Jim O'Shaughnessy - Man, Myth, Legend
Major Topics: The Human Mind, Life, and Quant Investing
Wall Street legend, best selling author, Godfather of FinTwit, and Chief Meme Officer James P. O'Shaughnessy joins The Business Brew. Jim is a one of a kind individual who took time out of his life to help Bill work through some real life issues earlier in the year. They connected as individuals and Bill values Jim's friendship highly.
This is a wide ranging conversation about finance, the human brain, and life. Jim has so much knowledge and shares it freely. Rather than summarize this conversation, we ask that you please give it the time and listen closely. The Business Brew guarantees there are thoughts worth adopting in this conversation.
This episode is brought to you by Koyfin, one of the fastest-growing platforms for financial data and analytics to research stocks and understand market trends. Check out Koyfin.com to see what a Bloomberg-lite, with tons of high-quality fundamental data and a powerful graph engine looks like.
Album art photo taken by Mike Ando.
Thank you to Mathew Passy for the podcast production. You can find Mathew at @MathewPassy on Twitter or at thepodcastconsultant.com
+ Transcript
BIll: Ladies and gentlemen, welcome back to The Business Brew. This episode, super special to me because it highlights a one of the kind individuals, Wall Street legend, Jim O'Shaughnessy. He's got a lot to say about life, the way the brain works, markets, and everything in between. I've been really fortunate to get to know Jim over the past six months, and my life is way better because of it. On a professional note, I am thrilled to introduce my first sponsor, Koyfin. Koyfin is an awesome product that displays financial information simply and elegantly. It was founded by Rob Koyfman. Rob is an ex-hedge fund guy, who really values the display of financial information in an elegant and concise manner. I think, he's built an amazing product, and it's not just me that thinks it because Koyfin is one of the fastest growing platforms for financial data and analytics to research stocks and understand market trends.
I discovered them, thanks to many of my friends, many of which are on FinTwit, Elliot and Shomik, two past guests of the show, highly recommended that I talked to Rob, and I'm really grateful that I did. The best way to describe the product would be a Bloomberg Light with tons of high-quality fundamental data, a powerful graph engine that can show it all clearly, and a user interface that doesn't look like it was built in the 90s. If you're an individual investor, research analyst, portfolio manager, or financial advisor, do yourself a favor and check them out. You're not going to regret it. Sign up for free at koyfin.com. That's K-O-Y-F-I-N dotcom.
Yeah, they sponsored me. No, I'm not hocking a product they don't believe in. Rob's legit, Koyfin’s legit, sign up. Figure it out for yourself. So, without further ado, please enjoy the episode with Jim. As always, none of this is financial advice. All of the information contained in this program is for entertainment purposes only. Please consult your financial advisor before making investment decisions and do your own due diligence. So, with that out of the way, Jim, how you doing, man?
Jim: I'm doing great. How are you, Bill?
BIll: I'm well, man. I've been looking forward to this conversation for a long time.
Jim: As have I. I just had you on infinite loops with another good friend of mine, Adam.
BIll: Indeed.
Jim: That was a lot of fun.
BIll: I'm still not sure why I belong in that room, but I appreciate it.
Jim: [laughs] Well, you belong.
BIll: Well, thank you very much. I think, I don't know. Adam’s a unique thinker. I was just happy to be a part of it.
Jim: It was fun. It was a lot of fun.
BIll: Indeed. Part of why I wanted to have you as an opener is first and foremost, I want to thank you for some of the things that you helped me through last year, as I was experiencing a little bit of success, I didn't really know how to handle it, and I turned to you, and I really appreciate the advice that you gave me. On top of that, I thought that what you did during the conversation that we had about Robinhood, especially, given who your friends are, I thought was very, very courageous. So, I want to thank you, and my family has settled with them, so, my fight with them is over as far as I'm concerned. I think that the podcast that we did was a non-inconsequential step towards a outcome that certainly isn't good, but is more palatable than could have been the alternative. So, thank you for that.
Jim: It was my pleasure, Bill, and working your way through those things is hard. There's a great quote, which is, “Whoever angers you controls you.” I try to think about that a lot when like if I'm miffed or whatever. I think, “Well, okay. Why am I reacting this way?” If it's legitimate, it certainly was in your case, then I go, “Okay, so, let's take some action steps to correct this.” You and your family did that, and I'm happy to hear that you're moving on.
BIll: Yeah, I don't know. I'm happy to say that, hopefully, they're in the process of moving on whatever that looks like for them, who knows?
Jim: Right.
BIll: It could have been a lot worse than, I guess, the only thing that if somebody hasn't heard me say it that I would add to what I have said about Robinhood in the past is, they really could have made the lawsuit hellish for all parties involved, and I think that there was a rational outcome that made sense. Wish the circumstances were different, but I will give them props for doing the right thing at the right time.
Jim: Yeah. We're sitting on the razor's edge here, because I support younger people learning about investing. Investing and doing those things, I think it's really great. If you start young, it's even more powerful. But I also get angry. I helped an older friend who'd never invested open an account, not at Robinhood, and I got pretty angry, because I won't name the broker. It's an online broker. But three times, I had to say, “I do not want a margin account.”
BIll: Yeah.
Jim: And It just some subtle changes. Could earn you really good props. So, on the one hand, yes, very, very excited. Worried a little bit about seeing the same thing happen again, and again, and again. People paying attention to the narrative and investing in things they don't know about.
But on the other hand, I want young people to invest. I want them to learn about it. When I was young, I started investing when I was, I guess, 20 years old. I was an options trader, and I thought I was king shit, because I had done a mathematical thing using Black-Scholes implied volatility. That worked pretty well. It hit singles and doubles. But working, working, and I was like cock of the walk, and then I got obliterated, and I learned a ton from getting obliterated. So, I'm not wishing that on anyone, obviously. But for people listening, especially, younger people listening, if something bad does happen, learn from that, and then, get on a course of study. I know, Bill, you chapter and verse you, you've done all your studies, which is I think, the right way to do this.
BIll: Well, I too, started out losing money on options. It was an expensive education, which is, perhaps, why I'm more passionate about it than maybe I should be because, I guess the charitable response to like-- My mind goes to the negative place. But if I wanted to argue the other side of it, I'd say, “Well, if I didn't get into options trading, then there's a reasonable chance I wouldn't be doing what I'm doing now.” It's very hard to see how the path unfolds [crosstalk] beforehand.
Jim: It's like that great, Cormac McCarthy. Oh, by the way, didn't you love the guy who pulled Twitter that he was Cormac McCarthy?
BIll: [laughs]
Jim: I just thought that was the best thing in the world. What a performance artist? But the real Cormac McCarthy has a great quote, which is, “You'll never know what worse luck, your bad luck has saved you from.” [laughs]
BIll: Ha. Yeah.
Jim: I also think this is an interesting learning exercise, because so many people look at failure, and they're afraid. They don't want to look bad in front of their peers, or their spouse, or whatever. If you can reframe failure, I failed a lot of times on a bunch of stuff. You can reframe it to, “Hey, what can I learn from this?” Then rather than getting all nervous about it, etc., it gives you the impetus to say, “You know what? Let's do it. Let's try it and see.” When you're able to remove that fear, it's really difficult to put it into words, but it's really powerful.
BIll: Yeah, I guess that-- I have two thoughts going on. One of them is, I think that people are hardened from their failures, which is one reason that I like when people will come on and talk about their failures on the show, because I think it's very easy to say, “Oh, well, these people look at where they're at, and they never had any problems, and I have failure, and I can't be that.” It's like, well, you don't know the backstory of that person.
Jim: [laughs]
BIll: [laughs] So. it's nice to have people be honest. Then the other thing that I have going on in my head, and I don't know which way you want to fork the conversation, but I didn't think that we'd get to a point where the options market appeared to be driving the underlying.
Jim: Hmm.
BIll: That’s something that scares me a little.
Jim: Yeah, what did Greenspan call them or actually, it was Warren Buffett, maybe.
BIll: Yeah, weapons of mass destruction.
Jim: Weapons of mass destruction. I saw that over my career. These things happen very cyclically, and I've seen it many, many times, and what happens is an event, and the event is an unhappy one, and people come back to their senses and start looking at the underlying again. I don't know. There's a lot of really good thesis out there. I know Mike Green has got one about The Rise of Passive Investing, and target date funds, and what's that doing? I don't completely agree with him. But I think that it's a very interesting thesis. But I always like, “We'll see,” because unsustainable trends tend not to sustain themselves that I think Herbert Stein, and things that you think are going to go on forever stop. I've been lucky enough over the course of my career to experience that personally many, many, many times. So, I always just try to keep a dispassionate view towards what I do.
Look, the entire way that we look at investing is all directional probabilities. When we buy a basket of stocks, because of the underlying factors that they have, we do that knowing full well, that X percent of them are going to fail. I was saying that to a friend of mine who's a more traditional investor, and he's like, “I would never buy a stock that I thought had a chance of failing.” I'm like, “Well, that's one of the guidelines that we use.” We know the failure rate, we are able to look through analysis at drawdowns, and some of them are terrifying. The problem with it is that I've experienced many, many times, especially, when I've ever engaged with the end investor rather than an advisor or whatnot. I cannot tell you the number of times.
When I started my first company, O'Shaughnessy Capital, we used to literally, people would come in, because we took high net worth money directly back in those days, and I'd sit them down in the office, and they all came in wanting the strategy from what works on Wall Street, that was the best performer. Most of these people were 60 plus, and so, I'd sit them in the conference room and I'd say, “Okay, cool. But I want to show you the 10 worst drawdowns for that strategy.” Some of them were 55%. This is pretty great financial crisis. They would look at it and eight out of 10 of them are like, “Yeah, no. I don't think I want that strategy.”
BIll: [laughs]
Jim: [laughs]
BIll: He was looking for the return without the risk, sir.
Jim: Yes, that's what I want.
BIll: [laughs]
Jim: “Can you to give me that.” If I could give you that, I wouldn't be meeting with you, because I have my own [crosstalk]
BIll: Also, [crosstalk] your fees while we're at it. Thank you very much.
Jim: Yeah, exactly.
BIll: [laughs]
Jim: Exactly. Of course.
BIll: The game doesn't change or the clients don't at least, the game may.
Jim: Yeah.
BIll: When you started, you said you were an options trader. If I recall correctly, you were hitting singles and doubles, and then you stumbled upon an academic paper that exposed your strategy. Is that fair?
Jim: I did Indeed. It's very fair. I've always been a research junkie, and back when it was hard, literally, you had to get in your car, go down to the research library. In my case, I grew up in St. Paul, Minnesota. The library was the James J. Hill, who was a railroad robber baron, and took after Mr. Carnegie in giving libraries and literally, go through microfiche. I don't even know, if you know what that is?
BIll: I do. I was trained on that in grade school.
Jim: Okay, well, there you go.
BIll: I haven't used it in a while, though. [crosstalk]
Jim: Right. Well, neither have I.
BIll: [laughs]
Jim: I was early into the metaverse. I'd like adopting technology very, very early. So, it stopped working, literally. I'm like, “Okay, something's going on here.” I went down there, and lucky for me, they had a collection of all the journal portfolio management, etc., etc. All of the really geeky stuff on mostly academic, a lot of practitioners, too. I went through it, went through it, went through it, and found it. It was an academic. I can't even remember. I think it was at University of Illinois, although, I might have to be corrected on that. Anyway, I had a instant aha, which was mathematical anomalies. Once identified and disclosed, go away. Like the old anomaly where you could trade Royal Dutch, which traded in New York and traded in London, and you could arb the difference in price, because there were no computers. The minute that that technology was there went away.
