Patrick O'Shaughnessy's Blog, page 18
August 29, 2017
The Wu Tang Clan of Finance, w/ Team Ritholtz – [Invest Like the Best, EP.52]
My guests this week don’t need to be introduced. In celebration of the one year anniversary of invest like the best, I asked Josh Brown, Mike Batnick, and Barry Ritholtz to join me for an hour, during which I spent more time laughing than asking questions.
I chose this team because they are the pioneers of mold breaking honesty and personality in our industry. They all figured out that just being themselves yields incredible results. This is a strategy that everyone should try, but very few do. Honesty and transparency require vulnerability, which is hard for most of us. I still struggle with it. But the evidence is in. The Ritholtz team has grown as fast as almost any RIA. Listen to this and tell me you wouldn’t want to spend your career working with people this friendly, funny and open. Hell, I want to give them some money just so I have an excuse to drop by more often.
Thanks to everyone who has listened in the past year. We are past 1.25mm listens, and growing fast. You own this thing as much as I do, because the size helps me penetrate deeper and get the best people, which begets more listeners. This podcast is one hell of a discovery machine, and the first year was our warm up. We have a ton of new angles, formats, and events coming in year two. Stay tuned. But first, time to laugh in celebration of year one. Please enjoy my conversation with team Ritholtz
Links Referenced
Scott Galloway and Aswath Damodaran on Bitcoin vs Gold
Latest ‘These Are the Goods’ post
Show Notes
2:35 – (First question) – What stock best represents you
5:09 – How was this team assembled at Ritholtz
8:50 – Why larger asset management firms are slow to pivot on new technology
10:00 – The humor of Barry @ritholtz on twitter
11:48 – What technology channels are working best
13:08 – What would happen in a Ritholtz stock picking contest
15:19 – How do you keep investors from wanting to move money into or out of buzzworthy trades
20:23 – Pricing out the news and the value premium
23:41 – Why people want complexity and activity in their portfolios
29:51 – People always want to be a part of the next frontier, example bitcoin
31:08 – a16z Podcast
33:13 – Exploring research in action and living the investments
39:35 – Biggest argument against bitcoin could be the underlying utility and what will make it successful
45:13 – The Hindenburg Omen
46:34 – Scott Galloway and Aswath Damodaran on Bitcoin vs Gold
47:38 – How the relationship with clients has evolved
49:50 – Mike’s new book project that he is working on
51:41 – Why the Mark Twain chapter is the most interesting in his book thus far
53:32 – How a business should balance sales and marketing
58:09 – Who would they draft to the Ritholtz team
58:22 – Latest These Are the Goods post
1:05:18 – Kindest thing anyone has done
August 22, 2017
Buying Companies With Economic Moats, w/ Pat Dorsey – [Invest Like the Best, EP.51]
My guest this week is Pat Dorsey, who was the longtime director of equity research at Morningstar, where he specialized in economic moats: sources of sustained competitive advantage that allow a few companies to deliver huge returns over time. Several years ago he left Morningstar to form his own asset management firm, Dorsey asset management, and build a portfolio of companies with wide moats like those he studied at Morningstar. And while moats are critical, equally important is how companies allocate the capital generated–or made possible–by the existence of the moat.
A special thank you to Brian Bares who introduced me to Pat, and to Will Thorndike–an earlier guest on the show. In the vast majority of conversations you hear on this show, I’m meeting the guest for the first time. I mention this to encourage you to connect me with anyone whose story or way of looking at the world might resonate. Always feel free to contact me with ideas.
Pat and I begin our discussion with the key differences between the sell side and the buy side, and then discuss all aspects of moats and capital allocation.
For comprehensive show notes on this episode go to http://investorfieldguide.com/dorsey
For more episodes go to InvestorFieldGuide.com/podcast.
To get involved with Project Frontier, head to InvestorFieldGuide.com/frontier.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.
