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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 everybody.
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It's Jim O'Shaughnessy with another episode of Infinite Loops that I always say, I'm very excited about my guest today because I am.
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I'm one of the luckiest guys in podcasting.
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I get to have super smart people tell me about things that obviously I wasn't thinking about.
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So today I must admit I am a massive fan boy of today's guest. His name is Rohit...
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I'm going to get this wrong. Rohit Krishnan, yeah?
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Rohit Krishnan: You got it.
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Jim O'Shaughnessy: He was the essayist at Strange Loop Canon and Strange Loop, you got that from Douglas Hofstadter, right? Rohit Krishnan: Yes.
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Jim O'Shaughnessy: He's one of my favorite authors, but incredibly difficult, right?
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I Am a Strange Loop is not beach treating. Rohit Krishnan: No.
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Jim O'Shaughnessy: But as I recall, his, his definition of a strange loop is it's a movement that really we can't chart, and it is this idea that at it's an abstract loop with a series of stages, and then all of a sudden emerges a higher, better use abstraction.
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Tell me about that and welcome.
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Rohit Krishnan: Thank you very much.
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This is an honor, a great privilege and it's going to be good, fun.
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Strange loop, I think Gödel, Escher, Bach, which I read a very long time ago, I remember reading it because it was one of the hardest books I read, because it took a while for it to sink in and in that he, Douglas Hofstadter, created the concept of strange loop, which he developed later in his book called I Am a Strange Loop, and I think there are two parts of it that have stuck with me, which is mostly visible in hindsight, I have to say.
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If you think of every system as having several levels of hierarchy and that there is some sort of a self-referential structure that goes on within these hierarchical parts of the system, all of a sudden, because of self-reference and the fact that there are several levels of hierarchy, you can start seeing remarkably complicated behaviors come out of this particular system.
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Now he used it to explain things like whether it's the self-referential mathematics of Godel or the drawings of Escher or the music of Bach, but also to take it to try and explain cognition itself, how an individual's cognitive circuits work.
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To me, it's stuck as a notion because it's something that I am fascinated by, the fact that we are ultimately exceedingly self-referential beings.
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Our understanding in most cases flows up and down the ladder of abstraction, if you're lucky to get to play with something like that.
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So when I wanted to write about stuff, it only made sense that I made it as broad as possible and as self-referential as possible within this blast system that we are lucky enough to explore. Hopefully...
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Jim O'Shaughnessy: Yeah, it reminds- Rohit Krishnan: ...
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was that a little too deeply philosophical to start off or hopefully not.
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Jim O'Shaughnessy: Not at all.
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Not at all and again, the whole part of this podcast, which is why I think it works, it's like My Dinner with Andre.
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Have you ever seen that movie? Rohit Krishnan: I have. Jim O'Shaughnessy: Okay.
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So, when my son was like, "Why are you doing a podcast, dad? What the fuck?
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And I'm like, "My Dinner with Andre," and he goes, "Ah, okay."
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Rohit Krishnan: I get it. It's a [inaudible] too.
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Something that strikes me about this notion is like ultimately the strangeness of that strange loop comes about because of our inability to perceive everything all at once simultaneously anywhere.
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It's as much a fact of our perception as with anything else.
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We are kind of wandering around with our search lights inside sort of this [inaudible] multi-dimensional space and occasionally connections make sense, perceptions make sense, patterns make sense and it's good fun to play around with it.
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Jim O'Shaughnessy: Totally, and it reminded me as I was looking back through some of my notes on him, he had this one great quote, which is, "It is curious that one mistrust one's own opinions when stated by somebody else."
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Rohit Krishnan: It's a beautiful sentence, isn't it? It's so true.
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Every now and then I see something of that I wrote being shared or from a little while ago and I go, "Huh, is that true?"
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which is the best feeling to have because occasionally you read it and go like, "Oh, that's interesting. Who wrote that?"
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Jim O'Shaughnessy: Exactly.
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So one of my thesis is that our memories are incredibly unreliable narrators and one of the thing that I do is I've been journaling since I was 18.
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You can't see it, they are off camera, but it's the journals I've kept all my life and there's boxes and boxes and boxes of them and...
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but I was going back to my journals and I'm like, "I was writing about virtual reality in 1988."
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And it takes so long for our ideas to move to accepted ideas, which move to the execution against that idea, and one of the things that I loved though about the journals is it immediately instructs you that you're probably wrong when you say, "Oh, no, I remember that clearly." No, actually you do not.
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Rohit Krishnan: I think it's interesting.
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Our memory is very much a construction of the moment.
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We look back and there's a story that makes sense to us, which it happily connects the dots and there are dots that don't fit or dots that lay outside, and we just squish the data so nicely to fit within our preconceptions.
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It's a wonderful machine.
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There was a recent article about how artificial intelligence systems need to learn forgetting as one of the ways in which they get better at how to deal with us, which I thought was intriguing.
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Jim O'Shaughnessy: Very brilliant and I agree with that, and to your earlier point, the tiny spec of perception that we have.
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I use the iceberg, it's a common motif and it's a cliche, but cliches are cliches because they're often true.
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So it shows the tip of the iceberg and then of course the main body of the iceberg beneath the water, and I think that's a reasonable metaphor for our intelligence, our minds.
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So the Shannon limit is being violated daily and when people get too much information hitting their perception filters, they shut down, many people and one of the things that I've written is, "No single human can understand even his or her own thoughts in aggregate, unless they are using a ton of tools." I'm a huge fan of AI.
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Yes, of course, I understand that there could be problems, but I think that as we extend using AI and using the idea that AI is a tool, human beings are, as David Deutsch says, "We are explainers universally, and we are universal creators and connectors."
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So as we allow more and more leverage tools, the internet, the greatest amplification intensifier in history, all of these things that we would've thought were impossible, become possible.
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I want to ask you though about the essay of yours to get going here on your stuff, because I want you to educate me, that got me hooked, and it was your essay on eccentricity.
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I love reading about eccentrics historically for the most part.
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Rohit Krishnan: All right.
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Jim O'Shaughnessy: But including eccentrics of today and you make the point in your piece that many people are saying our culture is too homogenized, we are in stasis, we've got all of this just is dying and you look in the past, you see a guy like P. T.
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Barnum, who by the way, interestingly enough, I know a little bit about him.
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He never said, "A sucker was born every moment."
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Here's a quote of his actually that is an actual quote, which is, "Every man's career should be beneficial to other men and himself, all else is vanity and folly."
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So I thought that was like really interesting because he was, he was basically the creator of what Danny Kahneman calls hedonics, how to make people happy, but please, and go on at length because I love this essay, but I'm going to let you do it because you wrote it and your conclusions are much better than mine.
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Rohit Krishnan: I'm hopeful that I'll be able to at least remember what I wrote.
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I think with respect to eccentrics there's a few things that come into play here that I find fascinating.
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Number one, like you said, we are absolutely fascinated by eccentrics in conceptuality, in fiction, when they come into reality, like above the boat, we love them.
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We Revere them, we make movies about them, we write books about them.
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One of the questions I was trying to answer was are we just not seeing as many eccentrics anymore?
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And there is this popular conception that is the case, that we are actually not seeing these people who would stand head and shoulders above the rest of humanity in order to provide the eccentricities that we would like.
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One way to look at that is that when I charter it out, the types of eccentrics have changed.
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Society, as we understand it, is a little bit more multipolar.
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So, whereas we had eccentrics in a couple of things before, things have obviously changed.
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A few decades ago, a few centuries ago, you could have philosophers at the top level, who could also be scientists at the top level, who could also be poets at the top level.