BIll: For the most part.
Jim: That led me on my path of, “Well, what can't get arbed away?” As I often say, markets change second by second, human nature hasn't changed millennia by millennia. Arbitraging human nature is the final edge. The thing about human nature, that's really interesting to me is the first paper I wrote, I wrote in 1987, and essentially, it was all about behavioral finance. It was all about behavioral finance. It was all about behavioral finance back then like just called it psychology. But we've had this data for 60 years on a variety of things, not just the market in human decision making. We suck. For the most part, we get caught in bad heuristics and rules of thumb that sound right, but they really aren't right.
BIll: Hmm.
Jim: And, we have a very hard time correcting the error. I'm a huge fan of Danny Kinnaman, Annie Duke, all of the people who are really working hard to get people to understand this. But the fact is, we get it intellectually, but that isn't the part of our brain that takes over when we're panicking.
BIll: Yeah.
Jim: It’s like when we're panicking and you do this, that isn't really you. It's not this part. It's the ancient part of your brain that basically is danger, running away. That is, unless you have a process in place that mitigates that. Willpower is not enough. It's not. Kind of leading me into the thing that really cemented it for me, was something I've written about was going into the crash of 1987. I had amassed the largest put position on the OEX, which was a proxy for the S&P. I had never had that big of a position.
BIll: Really?
Jim: I was--
BIll: Long or short? This is your biggest directional bet to date? Wow.
Jim: Well, no.
BIll: Okay.
Jim: I've made bigger directional bets.
BIll: Okay.
Jim: But this was my first one.
BIll: Yeah. Okay.
Jim: Yeah, so, I'm 27 years old--
BIll: I met up to that point. This is your [crosstalk] big fall.
Jim: Oh, yeah. Up to that—Definitely and I had developed another mathematically based system in a similar manner to the one that got outed by the academic. Anyway, it was suggesting things are really, really pricey here. So, I just methodically put together this put position, and when I started, which was in August, the premiums weren't really crazy, but as I continued to add to the position, I actually took it as good news that the premiums were just going up, up, up, up for the puts.
Long story short, the day before the crash of the market, was a horrible day. It was down like a hundred points which was 7%, or 8%, or whatever, and that was back when I still listen to narrative. So, I guess, it was FNN which got taken over by CNBC. Like, everybody they had on, everybody was like, “That's it. This is cleared out all of the weekends. You got to get in there and buy.” Now, this is like a half an hour before the close. So, I called the broker, I'm like, “What do you think in here?” He's like, “Dude, get out of this position.”
BIll: [laughs]
Jim: I panicked. I made an emotional decision, and I sold the entire position at a really small game, didn't lose-
BIll: That sucks, man.
Jim: -but a really small game and that would have been worth-- I used to keep the calculation just to remind me that-
BIll: Ah, that’s brutal, man.
Jim: -hubris has, extracts a big price. But again, looking at failure, it cemented in me, the fact that I wasn't any different than any other person operating human OS, right? When I got clear of that and understood, “Hey, I'm just as much of a cosmic schmuck here as anyone else is. I got to figure out a process that allows me to derail these emotional decisions.” I look at that trade, even though, it was like-- and this speaks directly to what we were talking about earlier. A lot of people would look at that and just be angry and, “Oh, my God, I can't believe I did that. I'm such an idiot, blah, blah, blah.” I looked at it as the best thing that ever happened to me.
BIll: Yeah. Well, it’s a great lesson, right?
Jim: Well, a great lesson, but it also set me on the path of-- I'm just going to be a pure quant. Listen, by the way, that's my path. It doesn't have to be your path, it doesn't have to be anyone's path. What I advocate for people is find the thing that works right for you. I have a friend in Vienna, and he’s stock quant, but what he does is almost as good. He's a trader. We're not traders as you know. We're investors. But what he does is, when a position is going against him, he literally has programmed himself to get up out of his chair, go to his locker, put his running gear on, run a couple miles, and come back. What he found that by and large works really, really well for him. I'm not here to proselytize on a method that's worked well for me. Sure, read about it. Take some examples from it. Learn. But you've got to find something that you know that you can stick with.
Everybody's different, and there's lots of paths towards success. But if you think that you're going to be able to do it through your clever insights, and your ability, and willpower to overcome your emotions, the probabilities are very, very high. I'm sure there's some person out there who can do that.
BIll: Yeah. Like maybe Buffett, not even him.
Jim: Yeah. Again, learn to think in terms of probabilities. The probabilities are very bad for you there, and that is not a bet you want to make. I always say to people, “If you're in Vegas, own the casino. Don't be the guy walking in the front door.”
BIll: Yeah. You know who I wonder if Jesse Livermore, when he was at the top of his game was pretty good with emotions. I would imagine, but then again, if I remember the story correctly, they took him down in the end.
Jim: He's a fascinating character, and I honestly don't think that he was as in control of his emotions as many people feel. I think that he got really full of himself after calling correctly the crash of 29, and walked around with bodyguards, because people, they blamed him, and they wanted to kill him. [laughs] But then, if you look at his career, he also had a history of depression which is can be tough. He lost it all. Made it all, lost it all, and after the lost it all, killed himself in the men's room of The Sherry-Netherland Hotel in Manhattan. I love the book, Reminiscences of a Stock Operator.
BIll: One of the best.
Jim: Absolutely. It's like, whenever anyone asked me, “I'd say read that one first,” because-- The thing that's great about it is, it also reminds you-- what I often tell people is read the book, and then just fill in names of today. You're going to feel like you're on Twitter reading somebody tweet about GME.
BIll: [laughs]
Jim: Because we don't change, man. We just don't change.
BIll: Yeah. The thing that sucks about your put position is, you were right. If I can speak for you, it sounds like when you saw the vol go up, you knew that the option or had a strong premonition you asserted, I should say in the spirit of our previous conversation, that the volatility going up, maybe knew something that the equity didn't know.
Jim: I did.
BIll: Because you said it like it was a positive indicator to you, right?
Jim: Oh, absolutely.
BIll: So, you're paying more for premium, and you're excited about it, because you think you're going to be right, and then to cut that bet short sucks.
Jim: Well, again, yeah, I take a very different view of that. I like to look at math, because it doesn't have an agenda for the most part, and vol going up, the markets telling me something that I don't know. The market is always smarter than you are. Anyone who thinks they're smarter than the market is going to end poorly, I think. But the lesson that I learned about the power of motion to screw up are even the best-laid plans. There's a great quote from Proust that I put up periodically on Twitter, which is-- this is paraphrasing it. Guided by feelings that are destined not to last, we make our irrevocable choices. That speaks to me, because how many times in the heat of the moment have you made a decision that six weeks later, when you're looking back on it, you're like, “How could I have been so dumb?” Well, you could have been so dumb because your body got filled up with cortisol, and your emotions, and your amygdala were like, “Yeah, I remember the show now. I'm the captain now.”
BIll: Yeah, time to fight or flight.
Jim: Yeah, and what happens is six weeks later, that's all gone. You're able to see clearly what happened. But in my first book, I said, “Successful investors unstick themselves from time. The past, the present and the future make up their now.” What I mean by that is, we overweight, we give way more weight to whatever we read today, or saw today, or whatever, and then we straight line it into the future. You're much better off making it a continuous wave, and looking at that, and thinking, “Okay, well, we'll see it.” In genders, a level of humility about your own prowess that isn't present, if you're thinking only here and now.
Another thing that I just passionately believe in is, people are way too quick to become prematurely certain about things. You mentioned our work together, that's one of the parts of what I do is, when I'm trying to work with somebody is like, that's wrong. What you want to do is you want to try to remain as open to what might happen and the probability distribution of that, and be a little more like Spock and a little less like captain Kirk. That's hard. You literally have to train yourself a lot to think this way, because it's not a natural way of thinking. I was talking to somebody yesterday, and we were talking about, how is it that these gurus, man, they still get the gig. They still get put on financial media, they still get paid for their speeches, and they're all about certainty, and only the madman is certain in my opinion.
Again, it's a feature not a bug of human OS. We crave certainty so much that even if like we were going to go see some guru, and right before we walked into the auditorium, we got handed a list that showed his or her last 40 calls and 38 of them were wrong. We're still going to go in, and listen to them, and you know what? He's going to be so certain in his attitude or she, that you're going to believe them. There's a lot of good stories about this. But it springs from our very human desire for the illusion of control. A lot of things that happen are random, and that does not sync well with the way human brains work. So, we construct narratives, usually, after the fact, that makes sense to us. So, my buddy Rory Sutherland is really great on this. He's like, “The brain is not the command center or the Oval Office. It's the press office, man.” It's there to make you sound like you really thought this out.
The fact is, you didn’t, you made the decision emotionally, and then you paper it over. Some people don't even paper it over. You paper it over with what a plausible sounding rational reason for what you've done. So, if you want to get really good at this, you really have to do a deep dive on behavioral psychology, on genetic behaviorism. I'm there right now. Some of that stuff is really scary. There's a study done by some academics, where they looked at identical twins and it's pinned on my Twitter page. What they found was that, because identical twins are clones, right?
BIll: Yeah, it should be the same in theory.
Jim: Yeah. What they found was that as much as 45% of investment behavior, buying and selling, etc.
BIll: Mm, I’d agree this. I’d agree this.
Jim: Yeah, is genetic, and here's the part that scary, is genetic and cannot be educated against.
BIll: Yeah.
Jim: We're complicated creatures. I was on a really fascinating call yesterday with a physicist expounding on some things that I think is really cool. But I asked him a question about consciousness.
BIll: What is this thing you think is cool?
Jim: Oh, well, so why causes precede effects? What’s the title of his talk?
BIll: Okay.
Jim: And Santa Fe Institute and these people are wicked smart. The question I asked was, so, how does consciousness come into everything that we're doing here? Then we got into this conversation about, we still have no idea, really. There is no well-formed thesis or hypothesis about why we're conscious, about how that gets enabled. It's like, when you start looking into this stuff, you're like, “Hmm, I think maybe more people should know about that. It's like anesthesia. Oh, how does anesthesia work? We don't know.” [laughs]
BIll: Can I ask you a follow up on this study, just because now, you got my brain going?
Jim: Sure.
BIll: I think, it's my conscious mind that's coming up with this. Did they comment in the study of the twins when they said that it can't be unlearned? Do you think that it can be unlearned if you can train your subconscious mind to change the way that it thinks through the power of habit, or however you talk to yourself, or some really different way of change right now at the base level?
Jim: Yeah. You and I've chatted about that at length because of Arnold. That was like, I think one of your best podcast by the way.
BIll: He's the man. I had nothing to do at the gym. I just got out of the way.
Jim: [laughs]
BIll: Like I'm going to do here.
Jim: He's awesome. For those who haven't heard it, I highly recommend listening to it. He overcame incredible things in his life to be a great success. One of the tools that he used was self-hypnotism and exploration of the power of the unconscious subconscious, I mean, whatever name you want to put on it.
BIll: Yeah.
Jim: Mine, and by the way, if people who are listening are interested, go to YouTube and type in Milton Erickson, who is probably the godfather of this. This guy's accomplishments were crazy good. He could literally in two sessions cure somebody who hadn't been able to leave their house for five years, because they were agoraphobic. So, that's an interesting segue, though, because, maybe I hadn't thought about it. The way I thought about it was, “Well, maybe it could be changed. If you put these guardrails, these process around it.” But that'd be worth exploring for sure, because this idea of metaprogramming, and you can do it. It's really hard. Metaprogramming is essentially programming your own mind as-- [crosstalk]
BIll: Is that like neuro-linguistic type stuff or different?
