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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 yet another edition of Infinite Loops.
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I'm very excited about my guest today.
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I'm very excited about all my guests because I'm so lucky to talk to so many smart, interesting people.
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My guest today is Jake Taylor, the CEO of Farnam Street and the author of a book I read before I knew you called The Rebel Allocator. Welcome, Jake. Jake Taylor: Thanks Jim.
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It's a real pleasure to be here, although I do feel a little bit of nerves given the quality of guests that have set the bar on this already.
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So I'll do my damnedest to give you a good show, but I can't make any promises.
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Jim O'Shaughnessy: Well, I like that.
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Under promise over deliver.
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I think that's what's going to happen.
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Anyway, so I want to start off with the book, The Rebel Allocator, because I personally loved it. Jake Taylor: Thank you.
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Jim O'Shaughnessy: I got to tell you, I didn't love the story aspect so much, but I really loved the fact that what you were doing was very similar to what my friend, Dave Chilton did with a book called The Wealthy Barber.
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What you did was give it like an MBA level class in asset allocation and why certain things are that you really have to know about if you want to succeed with a story. So I love the format.
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The first question I have for you is one of the things that you say is the iron law of economics, right?
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Is the not ceteris paribus, not that one. Jake Taylor: No.
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Jim O'Shaughnessy: The iron law is cost must be less than the price.
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Here's the real important part as far as I'm concerned.
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The price has to be less than the value the customer enjoys. Please enlighten me. Jake Taylor: Yeah.
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The original framework for that came from Nick Gogerty has this book called The Nature of Value that has...
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And he showed that cost and price and value have to be in relation to each other in a certain way in order for it to be a sustainable system. Right?
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If your costs are above your price, you're unprofitable, and you're going to go out of business.
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If your prices are above the value that customers are receiving, then they're going to stop patronizing your good or service, and you're going to go out of business.
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So we have to have all these things lined up in order to have a successful, long term sustainable business.
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What I then in the book took, I tried to make it as simple as possible, and imagine in the story, there's a restaurateur who is kind of the Yoda of this lesson, the Mr.
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Miyagi and he's teaching to this- Jim O'Shaughnessy: It's actually Mr. X, right? Mr. X. Jake Taylor: Mr. X.
4:29
Yeah, but- Jim O'Shaughnessy: Yeah.
4:29
Francis Xavier, if my memory is...
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Jake Taylor: That's correct.
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Although, it's been a while since I've read it as well, so you probably would remember better than I would.
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I used these straws basically as an example to show the relative motion between cost, price and value.
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What's interesting then is that you can start to see that between cost and value, if you move price around, you can change the profitability of the company, which is costs are subtracted from price.
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And then the difference between price and value might be called brand.
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So you can see the trade-offs between the prices that you are charging will either create profit for you, or another way of thinking about it, actually kind of stored profit in the minds of your customer for later use.
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That would be what brand is.
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I mean, the whole thing behind the book was to try to give business people a useful framework.
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I knew I had to start at a microeconomics level and build up unit economics effectively.
5:29
That's really what the cost, price, value exercise was all about. Jim O'Shaughnessy: Yeah.
5:38
It's a good way to start people out because so many people these days are...
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You know, a lot of the classes that I'll read the notes from and everything, they're not just doing the basics.
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I think that when people lose sight of that, they start pricing everything to magic as opposed to the real world.
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Let's continue with the trade-offs between profit and brand though.
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That's something I'm really interested in.
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Running after profits is in many cases, a suboptimal strategy.
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There's another thing that an investor or an owner should know, and I know you know it because you talk about it a lot, the return on invested capital.
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Talk to me a little bit about what are the hazards, if you're chasing those profits at the expense of building the brand.
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Jake Taylor: Yeah, exactly right. If you imagine the...
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Especially if price is getting over the value of what you're receiving, right?
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I think we've all felt subjected to that, right?
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We felt cheated by that business, and now we're kind of mad about it.
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That's destroying a brand.
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I mean, maybe it's not as true today, but in years past, everyone hated cable companies because, "Oh, I hate these bastards are overcharging me and underdelivering and making me buy a bundle and I don't want a bundle."
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Well, eventually, it may take time, but consumers will find a way to get around you, eventually. It may take a long time.
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But to go back to return on invested capital, that's really important when it comes to growth.
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So when you think about a business that's growing, you can grow and grow and grow, but if you are giving away a dollar for 80 cents over and over again, growth is not a good thing then even if you are VC subsidized.
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I should caveat this, that there's some nuance to it in that it's possible when you reach a certain scale, especially for a network business, where you all of a sudden become wildly profitable, but you had to invest a long way to get the network scaled up to a certain size and inertia.
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So it's not quite as simple as like, oh, low return on invested capital, equals bad business, but over a long enough period of time, we can start to say that.
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If you have a low return on invested capital of your projects as a business person, growing it may not be the right thing for you to do.
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In fact, maybe shrinking and retrenching and getting your returns on capital back up, and then growing from that base is probably the right strategy.
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So return on invested capital is I likened it to actually like weightlifting in that the return of invested capital is the form that you're using to lift the weights.
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You want to make sure you're having good form.
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Now, if you have bad form and you load a bunch of growth, you load a bunch of weights on there, it's going to crush it and destroy it. Right?
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So you have to make sure that you're keeping good form the whole time as you're growing. Jim O'Shaughnessy: Yeah.
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AOL with the plethora of the CD.
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You're probably too young to remember though.
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Jake Taylor: No, I remember that.
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Jim O'Shaughnessy: Oh my God.
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We let our kids play Frisbee with them because we got like five in the mail every day. So I hear you there.
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We're always trying to evolve our strategies.
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We're quants, as you know, and what we find is sometimes things stop working, and they're probably not going to continue to work.
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One of our great examples was price to book, which used to work really, really well until you went back and got the new data set from Chris for 1928 through 1964.
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And you found that it was inverted because another thing low price to book is a proxy for is bankruptcy risk.
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But there's another problem with it, and that is this idea that we're talking about right now, which is brand intangibles. Jake Taylor: Right.
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Jim O'Shaughnessy: We have moved into a heavy intangible economy, and so we wanted to find quantitative measurements that could capture that intangible value.
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I think we did a pretty good job, but I'd like to hear how you do that.
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And then the instant thing that pops to mind is, okay, so Apple is probably one of the most powerful brands out there right now.
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They charge premium prices, not lower prices. What do you think?
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How do you look at intangibles? Jake Taylor: Yeah. I mean, you're right. It has become...
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I think it was maybe in the late nineties, it switched over to where CapEx, physical, tangible investments crossed, went under now what intangible investment became and mostly in R and D and a lot of coding actually in the last, call it 20 years.