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You could have somebody like Byron who could go off and fight more wars, at the same time, become a great poet.
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These things were possible.
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The cost of living in today's world, which is a much larger world, with many, many more cultures, many, many more dimensions within which you can excel, and the depth is much, much higher, is that we start to see it starts to see as if we don't have a Lord Byron today, for example.
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I think the prototypical example that most people would give about an eccentric, so to speak, living today might be somebody in the business world, most likely Elon Musk, which is the normal example that comes up, but I feel like part of that is, A, there's a selection bias.
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When we look back, we have centuries and centuries of people that we can look at and it's not really in the heat of the moment that we are putting the status upon them, but partially it's also because today's eccentrics come in fields that are very different to the eccentrics of yesteryear.
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So we might not be seeing, I don't know, a Christian monk, who is simultaneously a great philosopher and happens to do discoveries in physics or mathematics.
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I think that combination is perhaps gone, but we are able to see things in the world of business where we things move much faster, where a larger proportion of the intellect might be going.
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I am pretty hopeful that in 100 years, when we look back on our era, we will have moments of great literature that may not resemble what we think of as great literature, but through the sort of mill of time, it'll start to come out and we can look back and say, "Oh, so that's what the 2010s were about," that somebody will actually make sense of it.
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So it's a cumulative effect of a bunch of these things that makes the question of like, "Yes, maybe...
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it feels like we don't actually have enough eccentrics, but part of it is because we are looking year by year, second by second, minute by minute and then maybe we don't actually see some the people who should be regarded as eccentrics coming out. We actually don't...
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some of the eccentricities of yesteryear are just gone. You talked about P. T. Barnum. P. T.
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Barnum is successful in a world where entertainment is limited.
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Jim O'Shaughnessy: Exactly, that's right.
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Rohit Krishnan: If you have a 100 P. T.
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Barnums, nobody's exceptional and entertainment is effectively become mass market, which means you're not going to really see P. T.
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Barnums in entertainment anymore.
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Similarly, like philosophy, physics, mathematics have become far deeper, so it's very hard for one eccentric to stand out in that field, although arguably we can start to see some of them, like David Deutsch kind of poke their head out.
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Whether they stand the test of time- Jim O'Shaughnessy: One of my favorite thinkers, David Deutsch, I've- Rohit Krishnan: Exactly.
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Jim O'Shaughnessy: Yeah, right.
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Rohit Krishnan: Whether they will stand the test of time, we'll find out, we can't say for sure, but I think my argument very much is against this idea that systemically we are all becoming...
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name your adjective, docile people that are effectively unable to provide the same kind of great feminine men yesteryear.
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I find that to be exceedingly fatalistic as an observation and as a philosophy, and I just don't think that's true anymore.
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And this is some of the thought process that went into that went into that essay, and it goes on in a couple of other directions, like art, we had a few forms of art that really stayed out, in the time of Homer, there were epic poetry that you could write over a period of time.
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It changed over the years.
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If you take traumatic poetry as one example that, or some that came out.
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Now that exploded when it was a time of place, you had a few options, Shakespeare rose up and dominated that genre, but what happens when art is no longer dominated by a few forms, but are dominated by 300 forms? There is no...
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literature itself gets broken up, if you ask any publisher, into about 350 different sub genres.
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And all of a sudden you can't have a literary giant anymore, because you have a literary giant for lit fiction and for pulp fiction and for graphic novels and for young adult novels and all of a sudden, when you have one peak standing in a flat landscape, it's easy to see, when you have one peak hidden amongst 300 peaks, it becomes much harder to see, which I think is a general problem of plenty that we are faced with.
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Jim O'Shaughnessy: That is the key element that I think is really important for our listeners to really think about and contemplate.
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I agree with everything you've just said, I often make this case that one of the mistakes my generation, I was born in 1960, so I'm kind of a cusp-exer or tail end of the baby boom, but one of the mistakes that the actual baby boom and my generation, those born in the early 1960s made, was looking at the period between 1946 and 1970, say, especially in America, as normal.
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Absolutely completely an anomaly.
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So we had bombed all of our competitors into just rubble.
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So in 1950, whatever, 82% of the cars worldwide sold came from Detroit.
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Man, you can make a lot of fuck-ups when you're doing 82% of the world's production, but that time period was just a complete anomaly.
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I think we're actually getting back to a much more interesting period.
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Another thing that happened during that period was Westerners, at least, on mass, when they weren't at their job, which was eight or 10 hours, they sat for the rest of their time watching TV, which is a passive medium.
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I don't know anyone who does that today.
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There is so much more that people can do that it's just like I am like super, just incredibly chuffed, but I am alive because for me looking at it, this is an amazing time to live in.
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On say, David Deutsch, one of the things that I think happens with us is it's part of human OS, human operating system, that it's a feature, not bug, unfortunately, and it's like we fall into the trap of pessimism, which believes that you and I know everything there is to know right now, and of course that's ludicrous and foolish.
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Deutsche makes the case much better than I do, it's like what did physicists in 1900 think about the internet?
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Nothing, there was no internet.
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What did they think about quantum mechanics?
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Nothing, it wasn't around quite yet.
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So we need to continually remind ourself, I think, of that and not fall into that trap and we need to see all of the advantages, which I think I'm going to ask you to enumerate on a couple on my next question that are we are living in a world...
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We're doing a series called The Great Reshuffle.
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I believe our thesis is time, space, geography have all collapsed and for the first time individuals who would never have met each other, who would never have interacted with each other, end up working together.
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The case study is my crew here at Infinite Loops, we have two who live in India, we have one who lives in Romania and it's just such an interesting mix, which leads me to the next essay that you wrote, which I really loved.
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Man, I do a series of tests on Twitter because I can't help it, I just want to get some more information and whatnot.
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But Peter Thiel seems to be like the lightning de jour.
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It's like I'll put up a quote from Peter Thiel and then just mute the conversation because it's half lovers, half haters, but you wrote a great essay comparing him really, and I think fairly to Cosimo de' Medici and for listeners who don't know the Medicis, they created modern banking, they created the Renaissance in Florence.
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I'm going to let you take it from there.
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But the one last thing I want to put in is I'm a huge fan of patronage.
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So we collect art, and one of our operating statements in our mission statement is we prefer to buy living artists. Why do we prefer that?
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Because we can make a difference on that artist's career.
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Now, Thiel arguably got a better return on his getaway from college grants than your average VC explain.
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Rohit Krishnan: Of course. I think this is the...
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I'd say actually struck a chord in quite a few different places and the genesis effectively was mean observing the fact that he had done Thiel fellowship, which when he did it and for a few years afterwards, got a fair amount of negative press with the clearer observation, both ideological, as well as practical that this was a waste of money.
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Ideological, because, "Oh my God, you're asking people not to go to college?"
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and practical because, "Oh my God, what are they going to do with 200,000?
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This all sounds kind of dumb."
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and Thiel I find endlessly fascinating for all sorts of contradictory reasons.
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I find a big percentage of the stuff that he says to be fairly nonsensical in the sense that he's a big fan of this Hegelian dialectic of creating a thesis and a antithesis and just shoving a synthesis through them.
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Jim O'Shaughnessy: Right.
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Rohit Krishnan: If I meet him, I just want to stop in the middle and go like, "You can't just create these things as polar opposites just to get your point across," but fine.
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At the same time, he's one of the few people, in at least my chosen industry and in general world, which is venture capital, who have identified the absurd power of the power law, which is that if you get some things really right, as long as you place the bets, the returns basically make up for the rest of your life.
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I think it's crazy how that works.
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So his grant fellowship is similar.