Follow Patrick on Twitter at @patrick_oshag
Show Notes
2:23 – (First question) – Transition from the sell side to the buy side and the biggest surprise
3:40 – What is a moat
5:16 – What part of the stock market universe has a moat
6:57 – Pat’s framework for identifying moat, starting with intangibles
8:32 – The power of brands
9:44 – what chance does an upstart have to come in and usurp a well-established brand
12:24 – Switching costs as part of the framework for identifying a moat
14:55 – The third component of identifying a moat, network effects, and what businesses should do to effectively build one
17:29 – Last component, cost advantages/economies of scale
19:29 – How do you analyze these four components into an investing framework that can be built into an actual strategy
21:13 – How does Pat think about this from a mis-pricing standpoint
23:37 – How does Pat incorporate current price of a company in consideration for future returns when pricing a moat
25:39 – How should a company with a moat operate to protect that characteristic, especially when it comes to their capital allocation
26:51 – Which characteristic of a moat does Pat find most intriguing
30:35 – What makes for good and smart capital allocation
35:58 – What is Pat’s process for identifying the best investment opportunities
38:38 – What are good economics when looking at a company
41:03 – If Pat could take any business, but have to swap leadership, what would he choose.
44:13 – Back to his process of finding investment opportunities
46:05 – Kindest thing anyone has ever done for Pat
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
August 15, 2017
Business vs. Investing, w/ Jason Zweig and Morgan Housel – [Invest Like the Best, EP.50]
My guests this week are both veterans of the podcast, Jason Zweig and Morgan Housel. They are two of the best in the world at making the complicated simple, and in that spirit, I’ll keep this introduction short. Morgan shifted from public markets to the private markets a year ago when he joined the Collaborative Fund, so we begin with what he has learned about venture capital in his first year on the job.
Books Referenced
The Devil’s Financial Dictionary
Modern Monopolies: What It Takes to Dominate the 21st Century Economy
Shoe Dog: A Memoir by the Creator of Nike
Online References
A Rediscovered Masterpiece by Benjamin Graham
Small Companies Are Gone, But Should they Be Forgotten (Zweig Column)
Show Notes
1:43 – (First question) – Morgan on why he got disenchanted with the investment industry and shifted to venture capital
4:05 – Jason’s thoughts about investing in the private markets
5:19 – A Rediscovered Masterpiece by Benjamin Graham
7:57 – Morgan’s thoughts on how private market investments differ from public market investments
10:24 – Exploring valuations of businesses and what they say about broader trends in the market
13:21 – How much does Jason think about individual companies when exploring the overall market trends
18:41 – The Devil’s Financial Dictionary
19:28 –What does it take to be a successful founder
23:40 – How does Jason look at activities that are work related vs just for pleasure
25:33 – If Jason had to start a business, what would he do
27:22 – What business would Morgan start
29:18 – Problems with the financial planning industry
30:56 – The role of stress in personal and business development
31:04 – Modern Monopolies: What It Takes to Dominate the 21st Century Economy
38:17 – Are there signs that let you know when to cut and run vs when to keep slogging along with something
42:02 – Thinking, Fast and Slow
44:03 – Shoe Dog: A Memoir by the Creator of Nike
44:20 – Principals to approach learning
50:10 – The idea of keeping your identity small in a world where social media encourages one-upmanship
53:56 – Last significant thing Morgan changed his mind about
55:23 – Why Morgan chooses passive investing with stocks, but as a VC, essentially is a stock picker in private markets
1:00:44 – Rishi Ganti podcast
1:02:14 – What major thing did Jason change his mind about
1:02:30 – Small Companies Are Gone, But Should they Be Forgotten (Zweig Column)
1:06:33 – What was the most interesting idea Jason and Morgan have been tackling and what data helped to spark that interest
1:09:32 – Life and Fate
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
August 8, 2017
Just Manageable Challenges, with Brad Stulberg – [Invest Like the Best, EP.49]
This week’s conversation is about performance. More specifically, it is about the ins and outs of steady progress and growth. My guest is Brad Stulberg who coauthored the book Peak Performance, which combines research from many fields into a description of how athletes, creatives, and others continue to push boundaries in their respective crafts.