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It's pretty obvious to me now that accounting has decayed somewhat from economic reality, and there's some good reasons for that.
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I mean, if you're trying to be as conservative as possible, which is one of the tenets of accounting, it's very hard to assign a very specific value to code.
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There're some things that happen like technical obsolescence can happen like that.
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So if you are trying to break up the useful life of code and decide, okay, I want to expense it against a certain usage time period like one year at a time.
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Well, all of a sudden, two years later, it's not worth anything because you were Blackberry and the iPhone came along, you fall off a cliff.
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Well, accounting shouldn't set you up for those kind of mistakes, right?
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It's trying to be conservative.
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So there's a reason why, but it's clearly has devolved from economic reality and slipped a little bit as compared to when we just had factories and property, plant, and equipment.
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And that was like, you could go out in the yard and see exactly what you had on your balance sheet.
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Jim O'Shaughnessy: You know, one of my soapboxes of many, I know, you can't get me to shut up, but is this idea that GDP is irrelevant.
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It is absolutely irrelevant because it is still calculated the old way, and it is not capturing, oh, probably these days, 70 of what's actually happening.
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When I started on this soapbox, I always used Intel as my example, because they have all of these level five manufacturing plants in developing countries and they compete only on price.
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Intel does all the symbol manipulation, if you will.
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I call myself a symbol manipulator.
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You're a symbol manipulator.
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And that's where the value is. Right?
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The brilliant people at Intel come up with a design for a new chip.
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They ship it over to the winning bidder, which is a level five.
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So almost no flaws ever or that company will go out a business.
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That's how serious it is.
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They pay them 9% these days as a profit margin and that's getting competitive.
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Then they ship the product back to the United States and Intel enjoys a 40% margin.
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I'm making these numbers up.
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That's happening more and more right now.
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Jake Taylor: I think it's more in the mid-twenties, but yeah. Jim O'Shaughnessy: Yeah.
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So when I started it, it was higher.
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I think that that's going to persist and that we're going to need new tools to be able to make this more choices about what is a good investment, what might have been a good investment a while back and no longer is.
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Jake Taylor: But one framework, Jim, that I like that helps me to untangle some of these kinds of things, and to go back to your Apple example of like, how do they charge such premium prices and yet the customer keeps coming back?
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Isn't this a competitive market?
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It's this jobs-to-be-done framework that Clayton Christensen had mentioned in one of his books, and other people have done more work on it and taken it further.
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But really at the end of the day, we all have subjective wants and needs as humans.
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We want food and shelter.
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We can work our way up Maslow's hierarchy of needs, and then we start to...
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Once you kind of jump off the top of that pyramid, you go into mimetics and Rene Girard's work where now it's like, why do we want what we want?
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At the end of the day, every single good or service that we are consuming that we decide to buy is to give us some sense of progress against one of our wants or needs.
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We hire that company to do a job for us.
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And whatever that job is, is what should dictate the value to us, right?
14:56
That part of our value straw, and then there's the price.
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And the price doesn't necessarily have to do anything with the cost.
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It's a value that's derived.
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So take an Apple iPhone, for instance.
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It replaced a hundred different gadgets that we used to have in the 1980s, whether it was your radio and flashlight and compass, telephone, and GPS, and like a million things. Right?
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Now, it's in one easy package and it always works and it provides...
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We hire that to do a thousand jobs for us a day practically. Okay.
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It's why one of the things that it would be the first thing that you would cry if they took it away from you. Right?
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I mean, you almost can't live without it now, people can't imagine.
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That has nothing to do with how much a transistor costs.
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It has nothing to do with the screw that went into, when they made it in China and shipped it over.
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There's nothing to do with the cost.
15:58
That world of cost plus in an industrial sense like, "Oh, we're going to make sure we get 15% profit margins because it took us a dollar to make that widget."
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Well, that's the old world.
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Now if you think about the world in the jobs-to-be-done framework, and because you can hire for increasingly interesting specialities, it's even further divorced from value, price, and then cost. Jim O'Shaughnessy: Yeah.
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You know, now we're in Rory Sutherland land, who's was a good friend of mine. I think he's right.
16:35
It is the consumer or the purchaser who determines the value of these products.
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There's a great book that I just finished reading by Governor Howard Bloom, and we'll put the title, it's a retaining the beast or whatever.
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It's a very, very pro free markets book, but it's also a critique.
16:53
One of the points he makes endlessly is that there is no demand. There is desire.
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He goes on to say that like it or not, human beings play status games and they play signaling games and virtually all of the most useful products started out as frivolities.
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The example he gives is the printing press of all things.
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He tells the story about Gutenberg whose day job before he came up with the printing press was gym polisher, and who's he selling to?
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Well, he's selling to the richest people in society.
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He was trying to come up with a way to do his pamphlets quicker.
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And we got the movable press, and all of the first books were status items.
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The first books that got sold were jewel encrusted, and they were only sold to the nobility.
18:01
But then he was kind of like, "Wait a tick.
18:01
There might be some people, there's this Martin Luther fellow who is saying that people should read the Bible, but it's only in Latin or Greek.
18:17
I wonder what would happen if we published it in German?" And the rest is history.
18:25
I think that is a great framework in which to build the scaffolding, if you will, for a new way of looking at markets and investing.
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Jake Taylor: I'm glad you brought up the status items, because one of the takeaways of jobs-to-be-done is that you do hire a service or a product to signal a status thing.
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So especially early iPhone, you bought it, half of the reason was to show off to your friends.
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You will pay a lot for that item because you're getting that job-to-be-done hired of showing off.
18:59
Let's say we start to then tip in towards identity things where we want to be internally consistent, and you wear a Patagonia shirt because you believe in what that company believes in.
19:12
You'll pay $200 for a sweater that if it didn't have that little logo on it, then you would've paid $20 for it, but you're not hiring that sweater to keep you warm.
19:26
That's one of the jobs, but there's another job you're hiring it for, and that is to signal a certain thing about yourself to everyone else. Jim O'Shaughnessy: Yeah.
19:35
I have a young guy who I've had on the podcast, Rob Henderson, who's getting his PhD at Cambridge, and this is what he is looking at.
19:47
He came up with a really interesting thesis around what he calls luxury beliefs.
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Spoiler alert, they're not all that great.
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He does a very good job for a 30-year-old guy of explaining why they're so powerful.
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Offline, one of the conversations that I had with him and others was this... I read a piece.
20:13
I can't remember where, the New York Times or the Wall Street Journal, but it's people under a certain age won't respond to texts that come with a different color, meaning that you're using- Jake Taylor: Uh-oh, not an iPhone.
