Tom Morgan - The Most Interesting Man in Finance
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Bill: Ladies and gentlemen, welcome to The Business Brew. I am your host, Bill Brewster. Get rid of the bear market blues today. Listening to your boy, Tom Morgan, one of the more interesting humans I've ever met. I was fortunate to meet him in New York, I had a kickass dinner with him and a bunch of guys that I met on Twitter. Next time, we get some females in the house. I don't know what to say about this interview, except for I listened to it, because I listened to my own shit and I thought that this is a really great interview, and I wish that the host had stayed a little bit more present on certain questions. But I think the host is doing his best, so I forgave him for some of it. Long story short, Tom is great. I think this is a fun episode to listen to. I hope you all like it, hope you enjoy it, here we go, Tom Morgan. Have a good weekend.
Thrilled to be joined by Tom Morgan. How you’re doing, man?
Tom: I'm doing tremendously. Thank you. Yeah, very, very grateful.
Bill: That’s good.
Tom: Very, very grateful for you having me on. I've been a huge fan of the show since I first listened to the Arnold Van Den Berg interview, I think last year and I'm looking forward to being catastrophically more disappointing than him.
Bill: [laughs] I don't know that that's going to happen. We were talking about the evolution of the show and some people have asked, if I still drink on the show. Some of the earlier episodes had a lot more editing than the later episodes have, because I come in relatively sober now or completely sober. What's tough about it is, I want to do-- The idea was to have a Rogan-y type show. I'd like to have it more informed than him, but the problem is, once you get real guests that have real careers and people are actually listening, hard to get them drunk and do all that. So, it's gotten a little more G-rated, I think.
Tom: I think the problem is that it's like the third beer game of pool philosophy, where on your third beer, you suddenly become good at pool, at least in my case. But you've got to hold it at exactly that level
Bill: Yeah.
Tom: There’s a certain level of inebriation, where I think you're probably going to get more insightful and then once you tip, you tip so hard. It's just basically you're just going to be slurring and gobbling nonsense.
Bill: Yeah, that's fair. I mean, to which you could just say, “Well, we'll scrap the episode,” but I don't know. Some people don't want to come on and be more insightful. Some people want the sales pitch, but I think I tend to get people to open up.
Tom: Yeah. I’ve not heard that. Yeah.
Bill: We were talking right before we started. When I said, let's flip it on, you were talking about, you have experts come in to the office, and a lot of people will lead with their opinion, but you like to have an expert accurately describe how the world is. Do you want to talk about that a little bit?
Tom: Yeah. For listeners, who don't know me, I work running content and being what I call a curiosity sherpa for a wealth manager called The KCP Group. Part of my limitlessly fun mandate is to essentially just try and find the most interesting and insightful people in the world. A big part of that is knowing what you're looking for. I spent not a huge amount of time, but 15 or 16 years on Wall Street, basically, just trying to find interesting people who had insightful stock calls. You realize that in the post social media age, it's trivially easy to have an opinion on something and it's actually easy to have something an opinion on something before you've understood it. “I think Web 3 is a scam or whatever. I think blockchain is nonsense.” you are absolutely entitled to your opinion, but you need to show me you're working.
The problem is the moment is that most people don't show you're working. One of our philosophies is to, we bring an expert, and you've got to paint us the reality on the ground as accurately as you can, and then give us your opinion. Show us the mountain side and then show us where you think the boulder is going to run down it. But it's very interesting how few people can do the first stage now. It sounds trivial, but it's not. But reality has become so fabulously complex and all these systems have become so interrelated that just in a market context knowing what indicators to watch is just like it's almost half the game.
Bill: Yeah, I think the other half is executing a strategy. It's easy to have a plan. The execution’s what actually matters.
Tom: And knowing you have the cool when you have the cool. I'll give you a tangible example, maybe the best, maybe the best call I've seen in my career was this guy from Gavekal, Dan Wang, who writes an annual letter every year, that's super long and super involved. The start of last year, he was like, “Everyone's spent their pandemic in their pants watching Netflix and I basically read every piece of turgid Chinese propaganda I could get my hand on. And you know what, I think they're going to crush the internet industry. They're going to crush the trivial business model innovation tech that is the cornerstone of the American markets.” I was like, “Ho-ly.”
And so, we had a call with him, but it was understanding the magnitude of what he was saying, because he was inadvertently ahead of $2 trillion of market cap destruction. If you looked at what the Chinese did to their tech industry after that, it was just such a huge call and I don't think even we capitalized on it enough and being like, “Wow, this guy has done exactly what we look for.” He's shown you a reality by having done more work than anyone else that appears to be true and then he's showing you the propensity of the system, which is that, guys, I think this is going to end very badly if you're a Chinese tech company. So, it was a masterful piece of work, but you only find one of those a few times.
Bill: I'll tell you the best call I saw last year was Chris Bloomstran and I think a lot of energy FinTwit made it, too, but he wrote a thread following this weekend that he hosted. I think the threads somewhat misrepresented what was going on and I think it's somewhat captured, but certainly, I can tell you what was said in that room in a big way was get long energy. That was November and what did I do about it? Nothing. So, isn't that fun?
Tom: Well, that's a really interesting point, because Arnold Van Den Berg interview you had-- William Green, a wonderful guy, he interviewed him recently for his podcast and it was just really funny for me, because you had Arnold Van Den Berg on his podcast and he's so fascinating to me in so many different ways, but predominantly, because his entire focus is the harmonization of conscious and unconscious. And so, he's sitting there basically saying to you, “Effectively, I've got such a strong character. I can't understand why these energy stocks are so cheap and I've been underperforming for God knows how many years, but I can't get away from that.”
The borderline between stubbornness, insanity, and actually having the strength of character in that situation is insane. But then, listening to him go back and talk on William Green's podcast, where all these stocks are up several 100% and he's absolutely roofed it. You're like, “Oh, Jesus.”
Bill: Yeah.
Tom: The thing that interests me most about that perspective is that today's market has never been more reflexive and intangible. All these companies are based on digital intangibles. Michael Mauboussin’s written about it, which just basically means that the floor is harder to tell than it ever has before. When you're looking at someone like Van Den Berg, who appears as far as I can tell it to be universally well regarded, it's basically down to the strength of your character. I think it's what the two of us are talking about, which is that when you've got it and when you can see it, having that amazing will to just go all in, which I certainly don't have.
Bill: I think one of my favorite parts of that episode is that he pitched commodities at pretty much the bottom. Even when people talk about the episode, that part never comes up. But I think it's so easy to get lost in his story as a person that I think people overlook who he is sometimes as an investor, and I'm really glad that it worked out well for him because a guy like that deserves it. I agree man. I don't know that I have-- Something that I have been asking myself and I think the answer is just simply, I don't. I just don't know. I don’t know if it's getting older, I don't know if it's where I am in life, maybe it's because I've been underperforming recently. But I just don't know that I have the care to work hard enough to outperform anymore.
I met a bunch of people, I actually just talked about this with William Green, which comes out, I think next week, this will be the following. But I meet these guys and I'm just like, “You want it more than I do, just flat out.” I think the answer for me is to, I know what I own, I'm sure I could do a little bit-- Well, actually, I'm not sure if working any harder would help me do better over the next couple of years. But I think it's just keeping the position on, believing in the research, looking for things to change, and just keep my head down try to execute the plan.
Tom: I think that is wildly consistent with what he says. There's almost this Taoist paradox to it, which is, if you set out with the explicit goal of outperforming and you compromise all of your approach, and process, and character in order to do that, chances are, you're just going to get further and further away from the stuff that you're actually good at, where it's like, I found anecdotally, super anecdotally, the people that have harmonized to their character and just like, “I just don’t care to do this anymore. I just don't.” That actually paradoxically ends up like pretty good performance for people because they're like, “I'm just going to go with the flow” and they don't fight it as much. Don't get me wrong. People who have the ultra-high maintenance, like pod shop, line item on model approach, that works too. But there are a lot of ways to win this game.
Bill: I think where I'm at is, I understand pretty well the things that I own. I'm sure that there are a lot of people that understand them better than I do, really, really, really granular. But I think I understand the big drivers. And I don't think that I'm taking as much business model risk as I perceive in a lot of things that I look at. I don't know. If I underperform, I'm not sure on a risk adjusted basis, I actually care that much. Maybe I'm overweighting the quality of my portfolio. That's very possible. But I guess, at the end of the day, I'm just trying to get to the end of my life and have more than I have today and I'm just trying to do it in a way that I understand. So, maybe I am a below average market participant. But if I get where I need to go, that's what I'm more concerned with.