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It's an application in the grant world of the venture capital mindset of saying this is a tiny fraction of his net wealth and for that tiny fraction he's doing an experiment, which it was in the beginning, that, "I will select these smart kids, give them some money and see what happens."
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And it's ridiculous how well that worked.
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Among other things like Ethereum came out of it, it's crazy. Right.
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And yes, you can argue, maybe it would've come out any way otherwise and there's all sorts of counterfactuals that come at the end of it, but the fact of the matter is he did it like.
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There is one clear data point and it's positive and this stands in contrast with one of the other observations I was making was that generally speaking, you spoke about how you like to support living artists...
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I would wager that is not an extremely common feeling generally speaking.
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You want to collect art that is well known because the value of art is in what Munger, et cetera, refers to as the Keynesian Beauty Contest, right?
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You want to show the art to other people who know it's good, as opposed to you selecting it because you like it or to help someone.
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And my observation was that this cannot be the only place that it works.
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How is it possible that $2 million a year spent by one dude is at the parietal frontier of what is actually feasible.
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That is extraordinarily unlikely.
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So there needs to be way more these institutions around the world and supporting all sorts of things.
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Thiel's chosen field as entrepreneurship, so he supports entrepreneurs or people who want to build stuff, but there's no reason it should be just for that.
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In supporting living artists, if one of those people ends up at the same stature of, name your favorite current artist, Koons, whomever, that is a massive achievement in that you have created something culturally valuable at a scale unimaginable for fairly low capital investments and my point was why wouldn't you do that?
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If you have means, and the ability to do this, time, resources, money, this is of course the most sensible thing to do, which I think has struck a chord in a few places.
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Now in the aftermath of this, not necessarily because of mine, but because these ideas were in the zeitgeist perhaps, there have been several other new institutions that are coming up.
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Grant generating institutions for individual scientists, et cetera and I am so happy to see this because like you mentioned a little while ago that you like a little bit of chaos.
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I think that's what this is. You need it.
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To get to any evolutionarily better outcome for any system you need mutation and selection and have kind of stamped out mutation and this is a way of creating a little bit of that entropy inside the system, so you can select on it.
27:18
I think the fact that Thiel did it, I am still like enormously impressed by the fact that he could look at this and say, "I'm willing to spend a very tiny amount of capital because like $20 million over 10 years is not even a series B," he invests more than that regularly on individual deals.
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The time, however, is much more.
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You have to go and select them.
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Yes you team, but you have to select them, and the fact that he did that is impressive because it shows it can be done and hopefully now other people are starting to do somewhat similar stuff as well. Jim O'Shaughnessy: Yeah.
27:56
I was inspired by it, and one of the things that I'm going to probably do is something on a similar basis, but make it more universal in the approach.
28:03
So for example, I had as a guest, somebody who advocates having an additional jury system that is selected from random from the population and then comparing their conclusions to a number of issues facing politicians, for example and, and Nick Gruen makes the argument that they win hands down.
28:29
In medical, I believe, passionately believe that we are going to come up with new therapies that unlock a tremendous amount of people's potential, but also alleviate a lot of suffering that is going on right now.
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So I'm very open minded about virtual reality, about psychedelics, about a variety of sound therapies.
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I had a guest on who does no invasive.
29:08
I'm interested in it all, so I find those types of things are things I'm going to do similar type grants, are probably going to be a little differently done than Thiel's, but I love that idea. I love the idea that...
29:22
it's like Julian Simon, The Ultimate Resource, human ingenuity, in my opinion, is the ultimate resource that we have on this planet," and to not keep that constantly in mind seems to be a grievous error on the part of people who are making decisions.
29:46
I'm a rational optimist in the Deutsche-ian sense of the word.
29:57
Of course, we're going to have lots of additional problems, but we're going to unlock so much in the next 20, 30 years that I got to stay in good shape because I want to be around.
30:15
One of the things that I see happening, I'm a huge fan of Robert Anton Wilson, who was about 60 years ahead of his time and he wrote, in I think 1991 or '92, "All of our old systems are collapsing.
30:26
It would be very, very best of us to stay very openminded and avoid premature certainty," because we are at kind of a, what my friend, Tom Morgan, calls a phase change, and what I would call we are at the Promethian moment and to allow it to unfold the way I think it can unfold, we have to be open to all these things. That's why your...
30:57
my wife recommends books to me. She reads only fiction.
30:57
I read mostly non-fiction, but when I get a book recommendation from her...
31:09
so she's 100 for 100 over the last 30 years.
31:16
Rohit Krishnan: So you know I'm going to wait for it.
31:18
Jim O'Shaughnessy: Yeah, well, it's because she very seldomly recommends me a book.
31:20
Rohit Krishnan: But she also knows you, which helps.
31:22
Jim O'Shaughnessy: Exactly.
31:25
So one of the things that I think that we need to do is not be so cautious.
31:33
In that regard she's very thoughtful and I love her for it and it's how I find my great fiction, but I think we need to be a little bit crazy, so to speak.
31:39
I think we need to look at people...
31:46
I think of Brian Romemmele with his sound and memory system.
31:46
When I had him on the podcast, I'm like, I want to buy one of those. Can I buy one?
31:52
Can I give you some money?" Rohit Krishnan: Exactly.
31:57
Jim O'Shaughnessy: So that's the attitude that I think it contrasts with another piece that I really enjoyed of yours, which is why does it appear that big companies suck at innovation?
32:09
And that has been a prior of mine for a long time.
32:09
I've only worked for one big company Bear Stearns and Bear Stearns was the only entrepreneurial bank on Wall Street when I was there.
32:27
It was a shame what happened, but you make the point about McKinsey...
32:34
I'm going to let you take it away, but you quote a lot of my friends, Tren Griffin and others.
32:40
So tell us about that and why that happens.
32:40
Rohit Krishnan: I'm about 80% sure that this came out of a Twitter conversation with Tren, 80% sure.
32:43
I think I used to work at McKinsey, which is kind of the...
32:51
this is the confessional part of this podcast.
32:58
Then one of the weird things that happens when you work McKinsey is that you see a large number of large companies and two observations.
33:05
One, you're never seeing the best part of the best company, you're not.
33:13
You're not being hired to fix prop trading at Goldman Sachs.
33:13
You're not being hired to fix the AI algo application at Google.
33:25
No, because those are not the parts that they have problems with, the problems are elsewhere.
33:33
The thing that struck me about my job about a year in was that effectively, we are there to make sense of this insane complexity that exists in every large business to some extent and help the management make some sense of it so that they can make a decision and move on with their lives and in some ways McKinsey gets short tripped, for example, for giving the advice to AT&T that like, "Look, mobile phones are never going to be a thing."
34:04
The thing is that advice doesn't exist in a vacuum.
34:04
That advice exists as given to a company based on X capabilities that they had, whether they'd be able to go off and create something.
34:17
So in a way, the entire enterprise of large businesses is continue to survive.
34:17
In order to continue to survive they need to effectively reduce entropy inside their organizations, that's what they're trying to do.
34:31
In order to reduce entropy, they create rules, they create standardization, they create systems of record data moving up and down, all things that McKinsey would be amazing at implementing, all things that absolutely destroy the innovative spirit as it exists inside the company because that's not the purpose, that's not why they're brought in.
34:51
So you bring in McKinsey to ask them, "Hey, do you know what the next big deck S curve is going to be?"
34:58
They won't be able to answer because, among other reasons, they need for a recommendation that they give you.
35:05
Like if I was a team giving that recommendation, my team would've to come up with multiple slides, each one of them backed by data and case studies of why this would happen.
