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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.
1:42
It's Jim O'Shaughnessy with another episode of Infinite Loops.
1:42
I am literally, probably the luckiest guy in the world because I get to talk to so many smart people on this podcast, and I've got a real doozy for you today.
1:55
It's my friend, Steven Begleiter, who's the managing director since 2008 at the PE firm of Flexpoint Ford, and I might add, served as my rabbi when I was at Bear Stearns. Welcome, Steve.
2:12
Steve Begleiter: Thanks for having me, Jim.
2:16
Very excited to be here, and great to see you again.
2:19
Jim O'Shaughnessy: Great to see you.
2:19
So, we were reminiscing when we had lunch and you agreed to come on about Bear Stearns, and I had mentioned to you before we were on recording that.
2:25
Suddenly there seems to be a lot of chatter about Bear on Twitter and other social media.
2:31
One of the things that I learned when that was happening, as you know, we were negotiating for me to create OSAM, and you and I were working very carefully because we both believed that you don't burn bridges on Wall Street, and we wanted to make sure that everyone was friends when we left.
2:52
But the media, man, I've got to tell you, that was the first time...
3:00
I'd done a lot of media in the past, but I remember Elizabeth Ventura calling and saying, "You've got to come down here because a certain reporter, who shall remain nameless, wanted to write this big story that was literally all rock."
3:16
So I went down, I called the reporter.
3:16
I knew the reporter well.
3:16
I said, "Listen, you write what you want, but if you do write this, I'm going to go on CNBC tomorrow and say, it's entirely wrong." What!
3:30
You faced like 10X than I did. Am I right? Steve Begleiter: Yeah.
3:36
Well, I think you touched on a couple of things.
3:36
As you get more experienced in the world, and you're familiar with things that are being reported on, you realize that they're wrong a reasonable percentage of the time. Okay.
3:48
Jim O'Shaughnessy: Right.
3:50
Steve Begleiter: They don't read like they're uncertain, they have great certainty, but that's not what happened. I was there.
3:55
So that's totally believable.
3:55
And then, I would say that the reason we're on this podcast today is because you and I had a really good relationship.
4:02
We were heavily involved when you joined Bear Stearns.
4:09
And we started with that Netfolio and that was a negotiation.
4:09
And there was a negotiation when you all separated, and there's all sorts of interaction in between.
4:14
And I don't really remember the details.
4:19
All I remember is that you're a quality person to deal with.
4:25
And whatever the issues were, we hammered them out.
4:25
They came out reasonably, worked good for everybody and you part friends.
4:29
And when you go through those types of things with people, when you get older and you want to just, you just want to hang out and work with people who you like working with.
4:39
And we had that good interaction, which I would say is typical of my experience of Bear Stearns of the people I dealt with.
4:45
You could sit down in a room, work through tough issues, get on the same page and all wear the same T-shirt and actually come out tighter because of that.
4:55
That was really my experience there.
4:55
Jim O'Shaughnessy: That was one of the things I most greatly admired about you, because I think the same of.
5:02
We had a lot of tough things that we had to get through, but because we both were dealing in good faith and the thing people have this warped idea of Wall Street, I think.
5:15
And I often tell people, "You guys don't get it at all.
5:15
Wall Street is based entirely on trust." Steve Begleiter: Yep.
5:22
Jim O'Shaughnessy: And if you get decayed, that guy or woman just, they're not going to be able to work on the street much longer.
5:29
So there is still a very big heritage of your word is your bond.
5:29
And if that, if you've internalized that, you get people like you.
5:35
And I've seen you negotiate other things.
5:35
My lawyer, when he started, he was like...
5:45
He looked at me and he goes, "I get at the impression that Steve can glance at a column of numbers and not only give you what the CAGR will be five years later, but we'll give you what the free cashflow is." Steve Begleiter: Yeah.
6:01
My wife calls that my superpower.
6:01
Yeah, I can look at a large bunch of numbers and find the one that doesn't look right.
6:08
But hopefully as I just turned 60, I hope I retain that for a little while longer. Jim O'Shaughnessy: Okay.
6:16
Well, I'm a year ahead of you.
6:16
And I'm fingers crossed, but so far so good.
6:21
So I think with you definitely.
6:21
Steve Begleiter: 60 is like the new 35, I think these days.
6:24
Jim O'Shaughnessy: Exactly. I agree with you.
6:26
It says the both people above 60.
6:33
The other thing about Bear that, when I reminisce about it, when I talked to old Bear hands, it I was really, really sad, even though I'd gone on to OSAM.
6:41
I was so, I got on a plane to go to Australia because my daughter Kate was doing her semester abroad there.
6:50
When I got on the plane, Bear was fine.
6:56
Literally, Steve, when I got off the plane, I was still using a Blackberry.
6:56
It blew up when I turned it on.
7:02
It was like all of my friends from private client services wanting to talk, I saw the bid. What was that like?
7:08
Steve Begleiter: Oh, well it was awful.
7:14
So just share your audience.
7:14
I started at Bear Stearns right out of college when I was 22 years old.
7:18
And now, so that was 1984.
7:18
We're now talking about 2008.
7:26
So I've been there 24 years.
7:26
And I led Bear Stearns and I've been very fortunate, I'd been offered an opportunity to audition for senior management and I had an ingrained spot there.
7:38
And so I knew a lot of people, I interacted a lot of people and really, really had a lot of great, like you did, great close relationships with people that I just thought were really top notch.
7:48
And it was very emotional because the week we had to sell to the JP Morgan, we sold to the JP Morgan on a Sunday night.
7:59
When we came into work on Monday morning, we did not think we would be sold to JP Morgan on Sunday night. Okay.
8:04
Things built up during the week.
8:04
And really late Thursday night was when we realized things were maybe beyond the point of no return.
8:11
And all of this is documented in a few books, Bill Cohen's book and stuff like that.
8:19
We can go into it if you want.
8:19
But between Thursday night and Sunday night personally, it was up in the air, we were going to sell the JP Morgan or I don't know, declare bankruptcy Monday morning or do something else.
8:29
I mean, a lot happened in a short period of time.
8:33
And yeah, when you got a chance to take a breath after that, it was very sad. It's very sad.
8:39
Obviously you can still see people, but it was something that was just, it was a family, it was a home, it was a career.
8:54
And it was something that you were proud to be associated with.
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And it was gone and it was gone very suddenly.
8:59
So yeah, it was very traumatic.
8:59
I remember coming home that Sunday night and my wife and one of my three kids, the only one was old enough to realize what it was going on was waiting up.
9:09
And I just walked in and I just started to cry and they hugged me and whatever.
9:13
And it was, I mean, I'm not saying it's as traumatic as losing a loved one, but it was very sad. It was very, very sad.
9:17
Jim O'Shaughnessy: No question about it.
9:20
And I remember I came in to see you after I got back from us Australia.
9:27
And I'm like "Steve, what the happened?"
9:27
And what it really was, was a classic run on the bank. Steve Begleiter: Yes.
9:37
We died from a liquidity crisis.
9:41
People don't understand, they do understand now.
9:41
But our banking system had a really rough time in the 1930s.
9:52
And so, the powers that be created this whole system so that people's money up to $250,000 wouldn't be at risk.
