[Music] I'm a mathematician I'm a scientist I've written papers up in physics and I'm expected to think that science is all important and I say no what is called Humanities art literature perhaps today is more important than ever if you really want to be able to communicate with people you have to tell them
stories when you're doing any Act of communication 15% of the result of that is due to the content the 85% is this intangible that are hard to measure if the 20th century was the century of engineering and that helped us go to the moon the 21st century is going to be the century
of the social science where the voyage were taken to the human [Music] brain well hello everyone it's Jim oy with yet another infinite Loops my guest today there are just so many different ways that I could describe him I think that maybe buying for one of the world's
most interesting men it is Lis FCO the professor and director of mathematical Finance at the University of Toronto director of risk lab established in 1996 honestly it might take me the whole weekend if I was to list all of the things that you are doing that you are involved in I find you absolutely
fascinating it seems like we have SE several of the same Heroes Richard fan wienstein Etc uh but first welcome and thank you very much for joining me today what a pleasure to be here so the first thing I'd like to do is the thing that really drew me to you is um I'm I'm not in any
way I I have a complete Layman's familiarity with mathematics U so I I have uh nothing but in awe of mathematicians both the intuitive and the more uh traditional way of approaching math but what really drew me to you was your explanation of your getting to Princeton in
1985 and and interacting with Charles Pepperman um I love music I have Bach tends to be what I have on most of the day but but I love all of the composers you you talked about in that so I would love it if you would be willing to share with our audience that story because it
it speaks to me in a number of ways and I think it will to everyone listening and watching well I was very fortunate that I went to Princeton H to do my PhD and then I I I did I did work with Charles Ferman who is a a child prodigy you know winner of the fields medal very very young but beside all of that he's a
wonderful person and one who does mathematics like like no one else I I went to Preston as I explain my my paper thinking that I was I was going to meet a child prodigy and and I'm very eager to find similarities with say Mozart which is what you would expect if you know music right and then I ended up
finding I love moart I have to say Okay the magic fluid is perhaps my favorite Opera but I ended up with someone that he's so deep and profound that as I said my paper I think it's more like open uh he he likes to he does math in a way that really no one else does math he
takes a theme and then he just extract as much value from that theme as you can and I in my paper I quote The Fifth Symphony of bethoven where with these four notes he builds one of the masterpieces of of um of of music and four notes four notes you know not po notes and um to me
Charlie is a little bit like him and if I have to say what I learned from him is probably that look for that you know element on which everything is based and then just extract as much value from that as you can and that goes to the ubiquity of mathematics that's why
mathematics is so successful and Richard fman that you quoted earlier he said and I'm paraphrasing that one of the reasons for the unreasonable usefulness of mathematics is that the same equations have the same Solutions and for those who know math me well if if I know this and this reality
is similar then the same thing should apply that's why triangles exist right a triangle here or a triangle there would have exactly the same characteristics and that's why mathematics is such a human science fman said that too uh that he actually doubted that mathematics was
science because math is not really designed to understand the world around us is made by ourselves is the only science which is made by humans and that perhaps makes it more like a humanity is than but somat is is is is right in there and it's so modern because modernism is about
transversality it's about not it's not about vertical silos is about going all the way around it's about 360° and that's where mathematics is to me and that's what I learned from Charlie Fon back in Princeton and the other thing that excited me about the paper uh was the idea that math human creation and yet it
really math can also be kind of looked at as the universal language right um uh the uh author of heder's guide uh to the universe I don't know if you're or Galaxy if you're a fan of uh of Douglas Adams but uh he had a quote about bak and he was talking about music and he
said you know this music implies this this music implies this but Bach when you listen to Bach Bach explains what it means to be the universe tie in some of the other references that you made because you when you were talking about Professor Pepperman you also said that he did math
the way he wrot CI wrote music and for the music lovers out there that was quickly that's very very fast uh I was amazed at his speit but it I think it's because of that is because once you find the Nugget of which from which every Everything follows you just just follow
you just walk and run and run and run and that is what what you can do but going back to your other comment uh see mathematics has always been a language and as I like to say it's on my website you know mathematics is the language that computers speak linguists don't like that because they say no computers
don't speak of course it's poetry right uh but that that's what it is pagora said it he said the universe is written with numbers and that's basically the message that I'm deling and in this day and age if you want to understand everything that is happening with
artificial intelligence you have to know math as a language not as as as the as as the way to build all those theories but as a way to understand how these things uh work and how we are communicating with each other the cons NE network is now out there chbt people talk about that that's all math indeed
um and an experience of my uh when I was a young adult I became really fascinated by quantum physics and so I went through all of the books that were written for the general reader but I still wanted to know more and so I bought some more sophisticated books and I looked and it
was all math and so I said to my wife this might be really really difficult for me and then I had that Insight that you just said I thought because it just looked like very very daunting and I thought well wait a minute math is just a language if I can learn how to speak that language I'll be able to at least
partially understand what they're saying here and and I completely agree with your assessment that that is the language of computers that is the language of AI and you know I was chatting with an AI genius recently and and he was speculating he said at some point we might get to code that AI
rights that we humans literally don't understand and what do you what do you think about that speculation it's um it's um it's possible it's definitely possible um but now you said something about humans understanding uh and that is the concept the meaning of that is already changing
because we're dealing with realities around us which are more and more more more and more complicated uh in in a thousand years ago uh you understood everything that was around you everything was physical right and um even you know even you know currency trading started that way when
people didn't understand the value of of currencies in different ports right and then of course you can out be thrust that and then wow that that's how you start making but for the most part you could understand the world around you now the world around you is is is is is
daunting is mysterious and we need I don't think a single person can understand it we need to form groups and I think it's going to give a new value to the concept of a community we we're going to need to form community so we so we can understand what we are doing that's going to give
us so much intellectual power also right uh and that's in a certain sense the way science is evolving too we no longer have people like Newton who in isolation uh actually during the bonic BL he he he developed theories I think that is uh is is it's a thing of the past now it's much more collaborative
it's much more Community Based and we're going to have to surround ourselves with with humans so that together Ed by computers can understand what's happening around us but it's very mysterious and that poses a tremendous challenge for us as a society as an educator we don't want to
leave anybody behind education is going to face tremendous challenges making sure that everybody understands the realities that we are creating every day and I think that is I I I I wished that this is something that was spoken more frequently because we're going to see a