35:16
Jim O'Shaughnessy: Evidence.
35:17
As you pointed out, evidence, and if you're talking about Fu future innovations, the there is no evidence.
35:23
Rohit Krishnan: Precisely.
35:26
How are you going to prove that mobile phones are going to be a thing? You can't.
35:30
You can bet that it's going to be a thing, but a bet is almost exactly what these companies don't want to do.
35:36
Jim O'Shaughnessy: Exactly.
35:37
Rohit Krishnan: So this stands, I think the interesting thing about this is like, this is a large organization problem, it's not even a company problem.
35:44
Once it's gotten big, we hear the same thing today about, I don't know, name a large company, Google or Facebook or even Apple, "Oh, they've lost their entrepreneurial spirit.
35:59
The last time they came up with the product was when they were 300 billion market cap."
36:04
Forget the fact that they've done X after that, because what they're doing is somewhat something different fundamentally to what the innovative spirit is likely to necessitate.
36:09
So it's almost like two different tensions.
36:18
At a time when you have the ability to take large bets, when multiple things are changing in the landscape, you have the potential for crazy things to be tried out and for them to evolve into something that is wonderfully creative.
36:34
New internet, everybody's excited, you have software coming up, you have SaaS coming up, you have mobile iPhones coming up, gaming coming up, all sorts of new fields very nascent are being developed and created, all created by new companies more or less.
36:45
Once something in the landscape is set, usually then it's a fight out between who's more efficient at which, guess what, the large guys got it because efficiency is what they do really, really well.
36:58
I think that's the ball game, which simultaneously answers the question of when do you need chaos in the system or when do you need to inject a little bit of craziness into the system, like you said, versus when do you need to sit back and see these things bounce off against each other and just focus on who actually the most efficient at doing X.
37:20
We are unlikely to see...
37:20
or we were unlikely to see amazing new energy companies who are fantastic at oil drilling until there was a technological shift that came out and people said, "Oh, we can do fracking."
37:36
All of a sudden, can't walk around in Montana without tripping over one of these things.
37:42
It took it took a fundamental shift in the landscape before that happened, whereas before that you walk around, I don't know, Exxon or BP or Shell, you're not seeing innovation, you're basically just seeing people trying to do what they did yesterday, but just 3% better, 2% better, 1% better because that's what helps everybody individually who helped that organization.
38:05
It's two sides of the same coin and it fascinates me endlessly.
38:10
Jim O'Shaughnessy: As it should and it's been something that has happened to me over my entire career.
38:20
So what I usually opted for was having my own company because I got fabulous offers from very large companies, but I just got that queasy feeling that they were not going to do with, say, What Works on Wall Street, what I wanted to do with that book and certainly I'll tell you my thesis about consultants.
38:41
So McKinsey is where the super, super smart kids go and they get into that McKinsey culture and I think that if you can pull them out and put them into an enterprise like I did with net folio, I rated consultants left and right.
39:01
They transformed, literally they transformed because I had- Rohit Krishnan: I couldn't agree more. Jim O'Shaughnessy: ...
39:10
one fellow come into my office and I said to him, "Sven, I want you to figure out the economics of global clearing in custody," which is a very blue collar part of Wall Street and he's half English, half German, went to Cambridge, just an amazingly smart guy and he goes, "Okay, so when will you need that?"
39:32
And I told him, "Well, it'd be great if we have it in a month," and he goes, "I'll have it in three weeks."
39:37
So he goes off and he comes into my office later and he goes, "I cannot tell you how exciting it is for me to be trying to generate this data right now because of this brand new thing you want to do, and you're trying to find a way to pay for it."
39:53
Rohit Krishnan: It's amazing.
39:57
Jim O'Shaughnessy: So Sven figured it out and disambiguated global clearing.
39:58
Spoiler alert, it was extremely profitable.
40:08
Rohit Krishnan: I think it's a skillset that not enough people have, I feel like, and it could be trained so easily in the sense of basic things like this is how you go off and look at a space you have never looked at before.
40:25
It's not rocket science, you go talk to a bunch of people, read a bunch of things, synthesize what you learned, iterate.
40:32
That is the process, you just have to do it.
40:32
Somebody just needs to say, "Roll up my slaves.
40:38
I'm ready to find out about this particular space because it's interesting," and then just go and do it, which, when you come out, you realize this is not that common everywhere.
40:49
[crosstalk] Jim O'Shaughnessy: Yeah, it really does.
40:55
When I took the analysis to our eventual partner, Bears Stearns, Richard Lindsey, who was then the head of global clearing, I had lunch with him and this is why I say Bear is like an amazingly entrepreneurial...
41:07
or was, sorry, amazingly entrepreneurial place.
41:15
He was the former head of the SEC, some, I think enforcement, I could be wrong.
41:21
Anyway, PhD in economics.
41:21
So I teased him and said, "Well..."
41:21
that would be a long digression...
41:30
Anyway, so we have the deck that my young consultant has done in which I thought was one of the best things I'd ever...
41:37
it was just incredible how he'd take it, everything apart.
41:42
So we sit down and their lovely senior managing director dining room and Richard does this to me, because I start immediately...
41:47
I'm kind of an always be closing guy, so Richard goes like this, he puts his hand up and he goes, "Show me the deck," and I hate that. I hate that. I hate decks in general.
42:00
If I can do something like...
42:00
I think it was Don Tapscott, "People who know what they're talking about, don't need PowerPoint."
42:07
So I was like, "Agh, no," but it was his table, his rules.
42:16
So he looks at the deck and he goes through, he's got his glasses on and I had to sit there silently, which is not easy for me to do, but I did it and he finishes it and he looks up and he goes, "Congratulations."
42:31
I was just saying to some of my colleagues that eventually somebody was going to figure out the economics of global clearing and whatnot.
42:43
So they became our partner on the back end because of the economics that they would share with us.
42:50
So that kind of company, and I'm using it as an example here, because had I been at, oh, I don't know, Goldman or one of the bigger, bigger banks, Morgan Stanley, and I'm not trying to pick on anyone, I'm just saying that at Bear Stearns, he said, "Let's go down to Jimmy King's office and see whether we want to do this."
43:10
The same thing and I just had a Steven Begleiter, who was kind of my rabbi there and he was the head of corporate strategy. He was there.
43:17
He's like, "Yeah, this is a great idea.
43:21
Let's do it," like on the day.
43:21
Rohit Krishnan: The fascinating thing and this is something that makes me like finance so much, is because all financial products are fictions, which what this means is that anybody can just create a new financial product because it's fiction.
43:42
You've got to create a narrative, a new world, and boom it's done, which is just endlessly fascinating because the amount of possibilities of how you can move stuff around is super easy, which is also why occasionally you will see innovations come out of specific pockets of finance, like investors in that particular instance, because you can actually try these things out and test them, what are...
44:12
or what used to be large [inaudible] trading desks, where...
44:16
except places where you could come up with a new strategy, test it out and see what actually works.
44:21
Now if you go off to the world of software, which is one abstract at which it gets harder because there's tech debt and releasing a new product if you are anywhere from medium size, it's a nightmare.
44:35
You got to go through all sorts of politics to be able to do that.
44:35
Even after, if you were to do that exact same thing in a new tech company, walk down the lip, they say, "Go," it'll still take time because is it going to clash with my schedule, my product release and my roadmap?
44:51
What's marketing going to say?
44:51
There's all sorts of fun stuff that comes after that, which is exactly the thing that if you're five people in a startup, you don't have to worry about because you just do it because failure for you is an option, whereas if you're large, failure is the last thing you want to do because you get penalized pretty heavily.