9:59
And part of the way that banks can maintain having the liquidity is even when people don't want to give them larger chunks of money, they can take assets, certain assets, most of their assets to the federal reserve, something called the discount window and borrow against them.
10:17
It's a lender of last resort when you need money.
10:22
And broker dealers don't have that lender of last resort. Okay.
10:22
We have people who lend to us secured by assets, but it's all confidence based.
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And when you hit those rare moments where you've lost confidence, it doesn't really matter that you own treasuries or government guaranteed mortgage backed securities.
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If people don't want to finance you, there's no place else to go. You're not a bank.
10:44
There's no lender of last resort.
10:44
And that's what scrunched us in a very short period of time.
10:50
If you look happened afterwards and rolled the clock forward today, Goldman Sachs is a bank, Morgan Stanley's a bank, Merrill Lynch merged into a bank.
10:54
There still are independent broker dealers, but a lot less.
11:00
All the big guys realized, I got to be a bank to not get knocked over by the next one in 20 year, one in a hundred year liquidity event. Jim O'Shaughnessy: Yeah.
11:12
And it's something I talk about a lot that people don't think about just naturally, even some smart investors I know.
11:17
They really don't think about events like that because they happen so seldomly.
11:24
But the fact is all correlations go to one and everybody who you thought was as this, made of the sternness stuff, crumbles. Steve Begleiter: Yep.
11:40
Jim O'Shaughnessy: And it's that classic run on the bank where people are looking at other people and they see him pulling and they're like, "I'm not going to be the last person there."
11:49
And it happens so quickly.
11:49
And it's just, it's I think part of what you need to understand as an investor, that stuff happens really fast.
12:03
And it's like the old, I think it was Hemingway or Fitzgerald, who said, when asked, "How did you go bankrupt?" "Slowly then suddenly." Steve Begleiter: Yeah.
12:12
And listen, I had had enough experience in financial services before then to understand it, but it certainly informed my investing work today.
12:19
When you look at what your liquidity need is, you can't say like on average, I need this, or I need this plus 10%.
12:30
You need to look at what you need at a spike or a peak. Okay.
12:30
And hopefully never hit that.
12:36
But if you can't fund yourself personally in your business, at a financial company, in a peak environment, you're underfunded. You're [crosstalk]. End of statement.
12:49
Jim O'Shaughnessy: Totally agree with you.
12:49
And that leads me into the work you're doing at FlexPoint now.
12:53
You cover financial services and man, last two years, crazy, crazy stuff happening.
13:02
How does a traditional private equity firm such as yours, how do you look at that environment?
13:10
Steve Begleiter: Well, it's a good question.
13:14
We look at it with very wide eyes.
13:14
We are, as you said, a traditional private equity investor.
13:21
We generally invest based on cash flow, sometimes on asset values.
13:27
Our investments in financial service are, they're in insurance related businesses, maybe brokerages and balance sheet businesses, wealth managers, businesses like yours.
13:33
We have some business services that provide services to these businesses, to the financial industry, but they all are solid experienced businesses.
13:43
They make money, they have margin. Okay.
13:43
And what we've seen with this FinTech revolution is the way people consume financial services is changing. Okay.
13:55
I don't know if you use Venmo, but there was a day we didn't use Venmo and now we want the Venmo [crosstalk].
14:07
Jim O'Shaughnessy: Yeah, we all do. Yeah.
14:09
Steve Begleiter: And if you wanted a mortgage or a credit card, there was a day you walked into your bank branch, and now nobody does that.
14:17
You go online and you respond to an ad or you go to a site which aggregates all the best prices.
14:22
And so, there's all these examples of how people consume financial services has changed.
14:28
And there's a lot of excitement around that because people like growth.
14:28
And so they see big changes in volumes and activity shifting from legacy activities to ones.
14:33
And we look at this and we obviously, we like growth too, but we are very disappointed in saying, "Well, the business model work." Okay.
14:46
It's great to have revenues, but are the unit economic sound?
14:52
And when they hit some scale, do they make money?
14:52
And so we look through that lens very carefully.
14:59
And I'd say without getting into specific names, some companies, we think have very good unit economics, some things we scratch our heads.
15:03
And then, we say, "Okay, well for the things that we think where the unit economics are good, what's the price we have to pay?"
15:09
And generally, the price we have to pay is a lot relative...
15:15
The companies need to grow at a high rate for a long time to make that work.
15:20
It doesn't mean they won't. Okay.
15:20
And some people have done very well, assuming that. So we look at it as...
15:26
I look at it as the world will ultimately converge.
15:35
Right now, it's the home of the venture investor, the more speculative investor.
15:35
Eventually some of these companies will get so large, [inaudible] of large numbers. They can't grow as fast.
15:40
So they'll make a lot of money.
15:45
Their multiples will come down.
15:45
They'll still be high relative to us, but they'll be more validated and they'll be more investible and we'll stretch to invest in them.
15:56
So right now we're still largely in the observation phase, but there are niches and financial services where firms like ours are investing heavily and that are really to what's going on.
16:07
Most of it, I would say involves payments. Okay.
16:07
Payments has been an area where there's been a lot of breakthrough technologies or breakthrough companies in a whole bunch of areas and they've been profitable.
16:18
And so that's an area like us and our competitors certainly look to deploy capital.
16:23
And there's some other niches, insurance technologies and successful for some.
16:27
But yeah, there's basically a big shift in how consumers and businesses consume financial services.
16:33
And there's a lot of excitement be around that.
16:38
And we're sitting here trying to figure out who are the pioneers.
16:38
The pioneers get the arrows, the settlers get the land.
16:43
And try to figure out which of these things work and which of these things don't.
16:48
Not everything works yet. Okay. Jim O'Shaughnessy: Yeah. Right.
16:51
Steve Begleiter: But even though they have big valuations, I don't know if that's helpful or not, but. Jim O'Shaughnessy: Yeah. No, it's very helpful.
16:55
We experienced it at Netfolio.
16:59
We thought it was a really good idea and just the wrong on place, wrong time.
16:59
And so we have Canvas today, which is very similar to Netfolio.
17:08
I have to give my son a lot of credit for what the Canvas platform looks like.
17:13
But I do agree that what happens, at least from my experience of watching, is you get these like really intense kind of boom times where lots of companies are being founded, lots of stuff is going on.
17:26
The most analogous I could think of was back during that time.
17:32
Lots of brand new stuff, lots of new ideas. Most of them died.
17:38
Netfolio died, as you know, but the ideas didn't die.
17:46
And so you see them getting picked up on and we continued improving our tech so that we could get to a scalable solution like Canvas.
17:52
Is that something you watch as things that you looked at either die or go where you keep them on the radar? Steve Begleiter: Yeah.
18:05
Yeah, I think there's this model out there of what everybody's striving for, like the golden [cha] or whatever, which is your paycheck goes bank account.
18:14
And when you log on there, you can borrow money, whether it's a mortgage or a credit card.
18:20
You can invest money, whether it's stocks, bonds, crypto.
18:25
If you need insurance, you can buy insurance.
18:25
And it's all there, it's all connected. It's seamless.
18:31
You get one statement shows everything you own.
