think changing is hard, right?
1:16:04
And this has kind of been a theme in some of things, like truly learning, and truly being open to new ideas is hard, and it creates all of these...
1:16:14
I used to be close minded, and it's been difficult to do that.
1:16:18
And there are these exercises, and one of these was the thinker-prover exercise of just actually really examining what you believe, and where you picked it up, and go layer by layer deeper, and kind of strip away some of these things that kind of automatically trigger.
1:16:28
Not, "No, this is like that. I believe this.
1:16:32
This is my framework for how the world works."
1:16:32
And really spending time to examine that, to journal about it, and kind of discard some of the stuff that's not working, or that's sort of tenuous, and say like, "Is there maybe a better...
1:16:41
Should I maybe be more open?"
1:16:43
These people looked a little bit crazy, but I should actually...
1:16:43
Just being more open-minded and curious.
1:16:44
I think I stopped watching the news for the most part, right?
1:16:44
I think there's a tremendous this amount of noise, and anger in the world, and it's frustrating.
1:16:53
And I think we'd all be much better served if we try to be more open-minded, and curious, and engage in more dialogue.
1:16:58
And I think a lot of that has to do with, again, going inward a little bit, and examining how we feel about certain things, and lowering the amount of certainty we attach to those beliefs, and say, "Oh, maybe I should listen to the other person, and maybe there is something to be learned."
1:17:12
And for me, that's an ongoing process, and I think it's... Yeah.
1:17:12
If I could get everybody to be a little bit less certain about their own opinion, and a little bit more open-minded...
1:17:20
I think these are kind of tied at the hip, but I think it's what my journey has been like.
1:17:25
And yeah, I would definitely- Jim O'Shaughnessy: I agree.
1:17:28
And I think that, that would be wonderful to do for the world.
1:17:28
Tell us where we can find you? Frederik Gieschen: Yeah. On Substack at Neckar.
1:17:33
That's N-E-C-K-A-R dot Substack. com.
1:17:33
That's the river that flows through my hometown, you can sit at a beautiful beer garden there.
1:17:39
On Twitter, NeckarValue, same thing.
1:17:45
And yeah, those are, at the moment, sort of the main outlets.
1:17:45
Certainly email and DM are always open and welcome.
1:17:49
And thank you so much for having me, Jim, this was fantastic.
1:17:54
This was an absolute blast, and I really... Really grateful...
1:17:54
Yeah, that this was possible.
1:17:58
Jim O'Shaughnessy: My pleasure, and to be continued.
1:17:59
I'm have you back on, because there’s a bunch of other things that I want to ask you about.
1:18:03
I think you've got a bright future.