Jim: Yeah, the neuro-linguistic stuff is part of it. That's Bandler, and Grinder, and I read that stuff when I was 20, and forgotten, that a friend in Florida was like, who's an old school psychologist, but he's been an advisor for years and years. He called me on the phone. He's like, “You do realize that you are using NLP Techniques all the time?” I'm like, “What? No, I'm not.” He goes, “Jim--" So, emailed me this thing, and he had underlined pacing and leading is one of their big things. So, pacing leading is really easy. I would just say to you, Bill, are you doing a podcast with me right now?
BIll: Yes, I am.
Jim: Are you looking over to see what your kids are getting into?
BIll: Yes, I am unfortunately.
Jim: [laughs] Okay. Right. So, that's the pacing part where I'm getting you to say, yes, yes, yes.
BIll: Ah.
Jim: Then I lead you where I want you to go.
BIll: Sure, you do. That’s smart.
Jim: Then you are going to go, “Yeah, yeah, that's--”
BIll: “That’s right. You are leading me.”
Jim: Yeah. [laughs] So, all of that stuff is very instructive, I think, because it helps you understand that. I'll be honest. There are early books are pretty technical, and it's all about the structure of language. I find it very interesting, and I learned a lot from it. But the bottom line is, yes, there are techniques that you can use. The one that you and I worked on together was the thread that I wrote called the thinker and the approver. I'm a huge believer in-- Listen, you know why propaganda works? It works because they just repeat the same message time, and time, and time, and time again. Here's the interesting part about that. They do it in such a manner that your conscious mind ignores it. In fact, it gets irritated by it and ignores it. Guess what doesn't ignore it? Your subconscious mind. If you study the subconscious mind, and I'm sure most of this will find out is wrong. But at least it's effective.
George Box, all models are wrong, some are useful. So, why it works is because the subconscious at least on the theories that are working today is quite literal. It also does not have a sense of time. So, if you believe something deeply about yourself, that's what's going to happen. Because your subconscious mind, and by the way, it doesn't even have to be you to believe it. There are some studies that have replicated where they lied to a group of teachers telling them that these 12 kids that were picked totally at random, by the way, these 12 kids all are gifted.
BIll: Oh, I think, I read this study.
Jim: Yeah. They went away, and they came back a year later, and guess who was getting the best scores in the class?
BIll: Yeah, the kids they said [crosstalk]
Jim: Those randomly chosen kids. So, it's one of the reasons that I believe very strongly in the power of words, because they become symbols, symbols dominate, and if they get lodged into your unconscious or your subconscious mind-- I worked with a guy once where literally, his thing was, he deeply believed that he did not have the right, and he use that word. The right to make more than $80,000 a year.
BIll: Ha, what a limiting belief.
Jim: And guess what? [chuckles] He never made more than $80,000 a year, despite the fact that he was maybe one of the most talented guys I've ever met, and I'm talking this guy--
BIll: Where’d that come from? If you're at liberty to say, it sounds like it's got to be something that happened in his childhood or something. I don't know.
Jim: Well, most of it is in his childhood.
BIll: Yeah. I've been to Men's Groups gym. Have you ever been to a Men's Group?
Jim: Actually, when I was in YPO, Young Presidents Organization, they had things called forums, which I thought were the most useful part of [crosstalk] things I remember.
BIll: Oh, yeah, I didn't tell you this. Yeah. When I got all riled up and I screamed at somebody, I thought it was my parents. It was actually a good experience at the end, but it was wild to be in.
Jim: Yeah, it is. But talk therapy has proven to be one of the most efficacious of all the therapies and here's the rub. It doesn't matter who you're talking to.
BIll: [laughs] Yeah.
Jim: It could be a psychologist, it could a psychiatry, it could be a bartender, it could be your buddy, it can be anyone, and we found that the ability to express it-- I'm a big fan of a guy who just died recently, unfortunately, named Dr. John Sarno, who is a traditional MD, practiced at NYU in rehabilitation. He got so angry that the traditional ways that they were trying to treat things like back pain just didn't work. So, he did this deep dive, and found that there was a strong mind body connection, and that a lot of these pains were being caused by people repressing their emotions, mostly uncomfortable emotions, that they for whatever reason believed should not be expressed. So, you're talking about-- [crosstalk]
BIll: Chronic manifested itself in the body?
Jim: Yes.
BIll: That's wild. It makes sense. That’s wild.
Jim: There's another great book called The Body Keeps the Score. Anyway, his success rate was crazy. Good. But one of his qualifications was, he would not treat you if you did not say that you were open to the possibility that this was correct.
BIll: Hmm.
Jim: Again, now we're getting back to-- [crosstalk]
BIll: Oh, that kind of forces you to say yes, and then, it's the little carrot that you're chasing in your mind like at some point in your mind is already acknowledged, this could be my problem.
Jim: Exactly. So, I had in my late 30s, I just launched several mutual funds. It's getting a lot of press for what works on Wall Street. I was on CNBC all the time, mostly because Mark Haynes and I were buddies, and he really liked me. Back in those days, he really ran the show. Actually, I want to touch on that later. But anyway, I got this thing with my neck. My neck was frozen. Literally, I could not move more than that-
BIll: Oh, that’s brutal.
Jim: -without excruciating pain. I did what every normal person does. I went to my doctor, and he's like, “Okay, well, I'm going to prescribe these analgesics and blah, blah, blah” and we'll see how it goes.” Hot cold, you know the drill.
BIll: Yeah.
Jim: Then nothing happened. Then I went to a chiropractor who put me in traction, and then I went-- I'll dispense with [laughs] things I went down. So, me being me, I'm like, “Okay, there's got to be some other way.” So, I went to the bookstore, went and found this Sarno book called Mind Over Back Pain. The current book that I recommend is The Mind-Body Connection. Anyway, so, I read the book, you know what I did after I read the book the first time? I threw it across the room.
BIll: [laughs]
Jim: My wife was walking in, she goes, “What's going on?” I just read the biggest pile of bullshit in my life. This guy is a conman. This is bull shit.
BIll: Oh, doesn’t he know my neck hurts?
Jim: I can't believe that I spent time reading this fucking book.
BIll: [laughs]
Jim: My wife goes and picks it up, and she's paging through it, and she goes, “I see some aspects of your personality here.” I'm getting-- [crosstalk]
BIll: Oh, that’s funny. You’re getting angrier, and your neck’s getting tighter, and you’re talking about what bull shit it is. [laughs]
Jim: Exactly. I re-read it. I think ultimately, five times. Guess, what happened?
BIll: Your neck starting to heal itself.
Jim: It didn't just start. One morning, I woke up and it was gone. Gone. There's a great movie that I contributed a little bit to help finance the making of it called All the Rage, and I think you get it on YouTube or it's available broadly. When you watch this, man, Howard Stern is a huge fan of Sarno. Sarno cured Stern’s back problems. Anyway, when you watch this movie, though, there's one person in particular that just blows me away. She, in the beginning of it, she's on one of those little scooters, because she can't walk. She literally cannot walk, because she is in such horrible pain that she's got to ride around on the scooter. Then, it follows her with Dr. Sarno through the movie, and the final shot is her jobbing in Central Park.
BIll: Wow. Good for her.
Jim: Exactly. There's a lot of stuff that if you're open to it is can be really useful in repurposing, I guess, if you will, to make your investment strategy work a bit better. So, I would definitely say, I bet there would be something with the subconscious. My problem is-- [crosstalk]
BIll: I think barriers are probably safer to be fair. I'm not sure that people should be like, “I'm going to reprogram my subconscious mind.” Actually, the last time we talked, you know what I did almost immediately after I wrote my two buddies, Francisco and Alex, and I was like, if I ever put through any trade, and I don't write you guys some memo before I do it, I'm sending you $250 each. Just like as a forcing function.
Jim: Good.
BIll: Because I was thinking about some of the stuff that we had said and I was like, “I need to write more, and I need to have more accountability around me, so that I'm not making behavioral mistakes.”
Jim: Yeah, the writing is something that I have been. That's one of my soap boxes. Writing is so powerful on so many levels. The first thing about writing is, you instantly understand, if you understand something or not.
BIll: Yeah.
Jim: When you try to write about it, and you look at what you've written, and it doesn't make any sense, you realize, I’ve no clue.
BIll: I don't know what I'm talking about.
Jim: I have no clue what I'm talking about here.
BIll: Yeah.
Jim: Which drives you to further study. But the other thing that I really think is really helpful for writing is that-- Listen, again, back to human operating system. Our memories are unreliable narrators. What happens is, there's this automatic function, where our memory upgrades, what we think we have as a memory to be consistent with what we believe now. There's nothing like being called a liar in your own handwriting. My experience that is easy to give us an example. So, I was out pre-COVID to dinner with friends, and I don't know how it came up, but the first Gulf War, where Kuwait was occupied by Saddam. And George Bush Senior mounted the campaign to get them out of there. They were like, “So, did you support that war?” I'm like, “Absolutely, I did.” That was like flag on the play, man. You can't do that.
At this point, the United States is the only real superpower left and we have to do something about it. It wasn't a long conversation. But anyway, it happened that I was doing some research into something that was around the same time. I found an entry on the eve of our invasion of Kuwait, and guess what?
BIll: You do not support it.
Jim: I was not horribly opposed to it.
BIll: Yeah.
Jim: I actually wrote, for every innocent person we kill, we're going to create 10 jihadis.
BIll: Pretty [crosstalk]
Jim: But also, totally wrong. [laughs]
BIll: No, well.
Jim: But it's a good illustration I think of, we're not aware of that this happens to us. By the way, this is why I witness accounts should be basically just not allowed. Because they're wrong, and there's a lot of studies that have replicated, and you notice I always say have replicated and have it replicated. That's really important. What works on Wall Street? I tried to do it as scientific and approach as possible. By that, I mean, what I wanted was to disclose the way that I programmed it to come up with the results, because my goal was that, if somebody else got that same data set, and ran the test the same way, they should get exactly the same results that I got. That means that they could replicate it, and that you could take it seriously. There's a crisis going on, unfortunately, now, in actual science, it's like, I'm still trying to ponder how you manage to politicize a drug or a mask. It's insanity to me.
BIll: Yeah, these are bizarre times, especially, with all this information.
Jim: Well, exactly.
BIll: It's almost a problem is so much information.
Jim: Claude Shannon, one of my heroes, who I think should be known as well as Albert Einstein, came up with information theory. Everything we're doing, everything is because of Shannon. One of the things that he did, and this is what's so cool about these old school guys. I had the opportunity when I was still living in the Twin Cities to meet Seymour Cray. Do you know that name?
BIll: No.
Jim: He created the first supercomputer.
BIll: Oh, Cray. C-R-A-Y. Sure.
Jim: Yeah.
BIll: Yeah, okay.
Jim: You know how he did it?
BIll: I have no idea.
Jim: Handwritten on legal pages.
BIll: Really?
Jim: Yeah, and I got to see them.
BIll: Wow.
Jim: It was so cool. So, cool. Anyway, one of the things that you find is, when the information gets to a point, there's a technical term called the Shannon Limit. That limit is how much the human brain can actually take it before it starts going a little crazy. Many people are at their Shannon Limit, and so, I've been writing and talking a lot about the thing. I'm calling the great reshuffle. I think that we'll be able to figure this out and get around it, but I think that we need to also understand that information, calling anything information, age, that's done. That's gone. We got plenty of information and we'll continue to get more, and it'll get better. But now the game is, how do you synthesize that? How do you turn it into actionable knowledge? That's the way that you have to start thinking right now, you have to be really open minded, and this idea of being open to looking at things in a non-linear way as opposed to a linear way.