20:28
Jim O'Shaughnessy: You're not using an iPhone.
20:29
I found that extraordinary. I mean, weird, right?
20:34
Jake Taylor: Is that the new Protestants and Catholics?
20:36
Jim O'Shaughnessy: I guess. I don't know.
20:39
It's just like, to me is so bizarre, but I think that again, as quantitative investors, we got to find a way to model that because it's becoming increasingly clear.
20:57
And we're going to talk about a really interesting innovation that you and your firm have come up with in a second here.
21:04
So all of our brain power, so to speak, on the research side is going towards these new metrics that we feel are efficacious in trying to grasp these things that are harder and harder to grasp.
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I was talking to a friend last night and they've got this show. Actually, not a friend.
21:30
My daughter-in-law and she's my friend, too.
21:36
I was babysitting for my grandkids, and we got to talking about The Gilded Age, which is on HBO.
21:44
I asked her, "Do you know why when Forbes came out with the rich list, do you know why it was the Forbes 400?" She was like, "No."
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And I went, "Because Mrs.
21:48
Astor's ballroom only held 400 people."
21:55
Jake Taylor: Interesting.
21:58
Jim O'Shaughnessy: She was like, "Wow, that's weird."
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But then the other interesting part of it is when you look at the first one they came up with, everyone on the list who had made their own money, which were in the minority, by the way.
22:08
The majority had inherited their wealth.
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And this was in, I don't know, '82 or '81, whenever it came out. So I was 21 or 22.
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But the people who had made their own money, it was in physical things. Right?
22:23
It was in real estate, oil, shipping, all of these things.
22:31
Flash forward to today, virtually just a handful of people who've inherited the money.
22:37
Everyone else, as I said to you before we started recording, symbol manipulators, right?
22:43
People like Bill Gates, people like Elon Musk, people like Bezos, et cetera.
22:43
So the ability to capture that, I think very, very important.
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The reason I'm at length telling this story is because it also shows that we are often trapped by these invisible beliefs that we don't even know we have.
23:07
So Forbes 400, who's Mrs. Astor? What the hell?
23:07
You know, this is bizarre. Jake Taylor: Yeah.
23:14
Jim O'Shaughnessy: Right?
23:14
So I always try to uncover those things when I'm trying to get a new thesis to test or whatever.
23:16
A lot of what we believe is because of things that happened a long time ago, no longer relevant, but here we are. Right?
23:33
That leads me into the thing that you've, to my great pleasure, allowed me to take a look at, which is your firm's new idea called Journalytic.
23:40
Tell me what you can tell me about publicly about that. Jake Taylor: Yeah.
23:50
I should probably preface that we're still very, very early days, in a beta mode.
23:50
So it's still a little stealth, but I'm crazy excited about where we're going and the team that we're building to build the software.
24:03
It started with being an investor and more discretionary.
24:11
Everybody read the checklist manifesto and like, "Oh yeah, checklist. That's a good idea."
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I know I can only store so many things in my head at one time.
24:17
I need to get that out of my head somewhere else, so that I have some framework.
24:21
I built up a pretty extensive checklist.
24:26
I read this research paper that said, if you even just randomize the order of presentation of something like a checklist that you will engage more system two thinking.
24:32
So, slowing down, more executive, less gut reaction, right? That's your system one.
24:37
It's like, "Well, okay, I need software to randomize this."
24:44
Because I just have it in a document that I'm going through.
24:48
I could tell, I know where I'm cutting corners.
24:48
I'll shortchange one of the questions because I just want to get to the next question.
24:53
We're just trying to keep our caloric expenditures in our brain to a minimum whenever we can.
25:00
Well, so yeah you recognize like, oh my God, there's a...
25:07
My entire process could stand to be put into a software approach to just improve the processing of information.
25:16
One of the biggest things that I think we recognized was that there are kind learning environments and there are wicked learning environments according to researcher, Robin Hogarth.
25:30
A kind learning environment is one where feedback is immediate.
25:36
It's clear, it's unambiguous.
25:36
It's like the repeatable patterns.
25:36
So you're riding along on a bike and turn the handlebar real hard and you crash, and that's going to happen every single time you do it.
25:47
You're going to quickly learn that that's not a good idea to jerk the handlebar.
25:52
Now, in the investing context, it is an incredibly wicked environment.
25:52
A lot of that has to do with this is a complex adaptive system that you're dealing with, with positive feedback loops that lead to runaway outcomes that are very hard to predict.
26:05
You have nonlinearities all over the place.
26:10
You have initial starting conditions of a complex system that will then lead to wildly different outcomes in outputs of a complex system.
26:16
Now you're trying to wrap your mind around and make predictions about what's going to happen in the world. It's so incredibly hard.
26:27
To challenge it, we would use Michael Mauboussin's idea, in luck versus skill research about how could you...
26:34
If I said, Jim, I want you to try to pick one stock for me, where I want your goal is to lose the most you can over the next year. It's almost impossible.
26:46
Jim O'Shaughnessy: I know Jake Taylor: Now I bet you could probably do something smart if I said, pick a security to lose the most over the next 10 years.
26:55
I think you'd actually have an okay shot at that.
26:55
But the noise of any one year is so incredibly hard to overcome when you're trying to tie your decision with the eventual outcome.
27:03
So one of the ways around that is to start journaling about what you're thinking, what you're feeling, record your decisions, record your predictions, and actually assign some probabilities to them so that you can see, get a sense of your confidence versus your competence.
27:23
All of these things are just very basic best practices, but that decision making researchers like Daniel Kahneman, he'll tell you, just go get a notebook and write down your decisions, and you'll become an incredibly better decision maker, but no one does it. Right? Jim O'Shaughnessy: I do. I do.
27:44
Jake Taylor: Well, that's why you're so damn successful, Jim.
27:46
I mean, that's the difference.
27:52
With Journalytic, and the name by the way comes from journaling on the front end, which we think journaling is one of the best ways to interface with your brain and get all this stuff out of it and make room for the good ideas to proliferate.
28:02
Tied in then, because we know people are going to be using it in an investment context, we can have structure that is readily buildable within your journal so that we can tie in reports and analytics on the backend to give you that feedback loop and close it so that you become a quicker learner as to the cause and effect between your decisions.
28:26
So instead of having to wait maybe 10 or 15 years to figure out God, do I have any luck versus skill in an investing game, we're hoping to shorten that timeline so that you can get a much better sense of where you are and how you're improving.
28:37
I'm incredibly excited to be able to help people in that way, and using it myself now kind of a very rudimentary version for more than a year now, it's been a game changer for me.
28:48
I'm much, much better investor than I was even two years ago because of the...
28:54
It's just like a diligent practice and it forces you to get in there and do the real work every day.