18:36
And you can just do all your financial services basically in one place.
18:42
And that's a great vision. Okay. It's really hard to do.
18:42
And you see a bunch of these companies out there and they start off doing one thing well.
18:49
They sell crypto well, or like they're a challenger bank.
18:53
And then if you watch them, they're all trying to branch out into the area.
18:58
So they think they all have this same idea.
18:58
Well, they got another six or eight things everybody does, some we can make money on, some we don't make much money on, but they're very sticky and reduced churn.
19:07
And so everybody's striving for that, including the big banks to a certain extent.
19:12
And it's fun to watch what's going to happen, it hasn't happened yet.
19:12
And a lot of companies will burn through a lot of money to find out that they can't get there.
19:20
But I do think we'll wake up in 10 years and there'll be some companies that do pretty much what I described pretty well. Okay.
19:31
It's just hard to know which ones. Okay. Jim O'Shaughnessy: Yeah.
19:34
On that thesis, are there any things in particular that you look for that either are no way or the other side of the distribution, holy shit, that we've seemingly found something here that others are missing? Steve Begleiter: Yeah.
20:00
I mean, I'd say most private equity people are, I shouldn't speak for most.
20:00
I should speak for myself, but I think it's very important to have a thesis when you're investing.
20:09
There's a lot of information in the world.
20:13
There's a lot of efficiency.
20:13
There's a lot of capable people investing in competitor firms.
20:17
And so, I think our business is a mix of understanding what you're buying today. Okay.
20:25
But it's you can get a little too wrapped up in the spreadsheets of the five year projections or whatever.
20:31
You have to have a thesis of why, like where the world's going, where this company's going, the things you, the delivers you have to increase value.
20:36
You have to have a thesis.
20:41
So that thesis might be that there's an aging population and the number of people who get to 65, I don't know, it's like 10,000 a day and they all got to buy Medicare advantage. Okay.
20:52
And so how do we get involved in all these people turning 65 and buying Medicare advantage, that's a thesis.
20:57
Can you find a company that's investible at a good price? That makes very hard. Okay.
21:02
But you want to combine something where you feel you're paying a prayer price today, but there's a good thesis because in private equity, there's really very few investments where you make money on the buy, you make money on the execution.
21:15
I think 20 years ago, you made money on the buy, but it's so efficient today.
21:21
You have to really execute and sort of grow the business.
21:21
And so, it's important to have a really good thesis.
21:28
I think we have lots of mini-thesis on many things.
21:34
I'd say there's very little, that's an automatic no, or an automatic yes.
21:34
But this is what myself and our partners debate all the time. What's the thesis?
21:41
And is this a reasonable way to invest in it and express it?
21:47
Jim O'Shaughnessy: And... go please.
21:50
Steve Begleiter: No, no, go ahead.
21:52
Jim O'Shaughnessy: What you just said is interesting to me because I've noticed this shift in private equity and it seems to have changed very much the way you describe it.
22:01
In other words, people are looking at private equity partners in a very different way.
22:08
They're saying yes to them be because they understand they need the expertise, they need the help they need all of that thing.
22:19
Do you see that as the trend for where private equity is evolving to? Steve Begleiter: Yeah.
22:28
I think that part of what's made private equity more attractive is being public is less attractive. Okay. Jim O'Shaughnessy: Yeah.
22:36
Steve Begleiter: So there's classic reason is to be public access to capital rewarding people with stock options.
22:46
But look, I think you probably know the numbers better than I do.
22:46
There's a lot less public companies than there were 10 or 20 years ago. Okay. Jim O'Shaughnessy: Yeah.
22:52
Steve Begleiter: And there's a lot more, I would say a lot more private companies, but it's a lot easier for you to have access to capital, to create incentive plan where you grow the value, you can get compensated like stock options or restricted stock units.
23:05
And you don't have the issue of, "I had a bad quarter.
23:05
My stock went down 40%, right."
23:12
We have companies where they don't have like a bad quarter, but we're investing in something.
23:12
And so we're not managing the quarterly earnings, we're managing the five years from now, seven years from now and building the best business we can.
23:21
And so I think is there's....
23:21
And so the investors, the pension funds, endowments foundations, they want to own good companies and they realize more and more of them are private, and less and less of them are public.
23:32
So my industry is really, we're just the same as Franklin Templeton.
23:37
We just manage private companies, you manage public companies.
23:41
You can easily create a portfolio of 140 names.
23:46
You might only create a portfolio of 12 or 16.
23:46
So if you're an investor, you might need to own 10 firms like ourselves.
23:51
But I think what's really happened is there's more of a case for being private less is a case for being public for a whole bunch of reasons.
24:02
And so more money is flowing to the private sector because there's more good companies who are just there.
24:06
When I first started, it was not like a, we were not enthusiastic about deals where we bought it from another sponsor. Okay.
24:16
Oh, X, Y, Z is selling it, we're buying it.
24:16
We must we would feel like we're the fools.
24:22
And now, that's not the case.
24:22
There's a lot of deals; sponsor to sponsor, sponsor sells half to a private equity firm.
24:29
If the companies deserve to be private, everybody understands we all have to sell companies from time to time.
24:34
And the management teams are comfortable with it because we've created incentive plans where if they grow the value, they get compensated just as if they were running a public company.
24:46
And again, it's often less stressful.
24:51
Jim Kramer's not sitting there saying, buy or sell.
24:51
And again, if you miss a quarter, you have time to pivot.
24:57
I think if Peloton is a good example.
24:57
Obviously, they had a great period of time and now it's like...
25:05
And all this stuff is visible to everybody.
25:05
And over time, management will build the best company they can.
25:12
And I don't know that their helped or hurt by being public at having all this transparency on it.
25:16
And what I think are normal and predictable gyrations is they build out their franchise.
25:22
So I think that's a good example of why there's been a lot of growth in private equity and management teams who've gotten more comfortable with private equity owners. Jim O'Shaughnessy: Yeah.
25:36
We've had too at OSAM and investments that we do through show the family partners, we are doing a ton of private investing for the very reasons that you just described.
25:49
And so some of the quantitative tools that we use for public equities, we're able to bring to the private market, but there's a lot of other nuance in private markets that you have to get better at and good at.
26:03
And so I personally think it's really exciting because of just what you said, to have people who are great management teams all of a sudden have their stock option package go down 40% because of a bad quarter, that's just insane to me.
26:18
And so it does not surprise me at all in terms of the private equity.
26:27
Where do you see like the private equity industry itself going?
26:35
Is everyone heading in the same direction or are there holdouts for the way things used to be run?
26:43
Steve Begleiter: No, I think that if you look at it, let's say Jim, you run a big pension fund. Okay.
26:46
And embedded in your pension fund job of paying all of these retirees down the road is you have to earn 7% a year. Okay.
26:52
So you look at like bonds, which, okay maybe the rates are going up right now, but we've settled into a 3% return environment for investment grade 5 or 6% for high yield. That's below 7.
27:05
Equity market, I mean, it's done very well, but your long term projection is probably 7 to 9%. Okay.
27:13
And we might be above that trend line.
27:20
So you got to be nervous.
27:20
And hedge funds haven't really knocked it out of the park lately. Okay.