Tom: Well, but I think you've also fed into something else that I'm borderline obsessed with which is I think the last two years show us beyond doubt that the premium placed on resilience is going to be structural. Saying anything forward looking is going to be structural is probably pretty stupid. But you look at the systems that are now gradually judging themselves apart and you're like, “If you don't have redundancy in your supply chain, or you don't have that extra little bit of cash on hand, or you don't have a slightly overpaid workforce.” You can define it in a million different ways. But as a business, if you don't have slack in the system and if you've optimized this just for productivity, you're going to get in trouble the moment the environment changes. And that's something that I've learned from a fairly obsessive study of natural systems.
Then if you're not set up the same as a person-- Morgan Housel's book, where he's like, “I keep more cash than I need to and that's fine.” The spreadsheet says, “I need to keep less cash, but I keep more.” I think the world that we're going into for the next 30 or 40 years, it's going to be very different from the one we just come from and having a huge-- Well, having a significantly greater amount of slack in every part of your life is going to be more important and may actually lead to outperforming as a consequence.
Bill: What do you think is going to be different about the next 30 to 40 years? We'll put this in prediction sure to go wrong.
Tom: Yeah, absolutely.
Bill: [laughs]
Tom: Everything I say is now guaranteed to be nonsense. It's a really weird bifurcation actually. I've just read two books and so, obviously, I'm just going to repeat the last two books that I've read. But I’ve just read Vaclav Smil’s, How the World Really Works and then this week, I read Peter Zeihan’s book on Deglobalization. Smil’s book is basically like, “You intellectual morons don't understand how huge and energy intensive the modern world is.” We're all sitting here and our digital business models looking at zero marginal cost, yada, yada five-minute grocery. Whatever it is. He's like, “The world uses more cement in one year than did in the entire first half of the 20th century.” There's no less energy intensive commercial scale alternative for that. Same in ammonia, same plastic, same in steel.
You can think about these digital business models all you want, but you're not going to be able to get around that. Maybe human ingenuity will come up with something, but it hasn't yet. We actually haven't reduced the energy intensity of our society. I can hear all the people listening being like, “But things always get better.” He's like, “Yes, but we don't tend to get any less energy intense.” It's a very, very well-argued book.
Then on the other side, you have Peter Zeihan who is the geopolitical strategist and it's a much, much, much more sensationalist book. But he basically just lays out how the fracturing of the entire globalization system is going to lead to a zero-sum game that's going to get much, much, much more exacerbated by pretty terrible demographics everywhere. Half the world is now breeding below replacement rate and that's going to accelerate anything. China goes from fully urbanized to demographic collapse in the space of one generation. He's hugely bullish on the US and hugely negative on China and I don't know enough to have a view on that.
I said there was a bifurcation. On the one hand, you have this real world. If this starts coming apart, it holds the potential for famine, war. like major crazy commodity inflation. I think part of that is something I wrote a couple weeks ago is that I think now, monetary policy is out of the game, fiscal policy has to take over, and that's going to be a very, very different kind of market. I think the second thing is that I have a much more weirder and pretentious viewpoint that I think we're accelerating towards a phase changing consciousness that will probably happen simultaneously with all the mess up in the physical world, but that makes me very, very optimistic. So, I have this really pessimistic physical world view, and very optimistic cultural and philosophical view.
Bill: What's your view on consciousness?
Tom: Well, this is weird, but I like weird.
Bill: Let’s get weird.
Tom: Yeah, let's get weird. One of the best books I've ever read, definitely top two is Joseph Campbell's Power of Myth. In my opinion, Joseph Campbell is a terrible writer. But this is a dialogue from, I think, a PBS show towards the end of his life with Bill Moyers. He just basically is like, “Here's what all the myths mean across human culture. We have the wrong word for myths. Probably, we should use legends. But the idea is that if a story becomes really popular or stays really popular for several 100,000 years, it encodes information that's probably, incredibly important for our evolution.” My wife loves Real Housewives and I take the piss out of her all the time for that. But then you realize, if you look at Robin Dunbar's work, he's 60% of all human conversation is gossip. Why? Because if you're in a tribe, you need to know the state of mind of everyone else in the tribe. Otherwise, someone could cheat, someone can be behaving badly, someone can be behaving well. So, it's existentially important for you to understand everyone else in your social group. We're drawn to those stories, because they confer a benefit.
Campbell's big thing was This Hero's Journey, which is almost a cliche. But basically, it's limitlessly interesting and the thing that's fascinated me most over the last few years. If you look at the prevalence of The Hero’s Journey in modern media, it's accelerating. From Avatar, the most successful movie ever is the one-to-one Hero's Journey. The Matrix, Interstellar, almost every Marvel movie now, almost every Pixar movie now, all have often a very surprisingly accurate recreation of The Hero’s Journey. For those people that don't know it, Mike Mauboussin did a study, well referenced a study on a podcast a while back, where he talked about ants. Ants basically run a pheromone trail to a food source. And then as the more ants are on that pheromone trail, the trail gets stronger. But every so often, ants will peel off that pheromone trail and just look for new food. They found and this blew me away. The rate of change with which the ants moved into exploration mode was directly correlated to the uncertainty of the environment. So, basically, something in the ants made them realize that the environment was deteriorating and if they were stuck with a single food source, they would do it. They started exploring really hard.
What I think The Hero’s Journey is, is an unconscious representation of a desire for a face changing consciousness. All I mean by that, if you look at Moana, which I've now watched 40 times, because I've got a three-year-old. Moana exists on an island, she's going to be the Chief. She's building a stable office job. She's, “Tom in a stable Wall Street job, right?” Her environment starts deteriorating. The actual agriculture on her island starts deteriorating and she gets this call from her heart to explore the ocean. And then, she goes through a bunch of trials and tribulations, she crosses the threshold of getting over the reef in her islands, she meets a bunch of different people, she encounters the manifestation of the ego in this big crab who's only interested in outside appearances. But at the end of the day, she reconciles with the spirit of nature and returns her heart to the spirit of nature.
Whilst that all sounds a bit hokey, all it means is basically a way for us to move away from our current very, very exploitative mindset towards something that's much more aligned with our environment. Our environment is signaling back to us that the way that we're structured both societally and neurologically is not working for us. The way that we know it's true is that we keep watching the same story over and over again. We keep watching these Marvel movies about superheroes over and over again. Basically, we're unconsciously drawn to them. If you ask people, why they like a certain movie, they can't answer that question. But they're all hero's journeys. The reason why it's the hero’s journey is because it’s impetus like the ants can tell something's going wrong, we can unconsciously tell something's going wrong.
Squid game goes mega, mega globally viral and squid game is just the inverse of The Hero’s Journey. It's like what happens when you have a zero-sum environment, where everyone's got shed loads of debt and they're competing against each other to the death. So, all these stories going viral at the same time, I think is an unconscious reflection of this shift in consciousness, if that makes any sense.
Bill: I think it does.
Tom: [laughs]
Bill: I think what you're saying is that people are drawn to the stories because they know that something needs to change in their life and currently it's manifesting itself in media.
Tom: Yes, that's exactly right.
Bill: Yeah.
Tom: Yeah.
Bill: If the demographic picture is accurate from what I've seen, the data is that we are not replicating at the rate that we need to and we're getting older, especially in developed countries, and you have debt, and you have a shift back to maybe like a lifestyle that is a little less good, centered, or whatever. I have one of these brains that my brain continues to lead back to low rates over the long term. It seems very deflationary to me. Now, commodities could really explode, but it all adds up to really low growth.
Tom: Yeah, I think you're right. I don't see how you can't not be, but the weird thing, if I was a world leader reading either Smil or Zeihan’s book, and if you think we're going into a fiscal stimulus stage, you'd be like, “Well, shit, I've got to rebuild everything. I've got to rebuild all strategic industries on my own shores, I've got to make sure that the low-income people are being well provided for, I've got to rebuild my infrastructure, I've got state of the US, completely change state capacity.” How you do that and don't generate inflation? I don't know. And so, then you get into the death spiral we're in at the moment. Short term sure. How you match the pension liabilities with your entire country or your debt burden like 6% rates, I don't know, and maybe we're about to find out.
Bill: Well, the nice thing is, you can probably fund your future obligations at okay rates, but we're going to have a big mark to market liability relative to-- well, our liability is staying the same, but our mark to market asset valuations are going down quite a bit. There's been nowhere to hide. The 60/40 portfolio has had the biggest drawdown in history, I think. I don't know. It's so easy right now to get so bearish. I'm trying to push myself to think about what are the conversations that we're going to be having in 18 to 24 months? What does the world look like then? Said I'm not mired in what may go wrong today and for the next year and a half.
Tom: What do you think?
Bill: Ah, dude, I don't know. I think everybody becomes a macro tourist.