28:59
I think it's going to be really interesting and I'm excited to see where it goes. Jim O'Shaughnessy: Yeah. Very exciting.
29:10
You were gracious enough to let me see the beta version.
29:10
I think it's very, very cool, but obviously you're playing to my biases here because I- Jake Taylor: Totally. Preaching to the choir.
29:22
Jim O'Shaughnessy: You really are.
29:22
I mean, we're in the same pew because journaling is something I've tried to get people to do forever for lots of reasons.
29:33
Not just the ones you mentioned, although the ones you mentioned are very important because if you can't write down what you think, you don't know what you think.
29:39
If you write it out, sometimes you have the puzzler.
29:46
Oh, I thought I thought that, but I don't think that at all.
29:51
Jake Taylor: I can't believe, I thought that before. That makes no sense.
29:53
Jim O'Shaughnessy: Which is our memories are unreliable narrators.
29:56
Mother nature and evolution think that it's doing us a kindness by updating our memories to what we believed now.
30:11
Let me ask you a question though about Journalytic.
30:15
Are you going to have to...
30:15
So it seems to me that you have like two mountains to climb.
30:20
The first mountain to climb is to get people to actually keep a journal. Jake Taylor: Yes.
30:26
Jim O'Shaughnessy: So I want to hear your strategy around that.
30:29
And then secondly, there are the naysayers who are going to say, "Well, I can just find the software to do this." You know?
30:39
Spoiler alert, everyone listening.
30:39
No, you can't, you won't, but you're going to think that you can.
30:46
Tell me how you're going to address those two. Jake Taylor: Yeah.
30:52
So with the journaling first, you're right.
30:57
It's a very comparable analogy to getting someone to go to the gym.
30:57
Everyone knows it's good for them.
31:03
How do you get that activation energy high enough to go?
31:03
And then as you know, once you get the habit going, you actually start to look forward to it, but it's that initial on-ramp.
31:17
That's where we are looking at ways to create some fun gamification around it, and hopefully gamification in the way that is good for you.
31:24
I don't want to be gamification with like confetti because you placed an options trade type of...
31:31
Jim O'Shaughnessy: Right.
31:36
We're some got to go there. Jake Taylor: Yeah.
31:38
I want it to be for your benefit, but I think that there are some creative ways to lower that activation energy, help you get over the bar to get the habit going, start small, build from there, and use the research of stuff like from Atomic Habits where you can tie in triggers that will... You know.
31:58
Okay, I know every time I do this, I'm going to take this action. So you're right though.
32:06
I mean, it's no layup that's going to be like everyone's all of a sudden going to be a journaler.
32:11
I think there's a little bit like it requires some growth mindset that is like, I think I can get better at this.
32:18
Therefore, I'm going to put in the work to get better. Jim O'Shaughnessy: Yeah.
32:24
Jake Taylor: The other thing, too, I would hope that starting in a financial context in that improving your investing, that the monetary potential gain would maybe provide some of that activation energy to get you working on it once you recognize the problem and you see the potential, you see the job to be done that you would be hiring it for and where it might take you.
32:43
Another part of the jobs-to-be done framework is it actually gets into Joseph Campbell's Hero's Journey where you're taking the customer and making them the hero of the journey.
32:50
That's your job as the proprietor.
32:55
So how do we make you the hero and get you started and show you boy, a year from now, look at these reports you can be able to see about yourself if you put in this little bit of effort right now and get that habit going? Jim O'Shaughnessy: Yeah.
33:08
I mean, one of the reasons why...
33:08
I didn't know this before we had lunch at Capital Camp, but I certainly knew it afterwards.
33:15
We're into the exact same things like the Joseph Campbell hero's journey.
33:22
My friend, Tom Morgan talks about that all the time.
33:22
I've studied it extensively because it seems to be in our DNA.
33:29
It seems to be in our human OS.
33:29
If you can some hooks into that, you're probably going to be more successful than if not.
33:36
I mean, one idea that I would have is, maybe you preload some great stories.
33:41
Maybe you give it to people from various sectors of society, from a newbie investor all the way up to a pro and you let their stories unfold.
33:48
If you were marketing that, that would be one of the things that I would think of is because again, I used to joke, I'm a quant who had to tell stories about why you shouldn't invest using stories. Right?
34:09
It's in our DNA and you can either go with the flow or you can try to swim against the tide.
34:19
And I got to tell you, at least in my career, N equals one, but trying to go against the flow does not lead to great things. Jake Taylor: Yeah.
34:30
It's a lot easier to get the horse to go the direction you want if he's already going that way. Right?
34:35
Jim O'Shaughnessy: Right.
34:36
If we can build tech tools that allow us to leverage our thinking, leverage our own brains, our own style, those are going to be incredibly valuable tools in my opinion.
34:55
Jake Taylor: I couldn't agree more.
34:55
One of the early ahas and inspirations was, and I think we've talked about this before, you and I offline, but about Karl Friston and this idea of the free energy principle.
35:04
It's fiendishly difficult to explain the whole thing.
35:10
I mean, this guy is a true genius, but if you want to go down a rabbit hole, I would encourage someone to check it out.
35:16
But the takeaway is that all living things from the little tiny, single cellular organism to us with our big neocortexes are seeking to create models of the world and then compare the sensory input to that model.
35:30
And then minimize the amount of difference between that, which Friston calls free energy, which we might call surprise.
35:45
Your brain is always trying to figure out what's the next thing that's going to happen, how does that compare to the sensory input that's coming in, and how do I minimize the difference between that?
35:52
How do I get less surprises?
35:52
Now, why technology can help us with that is that when we were just on the Savannah and the world was very linear for us, and we just saw the gazelle moving along the horizon and he never was going at one speed and then going 10X faster and a hundred X faster.
36:11
We have no real sense of intuition around nonlinearity.
36:20
That's what makes it really hard for us as a species to only just use our wet work here. We need help. We need tools.
36:26
We need things that can take the good things about our brains, which are incredible organisms.
36:31
Think about it for a second.
36:31
This three pound ish lump of mass of cells is the only thing that we know really in the entire universe that knows that there's even a universe.
36:44
Jim O'Shaughnessy: Right. I know. It's amazing.
36:47
Jake Taylor: It's amazing.
36:49
But we know that there's some problems with it because today's environment doesn't match our evolutionary environment.
36:54
That's what tools and technology have always been about is to get us the tools and the ability to do more with less.
37:00
the tools and the ability to do more with less. I think you're right, today's digital tools are going to be able to help our brains in such a way that we can tighten up that feedback loop, that that surprise minimization of my decision today to buy something, and whether that was a
37:16
good outcome or not in an investment context is so long and so hard to keep track of if you're only doing it in your head, that you need a tool to shorten that up and close that feedback loop for you so that your brain can keep working on that surprise minimization for you. I mean, you need a I mean, you need a tool.