27:26
And you look at private equity and the numbers on private equity don't quote me on this, but I would guess on large [inaudible], it's something like...
27:32
over a long period of time, it's something like 12%. Okay.
27:36
And with relatively low volatility around that.
27:47
So you could say, well, I might compress the 10%, but when I look at stocks and bonds, 10% is pretty good.
27:55
And so what's my allocation there? Because it is illiquid.
27:55
And you don't ever know what you don't know.
28:00
But I think at a high level, many investors are still increasing their allocation to private equity, not decreasing it because of the nature of the return. It's relatively low.
28:14
It has been relatively low volatility and pretty good.
28:14
Now in a year where the S&P goes up 26%, maybe your private equity tracks that, and maybe it grinds along at a lower return.
28:22
So you have to be an asset allocator.
28:27
But I think asset allocators are generally probably, I don't know.
28:35
With the last year, there's been so much growth in everything. It's hard to know.
28:35
But going into the, let's say 2019, I think a lot of people probably thought they were under allocated to private equity.
28:43
And so money's continuing to flow there.
28:43
Now there's been so much gain in stuff, and especially in venture capital with some of these snowflakes and Coinbase bases.
28:53
Some of the probably more committed investors to venture capital and private equity, they may be over invested because things are up so much and they haven't sold them.
29:05
But I still think that private equity is, if you look at the pie chart of how a pension fund or an endowment invests, it's not going to shrink.
29:10
The private equity piece for the foreseeable future, it might grow, it might stay about the same, but I don't see it shrinking anytime soon.
29:20
Jim O'Shaughnessy: It's funny because that seems to me to be everybody's playing the same game, so to speak, in that.
29:29
I remember when I was at Bear, we got a request from one of the biggest pension funds around for me to come over and give them kind of like what my unit of Bear Stearns thought the next 15 to 20 years looked like.
29:44
And using reversion to mean and other things, it wasn't great.
29:50
Steve, I think you and I actually talked about it.
29:50
And after the real rate of return after inflation was 2 to 3%.
29:58
And literally that's kind of with the financial crisis and everything, a lot of that go got burned in or baked in, so to speak, during that period.
30:09
But what I recall was the blank looks at me.
30:20
"You are telling us you're going to have to leave because you can't tell us that returns are going to be 2 to 5%?"
30:27
I mean, how do you deal with that attitude?
30:34
Steve Begleiter: I try to maintain tremendous humility. I don't know. Okay.
30:40
And there are many thoughtful ways of looking at the world. Okay.
30:46
Some people will say, "I like private equity. We get to do..."
30:53
When you buy a public stock, you get the 10Ks and the 10Qs. Okay.
30:57
Private equity gets to do a lot of due diligence generally, a lot.
30:57
Consultants, accountants going through it and all sorts of...
31:03
You get to do a lot of work generally.
31:03
I mean, I can't attest to every firm on every investment.
31:09
And oftentimes, there's structural considerations that sort of make your investment work different than common stock in a downside case, or your distribution outcomes is different.
31:19
There's just a lot of stuff that helps or can help.
31:26
Doesn't mean you can't do bad deals or pay bad prices, you certainly can.
31:32
And so some people might value that and say, again, and there's more good companies choosing to stay private.
31:38
I just need exposure to it.
31:38
And some people might say, "It's still liquid, the fees are high."
31:43
Don't really know what they're doing.
31:43
They don't really tell me much.
31:43
And so I need to earn a spread to what I think I can get in the stock market, and I don't think they're going to return earn that.
31:55
And so I'm not going to totally miss it, but I'm going to have less there or only focus on certain sectors.
32:00
And there's probably a whole bunch of views in between. Okay.
32:08
So I'm not really in that industry, but I certainly listen whenever people talk, and there's a whole range of views in within those parameters.
32:17
Jim O'Shaughnessy: That gets me into one of my little soap boxes that I'm always on, which is that general speaking, we are deterministic thinkers living in a probabilistic world.
32:33
And then I usually append to that either hilarity or tragedy often ensued.
32:39
I want to shift gears because I know a tremendous amount about probabilistic thinking because you are an amazingly good poker player. So good.
32:47
Steve Begleiter: Amazingly lucky once [inaudible].
32:52
Jim O'Shaughnessy: Well, you're anticipating what my first question was going to be.
32:54
But in 2009 in the world series of poker, you took six place and a purse of 1. 6 million. That ain't, hey.
33:00
So congratulations, but what I want to get from you is, so my friend, Annie Duke thinks that, who is a poker player and she's written several books about how you can use poker to become a better thinker, a better investor.
33:21
How much of your poker career, a few things that you might not have learned in being just a finance guy and on the question of luck, first skill, what are your thoughts? Steve Begleiter: Yeah.
33:41
So let me just unpack that a little bit.
33:45
And first of all, I've read a lot of any Annie Duke's books as well.
33:45
And Louis had an affinity for her.
33:51
Her dad, I believe, went to Haberford, which is my Alma mater.
33:51
So [crosstalk] from there.
33:56
Jim O'Shaughnessy: That's right. Yeah.
33:57
Steve Begleiter: And I was at a poker tournament and it was like the world series of poker.
34:00
And she was speaking one day before the stuff started.
34:00
And I listened to her and I picked up one or two really good points that I still used today.
34:04
So Annie Duke is a very good reference.
34:09
But like a lot of people, I played poker socially with my friends.
34:15
We got into it, the Holden thing when it started.
34:15
And basically I have a league with about 20 people.
34:22
Jim, basically like you and me, and we have a structure where somebody wins a prize and they have to use it to enter the World Series of Poker.
34:26
So in 2005, I won and half the prize, there were two prizes and I won the second prize.
34:32
And Bear just blown up, and I just started a FlexPoint, literally.
34:37
And I just said, "I want to go play the world series." Okay. Never done in my life.
34:41
I went and I didn't really know what I was doing. And I lost.
34:45
I made it to the third day, but I didn't win any prize money.
34:45
And then in the next year, I started really reading the books.
34:51
I started playing more like on up some local casinos and I won the prize at my tournament. Okay. So I had to go.
34:56
I talked to my partners, but they thought I'd be out in a day.
35:05
My wife thought I would be out.
35:05
"Don't even, what's the big deal.
35:10
You go Friday, you're back Sunday. We'll never miss you."
35:10
And I caught fire and I made the final table, which took like about a week and a half.
35:17
And then you take a few months off and you play in a big arena in front of everybody, and I'd end up taking six place.
35:26
Best thing about it was my 20 buddies all had 1% of me. Okay.
35:30
So they all had a piece of me.
35:30
And when you go out to Vegas with 20 buddies, another 20 come, because everybody's there.
35:36
And then Bear Sterns people work life people.
35:36
I mean, I just had a lot of support. It was a lot of fun.
35:43
But yeah, poker, I still play. I still enjoy it.
35:49
Poker is fundamentally, I think a lot like what we do for a living.
35:49
You're trying to make the best decisions you can with imperfect information. Okay.
35:53
And you're trying to assess the person, assess the information, each bed, each non-bed, each action is a little bit of information and you're trying to process us that and then make good risk adjusted returns.
36:09
I think it's very, very, very similar.