Tom: [laughs]
Bill: Well, I shouldn't say everybody. I should say everybody that likes to talk becomes a macro tourist in periods like this. But I could see a scenario where-- Target was way over inventoried. Shipping rates were super high. It appears as though buyers’ incorporations in mass overestimated the demand for certain products and didn't anticipate the shift to other products, and I think it's plausible that that created inflationary pressures maybe that's not going to continue on an ongoing basis. And then I think that we need to get to-- Actually, Amanda Agati talked about this on the episode and I agree with her. I think we're like as a society moving in waves right now, because we all shut down at one time, so we all spent on our home at the same time and now, a lot of people haven't been able to travel, because not everyone lives in Florida, where we haven't believed in COVID for almost a year. Now, you have this huge shift to travel and I just think that there're waves of human behavior that we need to get through.
The one thing that makes me nervous is, I hope that our policymakers don't throw us into yet another halt, because it's felt we were halted, and then we had massive stimulus to get us going again, and now if we end up trying to induce a recession to back off inflation, I don't know, I guess, I worry that that goes wrong. But if it does, in 18 months, maybe we're looking at a world that looks a lot better than today does on a go forward basis. But I have no idea. We were talking earlier, I could tell you, while we were in a bubble, I have no idea where we are on this way down. If somebody told me, we're down another 50% from here, totally plausible, 70, fine. I don't know where you stop in a crash. I have no idea. I don't know anyone right now that I talked to that is particularly excited about being somebody else's exit liquidity right now.
Tom: [laughs] I get this is a trite observation. But if you look at what's happening in Japan right now, you look at what's happening presumably relatively esoteric corners of the world like Sri Lanka and you're just starting to see the ripple effects are almost entirely negative on a macro basis. That just means the one thing we've learned from the last couple of years is that something's going to show up somewhere that we don't expect and it's going to be quite nasty. I think that's just a game that we're in right now and we're in an asymmetric downside risk environment. I want to make clear. I'm generally quite long-term positive on the world. There's something I don't know enough about to have a strong opinion on to my earlier point. My understanding is that generally speaking, consumer finances in the states are pretty good right now.
Bill: That's the rumor.
Tom: Yeah. But everyone's watching the news and is freaking out. You get the reflexivity where people think themselves into a recession, which you know how that works. But there's also something else that I'm thinking about, which is that you have a population that's just learned it can protest. You have a population that was offered crypto as a way out or Web 3 as a way out, and that went away. Then I know there's a lot of debate on this, but I feel there's less social mobility within American culture than it was 30 or 40 years ago, and there's been this crazy period of wage deflation, and you now have inflation. You have people that are going to be increasingly pushed back into jobs with limited social mobility with no savings cushion and completely different priorities in their life. Well, no, that’s an exaggeration, but having watched a world with different priorities. Whilst I'm not forecasting revolution. I think there's going to be some really interesting socio-economic implications for the world's largest consumer, which is the US.
Bill: Yeah, I don't know. Just to talk about what you were saying about the consumer. Bank of America, I think it was last week or two weeks ago. They said, “We get a question, obviously, daily on the consumer. June to date is up 9% spending.” He's talking about balances like checking balances. “Pre-pandemic, if you're looking in the $1 to $2,500 cohort, people have got seven to 7.5 times more cash in their account today than they did pre-pandemic. For the group that's $2,500 to %5,000, we've got five times more than we had pre-pandemic. That's a lot.
Tom: Yeah.
Bill: Now, it's scary that so many people are in that bracket.
Tom: Yeah.
Bill: That's an issue. Then federal tax receipts, the most of the tax receipts are withheld income and employment taxes in-- I think this is 2019, it was $1.9 trillion year to date. Yesterday, I was looking it’s 2.3. There's a lot more taxes being paid now and the consumers in a better shape than they've been in a long time. I wonder if how all these manifests is-- I'm almost certain which means call it 51% that there is going to be serious, serious pain in importing emerging market countries. I almost wonder if we're in this scenario, and this strikes me as a stupid thought, but I can't help but have it. If somehow we export the bad that some policies create, just to the most vulnerable parts of the world and I wonder if that doesn't create revolution around us, and what that destabilizes geopolitically, but I guess, I'm not sure that I think America is going to go through quite as rough of a time. Thank God, we have food supply, and gas, and stuff like that. We are pretty advantaged.
Tom: Oh, my God, well, that's Zeihans’s view down to a T, which is that we have Mexico on our southern border. That's one of the best demographic developing countries and still has, I think a six to one wage differential. It's not as good as Asia, but it's pretty damn close. Mexico is a massive, massive advantage. We have Canada to the north, which is about as stable a neighbor as you can get. Then we have great resources, actually pretty good demographics, which was used to me relatively stable capital markets. Even the politics looks dumb at the moment, but he's like, “America can afford to have really petty debates, because they just don't matter. They don't impact anything that's important.” And so, he's just like, “Actually, America is in by far the best state of the world. If you get major deglobalization, where he's talking about like a billion people dying of famine.” Then basically like the US pulls up the drawbridge, decides what shipping lanes it wants to police, and just leaves everyone else.
That doesn't seem that plausible to me and maybe I'm overstating his argument. The response to Ukraine makes me think that the US still wants a role to play internationally. But the point that you're saying is that, yeah, if you're a commodity based like economy or a single product-based economy in that environment, where you can't ship your stuff out, or your currency collapses, or you go to Venezuela or Zimbabwe, it's going to get real. And so, being relatively self-contained, helps, he pulls out France, New Zealand, and Argentina, and I think Sweden as the other countries that are in that category.
Bill: Talk about not deserving to have an opinion, I never could have told you that the US dollar would rip like it has. But then on top of importing, all the commodities are priced. The majority of commodities, at least are priced in US dollars. So, you've got oil going up, you've got the dollar going up, I hope that the emerging world gets through this next two-year period.
Tom: Yeah, me too. Well, the correlation between food shortages and political unrest is basically one to one
Bill: Yeah. Yeah, it sucks.
Tom: My understanding is about 50% of Brazilian agriculture doesn't grow without fertilizer. Again, going back to Zeihan because it's just top of mind. He's like, “Agriculture is the most globally interlinked of all of the systems and it is also the most fragile.” If you miss a planting season, that's confirmed by the conversations I've had with experts, as well. If you miss a couple of planting seasons, this stuff gets baked in the cake, a lot easier than tech supply chain aspects.
Bill: What do you mean like food shortages do?
Tom: Yeah. If you don't plant the right thing in the right place at the right time or one of the dependencies goes offline somewhere else because of some random blight, or swine flu, or something, the knock-on effects are really bad and they last a very long time, where it's like, you can repair a supply chain in certain situations really quite quickly or you can get secondary sources. But if you're the only person in the country that in the world that grows sunflower oil, there's literally no substitute in certain situations.
Bill: You know what I heard? We have a shortage of, there is some-- I want to say it's called the DCP. Instead of spewing fake news here, it's a diesel petroleum additive. And apparently, our trucks have to have it, and engines are programmed to shut off if trucks don't have it, and there's a huge shortage right now, because I guess, we don't want Union Pacific. This is all hearsay. So, do your own due diligence, folks. But Union Pacific is the major importer, and they have said, “Because DCP comes from Russia, they're not going to ship it.” But we have a massive shortage. What does that do to the trucks on the road, if we can't get that?
Tom: You know what this all makes me think of and I'm going to go back to weird town now, because that's where I live. This cognitive psychologist called Donald Hoffman and I read an article that he wrote a while back basically saying that like, “We don't experience the world as it actually is. We experience the world as we've best evolved to see it.” An earthworm has never seen a sunset because it's never needed to see a sunset. Bloodhounds knows, affords it an experience of the world that's dramatically more complex than ours. It's easy to understand how an earthworm would be able to see the world less well than us, but it's hard to understand how other species can see the world in better dimensions than us. He just describes the way that we interact with the world as a desktop on a computer.
When we open our eyes and we look outside, we're basically seeing the desktop. We're not seeing the way that the actual PC works. That is a metaphor for what I feel is happening right now in markets. Because of globalization and specialization over a period of a hundred years, all of the inner workings of the world economy have been completely hidden away from us like a PC to a desktop. And suddenly, people like you and I, but mostly me because I'm sitting in my bedroom in Manhattan. I'm not out in the real world and suddenly, it's like, “Oh, I can't get baby formula. Oh, well, that's really pretty bad, because I've got two kids on the floor.” Or, like, “Oh, suddenly, this component in diesel fuel that's critical to everything, and has a massive dependency.” I just feel that maybe from an investment perspective and I was thinking about this yesterday was like, it's trying to find-- I'm sure this is an obvious thing to say, but it is trying to find these fragilities, because it's going to end up with gouging, and massive spikes, and all this crazy volatility through the system. So, where it's looking for things that are hyper resilient, it's also looking for things that are hyper fragile, because when they break, the pricing is just going to go bonkers, which is-- [crosstalk]
Bill: This is the commodity thesis.
Tom: Right.