37:33
There's like no two ways about it. Jim O'Shaughnessy: Yeah.
37:36
Again, we could not be any more simpatico.
37:36
We're doing a series for Infinite Loops called The Great Reshuffle, which touches on all of these ideas.
37:43
I think that we are in the middle of one of the greatest reshuffles in human history, and I'm delighted that I'm here to witness this.
37:57
Jake Taylor: To watch it happen. Yeah.
37:58
Jim O'Shaughnessy: One of them is we have moved from linear behavior to nonlinear behavior.
38:04
That's a really tough one for your average human being to get, because as you say, evolution has not made us so to understand that well, and we have moved into a period where comfort with chaos is almost going to be a requirement.
38:26
I had another guest on who I've also, disclosure, invested in his company, but where he is talking about variance amplification and variance dampening institutions.
38:40
He's like, "Whatever you want to say, the internet is the largest variance amplifier that human history has ever seen, and so if we don't- Jake Taylor: It's like the ultimate Archemedeal lever.
38:52
Jim O'Shaughnessy: It really is.
38:55
If we don't have these...
38:55
If A, we don't understand it, so we're doing the series to try to help people understand what's going on and give them ideas about, okay, this is what you might want to learn about because all that old stuff that you know, you're going to have to delete it.
39:13
I'm convinced that one of the greatest things that I'm able to do, thank God, is delete beliefs because they're not serving me, and you've got to...
39:19
And your Journalytic, I think it's going to be a great way to help that happen.
39:29
It's also going to be a scary world and the tails are going to become far longer.
39:36
And if you're in the right tail, man, the world is your oyster.
39:44
But if you're in the wrong tail, that's why I am very much in support of say, universal basic income or the citizen's dividend. These are not new ideas.
40:00
By the way, they've been promoted by both the right and the left. So it seems to me...
40:00
And then I'll have empiricists come up to me and say, "Well, Jim, it's never worked here. Look at all these." I'm like, "Okay."
40:11
But we really need to try again, because if we don't have some kind of net for the people who are not going to do well in this world, that's going to be problematic.
40:24
Jake Taylor: I mean, your guillotine risk goes through the roof.
40:28
Jim O'Shaughnessy: It really does.
40:29
I love that way of phrasing it, because it's true.
40:29
You can only push people so far until they get to pitch forks.
40:39
I think that the elites of today...
40:39
This is a different subject, I think.
40:46
We'll maybe stay off of it.
40:46
They just don't really...
40:50
They really don't have a clue.
40:50
Business seems to need to be stepping in more and more and more to offer solutions to these challenges.
40:57
I think it's going to be an amazing time, but you need a little bit of a manual to navigate that new space.
41:03
That's what we hope to do.
41:11
Leaving that for the moment.
41:11
Another thing, I mean, as I was going through your stuff and putting together my questions, I'm like, God, I agree with this guy in everything.
41:22
Jake Taylor: Well, it's good group-think for us.
41:24
Jim O'Shaughnessy: Yeah, yeah, yeah. Right.
41:26
So, my immediate question is, what am I wrong about here?
41:26
And he's wrong about it, too. Jake Taylor: Yeah.
41:30
That's the question I want answered. What do we have wrong?
41:33
Was it Darwin who like, if within 30 minutes he didn't...
41:33
If he found disconfirming evidence of something that he believed, he would write it down right away because otherwise, he knew his brain would figure out a reason to throw it away and never think about it again and not destroy his identity, not destroy his story, not destroy his cherished beliefs.
41:56
Jim O'Shaughnessy: Absolutely true, and I cannot get people to believe that.
42:00
It is so hard to get people to understand that your brain...
42:00
Like I wrote a thing for a thread on Twitter that actually turned out to be really popular called the thinker and the prover.
42:12
It basically says, Hey, you can think about anything you want to think about.
42:18
The world can be a brilliant, wonderful place or a dark horrifying place.
42:18
But once you decide on something, your thinker gets turned off, your prover gets to work.
42:24
And what does your prover do?
42:31
Just what you were talking about a moment ago on free energy.
42:31
Your prover only is going to prove what you believe.
42:37
And so it's going to ignore all the contrary evidence and the star one, right?
42:45
The prover was at work and it was doing its job.
42:45
That's what people need to understand.
42:51
So what you need to understand is feed your prover some other stuff, it'll prove it.
42:51
One of the things about really capturing the erroneous belief or the data that shows that you're wrong, I cannot tell you how much that has saved me in my life.
43:06
I do the same thing whenever I'm wrong.
43:06
And again, thank you Apple.
43:14
I have this super computer that I can immediately capture, "Hey, fuckhead, you're wrong about this?"
43:23
And I kind of make it- Jake Taylor: Another job to be done by your phone.
43:25
Jim O'Shaughnessy: Exactly.
43:27
I kind of make it a game, right?
43:27
Because I had habit obviously.
43:27
You've got to make all of these things habitual and you've got to make it fun because, I mean, come on.
43:41
Who wants life to be a drag?
43:41
So you're absolutely right, and trying to convince anyone of that is almost impossible.
43:48
Jake Taylor: I was going to ask you, speaking of Twitter, Jim, one of my favorite threads that you had is when you were a magician and seeing the old pictures.
43:58
It actually got me thinking about, we were talking about free energy principle and surprise minimization, and actually you can tie some of this stuff in with...
44:09
And I know you like Eastern philosophy as well.
44:14
So Sun Tzu and this idea of Cheng versus Ch'i.
44:14
So it's C-H-E-N-G and C-H 'I, and the Cheng is the maneuvers in a battle that you are showing your opponent so that they are really like, they're building the mental models.
44:31
You're giving them the ammo actually to think they know exactly what your next move is.
44:36
They think they have you all figured out and you're matching every pattern for them.
44:41
You're turning on all these things in their brain that say, I know what's next. Right?
44:45
Because our brains are always making those predictions. Jim O'Shaughnessy: Yep.
44:49
Jake Taylor: Meanwhile, they don't see the Ch'i, which is the rear flanking maneuver, the surprise that happens, and you catch them off guard.
44:57
I think that same thing maybe applies to a magician where it is Cheng and Ch'i.
44:57
You are building mental models in people's heads and then surprising them with free energy basically, in a way where they didn't see it coming.
45:10
Jim O'Shaughnessy: What a great analogy and one that I hadn't thought of. So thank you.
45:14
I'm going to steal that from you because as you know, great artists steal.
45:18
Jake Taylor: That's all yours.