36:09
And I can't tell you like being a trader or being a banker or whatever is great trading.
36:16
But I think that in intuitively yes, luck is a large thing to do with it.
36:24
But being comfortable, making what you think are good risk adjusted decisions, risk reward decisions with imperfect information, that's the essence of the game.
36:31
And I think it's the essence of what you and I do for a living to a certain extent.
36:36
You'll never know everything, but at two time sales, you're willing to take the risk.
36:41
And at eight time sales, you're not. Okay.
36:46
Jim O'Shaughnessy: Right. Yep.
36:47
Steve Begleiter: And it's the same thing.
36:47
And all of these things matter, how big is the bet?
36:50
How big is your opponent stack?
36:50
Where are you in the prize money?
36:55
There's just a lot of variables and I just enjoy it.
36:55
It's like people like to do Wordle now when they get up in the morning, but every poker hands like a Wordle.
37:00
So you do your Wordle, you're done for 24 hours.
37:05
But you just wait 10 minutes and again into another interesting poker game. It's a great mind game.
37:11
Jim O'Shaughnessy: And how much of it, my friend Michael Mauboussin has written about this extensively, the skill versus luck.
37:21
And he has a thesis of that.
37:21
If you can intentionally lose a game, that's a high skilled game.
37:29
Because luck isn't intervening and letting you not intentionally lose it.
37:38
What do you think if you are going to- Steve Begleiter: Yeah, luck is important.
37:39
I mean, the year I got through the world series, there were 6,500 people and nine got to the final table. Jim O'Shaughnessy: Wow.
37:46
Steve Begleiter: What I like to describe the people, is imagine you take a big convention center and you put a big maze out there with nine pieces of cheese and you let 6,500 mice go for the cheese.
37:58
Well, nine are going to get it.
37:58
But if you did it again, the next day, it's probably a different nine. Okay.
38:02
And the chance, it's not the same nine. There's just a lot of... And so poker has that.
38:10
There's a lot of butterfly effects.
38:10
But I would say over the years, the average poker player has gotten better. Okay.
38:16
And so when they get better luck matters more.
38:16
And if I went through my run to the final table, there are three or four hands who were very fortunate. Okay.
38:31
And I made the final table in July. They play it November. It's on ESPN in between.
38:37
Pretty much everybody else who made the final table.
38:37
There were some very good players there, world class players, but they had some hands that worked that we're lucky too. Okay.
38:48
And that's at the end of the day, a lot of times when a poker player's waiting for a card, he'll yell one time.
38:54
One time means I know I'm not ahead, but it would be really nice if I hit my card.
38:59
And a lot of times the guys who make it to the end, there were one time happened.
39:04
And I had a couple of one times. Okay. Jim O'Shaughnessy: Yeah.
39:06
Steve Begleiter: And so if you play well for a long time and then get a little bit of luck at the right moments, you need both of those things to happen.
39:14
And also I didn't get unlucky.
39:14
You can get very unlucky and I didn't get profoundly unlucky until literally in my last hand.
39:22
Jim O'Shaughnessy: Interesting.
39:24
And that's very copacetic, but the way I think about it and about a lot of things actually, realizing that chaotic mathematic and that fractal world is interfering the butterfly effect.
39:39
And then understanding that concurrent with that is the general skill level is getting better.
39:47
And I think like what I do investing is a great example of that.
39:55
Ben Graham could do what Ben Graham did because no one was doing it.
39:55
Literally he didn't have...
39:55
And listen, I've read everything in the world about Ben Graham, an amazing man, an amazing mind.
40:10
Everything, I have just massive respect for him.
40:10
But what people forget is he's the guy who actually did write the book, Securities Analysis, and most people weren't looking at securities that way at all.
40:24
And then what happened when he put that incredible body of work into the public realm, lots of smart people read it.
40:28
And they're like, "Huh, this makes a lot of sense." And what happened...
40:36
By the way, this isn't just in what we do, this is in the world. This is what happens.
40:41
And what's happening, at least as far as my thesis is, is that skill levels are in fact going up, not just in what we do, but like in everything.
40:53
And we are forced to understand a, that that's happening.
40:53
And so if you're not constantly learning and more importantly from my perspective, unlearning shit that used to work and it doesn't work anymore, and you need to know that.
41:08
And so how do you transfer that to a game like poker?
41:19
Steve Begleiter: You're so spot on in poker. Okay.
41:22
And I think it goes for investing.
41:22
It probably goes for like coaching in the NFL. Okay.
41:28
Somebody has a plan and it works.
41:28
And then people go well, "How do I counter that plan?" Okay.
41:35
And they counter it and there's this cycle of evolution.
41:40
So I hadn't played in the world series for a number of years and I just played this fall.
41:47
And what I did well, I had hired two guys to be my poker coaches to coach me for the final table.
41:53
And one of them I talk to all the time, he's a pretty well known poker coach.
41:53
And I just noticed that, in certain situations, people getting a lot smaller than they used to. Okay.
42:06
And I noticed this and my mind's like, "Why? What does it mean?"
42:11
So I call them up after the first day, I made it through the first day, "What do these small bets mean?"
42:15
Is a percentage of the pot.
42:15
And we talked about it and he gave me the perspective of why they're doing it because a lot of times, it's like people fold way too many hands.
42:20
If you have like a ACE queen and the flop is 4, 5, 6, and somebody bets, you're like, "I missed it. I'll fold."
42:29
Well, if I'm betting, if there's $100 in the pot, if I bet 50, you might fold.
42:37
But if I bet 30, you might fold just the same. You're like giving up.
42:44
And if I bet 30 and you happen to have a really powerful hand, I've lost $20 less.
42:48
But there's all sorts of other reasons to it.
42:48
And then it's like, "Okay.
42:55
Well, how does the next be work if they bet small?"
42:55
And so we just talked through all of this.
43:02
And the second day I got into some very fun hands based on this.
43:02
And I won a really big pot from a guy who ended up making the final table that I stole.
43:09
It was like my high water mark of the tournament.
43:13
But yeah, this is a new evolution.
43:13
And it constantly happens and keeps the game relatively fresh.
43:20
And I think the same thing goes on with investing.
43:20
And the same thing goes on with how am I going to stop Aaron Donald and all this stuff?
43:29
And or how am I going to get Cooper cup open?
43:35
All of these things, you got to constantly innovate.
43:35
You got to constantly see what they're doing and adopt to the moment.
43:40
And that's one of the things I really like about poker, it's very real there.
43:47
And also people, if you're observing, people change while they're there.
43:47
They're playing a certain way, they're doing good.
43:53
Something bad happens and they start steaming.
43:58
We call it going on tilt.
43:58
I'm sure you've been on tilt investment wise.
44:01
Jim O'Shaughnessy: Totally.
44:02
Steve Begleiter: People are on tilt, you got to reevaluate what they're doing.
44:03
And maybe play differently against it.
44:03
Or the classic thing is you're playing at a cash game in a casino, and the person's spouse comes up all dressed up and says, "Aren't you done? We're going to dinner."
44:15
And he is like, "Give 10 minutes."
44:21
You want to play against them in those 10 minutes.
44:21
You see in 10 minutes he's gone to dinner and that's it. And that's information.