very big divite when it comes to that I am 100% sympatico with that attitude and the idea of course Le nits might diff disagree about Newton and calculus but we we had two contenders uh for the for the crown but I completely agree with your assessment that we're going to
need need collective intelligence Collective collaboration when the internet came along I sort of said I think this is the beginning of the human Colossus and the ability for us to network because of what you just said I think I do do agree that the era of a Newton the era of uh you know a uh any
any profound thinker coming up with the whole shc is is over and then you also you have a lot of support for your argument in the Flyn effect on IQs from you know the late 1800s to the late 1900s they went up and his assessment was partially at least I'm kind of doing
this from memory so I could stand to be corrected but was that in the earlier era everything was physical and when they would ask more abstract questions to a thinker or person from that era they they literally just didn't quite understand or how to Gro what the question was whereas as the world became
much more complex people were able to augment their thinging make it more abstract Etc and he said that he he his hypothesis was that was one of the reasons why we had this inherent uh increase in overall IQ it's always mean to 100 but um if you look at the the raw data but your your other assessment is
another one that's near and dear to my heart which is one of my worries is this potential divide that could happen could be happening right now and and it it's you know you hear about a bunch of different ways the digital divide the technology divide or what have you but
what what are your ideas for how we bring everyone along how we get everyone who has access again like you have amazing videos available for free on YouTube you give great presentations we're going to talk about the one I just watched right before joining with you in a minute but what are your thoughts on
that how do we how do we bring everybody along let's look at the education sector I'm a professor that's what I that's where I live okay education is conceived as follows you're born you know as soon as you can speak You're basically put into an education system that for most
people ends at age about 20 something okay if you think about that why and then you go to work uh this stomy you study you work well that's going to get very blurry I don't believe that the education system should leave people at age 24 as it's happening now okay it's a lifelong
journey you you need we don't have that infrastructure but education is no longer just for the children young adults and young professionals no no it's for everybody it has to be a a a system of human transformation That Never Ends not even after retirement okay and it's not just about the job
that you do it's not just about your profession is about you as a human so that's the first thing um Second and I and I really like this because I'm a mathematician I'm a scientist I've written papers on physics and and very often I am I'm expected to think that science is all the important and and
everything is about science and this and that I say no no um what what is called Humanities art literature that always was important and perhaps today is more important than ever because I I I like to I like to exaggerate to make my points very often right so I like to say
that if the 20th century was the cent of engineering and that helped us go to the moon the 21st Cent is going to be the cent of the social science where the voyage were taking us to the human brain that's what we want to understand and What Makes Us humans is actually not
the bridges we built is more closely like the music we listen to and that humanism is is going to become very very important and this is perhaps a redeeming quality that will help us as a society as a community to live prosper and be happy and make sure that all of these things that are
created are are created for for the good of all of us and not for you know exceptionally bad things which is the the big uh discussion that's that's happening actually it's it's a recurring theme in in some of your other podcasts right which is uh people are afraid that
these things which are been built will be used for this or for that and the defense is on DNA I mean um humans have always been confronted with the things we can do badly and a lot of them are built in our DNA right they say and this is not I'm not a psychologist but they say that one of the reasons we're
monogamous is because uh as babies when we're born we're so defenseless that the role of the father is so much more important than in other human species and so in other animal species and that makes that familiar Bond to be much more important than say for a cow right and
so and that's in our DNA and as a society we welcome that we we we value that we price it and we give Awards to the people that behave like that which is how you goodness is built you know uh and some of that is that's still there we're humans and that I think is going to drive us as how we evolve as a
society is very important again you had me at hello um I I couldn't agree more in fact I I thought of two things as I was listening to you um the first one was the the book by CP snow the two cultures right where the science and the Arts kind of stopped speaking to each other and if you look
historically they spoke to each other all the time and one informed the other all the time and and then we got in to as you eloquently put it the sort of 20th century engineering mindset that you know that dominated The Sciences and that the humanities uh you know didn't
spend as much time thinking about and and then you know like Robert pers and that in the Art of Motorcycle Maintenance I mean that's basically one of his topics right why aren't these two talking to one another they really need I often say we we need Athens and Sparta you know we need uh Plato and
Aristotle we need the to be able to look and think about these things in a in a multifaceted way and so I'm delighted to hear you say what you're saying about the 21st century um being being the one of the humanities and and bringing the humanity back to our understanding uh
but I but I worry and I also completely age agree about learning learning should be a lifelong uh Obsession almost it it is with me I know it is with you but I wonder I is there a way I I think a lot about people like you and people who are very super interesting and and poly mats and just
just incredibly obsessively curious I is there a way that we can get people like even even great people who have the uh uh honor of being able to take classes from you I how do we get people to to that point where they really do embrace the idea that learning is a lifelong thing and if we stop learning
we start dying right I I think of it as you know life is movement and death is stasis and learning is part of movement and you have to another big part of learning is unlearning because we know a lot of things that are wrong but what do you think how do how do we get the
average person who just say yeah I really want to embrace that okay so um so people like you and me I mean we we believe that learning is um fundamental it's not something that you do because it's a a task or something is is as humans we do that by the way um as humans we we are rewarded
for teaching it's some of the things that actually gives us pleasure okay and we have chemicals that reward us when we teach everybody is a teacher this is very important everybody we enjoy teaching other humans something we are rewarded with that so that gives me hope
it gives me hope uh and perhaps is is the reason why you do your your podcast which is fantastic that's why you do it and that's why I have my YouTube channel and that's why we want to explain people because as human we are programmed to do that so I have hope I'm an optimist because I know that
in the end we have close to seven billion people who are rewarded for passing that message across no one is going to give you a dollar bill because you say this to this other person you do it because this is who we are this is what we do we are a bit confused it's true it we're very confused because
these things that are happening many people don't understand my hope is that the people who understand it like me like you we speak up we tell the others with your podcast with my YouTube channel with my classes in universities around the world and other people with
their tools and then we can go over this um this this this challenge we have which is to understand this new world I'll give you I'm I'm an optimist but I give you one um fact which is a little bit pessimistic if you look at Theory the history of um Society the deadliest the one with the
largest number of deaths was the 100 years after the invention of the Brin press that's a very bad figure it's true but is is by a little bit worse than the 20th century with its two world wars okay and why is that well this is what these revolutions do especially revolutions that affect the