Bill: And that's what I learned from talking to J Mintzmyer. J has taught me a little bit about shipping, and we were talking about rates, and he was like-- People say to me, “Well, if 15% of capacity comes offline, because China shuts down, isn't that terrible the shipping?” He's like, “Well, what people aren't thinking of is everything's a price times volume game.” If you take 15% of capacity off and demand now exceeds capacity by say 3%, Walmart and Target are going to pay through the roof on shipping rates to get what they need to the port. So, you actually on a P times V basis end up with more aggregate revenue than you otherwise would. In a high operating leverage business, you actually see good outcomes from what you would perceive to be bad and this is highly unvetted. But I think from what I'm learning from listening to some of the commodity folks is there's just a lot of these materials out there that are really basic materials that you can't just flip a switch. I have no idea what I'm talking about now, but it's hard to believe that Putin doesn't see this stuff.
Tom: Right. Yeah. I have no view on how that all ends, but Matt Klein, I subscribed to his Substack. He's an economist, I think he's brilliant and he wrote a piece of a while ago and I think he went on Odd Lots Podcast and talk about it, where he's like, “The Germans had a phrase called fixing the roof while the Sun shines.” And what they meant by it was actually cleaning up their budgets when there was low rates. He was like, “Yeah, but you should have actually fixed your roof while the Sun was shining.” And you look into Europe and you're like, “You're now learning all of these lessons at the worst time in history to learn them when rates are going up and commodity prices are at records.” You're learning, you didn't build any of this stuff and you've always been incredibly complacent about someone else being able to supply it.
I just feel that maybe the modern new cycle if the war in Ukraine dies down and people will forget about it, and we'll just go back to the way things are, and that Vaclav Smil’s argument. This is like, “Mankind's always just muddled through this stuff.” We always get worked up that it's the end of the world and we always just muddle through. I'll put a 98% probability on the fact that he's right, but I also wonder, you've seen Macron basically say that like, we need to rebuild our domestic industry, we need to rebuild our military, we need to double down on nukes, not literally. But you're seeing this I think across the world where Putin saw these weaknesses, and dependencies, and seems to have ruthlessly exploited them.
And so, now, if you're a world leader, you've got this choice of like, “Do I choose the worst time in modern history to enact fiscal stimulus into a revolutionary environment?” Or, “Do I just hope that I don't get exploited again?” I don't know. I don't know how that doesn't descend into a zero-sum death spiral, where people just start tariffing and getting more competitive. Maybe it actually ends up with the reverse that you get all these trade alliances as people realize how screwed they are, but it strikes me. Russell Napier, I think is one of the best guys to follow at the moment. He wrote a piece, I think in the middle of 2020 saying that, “After 20 years as a deflation easter, he was moving towards--" [crosstalk]
Bill: I know. He called that perfectly. We needed that.
Tom: Well, he’s a legend.
Bill: Yeah, he’s a legend.
Tom: He didn't forecast any of the supply chain stuff to the best of my knowledge. It was more fiscal stimulus that he was like, “Governments now have control of the money tree and you're going to have to pry it out of their cold dead hands.” But he makes that point that you're just in a different-- Central Bank's now irrelevant. It's been a central bank game for 30 years. They're irrelevant. It's government's and that's just a different market. And so, he got my attention a couple years ago with that. Now, I'm watching very closely and he's saying the same thing.
Bill: Yeah, well, I think I got to re-up on what Lacy Hunt’s saying, I think Lacy Hunt’s more in the low-rate camp. But I'm not sure that they're mutually exclusive. I don't know that there's some law out there that says that “credit needs to get a real return.” There may be a possibility where credit is just priced to get a negative return relative to commodities. But yeah, I don't know man, you got inflation going on, it's a pickle. It's quite a pickle. I guess that this is the consequence of shutting down an economy, and then trying to start it up. I don't know how we fix it, but at least I know I don't know. I think there's a wide range of outcomes.
Tom: I don't know, either. Again, I wouldn't pretend to have you and I think it's an area where I'd be incredibly weak in terms of analysis. But what I think I do have a sense for is of this slowly and in some cases quite rapidly changing societal priority that call me naive, I think is going to hold that basically, the people that are lucky enough to be able to work from home are going to hold on to that. The people that realize that they've accumulated vast amounts of useless stuff are now going to focus more on experiences. This seems to be this global shift in consciousness that actually may end up getting accelerated through a terrible recession that people are just like, “Screw this. I'm not going to play this game anymore.” I feel that that's in the air right now and I keep seeing evidence of it everywhere. So, as the physical world judges itself apart, I think that people are going to have a very different approach to their own worlds.
Bill: Well, I know that it's not a very popular topic in 2022, but I do wonder if the Metaverse has something to do with-- It could be a cheap way to have experiences. We'll see. It's a long, long, long way away and it was a nice buzzword last year. But I don't know, I was looking at plane tickets recently and there's demand destruction in this household. I can assure you of that.
Tom: Yeah. I think a lot about the Metaverse and I think that the one thing that we're looking for, I think is what it's called far transfer, which is that are the things that you're doing in virtual worlds translating into some form of mastery in your real world? I'm British, I can't dance. If my oculus or whatever, it turns out, teach me Dance Dance Revolution and it can actually turn me into like a good dancer or teach me how to be a great swordsman, or martial artist, or something. That strikes me as a-- I don't know, man, the metaphor is simple. I've been on Twitter pathologically for the last 18 months. If you use Twitter to watch angry anons, it's going to obliterate your mental health. But if you use Twitter to do what you and I have just done, which is meet someone really cool, and go on their podcast, or get to meet them in real life, or go out for drinks, it's been a step function change in the number of cool people that I've met.
Whenever I look at people talking about digital worlds, I'm like, “Where is this bleeding into real life and how is it bleeding into real life?” I think the thing that really interests me about the first iteration of the Metaverse was that a lot of the videogames that were being created weren't shooting each other in the face in Call of Duty. There was a lot of that. But it was these infinite games that were creative and collaborative and I think that also reflects what the generation wants. They want a less punitive economic system. A lot of the older generation is like, “Screw you, work harder.” I'm like, “Well, cool. What skill set would you be getting right now in this market if you were 21, when everything is digitally fungible?” So, I look to what form the Metaverse has right now for clues as to what's going to happen in the real world and the bleed over into the real world, it scares me.
Bill: The dinner that we went to, when was it? That was probably almost a year ago. Every single one of those people I met on Twitter.
Tom: Yeah. Yeah, it's been nuts, man. [crosstalk]
Bill: That was a really fucking cool group of people to go to dinner with. We had a great time.
Tom: Well, that's it right. Your ability to find people that you resonate with on a personal basis on Twitter is unbelievable. It's not your own friends being annoying on Facebook. You can weed people out really quickly. I DM-ed a great number of my heroes on Twitter and had a 90% response rate. When I met them, they say, “Never meet your heroes, they've all been great.” It's just been a really, really phenomenal positive experience. But I think the broader lesson there is that if you can find ways of pulling digital world into the physical world, it will have meaningful benefits. But if you're using it as a way to withdraw, it strikes me as a lot less positive.
Bill: Yeah. You know what’s funny, I don't know if I just had this conversation, but I have a lot. So, I'm going to have it again and if people have to listen to it twice, they got to listen to it twice. But what I have realized from Twitter and how I use it, and I guess, I knew it anyway, but I didn't-- Now, I think it's pretty obvious. It is like I have a uniquely good skill at networking and it's like lighter fluid on that. When I said that I didn't know if I really wanted outperform, what I'm really actually saying is, I'm not the guy that's going to read 10Ks all day and outwork somebody behind a desk. But this is the skill set that I have that I bring to the table and I need to--
I get more enjoyment out of providing education, entertainment, and some form of self-help. The amount of inbounds that I get that people are like, “Dude, I listen to your pod and it changed the way I think about this” or that Arnold Van Den Berg episode really meant something to me. That's so much more meaningful to me. So, I don't know. I think what I'm really saying is, I want to lean into whatever it is that is going on that I think you and I are both tapping into. I think that's what I care about a lot more than portfolio performance.
Tom: Let me take it back to crazy town, again. This is a super crazy tangent. But I just noticed when you were talking just then, I'm sure people don't see the feed, but you just kept pointing at your heart whenever you were talking about the way that you feel about things. This has just happened over the last couple of months and I don't think I've taught a huge number of people about it, because it's just so weird. But I've been obsessed with studying the myths, because I feel that your ROI from learning about myths is a million times higher than reading some psychological study that isn't going to replicate. All of the myths across human culture make reference to your heart being a guide, what in school were you taught that the human heart does?
Bill: Keeps me alive.
Tom: But how?
Bill: Pumping blood.