There's a lot going on, and I think for those that can use these new tools and these new ways of looking at things, the world is going to be an amazingly exciting place over the next 10 to 20 years. but there are also people who are going to suffer. So, with this information, deluge, tsunami-- For example, it's why you see all these conspiracy theories. When people get overwhelmed with information, and they're not good at curating what they're looking at, they reach a point where they just want it to stop. They seek simplicity, but not simplicity in the form that I would find it a virtue. But simplicity, easy solutions. Well, of course, it was group x, y or z, and then we scapegoat them, and then, you get these tribes warring with each other, and that descends into dogmatism and conspiracy theories, because it's easier, it's just easier to believe that you know whatever. There's so many these days that ultimately isn't great.
I do have a theory though that the ability to vent on social media might not be 100% bad because again, back to talk therapy. Let's say you're really angry and I'm enraged. If you can get on Twitter, or Facebook, or whatever you want to do and I hate so and so. That's a steam valve. In the older days prior to be able to do that, you might have done something a lot worse. You might have actually, physically assaulted somebody, and I know we have that going on too.
BIll: Yeah, but I understand what you're saying. It's an outlet for people's minds. I think as the receiving end, because I do this sometimes on investment ideas. Some of the ones that I like to talk about are the more polarizing ones because it's more fun. I think that if somebody jumps into the conversation and I say like, “Okay, I acknowledge that you have a point and just de-escalate right off the bat.” It more often than not, a lot of people that seem angry up front really are not, and then it's like, “Okay, now, let's have a conversation.”
Jim: Yeah. I think that I do the same. I have been blessed with being totally chill in terms of people. You want to scream at me scream at me. It's not going to affect me in any way.
BIll: But that couldn't have been so when you were building your business. Has this always been your personality trait or has this happened in your--? I'm not going to call you older age. That feels wrong.
Jim: [laughs]
BIll: [laughs] As you grown up, as you come a fine wine, Jim.
Jim: When I was younger, I was in fact, a proselytizer. I was a true believer, and I did all sorts of things intentionally to stir up a ruckus. At a big conference in the early 90s, telling a traditional portfolio manager that I could clone her portfolio and it would do better than her.
[laughter]
BIll: I'm sure she really enjoyed that, Jim. I can't imagine how you could have not been friends after that.
Jim: [laughs] Yeah, so, it did change in my mid-30s, when I realized, I was reading a review of the first edition of what works on Wall Street. That was like, “This guy's sucks. He's an idiot. He doesn’t know, blah, blah, blah.” And I'm reading it, and rather than get angry, I just started to laugh. I'm just like, “This is really funny.” This person is so clueless that they just don't understand what I'm trying to get at here. So, I thought about that a lot, and when I was a younger guy like a teenager, I had a temper problem. I was a classic Irish fella. I just realized through a series of things that happened that I couldn't be like that. So, I really worked at--
I started reading Lao Tzu, the Tao Te Ching. I read the Stoics, I read a lot of that, and I got a lot out of it. It was like, “Yeah, I'm doing this wrong.” It has served me so incredibly well in my life, because there's just so back to the quote, I gave you at the beginning. “Whoever angers you controls you.” One of my big things is, I'm not surrendering my agency to anyone. Both good and bad, by the way. So, if I fuck up, I fucked up. I'm not going to say, “Oh, it was you know because of that dirty rotten guy Johnson.” Remember, Forrest Gump?
BIll: Yeah.
Jim: Where you see people, whenever there is success, “Oh, I did that.” Whenever there's failure, “Oh, it was that bastard, Johnson.” So, that's surrendering agency, and when you do that, you lose your power, I think. For good and bad, you got to retain your agency, you've got to own your decisions, and when you do that, just really great things happen. Because you realize that back to failures. I view them as like, really what a great opportunity I just got to learn something. I'm also really big on unlearning things. I change my mind about things. I don't have a list. I need to change my mind about this. But organically, so, we talked about the great reshuffle. I'm now in favor of universal basic income.
Even though, I know, all of the empirical results that I've seen, say, it doesn't work so well. We had to try something, and I think that I'm willing to throw in with trying that. By the way, if you study it, it's not a conservative or a liberal position. It's been advocated by both groups. I think Milton Friedman, Mr. Two Cheers for Capitalism, was a big advocate, and I like the way he framed it. It was like, you have the good fortune of being in the United States and being a citizen of the United States. You should get some of the benefits of that. He phrased it like, “We should make them shareholders,” so to speak.
BIll: Yeah, I actually had an interesting conversation. I might even mess up the term. I should let the person that has the idea come out with it, but something like superannuation or something where you're basically giving people equity, but forcing them to lock up their savings for a while with what you're giving them, you're not forcing them to do anything with what they earn. But I like that idea. I like the idea of giving equity to all the citizens, because I don't know. I worry about this wealth gap.
Jim: As do I. I think that, that's a neat solution from the way I look at things, because it also creates an owner mentality. If you've got an owner mentality, you think differently. Then if you don't, my worry is I'm not a political person. I'm typified by one thing, which is I'm fiercely anti-authoritarian. I'm fiercely in favor of freedom of speech, even speech that I might find abhorrent. The rule of law, it's worked really well for our country. You don't have to study history endlessly to see when that those things aren't in place, things go to shit. But I think we've got a horrible class worldwide of politicians.
BIll: Yeah, it’s bad.
Jim: I worry, actually, that as part of this great reshuffle, we are so far ahead of them in the private sector. Just look at medicine. Why do you have to fill a paper form out the same one 10 different times with the same doctor, when you go to visit. It's crazy, it's insane. We have the technology that could be HIPAA compliant and work. But the problem that I'm seeing with our political class is that, they're not the sharpest tools in the shed. When you've got an environment where super bright people have access to these unbelievable tools and know how to use them, it's almost an unfair fight. So, I worry about our government like just getting so far behind the curve that they're married to 1930 solutions for healthcare, or social welfare, or whatever and back to the making everyone a citizen.
I had Chris Arnade the author of Dignity on infinite loops. Really, really interesting insights, because most of the people, there are all these programs, that the people he interviewed, who were indigent or down on their luck could avail themselves up, but they didn't. And why didn't they? Well, because they're human beings who have dignity, and they didn't want to go in, and be bitched at, and lectured to by some schoolmarm Karen, who was going to tell them how they were going to live their lives. That's my worry about guaranteed basic income. It takes the power out of the hands of politicians. I don't see ever actually getting passed, because.
BIll: Yeah.
Jim: If I was going to do it, I would put it on credit cards and distribute them to everyone we've got an address for, and have them on hand at centers for people who are homeless, and then they get to make their mind up what that money gets spent on. Politicians, taking their power away from them. Are you kidding?
BIll: Yeah, they're never going to be in in favor that. That's not why they ran.
Jim: But so, one thing that we could do, that I would be interested in participating in, why don't we put together a consortium of really switched-on people who've got some money, and try pilot programs, where we give the money, and we make it these cards. Listen, I love the United States of America. I am long US, I will always be long the US. It has been incredibly good for me and my family. So, I don't know. Let's pay it forward and experiment, because this could be totally wrong.
BIll: Yeah, but at least you’re trying.
Jim: I could get it totally wrong and there could be a great scam. I'm sure that the really clever scam folks would figure out a way to get 100 of the cards.
BIll: [laughs] Yeah. You’re going to have some bad outcomes. It's not a reason not to try.
Jim: No, exactly. Exactly, right. People get caught up in this. They overthink things and they’re like, “Well, that can't possibly work,” because well, I'm a rational optimist, which means that, of course, they're going to be future failures. It’s a given. [crosstalk]
BIll: You know what I find interesting, Jim? I've noticed this a couple times. People will propose a thought, and somebody will jump in with like, “Of course, that won't work.” It's like, well, the thought isn't necessary-- It doesn't have to be full, or foolproof, or whatever in order to pursue. I'm not saying this is the only potential path. I'm just saying, maybe, we start down this path, and then we divert to another one. Imagine when you were young, if you had said, “I'm going to write a book, and then I'm going to rabble rousing conferences a little bit. I'm going to get the attention to CNBC, and then I'm going to have a firm.” Most people I think, would be like, “Oh, you can't do that.” It's like, well, try.
Jim: It's really funny. I experienced that in real time with a friend here in Greenwich. When I first met him, my first firm, O'Shaughnessy Capital Management was really hitting its stride. We were at dinner together, and he's like, “You did this without any backers?” I'm like, “Yeah.” He goes, “You didn't have any of the banks giving you money?” I'm like, “No.”
BIll: [laughs] You're telling me, you bootstrap this?
Jim: Yeah. He's like, “That's not possible.” I'm like, “Michael, it is possible. [laughs] I did it.” So, I think again, that gets back to like, “Are you open minded, expansive, thinker, or are you a zero-sum type person?” Pessimism is very seductive. It's very seductive, because it appears to be more sophisticated than optimism. And it's not. Literally, the book that I recommend to everybody, The Beginning of Infinity by David Deutsch. It is just brilliant around this stuff, and it's like, one of the biggest traps that we fall into is, we presume to know that we are going to know what future knowledge is. We don't. One of his great quotes is, “What do you think that physicists were saying about nuclear power, or computer people about the internet in 1900?” His answer is, “They were saying nothing.”
BIll: Yeah, they had no idea. That’s right.
Jim: No, they had no idea that this was going to happen. But it's a trap. It's a thinking trap, a logic trap that is so easy to fall into. Whenever I hear people say, the science is settled, I know they're trying to sell me something.
BIll: Yeah, for now, maybe.
Jim: Science is never settled.
BIll: Yeah.
Jim: I'm stealing this from Ryan North, but he said, “If the scientific method had an Athos, it would be pure punk rock anarchy.” It's like, take nobody's word for it. ‘Nullius in verba,’ which is the motto of the scientific society, Isaac Newton was a member of. Take no one's word from it, and be gleeful about being wrong. Because what happens is, that's how you learn and get better explanations. Pessimism, it seems to be a natural default. Again, I think, we're getting back to evolution, and look-- [crosstalk]
BIll: Jim, I'll tell you what's really intoxicating is certain pessimism. If you can find somebody that knows what they're saying and they're pessimistic, boy, that's intoxicating. That’ll drive ratings like crazy.
Jim: Yes, it will. Because, look, we're primed to pay attention to novel problems. By that, novel things that can kill us. We forget that, we're domesticated primates and we are animals. Yes, we have this incredible higher function, thank God, brain, and we're walking around with these quantum computers in our head, yet, we also have the DNA of primates, and you just have to accept that, and work with your limitations, and then see where that takes you.
BIll: So, can I circle back to your early career for a little bit?
Jim: Sure.
BIll: When you were young, and you had the book, and you were going to conferences, and stirring up, telling somebody, I can just build your portfolio and do it better than you. Did you understand the mental game that you were playing in that scenario, or was it just like, I'm going to get attention somehow, or did you believe it? I don't know that they have to be mutually exclusive. There's almost certainly some overlap. But in order to burst on the scene like I perceive you did, and then keep the momentum, were you studying these mental things as a young man or is this an interest that you developed later on in life?