way we think ideas trouble and ideas are so powerful right so I hope we can avoid that I hope in this new Revolution that we're going through I hope that these tools with people like you and me are given will be used to avoid that tragic scenario and I hope it doesn't take us 100 years like it took
in the 16th century to go over that and realize that actually books are great and then we have the French Revolution then we have Dem democracy and they have all of those things I hope we can do a lot a lot faster but it's going to require a lot of communication a lot of
podcasts like yours and a lot of teaching and a lot of YouTube channels and then people will find it but we have to always be there teaching each other and helping each other come up that mountain so that we see the new landscape that new reality and then um we can continue to uh perfect ourselves
of humans yeah Whitehead said something along the lines that all great eras are chaotic eras and and I think you're right after the invention of the printing press and that period in history um the the um uncertainty I think that you're absolutely right about the idea that we
have to really look closely at what's in our DNA what's what's in our basic building blocks and when you get a world that was fairly static where you know I used to joke the priesthood said everything in Latin because they didn't want the Le to know what they were up
to and and suddenly when the lady had books which one of my favorite writers uh Robert anthon Wilson uh references I think it was actually corbitz who's called it time binding and and that's what it allowed us to do it allowed us to for the first time and in mass time bind our ideas and send them into the
future and so that we could learn from somebody who'd been dead for Thousand Years and and one of the things that fascinates me about that period is and back to Newton right it was possible for a single individual to pretty much invent some brand new thing it was possible for a very learned individual
to know most of what there was to know even though of course most of it was wrong but they could know that and then we had the printing press which started of course as a luxury uh I was reading recently that many of the earliest books were encrusted with jewels because they
were seen as luxury items and they were sold to very very wealth people and then it was like huh maybe if we just print uh maybe we print the Bible in German that might get some more people interested and more people interested in reading and then of course that onslaught of new ideas caused that
violence that you are uh that you referred to I like you am also an optimist and I wonder though is is there is there a proxy for that physical violence I mean you you about the the 20th century being uh like the physical world we're moving more into the world of the mind now I always kind of had a
theory about social media which was it maybe it's a proxy that acts like a steam belel for people who are really angry and in earlier eras would have taken up their Pitchfork and their torch and got and pitch for people but now they just say mean things on Twitter exactly that's that's that's that's
about it and actually I think that's a very good analogy and I believe in that okay so if that's the analogy of what the wars in the 16 CER was okay let's let's go through that quickly okay and let's let's imagine going back to you you said something I said Newton used
the life needs so Newton and life needs were mirror images of each other and it took them years to realize they were doing the same thing imagine they had Twitter imagine they had email with each other wow maybe the whole thing would have lasted and who knows two years and then in two years we
actually we can send people to the Moon you don't we don't know um so it is important when we look at history of course there are some bad bad things that happened we need to learn from them we need to teach each other also all the bad things that happened okay so we can
do the analogies as to what's happening today just as you just said very eloquently comparing social media with what have happened in the in the 16th century for example and say well that's what it is let's quickly find what our path forward is let's deal with some
chaos for a while but you know then we're going to go into this new area of of growth and and and prosperity intellectual Prosperity physical prosperity and uh basically a new a new relationship amongst all of us yeah and that is also my hope and and one of the things that motivates me is you know I
have six grandchildren and I want the world that they live in and the world that all humans live in uh that we're moving into to be the as as uh voler uh mocking leits uh in the character of Dr pangloss said the best of all possible worlds uh obviously I'm not panglossian but it would it's not a
bad directional aim to try to get the world to be the best of the best of all possible worlds and another thing that that I love about you is I'm going to get to the some of the math and some of the asset management stuff maybe because this is just so interesting um but you
you you did a lecture about trying to or or helping your your students understand that success in life is really about communicating and you did a great great job both defining what communication actually is I think you used wienstein if I remember right and it is about it's
not about the words right and and you said something that really struck me and it was when we go to university what we're learning is that 15% right about the right words or the right formula or you know what have you the right system the right way to program Etc but in communication that's
just 18% 85% is non-verbal it's you know are you making eye contact are you having a conversation as opposed to a lecture and and one of the things that you said that I've never heard before which I which is very impressive because I'm very interested in this topic and and it was
the first second and the last second yeah are the two most important times elaborate on that for for our audience because I I just I loved that that talk you get that's great thank so I I should start by saying I I play the volin I I've given a number of concerts in my
life so I performed a lot I performed with music not with words right so when you perform with music you know that there's no content it's all in something that goes right to your brain to your stomach to somewhere so I I I I I've always had that and I always learned that when when you're
performing what is what makes the audience react can I be the content and then I bumped into uh this this work done by people at Harvard and other places where they actually do the same thing but with you know real of the psychology and experiments and then I said well let me say it in my way which
is um when you when you're doing any Act of communication say a job interview you being a parent being a teacher 15% uh of the result of that is due to the content the 85% is these intangibles that are hard to to to measure if you do a um a crosssection of the of the of the
human brain this this is very well understood by psychologist now and it's all measured it's all it's just it's a science it's not a theory you our our brain has the lyic brain that we develop when we wear when we wear reptiles and we have the frontal neocortex which is very recent and that's the one that in
universities we get people to focus on you know learn this uh understand this and it's all work in the frontal neocortex but deep down we are still a little bit like liards the limpic brain is what drives a lot of behavior and I I use an example uh when I teach this to
my students says how do you fall in love how do you date someone you don't go around with a CV right no one falls in love to a CV so when you're going to be hir when you go to a job interview the CV is there the C takes you to the interview but then it's just you they're going to hire you as a
person they're going to spend eight if not more hours per day with you that is like a marriage right so they're going to look for all the other stuff that you're going to be doing I I don't I mean H people in my company HED people in your companies and yes you want people who can do the job but you also
want people that you're going to be working with with something bad happens right and you have an emergency and you need to fix something something happen you need people around you you need humans around you that not only can get to the answer to that question you need
people that you can uh rely on you need people that uh you can work with with uh people that you're going to make mistakes they going to make mistakes that's just that's a community that you're building a company is a community and if you're hired to be part of that Community they're not going to hire you
for skills only they're going to hire you for everything else they're going to hire for how will you sing how will you speak how will you dance this is very important that's the analogy that I that I bring to to to my students and I should say that this is for many of them