45:11
Jim O'Shaughnessy: Exactly and that was in my...
45:15
hopefully on my thread that I did will still exist because that was the article of yours that I ended with.
45:22
Why people should fail more.
45:22
So expand on that a little bit, because again, 100% simpatico, you only get better by failing and we have such negativity attached to this word and the label.
45:40
Label thinking really suppresses original thought because people like are terrified, "I don't want to fail.
45:46
People will think I'm an idiot."
45:46
Listen guys, people aren't thinking about you at all.
45:52
They'll only start thinking about you after you have that success after all those failures, but you only had that success because you failed.
45:57
Was it Beckett's, "Try, fail, try again, fail better."
46:05
Rohit Krishnan: Yes, cumulative- Jim O'Shaughnessy: But it's iterative process. It is the only option. I agree.
46:12
Rohit Krishnan: I think, this is to be me, it's very dear to me because it's almost antithetical to everything that I knew about life and success growing up.
46:22
So my family is fairly academic becoming a professor is the height of achievement, regardless of what you're a professor in.
46:30
That's the goal, which meant that when I decided to go to business school, for example, they were like, "What?
46:35
That just seems weird," but above and beyond that, I think part of that process is that success is highly legible in an academic world, at least up to a point.
46:50
How do you know you did well in school? You get good marks.
46:56
How do you know you get did well in college? You get better marks.
46:56
How do you know you did well in grad school?
47:01
You get even better marks and you write a good thesis.
47:01
It's like somebody else's approval is right there.
47:05
You can point to it and say, "Look, I was successful."
47:13
When every time somebody tried something different and failed, you get bashed twice, one for failing and one for attempting, which is the norm almost everywhere.
47:20
In fact, right outside of pockets of tech and parts of entrepreneurial finance, generally speaking, failure is still looked upon on most parts of the world, right? Most of Asia.
47:40
Jim O'Shaughnessy: Oh, absolutely.
47:41
Rohit Krishnan: Except for now in parts of like in India or China, you're doing a startup, you can get away with that because their societal cache has built up enough.
47:51
Europe, at least a few years ago, failure was very, very bad.
47:51
It would give you negative outcome.
47:57
Now my sort of thesis is like, if failure is not an option, all you get is the menu that's been laid out.
48:03
You can never expand the menu to anything else.
48:11
Neither can you mold the menu to make it something that fits you better in any meaningful sense.
48:17
So in many ways, increasing optionality, increasing variability in the attempts that you want to make, requires you to take one step beyond what you are able to do or willing to do to try and say, "Okay, I'm going to do this and if I fail, so what?"
48:31
and you need some level of comfort to be able to do that, either by saying...
48:37
whether it's financial, societal, whatever, you need some comfort to say like, "Okay, I will spend two years of my life trying to build something and if it doesn't work, it's okay.
48:49
I learned something and I move on and I try to do something else," and that is a very hard mindset for somebody to step into de novo, and I don't believe that the people who can do that instinctively automatically, through whatever sort of internal magic that exists, should be the only people who are privileged enough to be able to do that.
49:15
I remember reading this paper shared by Matt Clifford, who sort of also on your podcast and a friend, I think about during the crisis when people were pushed into becoming entrepreneurs, guess what?
49:29
They ended up being better entrepreneurs than the self-selected ones.
49:32
It is by no means guaranteed that just because you were pushed into doing something outside your comfort zone, you are worse at it, which I think is one of the most interesting results in social science that I've actually seen or economics.
49:45
So all of this put together, attempting to do stuff that you like or that you want to see happen in the world, incredibly important and more people to do it.
49:51
The cost of failure of doing that has to be reduced to the point where, yes, it's always going to be a risk, right?
49:57
Giving everybody a trust fund is probably not the best way to solve this, but at the same time, it should not be so dire that people are discouraged from attempting things in the first place.
50:17
I think that's the kind of core lesson here.
50:17
Jim O'Shaughnessy: Yeah, I agree and it's one of the things, I help out younger people with career advice and things like that.
50:32
I work with as a mentor with a number of people, not just in finance, but all over and I'll tell you the universal trait is that just palpable fear that they're going to make a misstep and I always say, "I am here to tell you that if you want to get anywhere at all, you're going to fall down a lot of times.
50:58
I did, and you've just got to accept that as one of the costs of doing business."
51:06
So I realized, my wife and I were having a conversation, she's like, "Jim, you just thought that way naturally.
51:17
People don't think like that," She goes, "I don't think like that."
51:22
So I had this self-discovery, back to the beginning of our conversation, it's like I figured out 25 years later that I was very anomalous in terms of my appetite for risk and not giving a what anyone thought about me.
51:37
Rohit Krishnan: That is a gift.
51:41
Jim O'Shaughnessy: Yeah, it truly is.
51:43
I could not agree more and I had Robert Plomin on, who's a genius about behavioral genetics.
51:52
It's a somewhat controversial subject, but not really, he didn't make it a controversial.
51:59
What I loved about him was, "I could be wrong and like, if the new research comes out and disproves this, then that's right." Rohit Krishnan: "Great."
52:07
Jim O'Shaughnessy: Yeah, exactly, "Great."
52:08
Yeah, exactly, "Great." So the idea though, that there is some sort of genetic mix that propels you, it's based on luck, it's based on the lucky sperm club, you've got to use Rawls veil of ignorance if you want to get the real beliefs of someone out of them, because if you
52:31
make sure that they understand that, "Yeah, yeah, yeah, you're going to be reincarnated, but we're not going to tell you where, we're not going to tell you what sex you're going to be, we're not going to tell you what your sexual preference is going to be." oh boy, the rules become very
52:40
oh boy, the rules become very different when that becomes the litmus test. Rohit Krishnan: 100%.
52:49
Jim O'Shaughnessy: Yeah, so I think that the other thing that I like about the world that's emerging right now is that we have this, as Matt would say, and full disclosure, we're investors in his company and what Matt would say is this variance amplification, where we had two centuries of trying to dampen variance and now we've got the world's greatest variance amplifier here.
53:22
It's going to give us a lot of leverage, but it's going to mean a lot of stuff, the tail...
53:26
We're going to move from a normal distribution to a chaotic distribution, which Mandelbrot brought basically in his book, The Misbehavior of Markets, a great book, but all of the interesting things are in the tales. One of my worries is...
53:38
I'm not worried about the right tale, they're going to be fine.
53:44
I think personally, that we need to do something, just for the stability of society, for people who, for whatever reason, are just not going to make it in a nonlinear chaotic world where power laws rule and Pareto distributions might even get more extreme.
54:06
So I changed my mind about things like universal income.
54:11
I changed my mind about things like maybe we should give every baby born in America an index fund that only has American companies, and they get a dividend for being a citizen here.
54:24
What are your thoughts on that?
54:24
Rohit Krishnan: So part of my political affiliation, if I can call it, is sometimes I refer to it as [Awanakutian] which is that my philosophy is that you should be kind, and to me, this is one of those instances where I almost don't understand why you wouldn't want to do this, if that makes sense.
54:52
So Alaska has a universal basic dividend, which seems to work really well.
54:58
The Norwegian pension fund because of its natural resources has built up a pretty, good way of doing dividends.
55:03
Singapore has Temasek and GIC, which don't do dividends, but actually has the assets to support the population when it needs to be, all of which put together tells me two things.
55:14
Number one, as a society gets richer and it has the capability, supporting its citizens is absolutely one of the things it needs to do and it should not be seen as... it's not a handout.
55:29
You're part of a rich society, this is part of you trying to dial up human potential to the maximum. One of the...