Jim: Yeah, no, I was studying none as a young man and learning successful ways to get to what your desired outcome was. I knew that to break through back then in the 1990s, when most people didn't know what a factor was, I would have to say some pretty aggressive things. Now, I wouldn't have been as aggressive as I had been, if I hadn't also gotten a gig as a consultant, oddly enough to a big pension plan in the Twin Cities, an old company called Control Data, which was a conglomerate, and those are fun to read about because of how they developed. Anyway, I got hired, because I was on the board of the St. Paul chamber music orchestra, and one of my colleagues there was the general counsel for Control Data. We were at lunch, and he's like, “What are you working on?” I told him, “I'm developing a system that I think is going to be able to clone money managers and see basically how much value they as individuals in their buy-sell decisions are making.” He goes, “Could we hire you?” I'm like, “Yep, sure. He goes, because as part of all of this consolidation, we've got eight different managers from four different plans. Back in those days, Bill, it was like, people honestly didn't know whether someone was a small cap manager or value manager. The relationships were everything. It wasn't [crosstalk]
BIll: So, you got a peek into what was going on.
Jim: I got to peek in. So, what I did was for several years, I would get all of the portfolios from the managers, I would put them on a data set, at that time I was using Value Line. I would look for the most significant deviations from their portfolio in terms of factors from the universe, and then I would use the most significant deviations to build a stock selection model. What we found also kind of underlying my moving into full quant was, even though, we attribute it-- By the way, these were called at the time normal portfolios, because it was a portfolio whose think of it as an x-ray. So, it was an x-ray, your version of it was a very similar x-ray.
BIll: Okay.
Jim: So, it's not like, you might differ a lot from the S&P 500 or the Russell 3000. This was you differing from your underlying factors and they were the same. So, they called it the normal portfolio in the literature. They didn't really catch on. Anyway, even though, we attributed massive trading costs to the normal portfolios, what emerged was quite illuminating. My clone portfolios killed the underlying manager. We had long discussions about why that was happening, and what we concluded was, they were making bad trading choices, and that's led me into wonder why. We're going to start looking at when they were trading things, and lo and behold, they were trading things on bad news, they were selling after the bad news, just not good heuristics to be doing stuff on. So, I wouldn't have gone out and made that claim.
I'm a big evidence guy. I want some evidence to back up a claim that I'm going to make, because anybody can say anything about anything. If you do that absent evidence, you're just a bullshitter like everyone else. Because I had that data, I felt very confident in saying that, and this was at a conference that was oriented towards retail investors. This was pensions fund stuff. This wasn't retail at all. But I knew that if I could make some provocative claims and back them up that people would listen to at least my idea. It's like, “Do you want to play in the game or not?” If you want to play in the game, you got to put yourself out there, you got to take risks, and you got to be willing to have a lot of people really angry at you. But it got a conversation going, and I wasn't completely right about everything. Of course, no one ever is. So, I did that, thought out manner. Because if you don't come up with a plan to convey your thoughts and ideas in a manner that people are willing to consider them, you can be the smartest guy in the room. I can't tell you the number of times, I've come across geniuses. Geniuses that built really incredible algorithmic trading systems. It's like, “Well, I hire you. I won't ever put you in the front room, because you can't communicate.” You have to be able to communicate your ideas.
That's why I'm so big on that skill and helping people with is, why I believe in writing, it's why I believe in putting yourself out there, because nobody's going to pay attention if you can't distinguish yourself. Wasn't that Bezos, that final line in Bezos thing, ‘distinctiveness.’ It can't be false. That's the thing. It's like, when I work with young people, it's just like, “No, you don't have a brand. You're you. Be you, Be of use to people, and guess what? Be authentic, be of use, you'll be fine.”
BIll: I guess the only, when you're young, the risk is that you may not know exactly who you are. So, sometimes, I've encouraged people to do to be authentically them anonymously, because if you blow it, you can reinvent yourself. Once you come out as your own handle or whatever on social media, like, that's it. It sticks. So, be ready for it. By the time that you do it is sometimes my advice.
Jim: Yeah, you know, that's practice. Listen, man. I wouldn't want to be 27-year-old guy in this environment right now. It's brutal. It's brutal. If you're doing it under your own name, it's like, I have reached a point in my life, in my career where I don't mean this dismissively, but I really don't care what you think about me. If I was 27, I but I'd care.
BIll: Well, you got your entire earning years, and I had a better care.
Jim: Exactly, that's right. Yeah, that's actually not a bad idea. Try it out, and then do it. I'm also, though, I'm a big believer in doing things under your own name, because that's all in and you burn the ships.
BIll: Yeah. Well, that’s why, sometimes, people on Twitter that are anonymous. They're like, “Well, don't judge me by my handle,” or you can almost tell that they've started an account to fight, and then they'll say, well judge me on the ideas. You're not even standing behind your ideas, man. You just like pop up some random account to test something. There's no skin in this game.” You’re just some guy. I think it's more guys than females do it. But maybe that's not right. Statistically speaking on FinTwit, I have a higher probability of being right saying, it's a guy.
Jim: Yes, absolutely. Look, I think that I'm a big bowl on Twitter, and started to see that light in 2018, and I honestly believe that it is going to emerge as the Schelling point which is where people who know nothing about and nothing go right to it, because everyone else is there.
BIll: Well, something that was amazing, Jim, is, me and this guy, Elliot Turner-- he's not some guy. He's an incredible person.
Jim: He’s the guy.
BIll: Yeah.
Jim: He’s the guy.
BIll: He’s a great guy.
Jim: [laughs]
BIll: We had a call with Ned Segal, who's the CFO, and I co-hosted with Elliot, and we had a truly legitimate distributed by side call right on spaces. Anyone could get into that. I didn't even know what callbacks were until pretty recently. I didn't know that the buy side has a lot of these relationships until maybe a year and a half ago. Now, all of a sudden, it's just right there in the open. It's like, isn't that what Twitter really should be at its finest moments. That's what it is.
Jim: Totally. I also think that Twitter is going to emerge as a global intelligence network. You need to curate, you need to be ruthless. I tend not to block people. But I'm like, if somebody I don't know comes in with some stupid comment, I usually leave that one alone. I never respond. But then if they come in again with another stupid comment, I mute them. Because I don't need to block them. People like, “Well, what if they're saying nasty things about you?” I'm like, “I don't give a fuck. Who the hell are they?”
BIll: [laughs] It doesn't matter to me.
Jim: Yeah, it doesn't matter to me. But if you curate right, man, it's powerful. I think that Twitter is a real time resume. I have a BA in Economics, and that BA in Economics suggests competence. It doesn't guarantee it. Whereas, the way I see the world going is, apps like Twitter are a real time resume that people like me can watch people, and I heard two people from Twitter, Jamie Catherwood, who you know, and Vatsal, my new colleague at Infinite Loops. Literally, I would never have seen either one of these people without Twitter, and I got to watch them work, and I watched the quality of their work.
BIll: Yeah. Well, Jesse Livermore ended up at OSAM. That guy's wicked smart.
Jim: Wicked smart. We had Lily Bankus--
BIll: Yeah, Nope, it’s Lily.
Jim: Yeah, Nope, it’s Lily.
BIll: That was a great episode, Jim. I'd listen to that like, yesterday or two days ago, that was a great episode.
Jim: The thing that's great about that is, I would never, ever in the pre-Twitter, pre-internet world, I would never know about her. Ever. That's what I love about Twitter. I love this young intelligence, man. I just think, it should be celebrated, and we should amplify it, and we should do everything we can to show that we've got this out in amazing group of young people, and it doesn't have to be just young people, but an amazing group of young people who are doing really good work, and now, we get to know about it. I just find that very exciting like Vatsal. He lives in a tiny little town outside Bangalore, India. The fact is, geography doesn't matter anymore. So, we've been working together. This guy is a learning machine. He's like, “We do this, do this, do this,” coming up with great ideas for everything. Now, all of those guys who are were in the past kind of prisoners of geography in a way doesn't matter anymore.
BIll: It's arguably almost a benefit, because I don't know I'm considering it, whether or not I need help, and I know that I can't afford a lot of people in the US.
Jim: Right. Well, and that's one of my little worries is that, some of the younger folks in the US, they better keep their ear to the ground, and they're going to hear a thundering horde commentary.
BIll: Yeah, that's right.
Jim: These people are enormously talented.
BIll: And hungry.
Jim: And hungry, and work their asses off. Look, I view it as a good thing. It's like, if a billion people can suddenly get rewarding and interesting jobs that they're really good at, God bless, man. If we can make the world emerge from poverty as by the way it has been, it's like, wouldn't it be great if there was just one station that was just said, “Hey, guess what? In the last 10 years, 190,000 people who would have died of dysentery didn't, because of X, Y, or Z.” It's back to that human programming and default the pessimism, and I just think, look, I'm not Panglossian. There's a lot of bad shit code on the world. But I think this new world that's emerging is super exciting. It's giving tools to people who know how to use them, and giving them leverage, not financial leverage. Giving them leverage to do things that just were an undoable like 10 years ago.
BIll: Yeah.
Jim: I love it.
BIll: Maybe, even three years ago at this point.
Jim: Right. I love it.
BIll: You know what I like about how we run each other's podcasts is, I did not expect to have this conversation at all, but we're just going to go with it and see where it goes. And that's the same thing that happens when I'm on yours.
Jim: Yeah. I like that. I designed mine quite specifically, as you know. It was like, I want mine to be it's so self-indulgent, really. But it's me literally talking to people that I find interesting. My audience can self-select. I don't promote it. I do on Twitter, obviously, but it's not like, we don't take ads, I'm not interested in that, I'm not trying to run it like a business. I intentionally don't look at metrics, because I'm a competitive person, and what gets measured gets managed. It would upset me if like, I don't know. Tren Griffin. So, I love Tren.
BIll: Yeah, is that episode that didn't go well or something?
Jim: Yeah, that didn't go well, and they're like, “Don't have this guy on. I don't like this guy.” I'm like, “Fuck you. I don't care if you like that guy or not. I do.”
BIll: Yeah. Tren seems like a cool dude.
Jim: He is. He's a really cool dude. He taught me a lot of stuff. One of the things that he taught me was a thing that I never thought about, and I never framed it this way, and as you know, I'm a huge fan of, the way you perceive things is almost entirely on how it's framed to you. One of the things that I learned from Tren was that, it takes courage to put yourself out there. I had never thought about things like that. It was maybe just like, I was lucky, and I just was naturally that way. But the more I thought about it, the more I thought, you know what? He's right. It's like, to publish a book, or to have a podcast like you have, or whatever to take a position on some issue that might cause a lot of blowback to be public, and take that position takes courage. So, I start working that in when I work with other people, and it resonates with them. Because they're like me. They're like, “I never thought about it that way.”
BIll: Yeah, I, part of the what we talked about in April was I wasn't used to anybody paying attention to what I had to say. In 2019, nobody knew who the hell I was.
Jim: Right,
BIll: Then, all of a sudden, people want to listen, or people want to have my time or whatever, and I didn't even know how to deal with that, and then I read-- There's a couple reviews that sting a little bit, but somebody was like, “This is so self-indulgent like who talks about their influence growing?” I was like, “I don't know, man. I'm just thinking out loud.”
Jim: [laughs]
BIll: I’m sorry. I'm not for everybody, but I just try to be honest here.
Jim: So, we talked earlier about like when I had this changeover on my mid-30s, I don't read reviews of anything I do. Honestly, I don't care. And that sounds like an assholey thing to say, because maybe, I should because there might be some good input in there for me to think about, but I don't. [laughs]
BIll: Yeah.
Jim: I'll just be honest. It’s like, people get me on the phone. They're like, “Jim, you realize where you are with Infinite loops, right?” I'm like, “No, actually, I don't and I don't want to know.” They're like, “But and then they start.” Obviously, they're trying to sell me something.