Tom: Right. Okay, well, that was my understanding as well. That probably is also a big part of what he does. But I very synchronistically read a book the other day with really off-putting title called The Secret Teachings of Plants. It was this guy, Buhner, who basically, it turns out the books not really about plants at all. It's about the human heart. His argument is that the human heart is effectively a very, very, very finely calibrated electromagnetic transmitter. That bit is actually true. That's why an EEG works. Every time your heart beats, electromagnetic particles in it generate a pulse. And that's in reciprocal relationship with all of your organs to keep everything regulated. But it also projects beyond your body. His point is that we don't know how far it projects. The implication being and the way I've lived my life to some, not financial, but certainly personal success is that Joseph Campbell's big thing was, if you follow your bliss, doors will open where only there were walls. The idea being that if you follow things that you're passionate about, you are effectively navigating that three-or-four-dimensional information field that your heart is detecting.
The big change in the way I've worked over the last couple of years is, I'm incredibly inactive for long periods of time in terms of what I'm interested in then something grabs my attention, I go a mile deep, and I follow these things. My work and my understanding of the world has evolved in this very, very unpredictable way, but it continuously leads me to people like you, and wonderful people, and you know, great podcasts to get on, and all that stuff. I just believe that is literally true that there is this information field that we're a part of that we just read it, because reductive science hasn't yet found it. But yeah, I know this is a bit of a rant, but the one thing that I found very interesting is that I've gotten to know a guy called Philip Shepherd, who's all about embodied cognition and the dangers of getting stuck up in your head in abstract ideas. He, in his book, he talks about this story about a Western psychologist going to a tribe in Malaysia, I think called the Senoi. He talks about how--
He takes one of the tribesmen to see the ocean for the first time. The tribesmen just stands on the beach watching the waves for a few hours and then goes back to the rest of the tribe in land. He's never seen to sea before. He calls a meeting is like, “Guys, I’ve just seen the big water. It covers the whole earth. There're mountains under there, there're valleys under there. There's fish the size of of houses that we've never seen before. There's flat fish.” He goes along this description, the psychologist is like, “You just stood on the shore for two hours. You didn't even go in the water. How do you know any of these things?” The guy just turns to him and he goes, “Oh, it's in my heart.” That sounds absolutely absurd until you think about it as an electromagnetic sensor because they basically talked about it as this ancient way of knowing.
What's interesting is that the Western guy, Wolf was walking through the jungle with them one day and he’d done six continuous days in the jungle trying to learn this means of perception. One day, [unintelligible [00:52:44] the same tribesman, turns to him and goes, “Find water.” He watches him try and listen, try and smell, and the tribesman just stops and goes, “No, no, no, the water’s in your heart.” He just drops in, and suddenly sees the whole jungle in three dimensions, and just sees where the water is inside a cup of a plant, and walks over to it, and pulls it away. He just has this through the matrix view. All this may be complete nonsense. I'm sure many people listening to it think, “Jesus, this is nonsense. What's this guy talking about?”
But as a way to structure a life, having this intrinsic faith to understand that we exist in this limitlessly complex sensory ecosystem to Donald Hoffman's point about you just seeing the desktop, you matching your investment style to something that is intrinsically resonant to you is actually like the Arnold Van Den Berg way of doing things, where he could handle that savage multiple years of underperformance in energy because he was just so harmonized as an individual.
Bill: Yeah, I think that the problem-- Well, my Achilles heel is that I'm not harmonized as an individual, so I tinker too much. Part of what I'm trying to do is, put blockades up around myself to not allow myself to tinker. For instance, was I lucky or good? Probably 80% lucky and 20% decent. But when oil went negative, I bought Occidental bonds. I think they were yielding 15% or 16%. I probably should have held those. I flipped out of them to go into something else and now, they would be on a risk adjusted basis, probably my best investment. I do stuff like that where I think I have a good idea and then I don't let the idea play out. I would say that would be, if I could be critical of or my biggest criticism of myself is that and then probably too quick of a bias to yes as opposed to a bias to no.
Tom: All those things about yourself that you think you could or should change.
Bill: As a human? No. As an investor, I should probably at least figure out some safety walls around them.
Tom: Well, because you could look at it in two ways, which is that one of my favorite stock market quotes is, “If you don't know who you are, the stock market's an expensive place to find out.”
Bill: [laughs]
Tom: You can look there this constant investor self-improvement and be like, “I've got to take on the traits of all these other people who are successful.” The cult of Warren and Charlie on Twitter, whereas it's just like, “Well, no, maybe you should just be leaning harder into your idiosyncrasies and foibles.” Yes, be rational, but also understand where the intuition is. That's something I've realized recently is that like what you should be doing as speaking someone who’s a terrible investor, I might add, but is get wretched, get wretched at the things that you want to get good at and then your intuition will get better. If you made a mistake that was an actual mistake and this was what one of my friends who's one of the best investors and he told me. “If you made a mistake that was an actual mistake. When you look back on it that you can identify in a way going forwards make sure you don't make that mistake again.” But just looking backwards and saying, “I should have done X” is useless because there was nothing to learn. But if you can do a post mortem on it and be like, “All right, I've now created a feedback loop, where I'm never going to make that mistake in similar circumstances again.” That works. But that's much harder to do. To the point that you were saying earlier, you probably need to have a real time journal of what you were thinking before you made the mistake, so that you don't litigate it afterwards and say, you were thinking something you want, which is something you know Jim O'Shaughnessy has talked about.
Bill: I have this theory on some of Buffett's bets that maybe it's just when I'm talking to myself that I should do. By taking a position in equity or debt security, I'm by definition saying, my time horizon, almost always right unless it's a six-month treasury that I'm buying for cash substitute. My duration is almost always at least three years. To cut that short, I think truncates whether or not I'm correct or not. You can say, well, did the model that you built coincide with-- Did the world change, did the model change? I just think that my weakness is, I have a holding duration versus a theoretical duration mismatch sometimes and I need to be willing to just let the bet play out. I think I'd be a much better investor if I did that. So, that's what I'm trying to remind myself, especially in a bear market.
Tom: Dude, if I had a penny-- I spent what 15 years on sell side. If I had a penny for every institutional investor I met for the first like who are we meeting and it'd be like, “We only invest in high-quality compound, GOP stocks and our holding period is longer than all of our competitors, because we believe in time arbitrage.” That was 80% all the meetings, I went into saying exactly the same script, because it was the one thing that all the consultants wanted to hear. Then you actually watch what these people do. It's got nothing to do with it. Obviously, that's a blanket statement that isn't true for everyone. But it's the same for everyone. I guess, if you've noticed a major mismatch that you're only holding stocks for a month then your desired holding period is three years, one of the-- two of those dissonances are going to close.
Bill: Yeah, and I think that the answer is the Guy Spier just lock yourself in.
Tom: But yes and no. Again, just look at survivorship bias. Survivorship bias, what is it? The average lifespan of a company in the S&P is now 15 years, I think and it was 15 like 50 years ago. Do you feel the next two years are going to be more benign or less benign as an environment? That creates a huge tension, where it's like, “Wow, if I just hold my Apple position for the last 20 years,” it's like, “Yeah, but a shedload of companies have gone to zero.” JP Morgan does a great, great report on this called The Agony & the Ecstasy. It looks at the statistics behind which companies lose their value and never recover. It's some increase like 40%. I pull that number on my blog. But it's a bonkers number and the survivorship bias with it. So, it’s just like buying hold is great, if you've bought the right hold. [laughs]
Bill: [chuckles] Yeah. Yeah, and I think the other thing that I've evolved into is, I used to think, “Well, if I bought it higher and now it's down 30%, it's a way better deal.” And now, I've realized like, “Well, either I'm missing something or actually it's justified to be down and not adding” is potentially as correct as adding if that makes any sense. It's all very nuanced. It's all super hard to know when you're wrong or when you're not, which is what makes it fun.
Tom: Right, and you are going to do that backwards, I think. Everything I try and do in my life has a feedback loop in it, because I might have it suck terrible. I'm the least effective life hacker in the world, but I have realized the one thing is, is there a feedback loop? My whoop just tells me not to drink and it rewards me when I do cardio. Two things I don't want to do, but I quite want to win like the leagues I'm in with all these ridiculously athletic people I know. If there is a feedback loop in your performance where you actually understand why the errors were made, those are the ingredients for flow, right?
Bill: Yeah.
Tom: The problem with investing is, it's such a noisy environment that you often don't know what mistake you made. I guess the other thing that's tangential is that again, today's market is so digitally intangible, you get reflexive negativity where people don't want to buy at-home bicycle to work out on, because they think the at-home bicycle company may not be around to support them in x number of years. You get these death spirals that I think when it was much more of a tangible economy, you didn't really get that so much. It's easy for Arnold to have conviction on energy because we need energy. But I think it's harder to have conviction on second-tier stocks. Although, what was interesting is that when I went to Capital Camp and I know you were there as well is that I spoke to a lot of people and there was actually a consistent message from the public markets investors I spoke to, which was infrastructure software. I know nothing about the space, but not all software is equal and SaaS is a different business model than it was in any previous cycle. Gavin Baker has this term firstly where people will pay their bills for their software before they pay the first lien on their debt, because it's just so ludicrously mission critical and I think there's a lot of logic to that. Everything in digital is intangible argument. Obviously, it's a false dichotomy.