45:21
Jim O'Shaughnessy: Mediocre artists copy. Great artists steal. But boy, is that true. And I learned so much.
45:23
That's what led to my interest in human behavior like, why the hell are we making all these mistakes all the time?
45:37
And then my interest- Jake Taylor: Yeah. Reliably. Jim O'Shaughnessy: Yeah. Reliably, right?
45:41
I can't predict what the market's going to do, but I can pretty well predict what human beings are going to do, but that's a great way of thinking about it.
45:46
I've read a lot about that as you might expect, but I love tying it into the magic because that's what magic is.
45:59
Magic is building a mental model, getting people to think that this is the way and basically controlling their predictions. Right?
46:07
And then, whoops, nope, this is what happens over here.
46:14
So what it really is another even simpler way is you say, look over there, and they do. Jake Taylor: Yeah.
46:21
I would be curious to ask Rory Sutherland, whether if he would agree with a statement that advertising is actually just a selective turning on or off of mental models in other people's brains. Jim O'Shaughnessy: Yeah.
46:35
I'm going to have him on again.
46:35
You know, I love Rory and he and I get along really well and I've learned so much from him.
46:42
I don't know that I know him well enough, but my guess is he's going to love that. He's going to love that.
46:50
He's going to say that it really works.
46:50
And then he's going to riff on it and the riff- Jake Taylor: And have a hundred great stories about why it- Jim O'Shaughnessy: Unbelievable. Right?
47:00
Jake Taylor: Yeah, he's so good.
47:03
Jim O'Shaughnessy: He's so good.
47:04
And you mentioned Michael Mauboussin.
47:04
We're friends with Michael and Michelle, his wife.
47:09
He's just so much fun to go out and chat with because we have the same interests, yes.
47:13
But he comes at it from a completely different area.
47:21
I've learned so much from Michael.
47:21
Jake Taylor: I mean, honestly, just to circle back a little bit to Journalytic, Michael Mauboussin's fingerprints are all over Journalytic, whether he knows it or not.
47:29
We're trying to get all of the best practices that he's been writing about for 30 years baked into this architecture to help you become better and not make the mistakes that everyone's already identified. Jim O'Shaughnessy: Yeah. Yeah.
47:45
I think, we'll probably talk more about this on another podcast, but I think it looks great and I think that you're probably going to do really well with it.
47:53
I want to switch gears to another thing that I try to get people to understand, and it's very difficult for me to do so.
48:06
And that is, you should push decision making all the way down as far as possible, and in your book, you wrote to those closest to the consumer, but in asset management, what we do, it's push it to those closest to the activity that's being done.
48:28
I still remember after forming OSAM, we moved from Bear Stearn's Asset Management, where we had a centralized trading desk and we had trained them how to trade quant portfolios and we are doing it all again.
48:39
One of my guys was like, "Well, no, we should decide on which systems we're going to use."
48:45
And I looked at him and I went, "Have you learned nothing from me?
48:45
We have no business deciding on what systems we're going to use.
48:50
When was the last time you did a trade?" "Uh, '96 maybe."
48:58
Jake Taylor: When was Reagan president?
49:01
Jim O'Shaughnessy: Right. Exactly.
49:03
So this is just another one of those great examples that is a really great reason to read your book pushing it down.
49:12
But here's a little catch that I wanted to ask you about.
49:17
I also have a theory that as companies or organizations, doesn't have to be a company, organizations, whatnot grow, one of the things that happens is that the information to the top of that hierarchy gets worse and worse and worse to the point where they're actually not getting valuable or true information at all.
49:40
I use McNamara during the Vietnam War as my example, and again, it's...
49:48
Another great example is Asian pilots.
49:48
The people who ran Korea's airline realized that they had to train their pilots.
50:00
Westerners had to train them because in their culture, being contrary or rude to your superior was simply not- Jake Taylor: And not deferring.
50:19
Jim O'Shaughnessy: Simply not done. Jake Taylor: Yeah.
50:22
Jim O'Shaughnessy: This is really weird, but crashes were happening because the co-pilot who was subservient to the pilot would not tell him, "Hey, we're about to die."
50:34
So I'm not making light of this at all.
50:34
I mean, I use that example to show people are willing to die rather than break the social bond of how they interact within the hierarchy.
50:53
Do you have a solution for how?
50:53
Could McNamara have used something else?
50:53
I have an idea, but I'd like to hear your idea.
51:03
Jake Taylor: You're saving all the easy ones for me, Jim or...
51:05
Jim O'Shaughnessy: Yeah, absolutely. Absolutely. I thought layups. Jake Taylor: Yeah. Layups.
51:11
Jim O'Shaughnessy: You know, it's a Friday.
51:11
I can't be too tough on Jake so obviously, give him the layup questions.
51:16
Jake Taylor: I mean, I don't know if I have a good solution, but in general, how I think about it is that every decision should be tried to be made with as close to the source capital T truth that exists in reality.
51:30
At the end of the day, we're probably all kind of like Plato's cave, right?
51:37
Where the allegory is that we're all chained up in a cave and we're staring at this wall and there's a fire behind us, and there are objects walking past the fire and they cast this shadow up onto the wall.
51:49
We look at these shadows and we name the shadows and we call them things.
51:55
But at the end of the day, they're not even really the real things.
51:55
They're just our interpretations of them.
51:59
That's like, everything gets filtered in through ourselves. Right?
52:05
I think the same thing is true for an organization.
52:05
At a macro level, an organization exists, and it has the same problem of trying to find capital T truths and connect it with the decision.
52:14
So the more that you can push it down in a business context, the whole point of a business is to delight the customer, and the closer that the person is to the actual customer and could see what is working, the empathy, the action that we took, the expenses that we incurred, how did that delight the customer?
52:36
And if me, at headquarters, as the CEO, a thousand miles away from the transaction that's happening in a retail context, let's say, to make it easier to understand, I have no idea whether the customer is enjoying that product or not, but the person selling it to them has a much better idea.
52:53
So the more that we can tie that feedback loop closer to the person and making real decisions on the front lines, the better chance we have of not creating a structure of production that is mismatched with what the customer really wants.
53:06
Another analogy might be in a war context with, and granted, of course the aims that they were going for were horrific and disgusting, and no one's saying this is pro-Nazis or anything, but the blitzkrieg strategy that later is really well explained by John Boyd and OODA loops, if you want to go down there rabbit hole.
53:30
Jim O'Shaughnessy: Great book.
53:31
Jake Taylor: But the idea that you can give your frontline people your troops and aim like, this is what we're aiming towards and here's why.
53:41
And then the what, the execution, the in-game tactics that happen are better done at the front lines and not back at headquarters.