BIll: Yeah.
Jim: We can supercharge you, and we can-- and I'm like, “I'm not interested.” It's so interesting for me, because these people are like to get so flummoxed, and it's like--
BIll: What do you mean, I can't sell you something?
Jim: What do you mean, I can't sell you something? It's like parts of Twitter that I just love to pay attention to. There's this whole thing called money Twitter. It's all the people selling shit.
BIll: Hmm.
Jim: You, too, can be fill in the blank.
BIll: Yeah.
Jim: It's like Tony Robbins. except they're all little Tony Robbins.
BIll: Yeah. I like Tony, but Tony repackaged a bunch of work and just sold it well. But he admits as much. So, that's why I remind him.
Jim: Right. See, the problem I have with all that, and, look, it can be really helpful for certain people. But the problem with external motivation, it dissipates really quickly.
BIll: Yeah, that's true.
Jim: That's why I like doing things in threads. Actually, like requiring, well, you did it. But actually, requiring people to put some effort in. Because the only person that can change you, Bill is you, Bill. That's it. Can I be helpful? Hopefully, maybe, if what I say or suggest resonates. Maybe, I can. So, it's like, I have no urge to change other people. I want to help them, and that's why I do all-- I had a good friend like, “Why are you bothering, man? Why don't you just like in the Caribbean?” [laughs]
BIll: Yeah, well, because you like it.
Jim: I like it. I love it. It's always been one of my underlying things that I think playing field should be level. If I can level the playing field that makes me feel good.
BIll: Dude, I tell you something that was really cool of you is, when you opened up, I think it was your opener was with Liz, right?
Jim: Yeah.
BIll: That was awesome. Like, Nope, it's Lily, and you put me on. I think it's really cool how you're trying to find young talent on Twitter and give them a shot. I think that's awesome. I hope-
Jim: Thank you.
BIll: -I’m doing stuff like that when I'm a little bit older, because I think that like, that would give me a-- I'm talking about me as if I'm you right here. But that would give me a sense of fulfillment and like, I'd want to get up and do that stuff. It's really very fascinating conversation to get to have.
Jim: Yeah, and you know the way I look at it is, it's just like, if I can use my platform to introduce the world to really cool thinkers, sometimes, unusual thinkers, sometimes, people who don't fit into that box, I love that. Because it's just like, we are so lucky. We live in the richest country in the world at the richest time in the world, and I always tease people who are like, “Capitalism sucks.”
BIll: [laughs]
Jim: I always put up the-- [crosstalk]
BIll: The best thing we got.
Jim: Yeah, I always put up a thing like they tweet it from their iPhone, well, getting a Starbucks. [laughs]
BIll: Yeah. Well, so here's a good question. How many jobs have you created in your career, do you think?
Jim: Oh, wow. I've never even considered that. Hundred, certainly.
BIll: That's amazing, and [crosstalk] enduring organization that you were able to give to your son who is mad competent, that's awesome.
Jim: Yeah, I think it's great.
BIll: If I were you, somebody said, capitalism sucks, I'd be like, “You go fucking do it.”
Jim: [laughs] Yeah. It's more fun for me to tease them.
BIll: I know. But I'm just saying like, that's really, really cool.
Jim: Yeah, well, thank you. I've been incredibly lucky in my life, and never a day goes by that I don't say thank you. It's like, I won the cosmic lottery, and the odds against me are so astronomical, that it's basically a no set. Yet, here I am. So, it's like, all of us. Honestly, all of us are the result of millions of years of success of your ancestors mating, producing offspring, living, and they doing it, and so on, and so on, and so on until we get to us. So, that's not a trivial thing, man. The odds against existence are so huge. So, my whole thing is, it's like, I read a lot of seeker stuff. I hesitate to call it spiritual, because it's really not. It's not spiritual. But I just have this overwhelming desire to know about everything. One of the things that I find really interesting is just this idea that the joy you should have of being alive and being alive now, it's like, every time I take a shower, I like say, thank you. Because I contemplate the idea that for 99% of human beings who've ever lived on this planet, they never had a hot shower.
BIll: Yeah. It's not something you start thinking about how lucky just day-to-day life is.
Jim: Oh, it's incredible. It's incredible. Back to the secret stuff. It's like, so I'm not religious. I'm not an atheist, because I think that requires as much faith as-- [crosstalk]
BIll: Yeah, it does in a different way.
Jim: [crosstalk] about. Well, because what you're saying is, I know, there is no God. Really? Oh, cool. Can you give me some proof for that, or is there any hypothesis that makes it falsifiable? No.
BIll: Have you talked [crosstalk] because he's got a pretty compelling document.
Jim: Yeah. [unintelligible 01:28:42] great-- exactly. But so, for me, I'm an agnostic. I have an open mind about the way the world works the way the universe works, I think it's a lot weirder than everyone thinks it is. But so, a lot of people who do this, get to this place, and I call it, they reach the bridge of nihilism. Because they go through all of the sanctioned belief systems, like Christianity, Judaism, Islam, you fill in the blank, Hindu, and they find them wanting, and what drives them crazy is, life has no purpose. There is no answer. The purpose of life is, you know, this.
BIll: Yeah.
Jim: I see a lot of people get very nihilistic about it. I go the other way, man. I say, “Okay. So, if life has no meaning, what does that mean?” It means that I get to create the meaning in my life. In other words, I get to choose my own adventure, and I get to make the meeting in my life. Again, framing, framing is so important. If you frame it that way, all of a sudden, you're like, “Why wouldn't you just be waking up almost every day thinking, God damn, what another great day?” [laughs]
BIll: Yeah, this is awesome.
Jim: So, it's a life philosophy that took me a while to get to, because when I was in my early 20s, I was more niche than niche. [laughs]
BIll: How did having kids change you? I assume, it did. I don't know anyone that it hasn't changed, which is why I asked that way.
Jim: Of course, it did. I'm the youngest of my family by nine years. From a young age, I was changing my nephews and nieces. So, I was surrounded by little kids, and I always knew that I want to kids, and so I got married. Today's my anniversary, for example.
BIll: Oh, happy anniversary.
Jim: Thank you. 39 years. We got married when we were 22, and we were like, “All right, we're insane to get married so young. Let's have children young.” [laughs] When we were talking about it, I said to my wife, “I want to like the same music as my first child, which is Patrick.” So, I was 24 when Patrick was born. So, I didn't change.
BIll: That's crazy, man.
Jim: Yes.
BIll: You're trying to start a firm and you have Patrick, oh, my goodness.
Jim: And then Kate, and then Lael. I will remember, I got hired by Merrill Lynch as the first outside consultant to design that Unit Investment Trust, which most people won't know what that is. It's a fixed portfolio that expires after a year. But they never hired an outside company before and company meeting me. [laughs] But I still remember my wife was in labor in Greenwich Hospital, and I'm on a payphone doing a conference call for Merrill Lynch.
BIll: Oh, she must [crosstalk] love that.
Jim: Oh, yeah. It really-- [crosstalk]
BIll: Does it still come up? [laughs] It might come up tonight. [laughs]
Jim: Occasionally. But so, I guess the first thing that I like really learned, like moments after, and I was present when Patrick was born, because that was a trend that was getting started, and I want to take full advantage of. Anyway, so, I cut his cord, I took him in my arms, and I understood immediately what unconditional love was.
BIll: Yeah.
Jim: That was really blew me back. Because I was lucky in that, my mother loved me unconditionally. I always say, if you got one parent that you get unconditional love from, you're probably going to be okay.
BIll: Yeah.
Jim: I had been thinking about it, but when that feeling speaking of emotions, when that feeling hits you, and you actually feel it, and I remember when Patrick got married, and Lauren, his wife was pregnant with my grandson, Pierce, I said, Patrick, remember what I told you, you, when your child is born, we didn't know that it was a boy at the time. When your child is born, you will know how much I love you.
BIll: Yeah, that’s what my dad said to me. I think when I held my first, I think I got what he said.
Jim: You really do, man.
BIll: Yeah.
Jim: It's just like, again, it's just baked into our DNA. Steven Pinker does it. There's a great book called The Blank Slate, in which he talks about, one of the first things that organized religions try to do is separate children from their parents. The reason they do that is because they know that those what's bred in the bone, the blood wills out over everything. So, if they want to shape and mold the child, they want that child not to be under the purview of the parent. So, you understand why, when you have your own kids. Let's put it this way, too. I've talked about this with a lot of people. I've never had someone say to me that they didn't immediately have that feeling.
BIll: Yeah, I remember when my kid opened his eyes, so, it was like, my entire world changed. I can feel it right now just even talking about it. I was sitting in the chair and I was looking down at him his little eyes open, I was like, “All right, that's it. This kid has me.”
Jim: Totally. Again, it’s like one of the great things in life.
BIll: The continuing to love unconditionally is difficult.
Jim: Yeah, it is.
BIll: I can't imagine, it gets easier.
Jim: [laughs] It doesn't. I would recommend one of these seekers called Anthony de Mello, he's dead, now, unfortunately. He was an Indian, who was a Jesuit priest. Kind of weird combination. But he essentially, gained enlightenment from a rickshaw driver in Calcutta which itself is a really interesting story. But one of the things you learn when you read him is that, one of the central things you've got to do is shed attachments. The one that I had the biggest struggle with was de Mello basically saying, somebody asked him, “Do you mean family, too?” He goes, “Yeah, I do.” I was offended when I first read that. But then when I read his explanation, I understood better what he meant. He's not telling you to say, “Yeah, I'm not dealing with you anymore or family.” In fact, quite the opposite. What he's telling you is, if you're making anything in your relationship with your wife, or your husband, or your child conditional. That's bad. It's bad for you, and it's bad for them. So, he's got this wonderful thing, I actually put it up on Twitter, because I thought it was really awesome. I wrote it to my wife, because I believe that. And that is, I love you, but that means that I have to let you pursue what you want to do in your life. That means I have to let you have your interests, and they may not be the same as mine.
BIll: Yeah.
Jim: It got me thinking about the whole conditionality, the quid pro quos, and fine in arm's length negotiations or business partnerships and things like that. Fine. You don't want to keep doing business with somebody who's not doing their part of the deal. But in matters of love and matters of the heart, this idea of being able to shed those, what I now understand are bad attachments. I think is critical. It's interesting, because I have had that idea all my life. I had a recurring dream either started and of course, me being a lunatic. I keep a dream journal that goes all the way back to when I was 19.
Anyway, right about when Patrick was about to be born, I started having this dream about being on a beautiful boat, a yacht, and we're sitting on the back of it, and we're just cruising around, and there was a woman who apparently, I knew in the dream, [laughs] but in between us was this vase that I had. That was quite beautiful, and it was in glass case, really locked out and everything. She just kept going on about this vase. She was like, “I love this face. This face is so incredible. This is the most beautiful face I've ever seen in my life.” In the dream, I look at her and I go, “Take it, it's yours.” She's like, “I could never do that. That's too much.” I'm like, “Well, you seem to love it much more than I do. Why don't you have it, then?” She's like, “No, I will not take it.” I said, “Are you sure?” She's like, “Yeah, I'm positive.” I said, “There's nothing I can do to convince you to take that face.” She's like, “No, there's nothing you can do.” So, I take the glass off of it, I cracked the vase on the back of the boat, and throw it in the ocean.
BIll: Huh? This is a recurring dream that you had?
Jim: Yeah.
BIll: That's interesting.
Jim: When you think about it, it's interesting? It's like things are just things.