As someone who is intermittently lazy, the growth equation framework that Brad and I explore has impacted me often since I first read the book several months ago. I hope you enjoy this conversation, which isn’t about investing, but which is, at its heart, still about the power of compounding.
Books Referenced
Outliers: The Story of Success
Peak: Secrets from the New Science of Expertise
Online References
Show Notes
1:32 – (First question) – How Vick Stretcher influenced the book, Peak Performance
4:32 – Looking at some of the preliminary research at the science of purpose
7:58 – The idea of a growth equation and the components that can lead to success
11:47 – How the introduction of stress can help in all sorts of creative and entrepreneurial pursuits.
13:39 – The ratio between physical and mental as an impact on this formula
14:56 – Just manageable challenges and the role that they play in the growth equation
18:06 – The idea of just manageable challenges through the example of an athlete
22:19 – Favorite example of a crazy feat of physical performance, stress on older athletes operating at high levels
23:30 – Thoughts about outside influences like mentors/coaches and how they help high performance individuals advance
25:51 – Describe catabolic and anabolic states and why anabolic is so important
29:13 – How the relationship of catabolic and anabolic states also helps the mind
30:47 – How does the idea of practice play into the growth equation
32:49 – Exploring the nuances of practice and why you don’t go all out
32:56 – Outliers: The Story of Success
33:00 – Peak: Secrets from the New Science of Expertise
34:24 – The idea of designing of a day
42:06 – What role can environment play on us
43:40 – How far is it healthy to run
46:25 – How does ego play into all of this
48:06 – The idea of camaraderie and study of Air Force Cadets highlighting this
49:28 – Fatigue and why it is believed to happen in the mind and not the body
54:00 – Most memorable day
55:43 – Method for finding purpose
56:29 – Jool Health
58:26 – Kindest thing anyone has ever done for Brad
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
August 1, 2017
Leigh Drogen – Sink or Swim–How to Combine Quant and Traditional Asset Management Techniques – Invest Like the Best, EP.48]
Several weeks ago my conversation with Leigh Drogen on quant investing proved timely and popular–because everyone in asset management is facing the rise of big data, and the use of data science in investing strategies. Because of the rise of quants, many are asking themselves how to survive and thrive in a changing industry. In short, how can traditional managers compete with quants?
This second conversation with Leigh was set up to answer many of the questions posed in the first one. If quants are taking over, what should other investors do about it?
Leigh proposes a method by which old school asset managers can restructure their thinking and their process to compete with and even beat purely quantitative competitors. The method involves pulling the best from both worlds and combining them into a hybrid structure. But it will be impossible without a wholesale change in mindset, which is where we begin. Please enjoy round two with Leigh Drogen.
Here is Leigh’s complete article on the topic.
Show Notes
2:14 – (First question) – What role will ego and mindset play for traditional hedge funds looking to transition into quantitative investing strategies
4:21 – Describes the traditional process that hedge funds use to make investment decisions and how the internal politics can hamper it
6:08 – What value has portfolio managers played at hedge funds traditionally as the quarterback of a fund
9:57 – A look at what Leigh has seen as he sits with teams
12:20 – A look at places that have tried to simply add quant to their firm’s strategies without “tearing it down to the studs” and properly integrating them into the process
15:00 – Leigh is asked to define the basics of a good investment firm’s strategies
16:57 – Strategies for writing down core beliefs, whether it’s for yourself or your firm
17:49 – Exploring the second step, finding a differentiating view and how to succeed with it.