44:25
He doesn't know how long you're sitting here. Right.
44:30
Jim O'Shaughnessy: Right.
44:31
Steve Begleiter: So look for all of these things and things, don't stay static.
44:32
And that's what makes it so much fun. Much like investing. Jim O'Shaughnessy: Yeah.
44:38
And so I think that's why there's such a great, there's so much to learn there because one of the things you learn, at least from my perspective is a, you've got to be humble.
44:47
And by that, I mean humble in the sense that you really don't know everything.
44:55
In fact, so very little that if you don't keep your eyes and ears open and watch this as it continually evolves, you're going to get smoked and you're going to get smoked by people who are not telling the world how great they are.
45:13
And that whole mindset is also, I think, a huge trap for people.
45:13
Because if you look at the psychology behind it and I'm sure that I want to, and I'm getting to the question about poker, the psychology about somebody who's really loud and pounding the table about something, that guy has a really hard time changing his tune.
45:30
Because he's pounding the table, because now everyone's quoting him on that and he does not want to step back from that.
45:42
And it seems to me that if it's very easy for you to say, "I don't know," or "We'll see."
45:50
You leave so many options open that are close to you, if you're a table pounder.
45:55
How does that present itself in poker?
45:55
Steve Begleiter: Well, good question.
45:59
So there's all sorts of personalities around the table.
45:59
The thought that comes to mind, and this is not something that maybe a really advanced player does, is people often act the opposite of what their hand is.
46:10
When they're strong, they act weak.
46:10
When they're weak, they act strong.
46:17
So if I'm the only way I can win here is bluff.
46:17
I'm going to put out my chips, pound the table, give you this look like, "Come on, let's go."
46:22
And really I'm holding like two napkins and I can't beat anything.
46:27
You're likely to turn over.
46:27
And if you're holding four ACEs, you're like, "Oh geez, I don't know what I should do.
46:33
I guess I'll bet something. See what happens."
46:39
And you try to get that often. And so that's it.
46:39
Now of course, if I'm playing against an advanced player, he knows that if I'm looking weak, I'm acting strong.
46:46
I might act strong to get to think the opposite, but he might know that this thing is kind of cult leveling.
46:51
He knows, but I know that he knows.
46:56
But he knows that I know that he knows. And so it gets very fun.
46:56
But yeah, people, whether it's consciously or subconsciously often, not always behave slightly differently in certain circumstances.
47:12
And when you can detect that, it's powerful.
47:12
It's hard to detect and many good players try very hard to always act the same so you can't pick that up. Jim O'Shaughnessy: Yeah.
47:23
Steve Begleiter: Some actually really good books on that.
47:27
You'd be surprised how much you can give away without realizing it. Jim O'Shaughnessy: Yeah. You leak, right.
47:30
Because that's the whole thing if you study microexpressions and stuff like that.
47:38
Steve Begleiter: Wearing a poker mask is actually, I think something I may continue to do in poker tournaments, is it covers so much of your face.
47:45
Jim O'Shaughnessy: Right.
47:46
Steve Begleiter: You are supposed to be sitting there like this, just I'm wearing a mask, I'm over 60 and they can't see very much and you put a hat down over your eyes and it's actually very helpful.
47:54
Jim O'Shaughnessy: I was in conversation with a friend and I made that very point, that one of the other things that might have come out of this pandemic is allowing for an edge.
48:09
If you're over 60, you can like say, "Hey, I can't catch this disease."
48:09
But the ability, and I love that you picked up on that, the ability to cover at this part of your body, other than your eyes, it maybe wear sunglasses too, huh?
48:24
Steve Begleiter: Yeah, yeah. Yeah.
48:26
I mean, I got coached on all of this and I read books by like ex FBI guys.
48:33
So you want to cover your eyes, you want to see your forehead SCR, you want to cover your mouth and lips, the veins in your neck.
48:37
But also the most honest part of the body are the feet. Okay.
48:45
And so often you're not in a position where you can see what your opponent's feet are doing, but just check people's feet that they wrap it around a table stand, or they have it bounce up and down or how they cross it.
48:55
And when they have, we can strong hand the feet or an important area.
49:00
But I would tell you, I've never made a poker decision based on observing somebody's feet. Okay.
49:06
Jim O'Shaughnessy: I like that though. That's new to me.
49:09
I hadn't even thought about that.
49:09
So now I'm going to jump down that rabbit hole.
49:09
So let's move on because you and I share another love and that is, history.
49:17
And you in particular love military history as do I try to read history very broadly because I think if you don't know what happened and I'm stealing a quote here from Cicero, if you don't know what happened before you were born is to remain forever a child.
49:41
And so what drew you to military history?
49:41
And then was it learning lessons that you found applicable in your career that kept you going? Or was it just pure joy? Steve Begleiter: Yeah.
49:55
Well, it's a little bit of everything.
50:03
I think there's two things about it that I really I like.
50:03
I like reading a lot of firsthand accounts and just how ordinary people in extraordinary circumstances deal with being in these situations, which thankfully I've never been in to my life.
50:15
Because you wonder what it would've been like if you had landed on [inaudible] or you had been to Gettysburg or any of these things, and you'll never know.
50:27
And I just enjoy, let's say I enjoy it, but I there's something I have this appetite to consume that.
50:31
And get these perspectives.
50:37
I really like these firsthand perspectives.
50:37
And then, yeah, I think like in the Cicero camp.
50:43
You want to understand history.
50:43
A lot of what happens in the world is very understandable if you have a little bit of perspective.
50:51
I mean, what's happening between Russia and Ukraine is a great example of that.
50:57
Many people know that when Stalin was in charge, it was really tough to be a Ukrainian.
51:02
He collected [inaudible] to farms.
51:02
He took a lot of the crops, a lot of people starved.
51:06
And those are the grandparents of the people in Ukraine today. They remember that.
51:13
Now, if you grew up here and you never really, the history started with Jay-Z and Beyonce or something like that, you might not really understand the context of it.
51:30
But if you really have a sense of like what the history's been between the two of them, I mean, I want to get into like politics or whatever, but the Ukrainian are going to fight back.
51:41
Some portion of the population is going to fight back.
51:41
They're not going to, the portions that the Russians took in the past were probably heavily Russian.
51:46
This is all the Ukrainians have no love loss for the Russians.
51:51
And I think Putin knows they're going to shoot back.
51:54
Whereas other people might not be as whatever.
51:54
So understanding history, I think helps inform what's happening a too.
52:00
And it helps you we have these views of people and this person was great.
52:10
And I just really enjoy putting myself reading stuff and putting myself in well, what did they have to deal with at the time?
52:16
Because it seems easy now, but it isn't always easy at the time. And I enjoy that too.
52:24
Abraham Lincoln's a great example.
52:24
I mean obviously great president or whatever, but he got elected and like all these states succeeded because they didn't want him to be the president, sound familiar.
52:36
And then they fired a few cannonballs Ford, some nobody got hurt.
52:41
Maybe one guy got wounded and he basically invades these Southern states.
52:48
Has a draft suspense habeas, Corpus does all of these things, loses every major battle for a while.
52:55
And he had the conviction that we were better.