55:35
I don't know whether he came up with it or not, but Malcolm Gladwell had this point about talent capitalization rate that has stuck with me, that, what have you achieved relative to your potential?
55:52
And to me, this is one of the ways in which we can try to make sure that at least talent is not based [inaudible] To answer the critical points.
55:58
I don't know whether it's going to be successful, but to not try it seems silly.
56:05
To our point, experiments are wonderful, because they teach you things, not doing experiments suck because you don't learn anything.
56:16
And 80% of the ideological conversations that happen around this topic, to me, seem completely devoid of the people saying like, "Let's try it out."
56:21
For a few people for- Jim O'Shaughnessy: Exactly.
56:28
Rohit Krishnan: And every time it's been tried out, nowhere has it come out as crazy negative.
56:30
So what's the next step?
56:30
If a few small scale experiments kind of work, let's do it bigger and then see.
56:36
Then let's do it even bigger. Why?
56:36
We should absolutely try it out because part of the benefit is in exactly like you said that this might actually help increase the variants in some of these cases, because you only need, I don't know, one Einstein to make the whole damn thing worthwhile.
56:55
That's what we are saying.
56:55
We're we are aiming to...
56:55
This is not one where 300 million people get X each and therefore we need all 300 million to come out.
57:10
One of the essays I wrote was about this fallacy of thinking maximizing EV versus maximizing hit rate, which in finance is like a...
57:14
or in venture capital and it's a big mistake.
57:21
A large part of our life revolves around oversight systems, which includes governance and regulators where maximizing hit rate is what counts, "Oh, you got that wrong.
57:28
Why did you get it wrong?"
57:34
As opposed to the places where maximizing EV is the right thing to do, which is one of the places where Thiel and his power law works really well because what are you trying to do?
57:45
You need to dial up human potential.
57:45
What do we need to do to do that?
57:45
You need a few people to achieve their maximum potential.
57:50
You do not want to miss out a raw manager or you do not want to miss out the next Godel, you do not want to miss out the Wittgenstein. How do we do that?
57:59
We need to make sure that we are not willfully suppressing the ability of a large part out of the population to even enter this contest because it's very...
58:09
I don't know whether you feel this way, but to me, the world feels awfully small in it almost feels like 80% of the world is not playing in most of the leagues that I look at and it boggles my mind that that is the case.
58:24
I spoke with a friend of mine who's a...
58:31
I won't say his name, but like post doc from an Ivy League university doing biology research and I wish there would be more that we can push to try and help him achieve the things that I know he can try to achieve and even with a 90% failure rate, let's throw it at it, I would still want him to try stuff out, and the fact that he won't is bad for all of us collectively, not just for him individually. I think that's the...
58:56
So I am a complete fan of, like I said, be kind and let people try for stuff.
59:05
Jim O'Shaughnessy: I love that because it's one of my conclusions as well.
59:08
I don't have a political ideology really.
59:16
I'm fiercely anti-authoritarian and that's it.
59:16
I don't care if it's authoritarians on the Left or the Right.
59:21
People trying to issue orders because they think that they know what's best for other people, it has a very bad history.
59:28
So I love the way you put it, be kind and try it because I totally agree with your idea of all we need is one.
59:36
If we get one Einstein, if we get one Claude Shannon, and why would we not as a society... I think of America.
59:55
America got rich because it allowed all sorts of experimentations.
1:00:02
Rohit Krishnan: Entrepreneurs.
1:00:04
Jim O'Shaughnessy: Do what you want and the old joke here was, "It's free country," about the Russians who moved here.
1:00:05
They'd follow the Russian around and "Do you think you should be smoking in there?" "It's free country."
1:00:19
I had Russian friends who were very happy to be in a free country and I passionately believe in freedom, but that doesn't mean that you need to oppose the government doing smart things.
1:00:33
Rohit Krishnan: Two notes of that.
1:00:33
One is like, I did this essay that tried to look at whether the governments are actually efficient from the- Jim O'Shaughnessy: Yeah, I've read it.
1:00:44
It's good, I actually have it on my list.
1:00:46
Rohit Krishnan: I am surprised because my prior was that of course they suck, they don't get most things done and I am annoyed.
1:00:58
I am seriously annoyed that I cannot find data backing that up, that they actually suck.
1:01:03
There's plenty of an anecdotal evidence.
1:01:03
We have all been to the DMV. Jim O'Shaughnessy: Sure.
1:01:07
Rohit Krishnan: Actually the DMV has gotten a lot better, which is also crazy, but they're not that much worse.
1:01:14
They're worse if you compare them to the experience of ordering an Uber or they're worse, if you compare them to the experience of talking to Google Home.
1:01:22
They're not worse if you compare them to the average, which is something closer to IBM or Oracle, they're really not, which is, A, antithetical to a lot of what the common dialogue is around and B, really frustrating on a personal level because I'm like, "Come on, man.
1:01:41
If everybody agrees to this, there should be some data."
1:01:46
But number two is also the fact that I think whenever...
1:01:51
if the development can be measured in the emergence of number of Shannons, let's say, or number of [Juan Nymans], the good news is that in the process of developing or generating one Juan Nyman, I can almost guarantee that we'll get down [inaudible] alongside it because genius doesn't seem to emerge de novo out of nowhere.
1:02:17
Usually there's a process of flourishing where it bumps around, it interacts with other people and like raises the level around it.
1:02:22
So even if we measure the success only in terms of the singular individual who comes out, like the Ada Lovelaces of the world, you will still find enough and more around them that raises entire fields alongside it.
1:02:39
You will find [inaudible] emerging everywhere.
1:02:46
I am fairly convinced that...
1:02:46
this is how I got over the question of whether a great man theory or a great woman theory is actually true and instead got into the point where like as long as we have enough room to experiment, as long as the capitalization rate is somewhat higher, what we actually see is like entire groups of people emerging.
1:03:06
You suddenly start seeing small bobs popping up that can actually push everybody higher, which is a welcome surprise I would say.
1:03:18
If you're investing in a company and you get five X and all of a sudden it goes up to 10 X, hey, you're going to be happy.
1:03:22
Jim O'Shaughnessy: Exactly, and I think that a lot of that is contingent upon all of the new leverage points that we have now.
1:03:34
I have never seen this many leverage points in my life, certainly and I think that they are only going to increase, and what I love about it, you were talking about your friend who was the ivy pos doc and when I was coming up, basically you had to be credentialed, you had to have the imperator of some external organization to say that you're competent.
1:04:06
So I've even thought this when I was...
1:04:16
Literally, I only got a degree because my mother would be broken hearted if I hadn't gotten one.
1:04:22
I would've been one of Thiel's guys.
1:04:22
If he was around back then, I would've said, "Sorry, mom, I'm taking his money and I'm going to go do this."
1:04:26
So while my degree suggests competence, what we're seeing now is very, very different.
1:04:35
We are seeing not things that suggest competence, but that demonstrated the whole idea of learning in public and putting yourself out there.
1:04:42
In my opinion, it's going to really change the way people get hired.
1:04:50
My entire team again, at Infinite Loops because they demonstrated competence and I was able to watch the for several months and Matt Clifford's organization is brilliant in the terms of how they invest, co-invest, co-found with very, very bright people.
1:05:15
So I, myself am very, very bullish on it.
1:05:15
Yes, I understand that there's going to be people who are very put out and traditionalists are going to be very like, "Oh, in my day," but come on, like in your day what?
1:05:30
Rohit Krishnan: I think it's one of these things where the games we play change over time.
1:05:40
Jim O'Shaughnessy: Of course.
