"[Music] hi i'm jim o'shaughnessy and welcome to infinite loops sometimes we get caught up in what feel like infinite loops when trying to figure things out markets go up and down research is presented..."

"this episode of infinite loops jim o'shaughnessy is chairman and co-chief investment officer of o'shaughnessy asset management where jamie catherwood is an associate all opinions expressed by jim jami..."

"why i named the date and year as we get into our discussion my guests are osam research partner jesse livermore for those of you listening to this i am using air quotes like dr evil uh jesse is not hi..."

"thank you for having me so so what we're going to do today is talk about something near and dear to all three of our hearts but you guys have done much better research than me quite frankly and what w..."

"crazy it's just can't keep going like this but we're going to talk psychology when we get so i don't want to steal the thunder but my two guests today um think about bubbles uh especially you lily bec..."

"bubbles um and in that respect when i was thinking about trading and when i was thinking about how i view the market at large it was hard to ignore the idea of bubbles in general there are certain per..."

"but undeniably we've entered some sort of regime shaft yeah and we're going to talk one of your great insights i think at least is the tying liquidity to the sustainability of bubbles and how if you a..."

"least the word bubble was being used again right and this time i was a little bit more trained a little bit more you know i had learned my lesson and so i try i you know mentally i was on on the side ..."

"with a friend you know about microsoft for example trading at 12 i think it was price sales or earning no sales definitely sales versus seven times earnings historical average and i'm like you know he..."

"so momentum is brings in the idea that markets are priced by imperfect beings called human beings and uh jesse i want to bring you in here because during one of our conversations you you made the very..."

"microsoft for eternity and when i die i can be quickly to my heirs right what would the value of it be to me just to own it in itself and the answer is it's producing real things right it's producing ..."

"intrinsic value as the maximum price you would pay to own something if you were bound by law to never be able to sell it right and all you can do is bequeath it right that would be intrinsic value now..."

"upon someone else's enthusiasm someone else's confidence that somebody else in addition to that person will then buy it and so on so like i don't dispute at all that like the market operates off of ex..."

"be done right whatever my intrinsic value is obviously i can't because this is a real world and we have a market and we have you know extrinsic value attached to things and so you have to play that ga..."

"people do is is their problem so lily what do you think i was gonna say basically 100 agree with that i mean jesse reported my poll um in some respects so yeah i mean i guess one differing point that ..."

"you know going back to our main topic in the sense that it arises from this mismatch of expectations of what other people value an asset at versus you know let's say yourself so you know i i guess a l..."

"asset yeah i mean it's it's interesting because there are obviously certain assets like a fiat currency which you could argue or all exchange value you know there is if i gave you a dollar them and sa..."

"periods that they are sustained by this idea of continuous exchange and i think another key point that jessie mentioned was the idea of leverage which you know if you are holding this asset of fundame..."

"then we may wait that heavier and you know going to jesse's example you may be able to completely discount the noise of the market but when you get to the class of companies or class of assets that ha..."

"understanding of value i i think that um like several i just heard several really good points there and i want to just lead the discussion back to that first off i i've been doing this since 1982 i ha..."

"opinion jesse and and lily about whether i'm right here or whether as usual i'm wrong um i watch the literally the run on the bank at bear stearns they i don't i don't have the exact number but they h..."

"like do they have like an underground gold mine that they can have unlimited access to doesn't matter if you don't believe in them and you don't believe that they will in fact do that you're going to ..."

"but during the bubbles occurrence consistently say oh yeah that's a bubble we studied those you know in third year about bubbleology jesse yes i well i mean i want to be careful on the answer there it..."

"and everybody is trading it on 100 like 99.999999 extrinsic value and the confidence that someone else is going to be there tomorrow to pay even more for it could you say that it that it is a bubble n..."

"selling flow itself right might be enough to bring it down that would be one possibility another possibility is could you see that there's some belief there that it's just so obviously wrong that nobo..."

"possibly get to being completely worthless in and of itself as something to have on your computer right but it still trades and to lily's point you also have currencies that you have to explain too be..."

"not get liberal in our use of the word bubble and that we really specify that there's got to be something about what's happening that allows you to reliably say that either via arbitrage either via so..."

"necessarily in the idea of a bubble this idea that it can pop because otherwise it's not a bubble i mean fundamentally if you think of the value of fiat currency you know it does share a lot of remark..."

"eventually come back and you will see that usually with earnings i mean a great example with tesla earnings recently went down nine percent you know you see on these speculative stocks that earnings t..."

"that in 50 years bitcoin's value intrinsically aka without the ability to exchange it will be different than it is now and because of that there's also no collapse because you know there's obviously s..."

"factor of like how much time it would take to hold it in the arbitrage and then also the fact that you don't even know what it is so like with arc or with some genomic science or something you can't e..."