53:03
I mean, it would've been very easy at many times to say, "Well, let's just have two countries.
53:08
We'll figure it out in a hundred years and we'll be one country again."
53:11
And he obviously has slavery and all these, again tremendous conviction.
53:11
And the losses from just combat and disease were very high and he had an election coming up that he could have lost.
53:25
It wasn't easy to be Abraham Lincoln.
53:25
And so when I look at him, I'd say he's even more extraordinary.
53:32
The more I've learned about the circumstances that were happening at the time in which he had to make these decisions, lesser men might have not done what he did.
53:37
And so the more you read about the time and the place and how they chose to act that they did, I think I really enjoy reading that too.
53:50
Not just for generals or presidents, but all also historical characters.
53:56
I'm very passionate about it. I really enjoy it.
53:56
Jim O'Shaughnessy: Yeah, as of my, I think history and you used a couple of words that I use all the time when I'm talking to people or putting threads up on Twitter or writing a blog post perspective and context.
54:10
If your viewpoint is, in my opinion, if your viewpoint is lacking both perspective and context, you're going to make shit ton of really bad decisions because you don't know any better. So I too love Lincoln.
54:24
And when you dive in to Lincoln, one of the things that I always do is I try to imagine, what if that was happening today? And D-Day.
54:35
Sometimes I love alternate histories and thinking about how things would've turned out.
54:45
But for example, D-Day with social media, are you kidding me?
54:51
I mean, D-Day was a catastrophic failure for America.
54:57
Everything went wrong and we still won.
54:57
And I think that we did that because it was just a different at...
55:07
your point about Lincoln, it was just a different attitude.
55:07
The military head of a term FUBAR fucked up beyond all recognition, but okay, we got to keep going. We got to do it.
55:22
And not that I think that like social media or anything like that is negatively bad, I definitely don't.
55:27
I think there's a lot of amazing aspects to it if you curate your feed and who you get to talk with and meet, I mean, it's amazing.
55:33
But Matt Clifford, whose company is in the UK and I've invested in his company through Shaun's family partners, he's this great idea that after Napoleon, basically everybody in the west was like "Okay, man, we cannot have an ambitious man decide that he's going to invade the rest of Europe and declare that he is the emperor of Europe. We just can't do it."
56:03
So he said they built a bunch of his thesis.
56:11
So over the ensuing century, what got build up was very dampening institutions.
56:11
So an ambitious man, like Napoleon is going to invade the rest of Europe.
56:20
He might try to join Barings Bank or whatever and climb the hierarchy there.
56:26
And Matt's thesis that I love is that now we have the greatest variance amplification entity ever in the world and it's the internet.
56:41
And so decisions have to be made very differently because you're going from linear to exponential.
56:48
You're going from certainty or that's the way we always do it to holy shit, I don't know.
56:54
And so knowing that part of about history, I just think is really cool because it's certainly, I don't think it's ever going to make you make a decision that is just profoundly wrong, unless you decide that like Marcus Aras, well, why even bother because like empires come and go and they rise and fall.
57:26
And so that's what I learned from Marcus Aras as well, wrong.
57:26
What you should've learned and from him is how to look at life.
57:33
But you should know about guys like that in my opinion, and women from history, because there's so much information there.
57:38
And military history in particular, I find very interesting because as we talked about at the beginning of the podcast, San SU has a great line which I love, which is "Build your enemy a golden bridge to retreat across."
58:02
Steve Begleiter: Yeah, I see that one. Yes.
58:09
Jim O'Shaughnessy: And so that one line is so...
58:09
that one probably could serve you better than reading an entire book on military strategy.
58:16
Because one of the things when you study and he was great and clouds fit was great.
58:22
And I've read all those guys, but the even Mike Tyson, nobody survives getting punched in the face, came from, I think, a general who said, nobody survives first contact with the enemy.
58:37
Steve Begleiter: I used that on one of my poker interviews.
58:41
They asked me what was my plan for the final table?
58:41
And I said, "Well basically, no plan survives first contact with the enemy, so I'm going to get there and see what happens." Yeah.
58:51
Jim, we're very, very similar.
58:51
People ask for poker guidance and they're playing in tournaments.
58:58
And a common thing is what I call first day [inaudible].
58:58
You go out to the world series of poker and you want to get through the first day so you can tell you're, I've had do the first day.
59:06
But 85% of the people win nothing.
59:06
And when you get eliminated first day, second day, third day, it doesn't matter. You still win nothing.
59:13
I say you got to think like you're in the opening scene of saving private Ryan.
59:17
You got to figure out a way to get off the beach.
59:23
If you stay on the beach, everything's presighted, you're going to get hit.
59:28
And it's not easy to get off the beach.
59:28
You see a piece of cover there, maybe the guys reloading his machine gun, maybe you think the shell doesn't land in.
59:33
And I really don't mean to analogize poker and what those soldiers went through because that's really sort of maybe unfair, but it's the same type of mentality, which is that you have to take some, you have to have your instincts up and you have to take some risk and you have to realize that finding those instincts, I think are important in a lot of things. Okay.
59:55
When you want a cow in a hole is a, you have to find a way to move forward.
1:00:01
And I think that applies to a lot of lessons in life.
1:00:05
And I think that's one of the things I like about, I mean, you make a great point of D-Day.
1:00:09
We dropped our airborne troops all over the place.
1:00:09
Utah beach, Atlanta did in the wrong sector, Omaha beach.
1:00:14
Obviously we all know what happened there.
1:00:14
And guys found their way off the beach.
1:00:14
I mean, enough of them figured out something and we weren't kicked in the ocean the first day.
1:00:21
So very grateful to them.
1:00:27
And then I think a great history point is we had this big, I would say big awareness of D-Day in the United States.
1:00:35
And D-Day was like a pimple on the Russian front.
1:00:43
And the Russians are sitting there.
1:00:43
I go, "Well, you were like swimming on Utah beach.
1:00:46
We were fighting the Germans from the black sea to the Baltic sea, losing millions of men while you were losing a thousand or two. We beat the in army.
1:00:50
You took your time getting there.
1:00:50
And we think you probably could have been there a year earlier.
1:00:57
And we had to incur all these losses."
1:01:01
And I still think even today, Russians don't fully trust the west because of some version of that.
1:01:08
The west was perfectly willing to dilly dally while the Russians did all this hard fighting with the Germans.
1:01:13
And I don't think you can really understand how Russia thinks about the world without having some appreciation that's in their older generation.
1:01:24
I think it's probably, I don't know what Churchill and Roosevelt talked about, but if they talked about that and said let's invade in 44, not 43.
1:01:30
Let the Germans lead themselves [inaudible], can't blame them. Who knows?
1:01:35
But I think all these things are just fascinating.
1:01:35
So sorry for going off these tangents, but.
1:01:41
Jim O'Shaughnessy: No, it's great because you're right.
1:01:44
You read one account of Leningrad. And holy shit, they...
1:01:56
Now to be fair, a lot of those Russian officers were shooting their own troops if they tried to run away. Steve Begleiter: Yep.
1:02:02
Jim O'Shaughnessy: And the horrors of war are real.
1:02:03
And I certainly don't know how I would react.
1:02:03
As you said earlier, right.