1:05:40
Rohit Krishnan: Like the institutional infamature that you talked about that gave you the stamp of prestige or the stamp that, "Hey, Jim's a smart dude, he knows things."
1:05:50
That worked in a day when the supply demand gap was not crazy. It doesn't work anymore.
1:05:59
Institutions that work really well when your acceptance rate is 30% do not work when your acceptance rate is 4%, they just don't because what that means is that you end up with like Buxton's paradox and you start losing the really talented people.
1:06:13
Jim O'Shaughnessy: Exactly.
1:06:15
Rohit Krishnan: Like your alma mater would not have had you today because Thiel fellowship exists, which is a loss for your alma mater.
1:06:24
I think that's the part of the ecosystem because like at the top of the curve, people have other things that they would want to go do and if you make the selection process onerous or you ask people to pay insane sums of money for short periods of time to not actually learn much stuff, guess what?
1:06:42
You're going to lose people on the way out.
1:06:46
So today, I think, A, there is a vastly higher number of dimensions along which you can actually do stuff.
1:06:52
You can work in public, you can create a portfolio, you can mix together things from art and science, you can create your own shows, you can write a book.
1:07:02
The number of options that a person has is much higher, which is, in my opinion, good, as long as there is some kind of a safety net, but bad, if there isn't, simply like...
1:07:15
You mentioned doing things in public.
1:07:28
The entire creator economy, if you want to talk about that, one of the questions that I have about it...
1:07:33
I love it, is that the problem with making things public approval or at probation driven is that the power law is bloody steep.
1:07:42
Like everybody goes to college, gets a decent job, you're kind of like in a nice normal shaped curve.
1:07:49
If everybody is fighting it out for YouTube stardom, it's a bloody steep curve.
1:07:54
There's a few people who are going to be very happy and everybody else is trying to make do with $20 bucks a month, which is just not feasible.
1:08:05
So the solution there is that the increase in dimensionality helps so that we're not all trying to work out and succeed in the podcast game or the Substack game or the Twitter game, but have 17 things that you're doing, in which case either the sum of them...
1:08:17
or the sum of them will actually make sure that you will be able to stand out in some meaningful sense.
1:08:31
This is why I think one of my interesting hypothetical worlds is that if we push the world forward, by like 20, 30 years, I am slightly unsure whether people will even have jobs the way we are thinking about it today because it just doesn't seem to make a whole lot of sense, because you would much rather...
1:08:47
because a job in some ways is highly fragile.
1:08:47
You do one thing for X0 hours every week, five days a week, you used to go to a place to sit and do only that for that period of time.
1:09:01
You lose that, you're gone.
1:09:01
Like it's highly fragile.
1:09:01
The only people for whom it's not fragile are at the very top of the distribution, if you're like a CEO or CXO, because you have both seats and da, da, da, da, da, that you have a bunch of other things that you do or at the very bottom of the distribution.
1:09:17
If you're an Uber driver then you have to moonlight for four other things.
1:09:21
At the bottom it's need driven, which is it sucks, which we should fix, and at the top, it's very much because you have the access.
1:09:30
But now that's coming down.
1:09:30
People have multiple income streams that are starting to come through and I feel pretty soon we'll enter a world where a number of people at least, start working on a project basis or at least like, "I'll work part-time for two companies because why wouldn't I want to be able to do that?"
1:09:46
and that is because of the increase in number of dimensions, meaning you can actually do things that you want at the intersection of different things, as opposed to consistently doing one thing and either hoping you are the best at it in the whole damn world or just doing one thing to satisfy an institution whose criteria are becoming ever stricter as time goes on.
1:10:08
Jim O'Shaughnessy: You've [inaudible] me here because it looks like you're looking over my current thesis, what I'm writing about two companies that I'm going to found within O'Shaughnessy Family Partners, which is our investment vehicle. That is the outline.
1:10:23
I'm not going to have employees.
1:10:30
I'm going to have independent contractors who I will tell, "I don't care how many jobs you have.
1:10:36
I don't care where your other interests are.
1:10:36
Here are the terms that I think we can succeed together and here are the terms where I think we can fail," because I could not agree with you more about your idea about the whole idea of...
1:10:47
So my grandfather was quite a successful entrepreneur and this is kind of a joke because this is the gold watch he gave himself because he owned the company, but this whole idea between the goal...
1:11:01
it's a Hamilton, which were very popular in America.
1:11:09
Anyway, this whole idea of the gold watch and staying at the same and the man in the gray flannel suit, it's done.
1:11:24
What I have a really hard time getting people to understand and it's probably just because I lack the ability at articulation of the idea, is we're going back to what humans were designed for.
1:11:38
Humans were designed to create, humans were designed to play, humans were designed to figure shit out and error correct and work together, to your kindness point, on all of that.
1:11:53
So I personally think that the future is, the old joke, the future's so bright, I got to wear shades.
1:11:59
Will there be problems that I can't even conceive of today?
1:11:59
Absolutely because if they're not, we failed, we haven't moved the ball further.
1:12:08
So as rational optimist in me is like, "Listen, we are the universal creators, connectors, but we need error correction," because without it, hmm, we run into really big problems.
1:12:28
With it we learn and we iterate and we make better and better, never perfect and good Lord...
1:12:37
By the way, this is a universal principle.
1:12:47
The Warren Buffett of 2040 is not going to be investing anything like the Warren Buffett of today, right?
1:12:53
Rohit Krishnan: Yeah, definitely.
1:12:55
Jim O'Shaughnessy: And Warren Buffett was a student and fan of Ben Graham who invented buying cigar butts, and you know why Ben...
1:13:06
And I have great admiration for Ben Graham, super amazing man, a real Renaissance man, he retired to like France to translate Greek poetry or something, I love the guy, but the fact was people would say to me my great gift...
1:13:21
the thing that I got lucky as hell was to be born at the time where I understood computers better than some of my older peers.
1:13:28
I understood that there were datasets that went way back and What Works on Wall Street was the result of that and people would say to me, "Well, wow, you're just so innovative."
1:13:42
I'm like, "No, if Ben Graham had computers like I had, I would not have had this opportunity, he would've done it." So the idea though...
1:13:53
but the whole thing is he did it in his version, which was, "Huh, I wonder whether we could do any better with our investments if we weren't like listening to what the president who we golf with, is saying about the company."
1:14:05
And he invents in securities analysis.
1:14:13
It's this moving forward force of humanity that... Are there dark periods?
1:14:13
Well, you don't have to look too far.
1:14:19
The 20th century had plenty of them, but the fact is if we do all of this together and take it as a piece, my probability bet here is going to be we're going to do great things.
1:14:38
There will be lots of failures, there will be lots of problems and we'll invent new cures for those problems, but they themselves might cause problems.
1:14:50
Nick Bostrom, I'm sure you read him. Rohit Krishnan: Yep.
1:14:52
Jim O'Shaughnessy: Is very elegant on this and he gets a little pessimistic for my taste in terms of the great filter, whereas, again, spoiler alert, he's saying, "In front of us, not behind us," but one of the pieces and I'm very aware of time here.
1:15:10
Rohit Krishnan: No, you're fine.
1:15:15
Jim O'Shaughnessy: But the other piece you did was taking a look at 2050.
1:15:22
So one of the things- Rohit Krishnan: Yeah, I like that.
1:15:23
Jim O'Shaughnessy: Yeah, it's a great piece.
1:15:24
So I often say that we are deterministic thinkers living in a probabilistic world and often polarity or tragedy ensues.
1:15:32
So what people don't understand, referencing back to my own work, What Works on Wall Street, but you said that it would...
1:15:41
the rolling 10 year base rate was 89% and I'm like, "It's directionally, correct. That's all it is."