this is the last lecture they have before graduation I this is typically fourth year students and this is the last lecture the last week of classes and I tell them that everything they've been doing for four years is like 15% and I said where's the 85% I said don't worry I'm going to spend all my
three hours on the 85% that matters at least you got something right and I have to say that I've been teaching for I don't know 30 years uh some of the best comments I have received about all of my courses is this one many students they come and they tell me say you know you
said something that I had not suspected I Now understand what I've be doing right or what I've be doing wrong and I for many of them this is a a life changer and it's a math course where I'm not talking about math I'm talking about how to speak how to be part of a community how
to relate to people and that goes back to what I said earlier this humanism is I think something which is going to make the 21st century very different than the 20th century yeah and you highlight that communication is really about uh understanding making sure it's about people that you're
communicating with it isn't about you it's about them and the i i for example I I didn't read the book How to Win Friends and Influence People for like 25 years because it had such a Cheesy title and I just thought oh that's got to be just it's you know oh that's all I I'm not
going to read that I'm not going to read but so many of my friends who were really great communicators Jim have you of course you've read how to win president and I'm like no that sounds like trash they're like oh my God no you have to read it you absolutely have to read it and after I read it of course I
understood why because he was saying a lot of what you say about the art of communication The Art of Storytelling and I learned that early on thank God in because I ran a Quant Finance Long only firm right and so I realized though I I would start some of my presentations
with I'm going to tell you a series of stories that I hope influence you to understand that you shouldn't let stories drive your investment decisions and people of course would laugh but but that is the only way I found at least I I I'm any listener or anyone watching as a as a way that isn't
that way please let me know but if you really want to be ble to communicate with people you have to tell them stories maybe that's that limbic brain that you know it influences that because another one of my ideas is that many decisions even among the most analytical
people are made emotionally and then papered over with logic and rationality to explain in quotes why they made that decision you're absolutely right as people you know in in in in the investment sector in particular you talk about the art and the science of investing well that they they use those
two terms because if you are convinced with formulas and you're not convinced with your Olympic brain you don't get that feeling then you say well the arst Miss that's that's just the best thing you can come up with but uh people in invest investors portfolio managers they
like to make decisions where they got the proof but they got the feeling and that feeling is is it it's hard to express it's hard to quantify is uh if if if is the Quantum in us right maybe with the quantum computer when they will understand what that means uh right now you know this is we're still very
digital you know but that um quantification quantification not in the way of quantities in the way of quantums which is the opposite of quantification that is very important because the world is very complicated and we have an analog computer not a digital one it's an analog computer which is very
effective sometimes you know it just doesn't feel right and then you capture something that you know maybe now with AI we can capture it very quickly too but uh realities are complex and numbers often times they oversimplify things and that's why the art is so interesting
because you know go maybe back to bethoven you know why is Beethoven's Fifth Symphony so it's for notes but why is it four notes four notes right four notes that play for half an hour 35 minutes and then but they make up something which is that's wonderful and
the Brain can understand that but it's very hard to quantify and that leads me into your work in Risk Management in Asset Management um you know when I start first saw uh value at risk bar uh I I I had a real negative reaction to it and and my negative reaction was due to you don't understand
people when when you put like your your your risk is and then they would quantify it with a single number right they the portfolio risk here is 15% plus or minus right right people like carry a lot of baggage with that number and and and they start down a thought pattern
and I saw it happen time and time and time again especially during the great financial crisis right wait a minute you told me that that that that this isn't this wasn't even possible and and and you are doing a lot of really interesting work um in Risk management have done a lot and are doing
a lot um and and so let's talk a little bit about that let's talk about where um that type of uh Art and Science is going and and what you find the most promising I I enjoyed reading your work on using Ai and ESG ESG has become kind of a a negative phrase these days but uh
I I I enjoy your work on it because you I I agreee with your original assessment which is the way they're doing it it wasn't the right way to do it so if you wouldn't mind talking about that a bit wow now now you touched the nerve this is all very important for me so I'll start with value at risk you
know I let me tell you how I explain Val at risk to my students I tell them once upon a time uh risk management was very simple tell me how big you are and I'll tell you how much risk you have that's it and in in 1987 that was gred wrong because a fairly large change in the S&P 500 25% change in a DAT but that made
people lose more than more than 100% yeah so how is that possible well there's a null linear something going on in here what is that nonlinear something well it turns out that it's options and derivatives and you know I'm not going to go by to 1987 but then uh something interesting
happened which is we need to understand that uh the world has become nonlinear so I need I need a way to control things that don't understand that are suddenly nonlinear so Val risk came up but the important thing about Val risk is what is not linear it was an attempt at doing
that the important thing is it was part of the regulation and as far as I know it's the first time that a deep mathematical concept rightly or wrongly became part of the law regulation once that happens then mathematicians you're all going to be hired because you are the only ones who can
actually make this happen you can agree or disagree but it's part of the law now it was the first step in a direction to understand complexity okay it was perfected and you know well for for a long many people think that Val at risk is the solution to everything it's the solution to nothing it's like taking
your temperature oh you have fever great are you sick maybe you're not sick maybe you are okay so it's like that it's just the first step in understanding complexity and and well maybe regulation should have becoming should have become more more how could more more more um
more complex or that's I think perhaps not the point I think was that was a very big change for for uh for that but now talking about ESG okay EST for people who don't know is environment social governance it's really something which I like to express it differently
uh is dealing with even more complexity because value risk and uh financial management risk management for a long time was about money making money losing money currency all based on currency but now we live in a world where um everything around us we talked about that earlier is complex
and we want to understand for example um social issues that you are doing we have very good accounting for money people know how much money they spend they know how much money they have but you don't know how much water is used in your everyday activities and uh you don't know if you
if you are being water efficient in the way you deal with your life you don't if you're if you're wasting water um emissions is something that is talked about a lot and understood by very few people some people think it's about pollution it's not about pollution it's
just that certain gases like co2 have an impact that when they interact with the sun rays they get warmed up like when you put your food in the microwave only the water gets gets hot the plate is not and these are extremely complicated uh physical realities that now we have the
hope of understanding because our unprecedented computational power called Ai and other things so if I can understand risk at that bigger scale let me do it so of course valat risk is what I did in the 80s 90s that's that's that's that was just the first step into understanding all the risks that we may