21:43 – The importance of force ranking and structuring the unstructured
26:14 – Building factor models
29:42 – How the portfolio manager position should have less room for subjectivity than at the analyst level
33:44 – Is anyone integrating this kind of high level data at the portfolio manager level into the decision making the way Leigh describes
35:07 – What blind spots are created by systematizing their processes
36:18 – Why much of this applies more to shorter and structured periods
38:23 – Shifting to portfolio constructions and what Leigh would do to create the right mix
43:39 – Shifting to management structures in these firms starting with the role of the CIO
45:24 – Looking at the different quant roles that exist in a firm and what they should be responsible for; data engineers, data analysts, pure quants, and quantitative engineer
48:20 – If you are an undergrad or grad student right now interested in asset management, what are the roles you should be thinking about targeting
49:25 – Why communication skills are still so important, no matter what role you are in
50:25 – With all of the tools and skills that Leigh has at his disposal at Estimize, why not institute an active strategy
52:01 – What has Leigh observed in the dispersion of skill in the Estimized data set
53:47 – What is the relationship between specialization and accuracy among funds
55:29 – The pros and cons of the generalist
56:56 – A look at Leigh’s background into War Theory and what lessons that he still draws on today
1:00:19 – How the field of study around war and battle relates to the investing world
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
July 25, 2017
Compound Your Face Off, with Wes Gray – [Invest Like the Best, EP.47]
My guest this week is a version of me—a funnier, cooler version who has a PhD and served as an active duty marine. Lots of you will already be familiar with Wes Gray, and those of you who are not are in for a treat. Wes is the founder of Alpha Architect, a firm which manages quantitative equity strategies for clients using factors like value and momentum. He also advocates for a more concentrated, pure approach to factor investing, which listeners know is music to my ears.
While we share a lot of the same views on markets and investing, you will still find this refreshing. The conversation was easy to structure–I just took all the questions clients and prospective investors always ask of me and my firm, and turned them on Wes. These range from very specific questions on quant investing to big existential ones. I listened to this on a long drive home and laughed out loud in the car at least 5 times. You are going to love it all.
I close this introduction by offering you an opportunity which is not for the faint of heart. On September 16th, I will be joining Wes and his crew on a 28-mile trek called “March for the Fallen” which is a small but important way of honoring those who have given their lives in service of our country. Wes and I invite you to join as well. If you are interested, check out the post on Wes’s site with all the details. I will link to it in the shownotes at investorfieldguide.com/wes. If you are still interested, then email me with the subject heading “March for the Fallen.” I told you Wes is a much cooler version of me, and true to form he will be doing the hike with a 40-pound rucksack. I will be doing the version without a rucksack. Either way, it will be a day of comradery and remembrance that we won’t soon forget. Join us.
Books Referenced
The Devil Dogs at Belleau Wood: U.S. Marines in World War I
Online References
Show Notes
3:07 – (First question) – A look at Wes’s career in the military
4:34 – Exploring the mindset that is ingrained into Marines
4:43 – The Devil Dogs at Belleau Wood: U.S. Marines in World War I
6:54 – Most memorable experience growing up in the mountains of Colorado
7:56 – What experiences in the military have transferred to what Wes sees in the public markets
8:15 – Thinking, Fast and Slow
9:18 – Wes’s first foray into stocks
11:42 – What was the transition into the quantitative investing space
13:56 – How Wes would describe quantitative investing and what the landscape looks like today
18:37 – What is the nature of the strategies Wes uses, like high-frequency and market-making, and what makes them stand out in those
22:24 – What about the human capital arms race in this space and how different firms are attracting the top talent
24:48 – What the approach is for Wes and what his research suggests is the best predictor of performance in stocks
27:03 – Wes’s approach to portfolio construction
34:46 – What is the thinking behind the number of and the size of names in the QVAL ETF
36:46 – Over a 20-year horizon, does Wes pick value or momentum
37:47 – Why the data suggests momentum is the better pick
39:03 – Why price-to-book sucks relative to other value factors
41:22 – What things worry Wes about the future of this strategy
46:06 – How does Wes think about research and what to explore next.