1:02:13
Both of us are lucky that we never had to face that.
1:02:13
One of the things that I find like increasingly interesting is if you're doing venture style investing, somebody that's on the management team who was in the service, especially somebody from the special services, like the Navy Seals, Delta, Green Berets, et cetera, they bring a lot to that arrangement.
1:02:49
And because one of the things that, like we're just talking about right now, they have to constantly reevaluate.
1:02:54
And so, the haptic memory or the muscle memory, which isn't a real thing by the way.
1:03:03
I had someone on who schooled me on this, was like, "No, no, no.
1:03:09
Your muscles don't have any memory, your neurons do.
1:03:09
And what you're really training the neurons in building neuro nets and you deepen them every time you train."
1:03:15
Same probably with poker and any other thing you're training for.
1:03:22
But I thought it was a really interesting insight because it also explain why all the studies that look at elite athletes who don't even actually do the physical training.
1:03:33
If they're doing it in their mind, they actually get better because they're strengthening their neural net.
1:03:41
So I just think that there's so much to learn from history in general, but military history specifically, because of that, you've got to constantly be reevaluating.
1:03:59
You've got to be ready to drop a plan you might have spent six weeks developing with your team.
1:04:06
And if you can't do that, you're going to die.
1:04:06
And thank God metaphorically in our case, the company fails or whatever, but the mindset wasn't metaphorical. It was actual death.
1:04:13
Man, that really sharpens the mind.
1:04:22
And so seeing them is always a plus, at least so far with me.
1:04:22
Well, listen, then this has been really, really fun.
1:04:32
I do a thing at the end of every podcast and I'm... Yep, look at me.
1:04:40
I'm right on what you told me, you had the end.
1:04:40
At the end of every podcast, I ask my guests, we're going to make you the emperor of the world, Steve, you can't kill anybody, you can't put anybody in a camp, but what you can do is, you've seen the movie Inception, right?
1:04:59
Steve Begleiter: Don't think so. Jim O'Shaughnessy: Okay.
1:05:01
So what you can do is you can metaphorically whisper in their ear two things.
1:05:04
They're going to wake up the next morning thinking that they thought that, and then they're going to go and do it.
1:05:12
What two things would you put in somebody's mind for them to wake up the next morning that you think would be like really, really good for society?
1:05:27
Steve Begleiter: Well, that's a great question.
1:05:32
I wish I had more than 30 seconds to think about.
1:05:37
And then I think you think about that answer globally versus in our country.
1:05:37
I guess the thing that I would think about with like our daily lives here in this country, the word that comes to mind is tolerance.
1:05:46
I think obviously it's not news that the country seems fairly polarized and whatever.
1:05:54
And it just seems that like civil discourse, listening to other people, understanding where they're coming from, you can have a strongly held view.
1:06:00
I can have a strongly held view.
1:06:04
We can disagree, but we can still be collegial.
1:06:04
We can probably learn understanding how the other person thinks a little bit.
1:06:09
And there seems to be not a lot of tolerance going around these days.
1:06:14
And I think often case, the phrase I like to use is there's a lot of tolerance of intolerance.
1:06:21
And the intolerance, sometimes you have to make people feel uncomfortable. I get that.
1:06:27
And sometimes the intolerance makes things worse.
1:06:27
So some message of tolerance and listening and respecting each individual, I think we could all as a society benefit from more of.
1:06:40
Jim O'Shaughnessy: That's a great first one.
1:06:42
Steve Begleiter: And then the second thing would be, I'm not sure what the word would be, but I just would encourage urge people to think for themselves more.
1:06:53
There's so much thrown at us; social media, the press, sound bites, whatever.
1:07:00
And just don't ever stop trusting yourself and thinking for yourself, and I just think the more people do that and the less reactive they are, the better will be.
1:07:17
Those are two things I'd like to see.
1:07:17
They're probably heavily tempered by the environment we're in today.
1:07:21
But I like to say it's hard to believe that if you took 10 important issues and you put how many representatives are there?
1:07:29
435 people in a room and you pull them on every issue, all the Republicans would feel one way and all the Democrats would feel the other.
1:07:40
10 times it would be split just based on that.
1:07:40
Not based on how wealthy they are, their race, their gender, their age, whatever, but come on. Any complicated issues.
1:07:45
That's just not a lot of thinking for yourself.
1:07:54
And I think we would be better off if people spend a little bit more time thinking for them themselves.
1:07:59
Maybe that sounds arrogant or condescending.
1:07:59
Maybe people, everybody is thinking for themselves, but I don't know.
1:08:05
It's probably related to tolerance and listening better.
1:08:10
Jim O'Shaughnessy: I love both. I love both of them.
1:08:13
I'm a big believer in both of them.
1:08:13
I had a guest who positive that there's these things that they're trying out like jury systems, where they just literally...
1:08:27
remember the old William Buckley quote?
1:08:27
He would rather be governed by the first a hundred names of the Boston VO book than the people in Washington.
1:08:31
And so it's kind of a pickup of that, where you get to regular citizens.
1:08:38
And you got to figure out a way to pay them so that they can actually do this. And it's like a jury.
1:08:45
It's like the way we select juries in the west and have for hundreds and hundreds of years.
1:08:52
And it's a pretty good system.
1:08:59
And what the interesting thing is, is that when politics is going on over here, and there's a juried system going on over here.
1:09:05
And let's say, what I'm remembering right now was I can't remember the issue, but 80% of the population was against it, according to the polls.
1:09:17
And then they get this jury system together of regular folks who are willing to hear and speak with each other and confront the issue and understand how complicated it is.
1:09:22
And guess what, none of them supported whatever that thing was, that 80% that the politicians love that soundbite.
1:09:36
So I'm a huge believer in both.
1:09:36
And it does not surprise me at all that you are as well. Steve Begleiter: Yeah.
1:09:43
I had a very positive experience.
1:09:45
I always tried to avoid jury duty.
1:09:45
And one day I ended up on the jury and I thought it was an extremely positive experience that urge all your listeners to try not to avoid it.
1:09:51
The best thing about it was we had a pretty diverse group on the jury and all 11 other people tried very, very, very hard to get to the right answer.
1:10:03
They took their obligation very, very, very seriously.
1:10:03
And I'm not saying every jury's done that throughout history in this country, but I was very inspired with how seriously people took the task at hand.
1:10:21
Jim O'Shaughnessy: Very, very cool.
1:10:24
So, Steve, how do people find you?
1:10:24
What's the website for the firm? Steve Begleiter: www. flexpointford. com.
1:10:29
And if you look up Steve Begleiter, the way I usually, I'm not active on social media, but LinkedIn is the way I usually get in touch with people.
1:10:39
Somehow I respond to my LinkedIn much better than anything else.
1:10:43
And I follow pretty much everybody who asks because people post so much interesting stuff on LinkedIn.
1:10:49
I like scrolling through and reading the articles.
1:10:54
So yeah, reach out to me on LinkedIn or send me an email sbegleiter@flexpointford.
1:10:54
com if it's a work matter.
1:11:02
And thank you for having me.
1:11:02
Jim O'Shaughnessy: Hey, thanks for coming on, man. This was a lot of fun.