53:49
Your information is likely to have either been too old, right?
53:56
Because that was the whole point of OODA loops is you want to have a fast input to interpretation, decision, action, and you just want it to be operating faster than anyone else's.
54:08
So you can't have a fast OODA loop when the information has to travel and decay a thousand miles back to you at headquarters, and then you send something out to them like, "Okay, well, here's the next thing you should do."
54:19
They already know what the general goal is, and they're just going to go do it for you.
54:23
I think that all the good cultures in anything really, they empower people, right?
54:30
They're not top-down hierarchical.
54:30
In fact, I think there's some Chinese proverb that's like, truly great leaders, when the mission is accomplished, everyone looks around and wonders like, that guy wasn't even doing anything the whole time, the leader. Right? They did it themselves.
54:46
And so designing the system that allows people to go on their own hero's journey, whether it's the customer or the employee and being the hero of the story and getting the hell out of their way, I think is actually a huge advantage if you can figure out how to do it creatively.
55:02
Jim O'Shaughnessy: Totally.
55:04
That quote by the way, is from Lao Tzu the Tao Te Ching.
55:08
And he says, "the greatest of leaders leaves his people thinking we've done it by ourselves."
55:15
Jake Taylor: There you go.
55:16
Jim O'Shaughnessy: Another wonderful BOMO from him is govern a large organization...
55:23
He actually says country, but we're trying to make it friendly for our audience.
55:28
"Govern a large organization the way you would cook a small fish lately."
55:28
And then finally, complex adaptive systems we talked about earlier.
55:37
I've done a massively deep dive on those.
55:44
The irony and funny, funny thing that I find at least is that we have all of these top down control systems, and if you understand the complex adaptive system, you know that all emergence comes from the bottom.
55:56
Jake Taylor: The interplay between the constituent parts. Jim O'Shaughnessy: Yes.
56:01
So gee, wonder why the Soviet Union failed.
56:01
Well, guess what, they had a model that didn't work and they refuse to admit that it didn't work, right? Jake Taylor: Right.
56:14
So prices convey information in an economy.
56:22
That's how supply and demand finds its level.
56:22
It's so amazing to think that I have this little list in my head of a calculus of the things that I want that are most important to me and businesses try to figure out how to match that list, and they figure out what they have to do to make me happy.
56:36
The idea that we all have that calculus happening.
56:36
And there's billions of these ideas and transactions happening at all times that are creating a price.
56:51
I mean, this is what Hayek was talking about with The Fatal Conceit, which was the idea that you could know what the right price of anything was when it's based on billions of interactions of ever changing and ever shifting preferences and ever shifting production capabilities.
57:00
To be able to do that math would be an absolute just insanity of ego to think that you were capable of that.
57:13
Jim O'Shaughnessy: We'll have to have you back on.
57:15
One of the things that you say both in your book and in other endeavors is if you're really going to be looking for the best people to be making decisions, you cite three qualities that that person needs to have.
57:37
If you wouldn't mind, go through them for our audience.
57:43
Jake Taylor: Well, I mean, I'm just stealing like a great artist from Buffet, which is it's energy, integrity and then basically aptitude. The smarter, the better.
57:51
Buffet makes the joke that if you have low integrity, then you actually want them to be dumb and lazy.
58:08
Jim O'Shaughnessy: Right. Exactly.
58:11
Jake Taylor: No, but all three of those things are hugely important.
58:14
It's the capability that the person has. It's the energy.
58:14
Because we all will absorb the energy of the people around us, and you know it, when you're around someone who has a lot of energy and like, God, you just come away from it feeling better than you felt before.
58:27
And then obviously integrity, that's so important like trust.
58:33
Especially nowadays in complex systems, trust is actually one of the key ingredients of any of those systems.
58:45
I think that's actually why Berkshire has been so successful and been able to run such a decentralized operation is because they have an incredible level of trust amongst...
58:56
They're able to delegate to the point of abdication because they have such trust, and a ton of decision making...
59:03
I actually did a little math on this at one point when I was thinking about cap allocation within Berkshire.
59:10
So for every single dollar coming in the door, I'm looking at cash flow from operations, who made the decision on where that money went?
59:16
So I looked at like, okay, well there's CapEx, there's inventory.
59:20
There's a bunch of different places that money can go.
59:20
There's buybacks and M and A.
59:28
When you look at it, Buffet is actually only making about 30% of the decisions within Berkshire.
59:32
The other 70% is pushed down the organization to the front lines, to the people closer to trying to satisfy the customer, to the shorter feedback loop, all the stuff that we've been talking about.
59:44
He's just at the very, very top level of M and A and buybacks and dividends and a little bit of some cap allocation too if the business needs more money for another project.
59:58
But for the most part, they're making their own decisions at the front lines, just like a good general would in a blitzkrieg. So it all ties together.
1:00:02
It's funny how all these threads just run through the exact same stuff, but I think it gets to...
1:00:07
That's why I like your show, Jim, is because you're trying to untangle those threads and lay them out for everybody to see so that we can recognize the patterns later.
1:00:17
Like we're building those mental models to see them later again. Right?
1:00:22
Jim O'Shaughnessy: Exactly.
1:00:23
And then repetition, repetition.
1:00:23
I would add the other things you want to see in somebody is both persistence and patience, but also action on ideas.
1:00:30
If you have the greatest idea in the world and you take no action against it, guess what? You get nothing. Jake Taylor: Yeah. Worthless.
1:00:45
Jim O'Shaughnessy: I cannot tell you the number of people in quant, who've come to me and said, "This model is the greatest model in the world." And I'm like, "Okay. Okay wow."
1:00:57
Jake Taylor: Oh, let's start a hedge fund.
1:00:59
Jim O'Shaughnessy: Exactly, exactly.
1:00:59
And then they'll come back, and I try to help younger people who are helping on a kind of a pay it forward basis. The idea that the...
1:01:14
Listen, I value ideas, as you know, extraordinarily highly, but ideas alone? No, I'm sorry.
1:01:21
That's emancipatory in my opinion.
1:01:21
What you want is knowledge and action. Right?
1:01:28
If you don't marry those two, it simply does not matter how good your ideas are. They'll never make it.
1:01:35
Other people won't know about them, and so your network will be N equals one.
1:01:47
We use that as a joke, right?
1:01:47
About our talking about personal experiences.
1:01:47
But the network, that's the value right there is in the world we're in now, are you kidding me?
1:01:52
You have to shout from the rooftops even a great idea because there'll be so many people who are either too lazy or have a different point of view or don't think things through and like, great, I'm glad because you want those people to be able to compete against in my opinion. Jake Taylor: Yeah.
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I think that's one of the...