BIll: Yeah. Where were you in your career at this? I'm just trying to frame like, what maybe was going on in your mind like what are you okay, smashing. What is the vase represent?
Jim: Yeah. So, in my career, I was still in the deep research part of doing everything that ultimately became my first and second book. I am naturally an extrovert, but I have no problem being alone for long periods of time. I had a little small office that was about a half a mile walk from my house, and I went there every day early, and I stayed until dinnertime, and I was completely alone, and I love classical music, I love Bach in particular. So, I would just like stick on Bach, and work all day long and study. Yeah, so, who knows?
BIll: My recurring dream is my teeth fall out.
Jim: [laughs]
BIll: It's not quite as deep as smashing the vase.
Jim: [laughs]
BIll: When I wake, I’m like, “Oh, thank God. I have teeth.” It happens all the time. I hate it.
Jim: That is a very common dream.
BIll: Oh, it drives me insane.
Jim: You do have [crosstalk] right?
BIll: Yes. I can feel them disintegrate in the middle of the night. Fuck, this again.
Jim: [laughs] I love it.
BIll: What are you building in infinite loops that you need like analysts and whatnot? What's going on in the mind of Jim O'Shaughnessy?
Jim: Infinite loops, ultimately, I hope will become the place where people meet super interesting people that they might never have heard of. I'm going to continue to have people who are well known on as well like Rory Sutherland, and guys like that. Like Tim Urban, Wait But Why.
BIll: Yeah, that was my episode.
Jim: He's a smart dude, and we're doing a live event. Listen, I like talking to the smart people and hearing what they have to say, because I find them fascinating. Then Alex Danco, who's my recurring guest. I think he's a hoot man. I just love talking to him. As you know, everything is unscripted. I don't even tell people what we're going to talk about, literally. So, what I'd really love is for people to self-select, who want to listen to that stuff, and I want them to feel like they got to pull up a chair at the dinner table, where me and my guest are talking about stuff. Then, we're going to start to do some series.
BIll: Oh, cool.
Jim: Yeah. So, we're planning one right now on this whole great reshuffle and what we think is going to happen. So, that's going to be fun. We might expand into YouTube video land against my desires and wishes.
BIll: I'm very conflicted on this myself.
Jim: Yeah.
BIll: I'm inclined not to show this video. I like the audio only product.
Jim: Yeah. Listen, so do I. But again, I'm a data guy at the end of the day. So, I did a deep dive, and man, YouTube has just massive fans. They just love everything YouTube. They love to see people's expressions and I get that. That's not my way.
BIll: You want to know my real reason, I don't want to do it, Jim?
Jim: Why?
BIll: Because there are some episodes that some people have said, “I'd like to come on, but may need drinks or something like that.”
Jim: [laughs]
BIll: I don't want the audio only version to be like, “Oh, this person was drinking.” I want it to be random enough that people are allowed to do whatever the hell they want on here, but not take career risk.
Jim: Right. Well, you're thoughtful. The first one I ever did I did with Ramp.
BIll: Yeah.
Jim: And we did it in person.
BIll: Dan was there. Wasn't Dan there?
Jim: Yes.
BIll: You guys were taking tequila shots.
Jim: No, no, no, no, no. Ramp was taking tequila shots.
BIll: Okay.
Jim: We were all on the clock. It was a workday for us. Ramp was on vacation. And we've become really good friends since then. But this was my first meeting of him. He turns up late, and he was at a really nice club in Manhattan, and so, we had this really cool room and everything, and what they-- [crosstalk]
BIll: He was ripping shots.
Jim: He's ripping shots.
BIll: [laughs]
Jim: It's like, of course, I'm going to let him do that.
BIll: Yeah.
Jim: The waitress comes in and I'm like, “Yeah, see this guy over here, this lanky, tall guy?” “Yeah.” “Bring him four double tequilas and put them all in front of them.” It was so funny because like literally, he was drunk, [laughs] the fun of it, of course, was he got funnier. He got a lot funnier. And what people don't know about Ramp is, he's a very smart guy.
BIll: Well, yeah, you can build that and not be smart. It’s impossible.
Jim: Yes. No, you can’t. Well, I also have to think, if somebody is incredibly funny, they have to be smart.
BIll: Yeah, that makes sense.
Jim: Because really good humor requires your ability to see the incongruities of a situation. And also, to bring those things up. Let's put it this way. I know a lot of comics. My youngest daughter was a standup comic for a while, and I've never met an unsmart comic, and I've met some really big names. I haven't met him, but like just look at Chris Rock's eyes. They dazzle. This guy is so smart. His eyes are just like on fire with intelligence.
BIll: The amount of times that I quote this stuff that he said, I people asked me about how do you stay married you know, my mind automatically goes to him being like, “You got to marry the crust of the motherfucker.” You don't get to just eat this sandwich the middle, like you got to like the crust.
Jim: [laughs] It’s so cool.
BIll: I’m like, “That's it.” That's actually the right stuff.
Jim: It’s so cool. Then when he goes on and on about somebody bragging about getting a job. You supposed to have a job. [laughs]
BIll: Yeah. The first time I saw, I think it was bringing the pain, the one where he was talking about OJ and stuff. So, this is how that night went. I lose a tennis match to my buddy, Jimmy Gubitosi, and we're staying at my grandma's house in Vermont. I get in the car, and I'm super pissed off. And my grandma farts, and my grandfather looks at me and he's like, “Great. So, on top of being a pleasure to be with you go and fart.” I couldn't like out my grandma. My grandma, and Jimmy, and I are all laughing in the car because we know what actually happened. We go get ice cream and we're come back, we're still giggly, and then Jimmy and I turn that on, and I'd never seen anything like that, and I came into it in a happy mood anyway. We cried the whole night laughing. That was the most amazing comedy I think I've ever seen. It's probably close to the first time people saw, Eddie Murphy. I didn't even know what to expect.
Jim: I had the opportunity to actually meet and have dinner with after seeing his show, Martin Short. This guy is like-- he is just another example. This guy, his mind is so fast. What he does better than a lot of people is, he just lampoons the hypocrisy of the entertainers. He is just really, really funny. Listen, I love funny people, because I think that humor is a way to get some truths out there, I guess, that you couldn't like if you weren't funny.
BIll: Yeah. Is this how you look at memes, too, sir?
Jim: Oh, yeah. So, yes, it is. I do have [unintelligible 01:48:18]
BIll: I never know when you give me a meme. I'm like, “Is Jim giving me approval or disapproval?” There's certain ones that I think can go either way, and then I sit there, and I think for a little bit.
Jim: [laughs]
BIll: I know, he's trying to tell me something but I don't know what it is.
Jim: I am fascinated by the weapons grade nature of memes and the mimetic behavior that they engender. I'm not giving anything away to say that more than half of what I do on Twitter is an experiment and I'm building a dataset.
BIll: I just don't know what this data set is for. But one day when we take over the world, I'd be like, “Oh, well, he was hacking the neural network, of course.” OSAM part two.
Jim: [laughs] I am very interested in the fact that for the most part, people are very visual, but they also want to be entertained. So, I run my Twitter account, basically in thirds. So, a third of my stuff is serious. In other words, it's like these threads that I do and I do two thoughts from quote every day, and I'll do other quotes as well and thread. So, that's the serious part. I enjoy having conversations on the open timeline about interesting things. Somebody was earlier today, it was like, did we discover math or did we invent math? I find those things really interesting.
Then, the other part is entertained. But entertain and send a little bit of a message at the same time that you're doing that. The whole gif and meme thing was me studying symbols, actually. I know this is a real letdown. But the power of symbols in human society, they are unbelievably powerful.
BIll: Yeah. Well, it's what politics has become it seems like.
Jim: Yep, and so what I might-- [crosstalk]
BIll: Even masks became a symbol in a way.
Jim: Yeah, which is crazy to me. But anyway, it is what it is, and that means I'm going to study it.
BIll: Yeah.
Jim: The ulterior motive is that, so, all of the content-- [crosstalk]
BIll: Hang on. Wait, I think I just got an insight. This might not be an insight to other people, but do you think that part of why you're a factor investor, and also interested in this is you enjoy the study of group psychology?
Jim: Oh, totally.
BIll: Yeah, I guess I knew that. But the two just like linked up in my head.
Jim: I am fascinated by human beings and by what drives us. I think that, if I build my mental models, which I hate using the term because it gets overused, but it's a good term. If I can continually improve by deletion and addition my mental models, that's good for me. The truth audit indicate that you're right about something. I am ruthless in terms of stripping away something that doesn't lead me to the right conclusion. I've always want to learn about those and human interaction, mimetic desire, all these things that I'm really interested in began with my fascination with the stock market. Because listen, the stock market’s the Olympics of business as far as I'm concerned.
There's just so much going on, and to understand it, and to be able to build models that directionally are correct, and do well over time, it's like really cool for me. Human psychology is really a massive part of that. But what I was going to say is, I'm sure that there will be innovations in traditional factor research. But I think it's been really heavily mined. We're all using the same data set, which is the crisp going back and the compy stack going back to 64. We actually for a while we're building a data set using old Moody's Manuals that were being translated by a team in Africa that we were going to actually be able to build factor models back to the early 20s. But we stopped when we got some of the data like price to book, for example. Yeah, it was exactly what we would have predicted.
The second thing is that, it's not that I'm not interested in those financial models. I am, but they've been durable. In other words, for the most part, things make sense. Now, does that mean that you cannot evolve your model? Well, yeah, you better. Like, price to book. Price to book became less and less relevant as the economy moved more and more to brand value. Certain dyed in the wool types, stick with it, and we dropped it just because it stopped working well anymore and for reasons that we understand.
BIll: Yeah. It seems like it's an old-world way to look at though. It's great for manufacturing businesses, I guess-- [crosstalk]
Jim: Yeah. We're not making real widgets anymore. We're making digital widgets. But my point was going to be that, we've gotten as much data, financial data on stocks as I think anyone. We've tested our stuff in every market that for which we have data, and one of the things that we found is, the really unglamorous thing is you're going to get much better results if you are like draconian about cleaning the data. That's very unglamorous. Yet, it's what my guys do, because it makes a huge difference. But what I'm looking at now is probably going to be using different tools like machine learning. For example. I have a thesis that I've had since I was 27, and now, we can finally test it, because machine learning is going to be able to test it.
BIll: It's got to be pretty exciting.
Jim: It is exciting. I can hardly wait, man. It's going to be awesome. But it's like that original high that I got, when doing the original what works on Wall Street, it's like, I had to walk the data by hand, because the program that they said work [laughs] did not work. So, I did it all in Sanskrit or early computer language, and literally did it year-by-year. So, for three years in a row, I was the best error finder for copy stat, because when you see the errors, it's like, wow.
BIll: The other thing I did after our last conversation is, I ordered a notepad of grid paper, so that I can write down by hand everything because of what you said. I was like, “All right, I'm doing this by hand. I'm done relying on Excel.” It may sound silly, but I'm going to catch the errors, and my mind is going to actually know what's going on.
Jim: And it works.
BIll: Yeah.
Jim: It is so amazing. When you get into that, and you really are doing it that laboriously the hard way, you've learned so much, and you just see all of the errors. In the fourth edition of What Works, it's like, I included a long reference to the Macquarie paper, a guy did this paper basically saying, “Oh, yeah. All that data that you think you've got the most comprehensive data set in the world?” Yeah. “It doesn't cover 50% of the stocks that were trading during that time period.” So, my point being that, will there be a continued evolution in the traditional quant approach to the market? Yeah, probably. Will it get augmented by things like machine learning? Almost certainly. But the things that I'm looking for in this new thing, and this takes a little while.