Bill: Yeah, you just have to be super specific on how you define firstly in debt. To your point, it's not all mission critical software. Some is just tangential stuff. I don't know, man. I don't know the answers. I'm out here trying to learn in public. The hardest thing is that Qurate idea that I had was objectively I think a good idea and now, it's down whatever like 50% all in. It's hard to want to talk about an idea, but also tell people to do their own work, and then also not feel a burden to tell people when I sell which I tried to do, but I was obviously louder liking it than I was selling it. Part of that it would be undeniable to say that I really like all the people over there. I think that they're great people that I've met. I don't want to table pound selling that, because it sucked to have to sell that. So, I let's put it this way. There's a lot of guys that have come before me that have said a lot of things that I'm starting to see the wisdom in.
Tom: Yeah, and that's helpful. There's knowing something intellectually and there's actually knowing it in an embodied sense. You can soak around the same idea for 50 years before you actually was like, “Oh, that fortune cookie actually makes sense, because that's what it actually feels like.”
Bill: [laughs]
Tom: Having an emotional understanding of it is different. I was on the sell side. I never really had enough skin in the game. But I psychologically relate one-to-one to the idea of being publicly associated with an idea that is down 50% that then you have to either own or disown, then how loud do you want to be when you sell it? The only thing I will say is that I've made a fairly obsessive study over the last 18 months since I got into a content role of who does content on FinTwit, and online, and Substacks in finance well. This is going to sound like mega cheesy, but I wrote a piece about this. It's open-heart following heart. The whole following heart thing, I feel I've covered that, but it's guys like Frederick, who writes Neckar's insecurity analysis, who's very much learning in public and letting his life out there on the line. It's people like you learning in public. The worst crime to personality is someone that always has to trade from yesterday like, “Oh, I closed that out yesterday.
Bill: [laughs] Yeah, they suck.
Tom: We don’t know whether there’s no tomorrow.”
Bill: They fucking suck.
Tom: Yeah, all know something-- [crosstalk]
Bill: That said, their fucking follower accounts are huge, but it's just not what I'm going to do.
Tom: Dude, I believe in a long enough timeline. The internet can smell it in authenticity.
Bill: Yeah, I agree with that.
Tom: I think we've seen over the last 12 months. When those people say something done or do something done, they get cancelled so fast because they don't get the benefit of the doubt. Whereas I feel, if you did something dumb or said something dumb, you have goodwill from your audience where people like, “Yeah, he made a mistake” and actually, you get more credibility I feel from owning your mistakes as long as you do it in a way that is consistent with your own integrity. I see that all the time. But it is a stunning consistency. Look, did you listen to Druck’s interview of Ira Sohn?
Bill: Mm-hmm. I thought it was quite good.
Tom: Yeah, everyone's listened to it. He says, "I've been doing this for 45 years and there's no historical analog." I'm like, “All right, [unintelligible [01:05:51] today's market has been doing this for 45 years. Hands up, hands up. Anyone? Okay, no, thanks.” He's known for 45 years, he's the most cognitively flexible of almost any investor and he's like, “There's no historical analog, there's no playbook” and he's like, “You've got to approach this with maximum humility.” I'm like, “All right, if one of the Pantheon guys says that should you have more or less humility? If you have less humility, you better have a really good argument.”
Bill: On top of that, whoever Goldman sent to the Bernstein conference, I can't think of his title right now, but he said the same thing. I posted a quote from him and somebody popped into the replies, they were like, “Come on, this is 1973.” It's like, “Okay.
Tom: [laughs]
Bill: I get that. That's nice for you to think and you may be right.” I wish that somebody would assign a confidence interval when they say something like, “This is that year.” But you got Druck and you've got a guy that's super high up in Goldman both saying that this is super complicated. I don't think it's that easy.
Tom: Oh, yeah, I think it was maybe Tony Pasquarella. Well, step back from all the financial markets nonsense for a second and just like, “Do you feel that--" When you walk outside your apartment of your house in Florida tomorrow, doesn't feel like 1973 to you? You've seen movie set in 1973. Is the stock market comprised of the same businesses that it was comprised of in 1973? Is the world interlinked to the same degree that it was in 1973? Are the financial markets as complex as they were in 1973? It might be a help for analog, but saying this is equivalent to any other historical date, just apply a very basic common-sense check to that.
Bill: Yeah, the issue that I have is, I spend my time trying to talk to people that I think can educate me and help me understand things. In that way, I somewhat outsource some of my history reading, because I'm not like, I would much rather get on the phone and talk with somebody that enjoys history than read it myself and I'm not as close to the source on that. I really don't know what I'm talking about when we start going back to financial history, but I will ask Jamie Catherwood.
Tom: Yeah,
Bill: I'm way more interested in what he has to say than my personal opinion, because he's the expert and that's how I try to use social media in that way.
Tom: Yeah, and I think it goes back to our simplistic mantra at the top, which is-- And then this was told to me by someone on the buy side. It's like, “Know what you're using each person for and also, it might not be what that person thinks they're good at.” It's not necessarily any persons or contrary. But you can't do everything yourself and actually, we've seen the humiliation of expertise. If you just have go-to people that you know are better than average on certain things and you build out a slate of that, and that's all I do basically for a living is I find the most interesting people that I can, and I platform them either at my firm or in my writing because I'm like, “This guy's either seeing the ball really well or he's got a really differentiated view that's worth flagging up.”
I think I did get a lot of reps doing that on the sell side, where I understood what the buy side wanted to hear and I went through-- If you go through 150 research reports a day for 15 years, I don't know how many that is, but that's a lot and you get pattern recognition for spotting things that are insightful. And so, if I've got a skill, I've never generated an interesting insight of my own. But I think I'm reasonable at finding people that can generate them.
Bill: That's interesting. By the way, the guy was John Waldron. I look-- [crosstalk]
Tom: Oh, sorry.
Bill: Yeah, that's okay. That's interesting, because I almost feel I'm doing something wrong, but that is my strategy. I had a guy at Berkshire, and he came up, and he was like, “Dude, you're going to raise a fund,” and I was like, “I promise you, I'm not going to raise a fund.” He was like, “Why do you say that?” I said, “Well, either my returns are good enough and I'm not going to need one and I don't want one, because I don't want that.” Or, “They're not good enough and I can't raise some fund.”
Tom: [chuckles]
Bill: Both of those forked to no.
Tom: [laughs]
Bill: But I said, “But what I could do is, I could help guys like you that have good returns, but don't think you can mark it raise a fund.” Because of that, I think that there's some symbiotic relationship, where I can try to use my skills to connect people and get myself in some information flow, and have-- I try to find people that are specialists in certain things, and then validate or invalidate what they're saying, and then decide whether or not I like a thesis based on that. That's basically what I have adopted as a strategy. I don't know if it's smart or not.
Tom: But I don't care. Your description of that brings me alive inside. You're just like, “All right, this is what I can do. Probably, not many other people are as good as me. I really enjoyed doing it. It makes my life richer because I get to meet all these fascinating people and I'm good at integrating their insights.”
Bill: “And I think I can help them.”
Tom: Right.
Bill: That's the win-win-win game.
Tom: Yeah, that's critical. You can tell people playing multi-iteration games in this business and the amount of good stuff that comes back to them sounds like a cliche, but it's not. I've just seen it all the time. Again, I've watched it funnily enough. I watched it through downturns that I started off on the sell side of England and English institutional investors are different from America ones. America ones, particularly in the early 2000s often conflated aggression with intelligence. I'm going to scream at you, and you're going to respect me on the hedge fund side, and that was much more a part of the VMO, whereas UK guys were just more British about things, more friendly.
But there were a lot of people that were really bad to the sell side for a bunch of different reasons. Just really, really disdainful and they didn't realize that the sell side is effectively the best recruitment operation you can imagine that when all these guys lost their job in LA, they never appeared again. No one wanted to help them. To anyone listening to this that is in on either side of those fences, bad behavior gets noticed during a downturn and everyone gets humbled at some point in this business. If you're out there visibly playing a multi-iteration game, I feel it almost always works out for you.
Bill: Do you miss the sell side at all?
Tom: I missed the sell side of 2005. I think the sell side now-- I said, a year selling data and credit card data, and you've just realized now, the level of information flow in complexity and what you can add, there's fewer and fewer opportunities to have something that's an intuitively brilliant call to add value to your clients in that way. That was the stuff that I loved. It was just like, “Oh, wow, I've seen something and I think it's legitimately alpha generating.”