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As interconnected as the world is today now, that ability to plan a flag has never been easier, I think, and to have to find the people that rally around what you believe in that want to create the same change in the world that you believe in, it's probably never been easier to find them and work together even geographically dispersed.
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I mean, to me, to go back to what you're saying, that it's an incredible opportunity if you have that trust, that initiative, that wanting to take your shot in the world.
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It's never been a better time to be that person with the tools and the ability to discover networks.
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It's incredibly exciting time to be alive, I think.
1:03:05
You can paint lots of negative pictures in macro environments.
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You look at federal debt levels of expensive markets and political strife and discord.
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It's really easy to build the bear case of humanity, but that's always been the case. Right?
1:03:24
Jim O'Shaughnessy: Of course. Yeah.
1:03:24
Just to follow on on that point, I mean, that's one of the central messages of the Great Reshuffle is that time, space, and geography have collapsed, and what the implications of that are extraordinary because you no longer have to be a person...
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Let's say you live in Alabama and you have this great idea around X, Y, Z.
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In the old days, and you didn't want to move, it was pretty hard finding your tribe, so to speak.
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Today, it's never been easier.
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If you use it the right way, they're going to give you great feedback and you're going to go, "I didn't think about that."
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And the iterative process will go faster and faster, but it'll get better and better and better.
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This world that we're now in and moving towards, I just think is like, I too feel just amazingly lucky to be around at this particular period in time.
1:04:34
People think I'm crazy when I say that, but it's like, "Oh, just wait. Wait and see."
1:04:34
Well, listen, this has been so much fun.
1:04:40
It equals my expectation, which I think I want you to know- Jake Taylor: Well, that's good. Jim O'Shaughnessy: ... that's a high one. Just kidding.
1:04:48
I had very low expectations for you. Jake Taylor: Good.
1:04:53
Then I did my job correctly.
1:04:53
Jim O'Shaughnessy: No, you set it up exactly right.
1:04:56
So I'll give you great points on that.
1:05:00
Well, one of the last questions we ask everyone on the show for the first time as a guest, and so you won't have to answer this the next time you come on the podcast.
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But we are going to give you the ability to have the powers of the emperor of the world.
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But unlike almost all historical emperors, you can't kill anyone and you can't lock anyone up in a reeducation camp.
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What you can do is incept them.
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As they're going to sleep at night, you're that little ear worm that is saying two ideas to them that they're going to wake up the next day in line with Lao Tzu's we did it ourselves, and they're going to think that's their idea.
1:05:44
What two things you're going to get people to think about or change the behavior of that you think would really, really benefit humanity, society, the world?
1:05:54
Jake Taylor: I think the first one would be it has to be something around growth mindset and a sense of agency that if I want tomorrow to be better than it is today, I can do that.
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It's available to me and I can figure out how to do it.
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I know it's going to take work, but I can do it.
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There's no hopelessness.
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I will overcome whatever it is.
1:06:21
So providing that initial kind of activation energy for my number two, which would be, and this can come off a little Pollyannish, I know, but I really have a fundamental belief that when business is done well, it benefits everyone.
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It benefits the employees, it benefits the customers, it benefits the owners of that business, it benefits the regulators and the communities they do business in.
1:06:47
Everybody can win, and their suppliers.
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There's a whole ecosystem that it revolves around a business, and when it's done well with a long term horizon, with win-win relationships across all of those constituents, that it is a force for good.
1:07:04
Capitalism allows that to happen and that we probably are...
1:07:04
I kind of have a little bias that actually we're sort of like, there's these angels and demons on our shoulders where one angel is capitalism done right.
1:07:21
I'm not saying dump all your chemicals in the river and that kind of shit. That to me is not...
1:07:28
Or chiseling your suppliers or getting over on your employees.
1:07:37
I don't believe that's capitalism done right. But that's on one side.
1:07:42
And then on the other side, we have command and control and government, and on this side is actually technology, like figuring out how to do more with less.
1:07:51
On our other side is government and wanting to control all this stuff.
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Those angels and demons are battling right now for our souls.
1:08:01
And I sure would like to see people to appreciate the potential that can happen when capitalism is practiced in a good way and what it can do for humanity as a species.
1:08:13
I'm hopeful that we can outrun from a technology and business standpoint, some of the trappings and problems that I think we get dragged into in our tribalism of governments and small-minded thinking, and the little bitter Grinchy part of our existence as humans.
1:08:35
Jim O'Shaughnessy: I love both of those.
1:08:35
Jim O'Shaughnessy: I love both of those. Again, stealing from the author I told you about, he opens his book by saying, "You know, if you look at all of the religions, all of the societies, all of the mass movements in human history that
1:08:54
have promised you that things would get better, that you would have a better life, that your children would be safer, that the quality of your food would be higher, all of them," and he said, and "I'm including, them all, Christianity, Islam, Judaism, all of the major religions, only one system has given all of those to people, and that is the free market." He goes, so
1:09:13
He goes, so are there problems?
1:09:23
Yes, there are, and we need to address them.
1:09:23
And we need to be honest about them.
1:09:29
And I think you mentioned many of them.
1:09:29
But this idea that the free market is not the singular best system if you want to advance human society.
1:09:44
I'm certainly open to the idea that some knowledge from the future of which I am unaware is going to come up with a different system that operates even better.
1:09:50
And you know what, when that happens, I'll be one of the first people to change my mind and say, that new system is great. We got to embrace that.
1:09:59
Jake Taylor: That's your superpower, Jim, changing your mind.
1:10:02
Jim O'Shaughnessy: But right now, the best system that I know of in helping people out of poverty, in helping them live better, more dynamic lives, and all of the things that we've been talking about are free markets.
1:10:18
And then of course your first two are absolutely required, right?
1:10:24
If your agency is given up or people try to give their agency away. "No, no, no. That's your..."
1:10:33
So they can blame, right?
1:10:33
Jim O'Shaughnessy: So your center of gravity has to be internal.
1:10:35
If your center of gravity is external, you're going to be buffeted by other people's ideas, other people's scripts.
1:10:42
There's a great book by Derren Brown, the magician who wrote a very well written book called Happy: Why More or Less Everything is Okay.
1:10:57
One of the things that he says in the book and underlines is that if you don't have that center of gravity in yourself, your life's going to be really, really hard.
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So agency, center of gravity in yourself, the get started, you can make it better, I love all of those.
1:11:20
And that, yes, capitalism, free markets are great, but we need to improve them.
1:11:26
I mean, people say, "Well, you're so radical in your disposition."
1:11:26
I'm like, "When did it become radical to want free markets, free minds and free speech?"
1:11:37
This was as fun as I was expecting it to be, so thank you!