have Val risk is like the seat belt you put it on okay that's it that does not mean you're not going to have an accident it does not mean that if you have an accident you're going to be safe these other things and now you have GPS's and you have airbags and so this is part of the evolution
and what is also remarkable is that mathematics is part of all of that and that's what I told my students you know um mathematics is perhaps not the solution to the problems but it's the language that will help you understand what you're dealing with they mathematics will understand what risks
you still have if you have the seat belt on mathematics is the one that will help you understand that the GPS sometimes does not work you know this information which is not in the database and you're stuck in traffic or something like that uh so I I think I I think the 21st
century is going to be the cent of math as a social science perhaps even more than than than than as a social science and and that's how I see B that's how I see Financial Risk Management it's an evolution that it started with a big bang called valat risk and you know this
thing that many people thought was the solution to to to everybody's problems no it was just the first step in it direction towards complexity and now we are you know going further further into that and it's going to be fantastic we will see I think so too and I you know I as I
listen to you God I would have loved to have you sitting by my side when I was trying to get these people to understand First Step because what they did was they saw value at risk and they were like okay that's it that's everything and and as you just very eloquently pointed out
no no that's not everything it's it's the first step it's the seat belt and then the movement towards the complexity and the idea of the interactions between so many different variables right that that's where we should be moving that's where you are moving with AI describe if
you don't mind the the way that we are seeing the change from you know very heavy data numeric data um and uh a very limited amount of it if you've done any research like I am you know the copy stat only goes so far and you know the earliest like the like a lot of even the crisp the center for research and
securities pricing um there's a great paper by a guy I think what was his name mcquery in which he kind of dissects the uh I think the name of the paper is the myth of 1926 or something along those lines in which he points out all of the massive holes even in like a pretty
pristine data set and and you've been arguing that we're moving to completely non-structured data to a very very different way of doing the analysis if you wouldn't mind just walk us through through that so I I like to ex explain this by looking at the last 100 years so a 100 years ago data data was something
you could write with a pencil in a piece of paper very important in particular accounting practices started that way very very important then in the 50s when computers were invented suddenly data became databases a amounts of data that no human could read and that was great
but they were numbers around the year 2020 our data basis the concept of data stopped being numbers and words were welcome that's where Jud PT is started to be useful and we're in the midst of that we're going through a database Revolution where what is changing is the fact that my data
consumption my data input is no longer just numbers there are words and we're in the midst of that but what's coming is even more interesting because what's coming is what's called multimodel models multimodel data data which includes sensor data images video all things that I could analyze in real
time so if we think CH CPT is a big deal it is a big deal no question about that it is only a change from numers only to numbers and words if now to that I say now give me images videos in real time and then our will anal that's going to change it's going to change
agriculture it's going to change engineering it's going to change manufacturing uh and when we have the hardware that will help us analyze this when we have the communication systems which are faster so we can share this information very very quickly now we're gonna start to see
even bigger and faster um uh speeds at the change in which this revolution is taking place which by the way going back to our previous discussion about education is we really need to have an education system so that no one is Left Behind because if you think that is a big deal no it's not the big deal is
about to happen and it's going to be databases that grow at at at formid appr rate that we can understand in real time what's happening to my a plantation of peaches in southern Spain or my or whether I should be planting olive trees here or something else a lot of the geoengineering
challenges that we have are going to be affected uh by this there's one thing that I like to remind people which is in the 50s the big problem uh for Humanity was talked to be food we were going to run out of food I lived the I was born in the 60s so I I got to see the the tail end of that no
no one talks about that anymore why because the small changes in in Engineering in agriculture small changes um they gave us that's the value of the exponential function over time they made us uh better we're going to go through something like that but what is different is in my opinion they
need for a different type of education and so the immediate next question is what does that education look like what let let's let's let's both live in the future for a moment what what what are we it's 2045 what and and we're both young men I was born in the 60s too I was born in
1960 so uh let's let's imagine that we're both young men in n in 2045 and and we're just the same we have the same interest and curiosity that we have now but what are we what's going to what's going to look so much different then so at 2045 let's do another podcast
together in 2045 that's number one okay okay we'll it now remind you yes let's let's book it now and let's see if we are right but what I think we're going to see is a democratization of education education is still centralized I mean a university great university University of Toronto I been to
universities great University of Princeton and this and that it still is centralized it may make sense or not I'm not going to argue about that but I think education is going to be decentralized and uh with all the good things and the bad things okay the good thing about centralization you can have
this thing that we call Quality Control when you have decentralization so i' like to use an example to explain this uh and that's a what happened to the company Kodak so Kodak is a wonderful example because they invented the digital camera but they thought Celluloid is the thing to
go because it's much better quality and they thought Hollywood would never go digital and this and that so they they went bankrupt so what I so I I I do an analogy between Kodak and universities and and I said well Kodak should have become Facebook different business model you
may think but that's what happens when you democratize something this actually is is is in a book I forget the title of the book now um but when it comes to education we're going through the same thing I think education is to to be democratized is to be decentralized and we're going to have
systems of course say who is this person teaching me this well maybe you don't know maybe the whole Community will have with its own way of of um of helping you select who that teacher is going to be a little bit like what YouTube does right there's people in YouTube tell you all
sorts of nonsense and people telling all sorts of great stuff and eventually maybe an algorithm maybe something will tell you well this is what you learned here this what you learned there but we need a system like that we're going to need to have companies enterprices are important extremely important in this I
I don't think governments are big enough to be able to to to drive this forward education right now is run mostly by governments I think we're going to have to have the private sector develop um um a version of that I I have a company that actually I created with that
purpose hopefully I I spoke at Davos at two was two years ago about the Met aversity which is what I would like to see develop um but we're going to have to have it a way where um humans are being taught are being um um explained their realities about by having this decentralized system uh
where you have access to information you have access to data you have two opinions you have to have all of that knowing that what you learn will become obsolete very very quickly so that's going to have to have you know uh there is you know I have this is my iPhone okay everybody has more less a
smartphone and these these devices they need an upgrade right you get an operate system upgrade what happens if you don't upgrade that operating system your apps stop working uh you may get Breakin people can break into your phone right you need to upgrade well with our