51:32 – Who would Wes have manage his money since he thinks Vanguard is not the best choice
58:28 – Exploring his firm Alpha Architect, how it started and has evolved since launch
59:06 – The Limits of Arbitrage
1:04:03 – talk about the profile of the right investor
1:09:42 – How the influx of people to passive investments are impacting the overall market, especially for active investment strategies
1:14:40 – Wes’s most memorable day of his career both in the military and as an investor
1:18:46– Kindest thing anyone has ever done for Wes
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
July 18, 2017
Esoteric Assets with Rishi Ganti – [Invest Like the Best, EP.46]
My guest this week is Rishi Ganti, who invests in what he calls esoteric assets. I’m not sure what to do other than laugh in amazement at his professional credentials — PhD in economics, CFA, CPA, lawyer, speaks six languages, and so on. The best part is he isn’t lording those over anyone and in fact casts some shade on the whole idea of credentials in our conversation. He just did it all because he’s a learning fiend.
Rishi’s core idea about markets is this: avoid markets at all costs. As he explains off the bat, the minute there are multiple buyers for anything, prices get efficient very quickly and there opportunity to find alpha shrinks. Instead, he searches for what esoteric assets: things without a market, orphaned assets that require high human capital and human touch.
A stark realization I had during the episode is how big the world’s asset base is. Almost all of our attention goes to the most highly refined ones: stocks and bonds. But there is a whole other world out there.
The closing sections, on what Rishi would do if not investing, and his answer for the kindest thing anyone has done for him were among the best answers I’ve heard.
Show Notes
3:30 – (First question) – Rishi’s broad take on markets and whether or not he really likes them
5:30 – Defining esoteric markets
8:31 – Looking at the mountain of assets that are most impacted or made most efficient by markets and how Rishi describes each level of that pyramid
12:28 – Looking at an esoteric asset at the early part of Rishi’s career
16:23 – Why is there little competition in these types of investment opportunities
23:06 – How they created a market and turned an esoteric asset into a return opportunity, starting with the charter school funding example
31:54 – Looking at how this is done internationally
38:55 – What they consider a platform
44:18 – A simplified explanation of what Orthogon does
50:30 – What are the main reasons people don’t want to go down this road since it seems like an obvious choice
59:00 – Looking at the most memorable experiences in esoteric investing
1:01:10 – What value has Rishi found in his extensive education, credentials, and certifications
1:07:31 – Another topic that Rishi finds interesting and he’d want to lecture on if he could other than investing.
1:09:48 – What is the right formula and types of goals you should consider in planning your life
1:14:39 – Kindest thing anyone has done for Rishi
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
July 11, 2017
The Deployment Age, Power Laws, and Venture Capital, with Jerry Neumann – [Invest Like the Best, EP.45]
I am drawn to a group of investors that I call practitioner philosophers. These are people who have gotten their hands dirty in their respective fields, but despite being doers, they still often sit back and ponder the big questions in business and life.
My guest this week is one such practitioner philosopher, NYC based venture capitalist Jerry Neumann. I came across Jerry’s essays a year ago, and he is on a very short list of writers whose work I read without fail and almost always more than once.
You can think about this conversation on business, investing, and venture capital as a big funnel. We start very broad, discussing where we may be in a large 70-year economic cycle. We then break down the so-called power law which seems to govern venture capital returns and business outcomes. Then we get even more specific, discussing Jerry’s process for evaluating early stage companies, and the particulars of what might make a good venture capitalist. I say “might” because as Jerry explains often, nothing is certain, and luck may always play a huge role.
I just loved this conversation. It is the type that without the podcast as an excuse would be a very odd and intense one if I were just meeting someone for the first time. You’ll find no small talk or even medium talk here. This is a meaty discussion with one of the smartest and most straightforward people I’ve come across.
Books Referenced
Thomas Hughes – Networks of Power: Electrification in the Western Society, 1880 – 1930
Frank Knight – Risk, Uncertainty, and Profit
Links Referenced
Howard Mark’s 2×2 matrix of superior investment results
Automated Ad Buying is Already Mainstream, Whether Most Marketers Understand it or Not
Michael E. Porter – How Competitive Forces Shape Strategy
DJ Teece: Profiting from Technological Innovation
Show Notes
3:27 – (First question) – Start with Jerry’s essay the Deployment Age and a look at what it means for where we sit today (looking forward as investors)?