1:15:57
So when we're talking about the future about robots, AI, virtual worlds, health, all of this kind of stuff, I love your essay on that and so...
1:16:04
because I want to get to our end question, which I think your answer's going to be great.
1:16:10
So of that thinking about 2050, what are the three things that you think right now have the highest probabilities in your estimation of being like, "Yeah, that was pretty easy to see coming."
1:16:32
Rohit Krishnan: I made this question slightly easy for myself I have to say in hindsight, making my list, because I have a little bit of like these are the things I think will be slightly easier to see whether it'll come up and I think there was somewhere that I did a probability against these lists, which I don't have it where I kind of said some of them were pretty high, but I think two perhaps meta points and then I'll talk about this.
1:16:52
I think number one, what's really missing is what you just said about...
1:16:59
You mentioned in investing about connecting preexisting datasets, computational power and therefore creating something.
1:17:10
In a microcosm that explains most of our extrapolation into the future where you take all innovation in my philosophy is combinatorial.
1:17:18
Like you combine a bunch of things and then because you are able to combine them because they're both at the right maturity at the S curve, you can jump to the next one, you can create new things.
1:17:36
As a consequence like you can birth entire new fields fairly easily as time goes on because combinatorial processes have a tendency to explode uncontrollably at some point.
1:17:46
What we have over the last 34 years is this aftermath of that explosion in some ways where we have fine grained into a few of them and when I was looking forward at 2050, I was like, "We're starting to see the beginnings of a convergence among some of these things now that we actually have on little bit more insight, knowledge or maturity in some of these fields that you can combine them together."
1:18:19
So I guess the first one that I have reasonable level of confidence is that I think we are going to enter an age of robots.
1:18:26
I think that's what I called it.
1:18:26
I am pretty damn sure and I'd be highly disappointed if that is not the case in some meaningful sense, both like, companies like Nero in San Francisco was roaming around autonomously, delivering stuff, better versions of Spot, our favorite robot dog that I would love to have one of those in my house at some point.
1:18:50
Like across the shop, I want to see way more of these things and I think it's very hard for it to not happen.
1:18:57
Something would have to fundamentally break in the system for this to not be likely.
1:19:02
I think that's point number one.
1:19:02
Number two, which I think is slightly easier is also the AI point.
1:19:08
I'm a little bit more of a skeptic that people see artificial super intelligence come in some meaningful sense, if only because I think artificial general intelligence, as we would understand it, requires a bit more of a movement into understanding what is it to be human as opposed to understanding what is it to manipulate a lot of data.
1:19:31
That said, I think weird AI is likely to come about quite soon and as long as it is good enough at pattern recognition, what it does is that it looks through an end dimensional landscape creating, N minus K dimensional patterns that we get to use to create whatever the hell we wanted to create in the first place.
1:19:51
I think that is fairly likely that that's going to happen.
1:19:58
I think a couple of the...
1:19:58
I'm just trying to think what I should use as number three.
1:20:03
I think one of the ones that I feel will definitely happen is what we alluded to, the quasi Medicis of the world, where there's new science institutions coming.
1:20:14
I think I had one saying at least one of these guys will win a Nobel prize.
1:20:20
I think that's almost too easy because I feel it's a little bit of a selection effect in some ways.
1:20:24
So I think instead I'm going to go with something like, I think vertical farming is actually going to come and take off, at least in one city.
1:20:32
I would be very surprised if that's not the case.
1:20:38
The amount of companies that I'm seeing at least attempting to do this, the technology is good enough that you can actually do this.
1:20:43
Someday, man, I want to get a ripe mango delivered to my house in London.
1:20:49
This is perhaps my most self-serving prediction ever, but goddamn it, if that doesn't happen, I'd be so sad.
1:20:57
Jim O'Shaughnessy: I love it and I was fascinated by that in your essay and it's a great example of like the Malthusians among us are just consistently wrong because they think they know everything and then they extrapolate one variable, in this case population under the old Malthusian argument, from Malthus himself, and they don't extrapolate the advances in food production. Whoops. Rohit Krishnan: Exactly.
1:21:26
So I am pretty sure that this is likely to happen.
1:21:31
I think we are making strides towards that anyway.
1:21:31
I don't think we'll go the full science fiction or causing in an intentive way of like [inaudible] produced proteins for everybody.
1:21:40
I don't think we'll get there, but if we have the ability to make food near us, I cannot see a way in which like that doesn't take over because food production supply chain delivery today is impossibly complicated for all sorts of reasons and I noticed this, especially living in this island where everything has to be brought in from somewhere and half the time I don't get stuff and not just because of Brexit.
1:22:06
So how is this not going to fly?
1:22:13
Jim O'Shaughnessy: Yeah, I love it. I love it.
1:22:13
Well, listen, this has been ridiculously fun for me.
1:22:17
I am a and remain, even more now, after talking to you, a fan boy. I love your stuff.
1:22:22
I think everyone should read your...
1:22:22
Are you on Substack or what's your [crosstalk] Rohit Krishnan: I am on Substack.
1:22:32
Jim O'Shaughnessy: Substack.
1:22:32
Rohit Krishnan: I'm on www. strangeloopcanon. com. Jim O'Shaughnessy: Yeah.
1:22:37
Well, it's included in my little thread that I got to go see when we're off, whether it goes, but we'll include all of that in the show notes.
1:22:40
We can find you on Twitter as well.
1:22:46
Rohit Krishnan: Of course.
1:22:47
Jim O'Shaughnessy: But I want to get to our last question- Rohit Krishnan: Please. Jim O'Shaughnessy: ...
1:22:51
because I must have admit that I was dreaming about what two things you were going to tell me.
1:23:00
So we're making you the emperor of the world for a day. You can't kill anybody.
1:23:00
You cannot put anybody in a reeducation camp, but what you can do, I'm sure you've seen Inception, right?
1:23:14
Rohit Krishnan: Of course.
1:23:14
Jim O'Shaughnessy: Yeah, okay.
1:23:14
So what you can do is you can speak the word, if we're going to start with the beginning of the Bible, and the beginning was that God and the word was good or whatever, but you can speak two things to people and they're going to wake up the next morning thinking in a very Daoist way, that it was their idea and they're going to act upon it.
1:23:34
What two things have you got for me?
1:23:41
Rohit Krishnan: Oh, man, this is awesome. Two things to tell them.
1:23:47
Number one, because I believe we need way better APIs for everything in life, is that I would tell everybody to share all pieces of data that they have, and that is what it is.
1:23:58
Jim O'Shaughnessy: I love that one.
1:24:02
Rohit Krishnan: Number two.
1:24:02
I would tell people to not be so afraid.
1:24:04
Jim O'Shaughnessy: That is probably the best one I've heard in a while, because fear is the base emotion that drives human behavior and we need to evolve past that.
1:24:25
Rohit Krishnan: Yeah, especially today.
1:24:25
I don't think we need to.
1:24:26
Jim O'Shaughnessy: I agree.
1:24:28
Rohit Krishnan: That's the luxury of having a civilization.
1:24:28
Jim O'Shaughnessy: Exactly.
1:24:32
Exactly, I love both of those.
1:24:32
Well, I'm going to invite you back on, obviously, because we just touched the surface of a lot of issues here, but this was as fun as I was expecting it to be.
1:24:42
So thank you for your dazzling conversation with me. See you next time. Rohit Krishnan: 100%.
1:24:51
This was way more fun than a Zoom called ought be, which says very little about what it is, but- Jim O'Shaughnessy: I agree. Rohit Krishnan: ... this was amazing.