operating system here we need the same thing so I think education is going to look very much like that basic thing that's the operating system that you have when you buy your phone and then you need a company that does the upgrades you have an operating system upgrade like every few months you need
to upgrade your operating system here I think it's going to look very much like that and um it is is it going to be I think it's going to be decentralized I think there will be will become a business for many companies to to operate in and uh then humans will be participants in that
uh humans will participate not only as um as learners but as teachers also right pretty much like a like a a blockchain works and that may be what you and I will talk about in 2045 you know and we'll have this this blockchain based system where who know who knows
what podcasts would be then you know maybe groups of organized individuals all sharing ideas very quickly and doing it very very well we'll see yeah again I'm just smiling here because I I knew I was looking forward to talking to you for a reason and it's because I I too think about it
that way I love the idea that we are moving away from this centralized way of Education this also this idea that still permeates much of our psyches in the west at least which is you know we got our certification we got our stamp right our diploma and and we can get a nicer
better looking stamp with a masters and even a spiffier SP stamp with a PhD but we do get this idea that okay now I'm done no no you you're just started just and the way that I see it unfolding is I completely agree education needs to be decentralized I also agree that the private sector has to get involved I
think for example that great professors such as yourself you you should be making millions of dollars a year from being a great teacher and I think in the future that might happen you might see the emergence of these great teachers who are being compensated for being a
great teacher letting the market decide but that's going to require curation that's going to require as you said it's a great example and it's it's the earliest of days over on YouTube but it's a good uh analogy and and to to look at right on YouTube you can find just absolute garbage right and and you
know it's all engineered to get people to click on it and you know I I expl I I was never a big YouTube person until some of my much younger colleagues were like Jim you gota you gotta go and check YouTube out because it's amazing and so I did it for like I devoted a weekend to
and I was like holy they they they weren't kidding but like one of the first things things I noticed is what you pointed out there's a lot of garbage but so there's noise and right now it's most not mostly but it's largely noise but then and I'll use your uh YouTubes
there's really high signal on YouTube as well and so the curation part of this IC coming in helping isolate the signal from the noise and getting it so that great teachers can you know have earn a great living from their ability to be great teachers I I think is a laudable thing to happen and
and I also agree very much that the of the community aspect of it um and and again the what we have now has collapsed time space and geography right you you and I can it doesn't matter if you're in Toronto and I'm in Connecticut it but an even more uh better example is like many
of my colleagues are in Bangalore or um you know Singapore and doesn't matter anymore and so I think that you're you're dead on and and how how do you see that what what could derail that what could what could both of us are optimists what what could derail that no I I think this
nothing's going to do the real this I I just don't see it this this it could take longer it could take a short time uh but no this this this is the way we are going to we're going to evolve I think we're going to organize ourselves like that because it's needed there's a
need uh there's no provider to that need like I said education now is considered tou age 24 you're out right and then you're left to your own devices I think we're going to start and I mean YouTu course perhaps you know does feel a void we'll see much better versions of that we will see a type of um uh the word
social media is is is is misused um it it will be social it may be media but it may be a new type of social media but we are going to have a way for communities to get organized so that we can um teach each other I'll tell you another thing I don't think the concept of a nation is
going to stay around for much longer either right the concept of communities is not going to be as you said earlier you know geographical this is it you know this is the river and now this a different country that would be there but there's going to be so many high
dimensional there's so many ways to organize people in different communities some would be geographical by our countries as they exist now but some other times they will be uh in in in different ways culture has been a very very big divider of communities because of the language but now even that is
being uh throughout the because language is just something that we can fly over uh very very quickly so I think we're going to see A disruption in the concept of community the concept of nation the concept of Education C certainly a decentralized education and humans are
just too valuable um I think the concept I'm not it's not that I want to attach you know a price tag to a human that's not what I mean but humans are extremely valuable and often times I think that a human is valued at Price lower than a cow uh it's it's just not right a a human that you transform that you help
get better is so much better that's why education is the best business right you give me some raw material which is a person which is so so and then I give you this fantastic excellent person the value added there is fantastic so you monetize in anywhere you want okay I'm talking monetization
now you understand what I'm talking about this is but that's you do that the value of improving the quality of a human is fantastic times 7 billion people who are here what is the revenue of typical social media n it's about $50 per person imagine I could run something
that increases the value by thousands of dollars for getet I mean the multiples are just tremendous right so that's the inherent value in having a proper commercial education system and it pays for itself it's not that people have to start saving no no it pays for itself
because the way you calculate the value of education at a very basic level is look at how much your salary will pay that's the typical NBA argument right what do you do in NBA you spaying 50,000 now you make 100,000 per year for the rest of your life right that's the money ization of that take that
everywhere right so um you can look at this from many different perspectives I use the monetary perspective you can use the human element perspective we we all be kinder to each other we'll be more educated we'll be happier and um that your grandchildren will love you for that because they will watch your
podcast right and they say wow look what Jim did all of that has value and the value is so exorbitant there's nothing to derail this I it'll be done one way or another this person or this leader or that leader will take care of that but there's nothing to derail that yeah it
reminds me of uh Julian Simon's idea that uh humans are the ultimate resource yes and he goes after the malthusian argument you mentioned the the questions about food and scarcity in the 1950s um and of course way before that we had Mr malus who's uh posited that uh
we are all going to starve to death because you know it was just basic mathematics right he said here here's the population here's food production oh that's starvation what he did not account for is human Ingenuity and the ROI on human Ingenuity which is nearly infinite and endless
right and and so I completely agree that the that the it has to be it has to be decentralized it has to be commercialized because right now we're we're at the tail end of an old system I think and that old system was very valuable absolutely valuable but now because of the world that we're going to all live
in it it's going to be much more complicated it's going to be much more um you know we'll we'll need to learn how to understand the exponential function because that's actually there's that great quote the the the great sadness of humanity is that Humanity can't uh understand the exponential
function and and and I think you're dead on on the way it get so because the value is going to be so enormous from these types of learning systems that people will just flock to them what what do you think about the idea that's been emerging that I find interesting they call them SM uh smart
swarms where where people are all with different capabilities different expertise Etc are drawn to a a a problem and they all work on it together and you know they either get a solution that works or or they don't but it isn't this old hierarchical uh you know the man and the