3:40 – Deployment Age
4:26 – Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages
9:28 – What time in history can you compare our current deployment age to and what does that say about the next 10, 20, and 30 years?
9:40 – Oswald Spangler
11:09 – About Men; Corporate Man
15:36 – How have your views evolved over time and how do you square the 1950s-time period for venture capitalists?
18:06 – Networks of Power: Electrification in the Western Society, 1880 – 1930
20:40 – What lessons should venture capitalists make from these deployment age cycles
25:27 – Risk, Uncertainty, and Profit
24:10 – Exploring how powerlaws govern returns for venture capital
26:50 – Howard Mark’s 2×2 matrix of superior investment results
32:19 – Providing context and understanding to Alpha within Powerlaws.
32:56 – Nassim Taleb: Powerlaw
39:18 – Portfolio concentration and scaling
42:31 – Venture Follow-on and the Kelly Criterion (Jerry’s Blog)
44:34 – How have you have actually done this, Jerry? What is your process like and your focuses?
54:00 – Are there any circumstances where it is wise for friends and family to make venture investments?
59:20 – What is this idea of who profits from innovations?
56:12 – DJ Teece: Profiting from Technological Innovation
1:02:57 – Understanding complimentary assets
1:05:06 – Porter’s Five Forces
1:09:24 – Are Augmented and Virtual Reality interesting areas for venture capital and why?
1:15:28– What makes a successful venture capitalist? What makes you special?
1:23:43 – What is the most memorable day in your career in venture?
1:26:03 – Kindest thing anyone has ever done for Jerry
Learn More
For more episodes go to InvestorFieldGuide.com/podcast.
Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub
Follow Patrick on twitter at @patrick_oshag
July 6, 2017
Frontier Job Position
I am looking for someone (you, or someone you know) with the following traits and desires. This person will build Frontier.
Learning fanatic
Technically savvy (manage digital stuff, automated processes, testing, etc.). You can outsource some of it but must be able to manage overall process
Wants to build a business
An experimenter’s, tinkerer’s mindset. Don’t want to just repeat what has made others successful
Risk-seeking: the compensation for this is still unclear, but will likely be some sort of generous profit participation
Interesting in investing & in people (and health, books, travel, history, philosophy…the more the better)
Wants responsibility, not management (I am going to provide lots of resources and feedback, but leave the work to you). My view is that customer satisfaction is the feedback mechanism that matters and will be our guide
Things that don’t matter nearly as much:
Age
Background
Pedigree
The application process is as follows: just write me an email at Patrick.w.oshaughnessy@gmail.com with the header “Frontier Position.” Tell me about yourself, your interests, and what you want to do.
I recommend you read Modern Monopolies by Alex Moazed: it is a good introduction to the variables that I think matter in building a powerful network, which I aim to do with you.
If this seems very vague, it is meant to be. This will start as an experiment and may go any number of directions, so flexibility and adaptability are very important. All I know is that the community and network that I want to capture is fragmented and eager to coalesce and do things together. If we can build that network, formalize and facilitate connections within it, and feed it useful information and ideas, we will succeed. If you want to help me, get in touch. I look forward to hearing from you.
July 5, 2017
Lessons Learned After Almost a Year
I have now been doing this for almost one year, and have learned a tremendous amount. Since the whole idea behind the show is to learn in public, I am going to share a few of the lessons I’ve learned with you today. I’ll shape it as a top ten list, which ends with a fun story about my recent dinner with Warren Buffett. You’ll notice that many of these are just good business and life lessons applied to something specific: a podcast. I hope you can pull the essence of one or more of these and change how you do things, especially if you create any sort of content as part of your job.