I've seen one of our analysts, who has just changed his body language on something materially and has written a report on this stock that's really interesting and he's really good. That buzz that you get of going out to someone and be like, “I'm going to make you money on this and you're going to like me a lot more because I made you some money and our relationship is going to get stronger. And I then move from someone who's trying to sell you something to a trusted partner.” I was lucky enough to have that happen in a few instances. That's just a great way to live.
The thing that I'll say about the sell side is that I think a lot of people enjoy ragging on it because of the price targets and occasional conflicts of interest or whatever it is. The caliber of individual intellectually on the sell side is ludicrously, ludicrously high. It's usually committed a lot of times from an integrity perspective as well because you only hear about the bad actors.
Bill: Yeah, you're not going to read a bunch of headlines that say, “Hey, this sell side acted exactly as it was supposed to."
Tom: Yeah, [laughs] which is the norm. I had the incredible fortune of doing some very bad jobs before I joined the sell side after college, and then the amount of money they were paying me to be intellectually curious was just an absurdity. But it was a different information ecosystem back then.
Bill: I don't know. If you want to get into it, but if you do, what ended up ending your time on the sell side?
Tom: Yeah, I've talked about it a lot. I told Frederick the other day, the one thing I want to do with my life is help people who are stuck. I think stuckness in finance is a bigger deal with in a lot of other industries, because the compensation is so high and it attracts personalities who are intrinsically competitive and aggressive. I've talked about it a lot, but I think that my interests to the point of the following your heart cliche slowly started to diverge with the sell side. I loved my first 10, 11 years and after that the job changed and I didn't really adjust with it, because I didn't want to. I didn't want to change my personality to be what the job was coming into. I kept trying to shoehorn myself into a place that I wasn't good and then eventually, my body was just like, “Dude, you got to get out.” I started getting psychosomatic issues.
Your energy goes to zero when you're a state of dissonance, because your ego is like, “Stay, it's safe. Think how much money you're making for your family, you're going to be managing director soon, you're going to be so successful, and everyone's going to be very impressed with you.” Then there's your unconscious, they know that heart guide that's like, “You're dying. You're not following what you should be doing and you're wasting your life and you're running out of time.” That dissonance came to a head for me in 2017. I left the industry without a plan, because I had this exceptional confidence, because I was so highly educated and so successful that I would be fine. I was not at all fine. I fell through the floor, and I spent three years trying to pull my life together, and making every professional and personal mistake I think you can make, which is why I feel I can talk to people about it now, because I just managed my own career pivot so catastrophically and I kept trying to overdetermine my direction, which was like, “Finance was nonsense, it doesn't have any societal benefit, you've got to go and be a social worker.”
I did a semester at Fordham in social work, I tried to be a hospice worker, I tried to be a psychologist, I tried to be a union analyst, I tried to be a recruiter for a while to help people change their jobs, and I just wasn't interested in any of it. All of those doors slammed shut for me really badly, until eventually, I hit a really, really, really serious rock bottom in the February of the pandemic, February of 2020, and funnily enough, gave up. I think that's a really interesting concept psychologically, the surrender, and the letting go, and ended up getting a job back in finance. But we're still very interested in the weird mix of pretentious, philosophical, and financial that I write about now and I just wrote a piece and my current boss, Tom [unintelligible [01:17:23] was like, “We'll just hire you to come do this. Explore these fields, explore these people, be a curiosity sherpa for our clients.”
The door opened where only there was a wall, because I had the courage, but also the freedom to just do what I wanted to do again. I went through this whole arc that was really, really tough and there was nothing heroic about it. It was mostly pitiful crying in the fetal position and not knowing how to support my family and just being in a state of a really terrible depression. But I see a lot of people that are stuck in similar places and I want to share my story and help them with it.
Bill: The closest I've ever been is, when my franchise failed miserably and that was probably the lowest point in my entire life. I would say if I blow up my portfolio, it'd be the second lowest. But I don't think I've met that that kind of risk. But I guess, going through that with a family would be, at least I was young when I went through it. Going through with a family would be really tough.
Tom: It was. I was in a state of total abstraction that I couldn't connect to anything or anyone. The only emotion I could feel for at least two years was shame. I was incapable of feeling anything anywhere. When you have a one-year-old boy, that's problematic. I think there were a lot of interesting and crazy different reasons for that. But what's interesting subsequently is that-- [crosstalk]
Bill: Could you hold him and feel love when you felt shame?
Tom: Yeah.
Bill: Yeah.
Tom: Nothing. There was one moment where it broke through and it was a bit like that moment when Andy Dufresne plays Opera in the Shawshank Redemption. You get this momentary beauty and I told my wife that night, I was like, “I think I'm finally out of this.” I went back in for another year. But it was just that I finally felt something in my heart for the first time. I was like, “Oh, this kid's going to love me unconditionally” and then it went away and- [crosstalk]
Bill: Holy shit.
Tom: -it was brutal. It was absolutely brutal.
Bill: It must have been so lonely. It must have been lonely for your wife, too, by the way.
Tom: Horrible for her.
Bill: She's a saint.
Tom: Yeah. Any normal person would have divorced me.
Bill: Well, that’s why you married her.
Tom: The thing that I was told by the mental health system in New York is that I wasn't ever going to get better. They were like, “I was dead-eyed.” The eyes of a shock. There was no light in me anywhere. Everyone I met in psychiatry and the medicalization of the system is like, “Oh, yeah, he's down, he's broken. He's never going to get better. This doesn't get better in people.” For her to stick around, when I couldn't help the family because I just had a constant voice in my head just droning constantly negative things, so I couldn't think proactively about anyone else's needs other than my own.” There was a state of total total isolation.
But the thing that I would say is that when I speak to people my age to up to 50s and 60s who are stuck, the one thing that comes back is family. There's a line from Carl Jung that is maybe the most terrifying and resonant line I've ever heard which is, “There's no greater burden the child can bear than the unlived life of the parent.” I look at a lot of people with four rooms in Connecticut-- [crosstalk]
Bill: Jesus, that is profound.
Tom: Dude, it's brutal, it's brutal. But we know it's true, right?
Bill: Yeah, for sure. That's why I had my reaction.
Tom: We know it just hits me like a sledgehammer every time I hear it I'll say it. These guys are like, “I can't downgrade my family to a two-bedroom apartment because I want to explore my creative outlet.” What I've said to people is that like, “You're just thinking about you being unhappy in a smaller apartment and having screwed over your family.”
Bill: [laughs] Your kids would actually probably like you more. You probably be around more.
Tom: Oh, I had dinner with some friend of mine the other night and he was, I think, notionally very successful, but in a bad spot. And his 10-year-old turned to him one day and said, “Daddy, why don't you smile anymore?” He said, that was it. That was a turning point in his life and he just changed it up and had the courage to change it up. But we think our family wants more from us or from the material perspective than they do. And frankly, if your wife only wants the material things from you, you've married the wrong woman, if your kids only want an extra bedroom, you've raised the wrong kids. If your kids aren't happy for you as long as you don't go about it irresponsibly, I don't think it's material things that keep people trapped. To an extent, yes.
I put a poll out on Twitter that was relatively modest, but it's like, people that hate your jobs, “If I could cut your salary by 40%, but guarantee you would come alive inside, would you take that trade?” And 70% said, yes. It's not the money that holds people in it. It's the uncertainty. It takes about three years to do a career pivot in midlife. It's that when someone like me comes out and he’s like, “I've got a skill set in a particular area, but I don't know where to go next.” That getting lost is brutal. I think what we need as a society is more people on the other side of the desert.
Moses, I'm not comparing myself to Moses here, nor do I know a lot about the Bible. But Moses got the Israelites to go and spend 40 years in the desert, because he's like, “There is a promised land on the other side.” I think for people who are stuck in professional situations, there aren't enough people that are like, “All right, I went through this and now, I'm thriving.” I personally make 25% the money I made when I was 28. I'm not financially successful, but I'm one of the happiest people I know now. A lot of that is having been broken into a million different pieces by the transition phase. I just think that if we can amplify any voices, it should be those voices rather than the guys who have drifted themselves to the top.
Bill: Yeah, I agree with that, man. It's funny. Man, I don't know, I've got a lot of thoughts as you're talking. But one of the things that you said is, you said, if your wife needs the material stuff, you married the wrong person. I said to my wife, I was like, “Look, we're building this house, and we've been building it for a while, and it's objectively her dream home and mine, too.” I said like, “If the stock market gets that much worse, it may not be prudent to hold it. It's not we have to sell it, but we should probably sell it depending on the bid.” She just looked at me and she's like, “You know, I'm fine with that.”
Tom: Oh.
Bill: I was like, “Oh, that is so dope.”
Tom: Yeah, dude.
Bill: [laughs]
Tom: You chose wisely.
Bill: Okay cool.
Tom: Yeah.