great Chels too yeah I think that is an example of what we're talking about is an actual real life um example what we're talking about we're focused on education this one is focused on problem solving uh problem solving as you said earlier with Newton and light was very often engaged
as a solitary Pursuit Einstein right uh now more and more is collaborative Pursuit one of the things that I think we're also going witness is um uh if you look at certainly the 20th century I I say it's the century of Confrontation now I think the 21st century is going to be the century of
collaboration uh we have ways to collaborate and by collaborating we can be so much stronger at problem solving at educating each other at making each other happier and so on and so forth and anything that enables this collaboration aspect is going to be um well unavoidable because it's going to be
extremely valuable it's we're all going to go here towards it it's going to make us happier and it the question is when is it going to be in a year she five years I don't give it a very long time frame I think it's going to be fairly soon what do you see emerging right now
that are good examples of your thesis well apart from the example that you that just mentioned they're all you know small here and there um I I I think this idea is um a little bit a little bit early because I think people are still ingrained in the past I think people are still thinking of
Education um I'm at a university okay so many people think about education you go to the university when you could argue that the university is like a rating agency and they're learning how in sales Square so we're still we are still in the old system but as soon as for example
companies they start to hire people based on other types of merits uh where the rating system gets expanded and it changes when now education can be made available here and there I mean I created my education company a year ago right I think this is all beginning to happen
um so I don't we don't have very many examples about this okay uh but if you do the calculation of the value ad of a decentralized system just from a calculation perspective you would say the only possible the the only the only thing to stop it is if you could not develop the resources to make it happen
but we know the resources are there now right we have communication we have you know your podcast this resources are there so we they will be organized probably very quickly to uh to deliver it I think it's going to be very very fast I think it's very very F and that's the part that I
find very interesting because I I agree that um the the century I love the way you frame it the 20th century being the century of conflict um and the 21st century hopefully being the century of cooperation and collaboration and and and the way I try to frame it is like
the way we do things at oan ventures is you know a CD a diploma suggests competency but that's all it does it suggests it you you mentioned the rating system so so one of the things that we do is look at proof of work but then we also everyone that joins the team starts
out on a trial period uh because we have to see you know an interview is a snapshot a six-month working together experience is more of a movie right and it it tells you more of a story you mentioned earlier in our conversation that uh like how are people in crisis are they are you know do they fall to
pieces or or are they um more stoic uh about it those are you know you I don't at least I'm not smart enough to get to an interview question that tells me whether somebody's gonna g to be great in a crisis and unless uh you know we happen to be in the midst of one and I
and I'm observing them my friend Jason zwi who writes for the Wall Street Journal says that the the what he's talking about risk and and he says the the difference in trying to really disambiguate true risk is like the difference of showing a person a picture of a snake and saying are you scared and
then the way to really tell is s live snake in their lap that's right so I I I concur with you that this is the way forward um and do you think that right now that there is an Institutional imperative an Institutional weariness of the existing leaders in education Etc that is going
to in any way thwart or try to block this it may be but I I cannot believe that this can be stopped the value creation is just just just too high okay but I give you another um I continue I mentioned that I had this meters concept and I spoke about this atos a few years ago my concept of the
meters is one in which the participants are not only people they're also corporations and um and institutions of other types right you mentioned the concept of the process of hiring the fact that someone goes through a then so a certain process education they get a
degree and then they they are be they become interviewed and you have to decide in a few days weeks whether you want to hire them or not what if this person was part of your community all along okay you know them they know you because you're part of that Community there's no there's no like I leave this
University and I enter this company they were always there together to begin with right um so the C Community has to be extended to institutions too to legal entities not just to um to people because at the end of the day most people still today they get hired by legal entities so that that relationship
is very important so if this person you're going to hire is someone you've been following for a long time that chob interview is really not an interview you've been interacting for a long time you already know this person has a certain skill set maybe they're not the
right ones for you today but when they are you already know where they are you know who they are and vice versa they know you too right so this could happen very very quickly goes back to an enhanced concept of collaboration one that doesn't exist now because we
collaborate by hiring someone very quickly and firing someone very quickly or even your company very quickly it's all very abrupt it's like 01 and that I think is is ready to be disrupted too we may even require new labor laws so we can have different type relationships and and by the way I think
we need to find a way that we can hire children uh right how you know what I mean by that of course I don't want you know we all know what happened in the in the 18th century with with the child labor that's not what I'm talking about right but we want to give children an
opportunity they did I I used to take my daughter to work one day a year right we all have done it you know Take Your Kids To Work Day what if I could do it every day for a few minutes you know the amount of learning they will do and the amount of learning we will do by watching their reaction to what we do is
priceless right so I think a way to or this is going to be part of the change too it's not just you know this this new weard University we're going to create no I think it's going to be a different way of collaborating with each other a different way of interacting with each
other so that this thing we called learning which is really human transformation is enhanced and adapted to the needs that we have now when everything is changing yeah that's a really interesting point as well because the the idea of the extended uh period of teenage adolescence is really a very
modern idea and um in the in for most of human history that wasn't the case at all and again we're not talking about sending little kids into chimneys and you know Charles Dickens type stuff we're not talking about that we're talking about the the interaction between a child and an adult in a family
even right where where it was constant and I've been thinking a lot about sort of children uh young children as sort of unprogrammed humans and you can learn a lot from watching young children in my opinion um because what are they they're learning machines like I I have the uh joy and
happiness of having very young grandchildren around and I just love watching them because they're what natural human curiosity is all about right it's it's like everything they do is meant to to learn and and and they're they're not afraid like imagine if they
had programmed many of the fears that we get programmed as adults right nobody had ever learned how to walk watching my new grandson's learning how to walk and they fall down and they get up again and they fall down and they just persist and keep learning and learning and learning and so it seems to
me to be a much more natural process and in terms of like take your daughter to work daily as opposed to day makes a lot of sense to me and also this idea that we have that you know you you you have to which is also from our more recent history I think right this idea that no
no no no no you can't you can't contribute anything like a first year analyst on Wall Street right I in in the old way of doing things they were meant to just sit there shut up take the notes do everything that the senior persons wanted them to do in bidding that's an awful way to run things in my opinion