"you know we're supposed to be investing fundamentally other people care about earnings so i better sell this stock if i know this information before everybody else because everyone else is going to se..."

"and so the key thing is is that sometimes little things can get a foot in the door and kind of become heuristics right like for example the very idea of a discounted cash flow and how it might affect ..."

"training on right and so you know i think i don't even know how i got on there but anyways the the yeah i'm way off on a tangent but i guess the point is is that with respect to the relationships that..."

"no sane individual would pay more than a hundred dollars for a hundred dollars right now it gets more complicated of course you know as you add different factors as cash flows go into the future as yo..."

"novel paradigms you know or very you know i guess you could say hard to value or understand concepts so the internet bubble it's not a surprise that happened when most people were not on the internet ..."

"harder it is to like have that force really assert itself right like if people really don't believe it matters right what a pu multiple is right or that the fact that one stock has a really high p mul..."

"even say that because it could go on forever in may of last year i wrote it because obviously a lot of people know me from writing about gamestop in general first right you know the options squeeze an..."

"so so um boy so much good stuff here um but let me lead with my friend mike green has a really interesting theory and that is that indexes have so dominated the market and indexes are clearly price ta..."

"gamble on the market price right now you know if you do let's say the growth value arbitrage that josie mentioned you're going to see it take 10 20 30 years you know to realize your gains where it's p..."

"burying the risk for you jesse before you go i mean uh lilly that is one of the central challenges of trying to figure out finance right because like you what you just said is absolutely right and and..."

"back jesse with uh your idea of happiness uh but i i wanted you you you were going to try to respond to our just the conversation we were having just going to say that additionally with respect to the..."

"it's it's a fun market if you believe the fundamental value of zero or something but what's interesting is that a lot of these bubble assets if there existed a term structure on a forward that was not..."

"and just normal volatility fluctuations so when you take a leveraged position you are essentially short time itself because you know volatility and talk about this is really this way that the market m..."

"try to like think about simulate that kind of a market or find somewhere you know to say this is in backwardation so no i i yeah no no no i'm just fascinated by this question could can we come up with..."

"know dividends stuff like that so you know it's i just to show you how ancient i really am i started my career in the market in 1979 1980 and i had i had been uh fooling around with math and and the b..."

"my question to both of you is is there a mathematical model such that its awareness of said model the awareness of the varying factors of that model how it's put together etc is there any model that c..."

"so i guess it's difficult because as i described my definition of bubble is very opaque in the sense that it's really any you know prolonged discontinuity between a fundamental and you know the market..."

"but yeah i mean one thing i did find interesting which jessie brought up which i fundamentally agree with is of course when you are looking at valuations of these companies you have to understand what..."

"i don't know i think that's a great answer because uh as both of you point out there are there there are limits there are bounds of which you can have the government set the the rate to a place where ..."

"so i'm incredibly thankful that we now live in a culture where people like you lily and you jesse can be hurt and have so many people actually listen to this you might not believe how excited people w..."

"last time jesse wanted more time to think about it you get to incept the entire world's population in other words i i used to present it as you're going to be the empress for a day but you don't even ..."

"millennials can gain like 40 pounds during pandemic and other groups gained pretty similarly i think older people of course were very isolated my own grandmother told me about her own depression and h..."

"caring for yourself and i'm not saying you should care only for yourself i think for most of us i hope that hard at caring for others is part of our own happiness but you cannot always focus on this r..."

"stuff if you're in an environment where there's a lot of threat there's a lot of conflict a lot of tension a lot of negativity it makes sense evolutionary for you to have a different mentality where y..."

"would be free will this is a little bit controversial but i would say this is my honest answer if i could program into everyone's brain a little bit less of a belief in free will i think that there wo..."

"not making the mistake again it's much easier to let go of all all of the heavy emotion and reactivity that comes from from bad experiences if you don't attach so strongly to the idea that you're in f..."

"not controversial at all [Laughter] lily do you have a job a comment yeah i was gonna say it's interesting cause i'm actually writing a post now i mean one of the things that i recently chatted about ..."

"oh boy yeah now now i think i i i literally think that that that i'm going to make a note on that and that's going to be maybe our second half of this i would say um so first off free will um i i i un..."

"evolutionary uh programming bits in in wheat domesticated sapiens um uh but i think that in a variety of things i would prefer i'm not quite sure that you can make it a thesis is is free will do we ha..."

"the conversations have like been going for 15 minutes and then it's like hey jim do you believe in free will and it's it's like interesting to me because that's the that's the kind of uh the uh jungia..."

"sprays everything down with water so if the flood or the rain comes because of somebody's action and they wanted to do that right there's a critical need to feel anger right and to feel a retaliatory ..."

"and um go ahead there's obviously benefits to both respects but i do you know i would probably side with jim here on this idea that i think but potentially this is almost the narcissism of the homo sa..."