Bill: We just bought something that's probably going to be a rental. But if we end up in that, it’s a super nice life. There's nothing wrong with that. It's a really nice house. To have her just be like, “I don't actually care about that shit.” I don't know. It was freedom. But having that conversation and the build up to that conversation felt horrible.
Tom: Yeah. I think there's always so much tied into that the person, the persona that we have to adopt, and the lack of tolerance for people who are emotionally unsuccessful. I think a lot of that is one of the worst parts of American culture, which is, if you are unsuccessful, it's your fault. It's no one else's fault, it’s your fault. You're unsuccessful. I just don't think that's true for a lot of people. There is a survivorship bias and there is a lottery to it. Don't get me wrong. Hard work is crucially important. I just don't see people tweet about their failures very much. I don't see people tweet like, “I don't know what I'm doing and I need help. Can anyone help me find a new career path?”
A lot of those people call me after these podcasts and DM me, and I try and work with as many of them as I can, but I think we need to be part of this whole phase shift. I think it is being louder about that transition, because there's going to be a lot of people that want to transition and don't know how to do it. The greatest tragedy is that it's guys my age in their 40s, who were just cost one side. The sales traders that end up selling life insurance because it's the only thing they can do, and they just gradually become less and less differentiated people until they're human [unintelligible [01:25:28] drinking themselves stupid every weekend.
Bill: Yeah. The other thing that when you and I had talked about your bottom, I had checked my dad into an institution-- Well, I shouldn't say an institution. It was a hospital. But it was a wing of the hospital that some people had some serious problems. He went through a divorce, and he didn't sleep for a really long time, and he was abusing caffeine, and it put them in a manic state, and I have never experienced mania before. To watch that up close was fucking crazy. One of the reasons that I am comfortable talking about it is that the outcome has been-- He and I are as close as we've ever been and his life is as happy as it's ever been. He had to do a lot of hard work to get through to the other side, but I don't think I would be open about it if it had a sad ending. Maybe I would have a little bit more shame about it or whatever.
But between that and what happened to my cousin in law, who I think objectively what went on there is, he didn't want to reach out to people-- He reached out to Robinhood. A, they should have responded. But beyond that there was such shame in what he had thought he had done to his family that he didn't reach out to people that-- I don't know. I don't want to have a podcast that highlights failure all the time, but one of my favorite things that people appear willing to do and continue to do, and I thank you for doing is talking about the hard times, because I think a lot of the interviews or whatever we see on Twitter or whatever, it's all fucking peacocking bullshit of, “I have always shat roses. Of course, I shit roses.” It's like, “No, that's not how a lot of life goes.” It's funny, I was talking to--
Well, the William Green episode, what he said is Charlie Munger, when William sent him the book, he said, “Do you have a thought, common thread of all these investors?” Charlie was like, “It's amazing how many of them got divorced.” We take this view and I think sometimes have heroes in one part of life, but ignore the rest of the life that they gave up to have the part that we all look up to. I have realized that if you have a hero, you have to accept their faults, too. You can't just say, “Boy, I want to be this person,” because to be that person requires to accept the bad parts as well. So, I don't know. Long way of saying. I appreciate what you're doing by sharing your story and I hope that I can help people in some way by facilitating conversations like this and being honest.
Tom: Yeah, you will. Definitely will. It's the open-hearted thing again. A lot of people say to me now like, “You must be so much stronger from having gone through that.” I'm like, “No, I'm much weaker. I cry all the time now. I'm much more emotional than I was. I'm English.” So, that's very difficult for me. I feel my love for my son with a burning intensity. I'm just much more engaged in the world, which means I feel negative things more and I feel positive things more, and it makes me weaker. Maybe weaker is the wrong word, but people like, “Well, you'll be able to be anything now like this David Goggins’ way.” I'm like, “Nah, I don't think that at all.” And actually, it is great. I think that we have this view that the challenges always need to lead to a very specific resilience and it hasn't done that for me. Actually, that's cool because I feel more a part of the world than I did before.
Bill: Yeah, I would say that you're probably-- it sounds to me you're living a fuller life now on this side, whether or not that's harder, or weaker, or whatever. I don't know, but it sounds fuller.
Tom: Well, it's like to be to bring business and investing back in. The thing that the universality that I've noticed from everyone I've studied is a receptivity to outside information. The ego doesn't overwhelm the outside information and Druck is like-- Druck or Tepper. It'd be the extreme examples of that where they're just super crazy cognitively flexible. But you can't do that unless your heart’s open, because you're just continuously impose your model on the world. Actually, you need to overweight external information relative to your own opinion. Most people look at the world the opposite way in my experience and that sounds quite simplistic, but I think you can look at it in quite a number of really interesting and complex ways.
Bill: Yeah, I think it's that it reminds me of Jim O'Shaughnessy’s concept of “The Thinker and the Prover.” I know I'm not dumb. When I say, I just assume I'm dumb that's not what I actually mean. But I know how many blind spots I have. The older I get, the more I realize how many more I had than I thought I had.
Tom: [laughs]
Bill: Now, I just assume they're everywhere.
Tom: Right. Good. Yeah.
Bill: I think, I don't know. I was flipping through your recent thing, 21 Useful Ideas. 1 Big One. What's the summary of that or do you think people should look at --? Everybody should read it I think and I'll drop the writing in the show notes, but what would be your takeaway if you had to summarize it in a 6o second pitch?
Tom: Oh, Jesus, dude.
Bill: [laughs]
Tom: It's a year's work.
Bill: Is that how long it took?
Tom: Yeah.
Bill: It’s beautiful. I think it's great.
Tom: Oh, thank you. It's a listicle. I feel people like listicles. It's every idea that I've ever found recurrent and meaningful. But it's all Allan Van Der Berg, basically. All of these things are about how you wait unconsciously received information higher than conscious information. The level of conscious awareness we have is designed to trick us to be confident in everything we know. We are constantly getting all this unconscious information, that if we learn how to interpret it operates at a much, much higher level of fidelity, and is a much, much more effective guide for our lives. You look at someone like Arnold, and I disagree with a lot of the more woo-woo stuff that he talks about. But he's basically just spent its entire life harmonizing that balance.
William Green introduced him on his podcast a few weeks ago, where he's like, “In 25 years, I've never found a better role model than Arnold.” I know nothing about Arnold's life other than what he's talked about in your podcast and his. I don't know about his home life or any of that stuff. But Frederick and I talk all the time about like, you just stick a couple of layers deep on these guys personal lives and they're a mess or they've acted terribly. We also think that you have to work find a way of discerning and integrating the best of people without discarding the whole person because they've done or said something stupid, so you don't want to go too far. But the people that have seemed to manage this Taoist balance, now, their life goes way better than everyone else, because they're match their character to what they're supposed to be doing.
Well, I can't end the podcast without mentioning this, but there's a dude called Dr. Iain McGilchrist, who wrote a book called The Matter with Things and I interviewed him for my work in December. I think certainly the best book I've ever read by a very long way. If it's true, it's one of the most important books written in the last couple of thousand years and if it's not true, it's still the most effective metaphor for cognition that I've ever found. It is a true masterpiece. Basically, it explains what's gone wrong with our neurology, and how it's affected culture, and what the pivot back to the other side would look like, which is the thing that I've been exploring for the last year. I wrote something that I put out that I linked to in the ideas piece that 3,000 words on what it's about, which is a good start because it's a 1,400-page book, but-- [crosstalk]
Bill: I was going to say, it's even $40 on Kindle.
Tom: Dude, yeah, yeah, yeah. This is why. You talk about [unintelligible [01:33:47] because I was interviewing him, I had to read it in a month or five weeks, and it was three hours a day for five weeks. But I realized after I went on to my iPhone screentime that I was still doing an hour of doom scrolling on Twitter a day. So, it went from four hours of doom scrolling to one hour of doom scrolling.
Bill: [laughs]
Tom: I was like, “Oh, actually, was this as big a challenge as I thought it was?`”
Bill: Yeah.
Tom: But yeah, I would urge everyone to read it. It talks about this balance, and rationality, and intuition in a way that's got a level of sophistication that's dramatically higher than anything I've ever read. Christ, I think he's actually got it right. I think what he's saying is true. If it is true, it's the biggest idea I've ever encountered.
Bill: All right, well, there you go. I think that's a good place to leave people with some homework and maybe you'll come back on some day and we can probe into it.
Tom: I'd love it. Yeah, please. Thank you so much for having me on. It's been a delight.
Bill: Dude, thanks for saying yes. I really enjoyed talking to you. It is fun hanging with you at Capital Camp. If the market doesn't crash and I can still afford airline tickets, I'd like to come up to New York.
Tom: Oh, dude, I'd rather go down to Florida. Yeah, totally.
Bill: Well, you should do that in the winter. We got space where we can put you up in. So, feel free to come. Bring the fam.
Tom: Thanks, man. I will.
Bill: All right, have a good one.