and and I find that by empowering younger people um boy great things can happen because like they're closer to the newest stuff that I am certainly and the ability I learn from them all the time yeah and right I mean you and my guess is you learn from your students all the time as well every day and they
all know it right and and I have I have um an example that I use I for example I am terrible at playing video games I can't my hand eye coordination is just terrible I don't know about you but I I I can't but so I am convinced that everything around us all the gadgets all
the portfolio management tools that we have the Bloomberg of Tomorrow will be like that because that's they're so much better if you know how to manage them but I I I confess my my incompetence dealing with that these people can do it so why not why not introduce these
interface systems that would allow them to do what we used to do you know more slowly they can do it in a different way and that's the value of Youth uh and and even even you know children when they look at things uh fresh they developed skills that we don't have or whatever
the reason we need to find a way to make them welcome into the world and even I who are not an I cannot play a video game I should allow for you know video game inter actions if they contribute to something with it you know G the word is gamification if there is a way that you
can gamify some learning process some portfolio management process anything do it because it's going to be better right I agree and I think that's an unfortunate term because it you know label thinking uh is not really great for us if we're trying to to extend our understanding and and and I think
certain people he gamification here it should be fun and think No it should be serious it should be you know this and that and I I really disagree I think that like learning is fun and and and teaching it in a way that isn't Fun you know transmits to the student yeah no
you welcome to hell you're not going to have any fun in this class at all what do you expect their reaction to be if they're told here put on this CLA and and we're going to cover you in ashes and you goddamn better write you know have the correct answer machine installed in your brain well you're
gonna get different results yeah exactly that is not how it works back to the humanities aspects of what we're doing right um sure so um I'm getting my producers giving me the little uh uh with me it tends to be more of a 10minute warning than than a two-minute warning uh but um
what what do you see as the most promising thing in um a lot of our listeners and viewers are interested in investment and asset management Etc what are you seeing as the most uh compelling and and interesting um uh developments there that are Incorporated in the theme of what we've been discussing wow that is
that is a we haven't talked about that so I'll give you a this is very very important I say I mean as as you know but maybe your your viewers don't know i' I've managed money I run an investment company for 20 years we manage about a billion dollars um and the way you manage money has been based
on numbers okay now the way you manage money is based on Words and I use an example it may may sound very cheesy I may not have time to explain myself but for example if you want to understand what happened to GameStop you know Bloomberg is behind you can use
Bloomberg right you have to go to Reddit so if you going to understand the realities the complex realities of what's Happening that information is not accounted for companies don't account for the value of their data companies don't don't account for the value of their community and lots of other
intangibles investment decisions are going to be driven by variables that we don't know right um and analysts I going to have to rely more and more on these expert systems which are really just based on fantastic data that we don't have or that someone is going to produce
and one example is all the focus on sustainability which is what I do now but sustainability is just something that is worth so much money and so much lives that but it it it's not accounted for accounting standards don't go there if you develop a system to create concrete that does
not have the emission and the heat consumption that you have well what is that accounting for I don't know if you have a way of accounting for this transformational changes that are happening the new companies that will be created is is great the private Equity the way that's going to be done
analyzing private Equity is is considered to be the investing without uh data because you're not publicly traded well there's so much data out there but it's all in in it's all in disclosure statements it's all in audit reports it's in in textual databases that now we can
analyze in real time very fast and so I think investing is just going to be a completely different game uh the exercise is going to be absorbing data sources which are extremely complex but that's where you find those nuggets of value and so it's everything we talked about but applied to the act of
investing which is taking risk putting something on the table so that things get better and your value goes up right it's just um the quantification of that will be done with new forms of AI which we have and will be developed and it's going to be a fantastic fantastic activity yeah I
agree uh we when I was still at oam before we sold it we did a big research piece on intangibles and they're the game they're the game now and and uh you know the Antiquated figures that we still pay so much attention to right GDP a variety of those things they're
all Beyond useless in many regards today because it is the intangible factors of some of the biggest companies uh by market cap for example um most of the value that you're seeing there belongs in the intangible category and how do you get to that you get to it through
natural language programming machine learning the ability to mine the text data and other data right and and so that in my opinion when people ask me well you know what's the future of Quant I said the future of Quant is more art than science the future of Grant is the ability to manage these complex data
streams in a manner that you can test and hopefully replicate but the old days when it was just numbers those are gone they're done gone that's right it's not black or white it's the 50 Shades of Gray that matter now exactly and what a perfect way to put it because something
that I often harp about but I think is really important for us to remember we don't live in a deterministic world anymore and the yes no 0 100 binary choices that is the way it's going to work and you want to be successful the other thing when people would say well what do you think you know who's going
to be the Warren Buffet of I'll stick with 2045 since I used that date earlier and I say I don't know but he or she isn't G to look anything like Warren Buffett the way they got there is not GNA look anything like Warren Buffett's back well this has been absolutely up to the my expectations which is always a
great thing uh you you are an amazingly Interesting Man uh I love what you are doing I love what you are work work on I love the way you get your ideas across and and the U your insights into nonm uh things that are incredibly important and like the the whole communication uh
lecture that you give at the end well if you if you've seen the podcast or listen to the podcast you know that our final question is is really just fun and and it's uh we're going to wave a wand and we're going to make you the emperor of the world you can't kill anybody you
can't put anybody in a reeducation camp but what you can do is we're going to hand you a magical microphone and you can say two things into it and the two things that you say are going to incept the entire population of the world and whenever their morning is the next morning they're going to wake up and
they're going to think that the two ideas that you give me now were their own and they're going to say you know unlike all the other times when I wake up and have a bright idea and never act on it I'm going to actually act starting today on these two ideas what are you
going to incept in the world I only need one which is love each other oh that's great it's I mean I I I have a way of expressing the concept of um yeah I mentioned it earlier when you hire someone you have to be in love with them so the concept of Love is very very interesting and um and not enough in my
opinion uh promoted I would I would I think I only need one I love it you're leaving one in reserve that's uh that's very I'll save my next one for 2045 when we do the well I I I I certainly hope that you will accept an invitation in between those two dates to
come back on because I I didn't even get to like 80% of talk to you about because it was so fascinating to talk to you about what we chattered about thank you so much and uh just really really enjoyed uh the conversation and really admire your work and what a great program you have here thank you