So, I've always defined the stock market as a complex adaptive system with feedback loops. Under normal conditions, markets clear. In that, opinions are heterogeneous. In other words, Bill might be buying Apple, and Jim might be selling Apple, but we both have legitimate reasons for doing that. You're buying it for your three young kids, I'm selling mine because I want to pay for my grandson's education, whatever. But these are reasonable reasons to both buy and sell, and our opinions are different, and that's why markets work so well. However, there are anomalous times what some have called black swans that others have called glitches in the underlying system, whereby information cascades begin to happen. When these information cascades happen, they move participants opinions to homogeneity.
In other words, everybody's thinking the same thing. Now, these things happen under different duration regimes. They can be short, medium, or long term. So, I believe that the very definition of a black swan is something that you can't predict. But that does not preclude being able to confirm a black swan has occurred. Big, small, medium, or large. So, take when oil went to negative. That was a black swan. Global financial crisis, black swan. I believe that through an intensive machine learning iteration that we're working on right now, we are probably going to be able to test this hypothesis. The hypothesis is, black swans can be confirmed early, and you don't have to be too bright to understand that, if you have four months head start on trading either long or short, a black swan--
BIll: Yeah, that's nice edge.
Jim: Yeah, that should be a nice little edge that you're going to have. So, that's my hypothesis. It's been updated, because I didn't know about machine learning in 1987 when I was talking about this. But the nature of complex adaptive systems, you have to understand is that, everything that is emergent from a complex adaptive system comes from the bottom, not from the top. That's why--
BIll: Yeah, you can't plan as much, it's just happens.
Jim: Exactly. I just think that I have the right mental framework. So, I had one of our other OSAM research partners, really nice guy was a data machine learning specialist. We recorded a podcast with him yesterday, and he was the first guy that I was talking to about this, and he's like, “That's really fascinating.” Then, I asked him a question. I'm like, “I have a theory that normal people,” and I'm thinking of young Frankenstein, and I have Abby Normal as my brain. “Normal people rebel a little at AI or machine learning in that, even if it can tell you when and why,” because it can't tell you how. Sorry, it can tell you when and how, it can't tell you why.
BIll: Okay. Yeah.
Jim: We are such narrative based creatures that I've noticed, because I asked a lot of people about this. I'm like, “Hey, would you be cool, if I could tell you that this was going to happen? It was going to happen for this amount of time, but I couldn't tell you why.”
BIll: Yeah, that won’t sit well with most people. I don't know that that sit well with me. But I'll tell you what, if I could make money on it, I'd be fine. [laughs]
Jim: Anyway, I have no problem with that. But I also go into this assuming that the null hypothesis will win. In other words, I'll be wrong. That you can't confirm a black swan. But this is the research that I'm finding exciting right now, and it's a whole different way of looking at markets. Because as you know, we've been doing a lot of venture through O'Shaughnessy Family Partners, which is our family office. We've been doing a lot of venture style investing, and Patrick O'Shaughnessy Asset Management owns positive sum, which is our venture capital division. But Patrick runs it. So, he's the general partner.
But we also think that this way of looking at the way markets emerge, and the way stuff emerges is going to be more useful on the machine learning AI side. By the way, we don't think that any of its magic. It's Kevin, who I had on yesterday was like, he was the first guy, when he came up to Connecticut to do a daylong seminar for us, which was awesome. He opened with the line, “Anything that you've heard from an AI marketer is wrong and it's bullshit.”
[laughter]
BIll: Yeah.
Jim: So, he level set us really well. Then he gave us the real skinny on how it works, and it's really cool, how it works. It's only getting cooler. We have the vaccine because AI. We couldn't fold protein piece of cake for that. Things like chess, by just putting in the rules of the game, and not other games, they found that was the best thing to do. In other words, let the machine figure out how to play the game. We are fortunate in that we have access to some really wicked smart people being able to help design this. I'll keep most of my public money in OSAM strategies, obviously. I love our micro-cap strategy. It was so funny. People are always like, they think I'm bullshitting them when I say that I don't look at my portfolio. I really don't look at my portfolio.
BIll: Yeah, that's when you're really actually confident in it.
Jim: Yeah, the funny thing was, somebody was talking about micro-cap stocks, and we have a micro-cap strategy, which I love, and I put a lot of money in. So, I don't know why it came up. But for the first time in a year, I went and actually looked at how it had done. It was up like 79% in a year, and I called Patrick and I'm like, “Did you know that this one--?” He goes, “Of course, I knew.”
[laughter]
BIll: Yes, dad. Go back to doing your podcasting.
Jim: Yeah, exactly.
BIll: I'm watching everything. Thank you.
Jim: I got it. Well, and the other fun thing that I am all in on is our canvas platform customized portfolios. I tried it with net folio in the 1990s, and the tech wasn't there, and I wasn't smart enough to get it just right. But we built up all of the software because I was a software freak, and I just didn't want any off the shelf software. We rolled out a Bear Stearns right into the great financial crisis. Like I said to the President of my company, Chris Loveless, I'm like, “Dude, we're not going to sell a long only portfolio for three years. We know that. Let's not try and delude ourselves and pretend that everyone's going to just snap back.” I said, so, let's spend the next three years building getting rid of every-- I want to pull out every commercial off the shelf piece of software. And I want it built for our separately managed accounts.
Patrick is looking at all this, and he's enamored of AWS. He comes into my office. He sits down he goes, “Dad.” "Yeah." “We built the Death Star to kill a mouse.” I'm like, “What do you mean?” He's like, “Our technology is like, we go through these really deep due diligences by the big firms and consultants that hire us.” And I'm not going to name any names, but we have heard the comment from more than one of them. Your technology is literally better than asset management shops a hundred times your size. So, Patrick gets the idea. Let's customize. Let's repurpose this tool, and give advisors the power to give their clients exactly what they want. And what does that mean? Well, it means, if you work at Google, and you got a big slug of Google stock, we can do nearest neighbor analysis to the entire universe, and not buy any stock whose factor profiles are really close to Google. We can also have tax-- [crosstalk]
BIll: [crosstalk] diversification for real.
Jim: We can also tax manage your position and generate between depending on how the year goes between 50 and 110 basis points of tax alpha. If you want to really SG, don't buy anything off the shelf, man, because there's a lot of crap in there. We have 54 levers you can pull. So, you can design it right down to you. I was re-reading, so Peter Drucker, the management guru. I read all of his books, but the book that he wrote that I liked the most was this book called Adventures of a Bystander, and it was about his life. I highly recommend it. I think you'd love it. Because this guy just like got to meet some of the most fascinating people in the world.
BIll: Yeah, that’s cool.
Jim: One of the stories is, when he was working for a small merchant bank in London in the 1930s, and it's really funny. He's got a good sense of humor. But when he's talking about the way they actually manage money for these wealthy clients, I was like to Patrick, “This is what canvas can do for everybody.” It was designed for that particular client. Now, we can do that, and in not even two years, we've added nearly $2 billion to that platform. New money.
BIll: Wow.
Jim: The other thing that I think is really cool about it is, it's also given us a way to put behavioral biases on the investors side. Now, how do we do that? Well, there's this thing called the IKEA effect, which is, if you have anything to do with the construction of your portfolio, and by that, maybe we had my friend, Howard Lindzon, we did what we call the Howie for 95. Because he only wanted to remove five stocks from the S&P that he really hated. Anyway, even if that's all you do, people will stick to a portfolio of lot longer.
BIll: Yeah, because it’s theirs.
Jim: Yes.
BIll: Yeah, for sure. That makes sense.
Jim: I'm wildly bullish on that, and I just think that's going to be the way money gets managed, if you're working with an advisor, and it might even end up becoming a retail product, too. Just because again, the tech is there, and why not?
BIll: Yeah, that’s cool.
Jim: Yeah, a lot of cool exciting stuff going on.
BIll: I'm going to let you get out for your anniversary, but I do want to ask one question on behalf of Jen Ross.
Jim: Oh, Jen Ross.
BIll: I said, “Do you have any questions for Jim?” and she said, “He's all about reversion to the mean with the market going straight up, what does he think that will look like when reversion happens? A sharp drop, a slow trickle. Is there any escape?” She presupposes that there's a reversion coming in the question. So, you can assert something different than the assumption that she makes, but that's her question. A natural short seller’s question. [laughs]
Jim: Jen is great. I love Jen. Yeah, there probably will be reversion to the mean that it will coincide with the Fed trying to normalize their policies. The minute money costs something again, it would not surprise me in the least to see a lot of holy fuck. I better start actually paying attention to companies that have real cash flows. Do I know when that will happen? No, I don't.
BIll: Yeah, nobody does, right?
Jim: Yeah, I don't know how long the Fed will maintain this posture. They've painted themselves into a corner. So, we'll see. At some point they're going to have to, because there's a reason why they call economics the dismal science. When that happens, that will be the catalyst would be my guess. But to all the young people who are listening, bye, bye, bye, bye, bye, man. Because if you get an opportunity to buy stocks 50% off and like you're 35 years old--
BIll: That’s where you get wealthy.
Jim: Exactly. That's how you get rich.
BIll: Yeah. The unfortunate part of the policy, at least, as I see it, and I have a pea brain. So, I could be wrong, but it furthers a lot of the problems in society that we have. And those that are wealthy don't have to-- They've benefited off this bounce, and forward returns are lower that doesn't really actually impact them that much, but really kills the people that are trying to grow wealth. So, I would welcome a correction as long as I can avoid lifestyle creep.
Jim: Just finally, that's another one of my little hobby horses. It's like, this whole idea that some people have that you're not allowed to speak on that, because you're rich, or you're this, or you're that. What they don't understand is super huge tax increases are going to affect me. I'm set. I can retire if I want, and who they're going to fuck up are young people like you, who want to make something of their life. So, their thinking is just so not clear. They don't really understand that the people they're hurting the most are the young people who want to build some wealth for their family and want to succeed. They're not hurting me, they're not hurting Bill Gates, they're not hurting-- [crosstalk]
BIll: Yeah, Buffett's going to be fine.
Jim: Buffett’s going to be just fine. This urge to punish, I just find so unevolved.
BIll: Do you think it stems a little bit from not wanting to own whatever portion of your own situation is your own? It seems to me and I say this as somebody who has said, every single benefit in the world. So, I get it. But a lot of it's like a lack of ownership in a lot of outcomes. A lot of the anger that I see is like, “Well, I'd like to know how much of that self-inflicted or community inflicted versus who you're blaming.”
Jim: Yeah. I don't know. I don't know the answer. I do know that if you manage to retain your agency, you don't think like that.
BIll: Yeah.
Jim: Again, I am just stunned by the amount of bright, amazingly smart young people that I am able to interact with and hopefully, amplify. There's so many, and at some point, you got to understand that, if you're always going to be blaming somebody else, you're going to have a shitty life. And I don't want anyone to have a shitty life. I want everyone to have a great life.
BIll: Well, I can tell that by the way that you're a mentor to the younger people, myself included. I appreciate you taking all this time to talk to me, and more than when the mics on, I appreciate you taking the time and the mics off. It's been a relationship that I cherish, and I've said it to you in private, I'll say it publicly. I will try to use you as a role model when I have people that reach out to me to do the same for them that you've done for me. So, thank you.
Jim: It's my pleasure, and you're a great guy, Bill. So, I see that happening high probability. [laughs]
BIll: Well, I hope you're correct, and maybe our pods can combine, and we can do something together over time.
Jim: There we go. We'll rule them like Angry Gods.
[laughter]