Conversation is my new favorite way to learn. I love books, and always will, but conversations are even more efficient and engaging. Talking with people who know their field deeply is the most fun thing in the world, and it is an underused method of learning. Lectures are too one-sided. Books often don’t flow the direction you want them to. Conversations are alive and interactive. I have been doing this very publicly on the podcast, but I’ve also been doing it more in private after realizing how powerful it can be. If you can commit to having conversations with new people where you tell them as little about yourself as possible, you’ll be off to a good start. I don’t mean that talking about yourself is bad—not at all–only that in each conversation, the time you spend talking about you is time that you aren’t learning something new. The less your ego gets involved, the more you will learn—and I should know because I used to have a big ego. This means asking dumb questions, sometimes more than once. It means probing on the simplest parts of a person’s field or knowledge. As everyone knows, it is fun to explain something you love to people that don’t know as much about the topic in question, but are eager to learn. So it logically follows that you should want to be the less knowledgeable person in most conversations. If everyone took this tact, things would be a mess, but I wouldn’t worry too much about that! One side effect of learning to ask good and interesting questions is that you realize how rarely anyone asks you good or interesting questions. An example of why it pays to remove ego: A month ago I didn’t even know what a cryptocurrency token was. Now I can have a fairly in-depth conversation on the topic because I made small incremental improvement improvements across ten different conversations. In each of those, I was the moron, trying to get up to speed. The more times you are willing to be the idiot, the faster you will learn. It is a pretty cool formula: ten times the idiot, one time the (relative) expert. They should teach you how to have a good conversation in elementary school.
Preparation and careful listening are everything. The best editing for the podcast is done before the conversation starts and during the conversation itself. Most of the episodes you hear are very lightly edited, if at all. A majority aren’t touched. The ones that I have edited a bit were my fault: I didn’t prepare well enough to be nimble and attentive in the conversation. What I’ve found is that the role of the person asking the questions is to create and sustain momentum. I have this visual of a rush of water running down a maze of tubes which have hatches that open and close. If the water hits a closed hatch, everything stops. My job is to anticipate by listening very carefully and get ahead of the water to open doors to keep the momentum going. The clues to what each person loves most are usually buried in another answer. I’ve gotten much better at picking up on those cues. One example: every time someone says “we can talk about that later,” it means “I want to talk about it now and if you ask me, I’ll give a great answer.” The way I prepare for this ahead of time is to read everything I possibly can and try to be able to discuss it as if I were answering my own questions. This way, I can sense when there is a deviation between how I’d answer my own question and how they do. That deviation is often the door to something very interesting: an opinion or idea not already discussed by the guest in some other medium. An example: Scott Norton mentioned in passing that he’d read up on the history of ketchup as part of his early research, so I asked him to tell me that history and it was one of my favorite answers. I moved it to the front of the podcast.
Finding the next guest is all about the quality of other guests and the quality of my questions. The first few guests on the show were people I knew well, or well enough to invite onto a non-existent platform to chat about investing. But in the majority of the conversations, I was meeting the person for the first time– 39 of the 47 guests to be precise. That means that almost all of these wonderful conversations started because someone else introduced me to the guest and their ideas. They introduce me because they either 1) liked being a guest themselves or 2) like listening to the show. At the end of each episode, I ask the guest who I should talk to next, which allows the conversation to thread from person to person organically. But it isn’t just the guests, it is all of you. I am grateful to everyone who devotes their time to listening to this show and for all the thrilling and often random connections it has created in the investing world. One tiny example: Brian Bares of Bares Capital Management emailed me offering to connect me with Will Thorndike. Will is the author of one of my favorite books, and was near the top of my wish list. But I had no connection to him whatsoever, and then one just appeared. Brian has also connected me with another guest who you’ll hear from soon. Because of Brian’s kind outreach, I know more today. This has happened many times. If you are listening, and know someone fascinating, please send them my way. Sidebar: If you are someone whose job it is to book podcast guests, please stop emailing me (not that you are listening, anyhow). The network effect is what drives this shows success, I just happen to sit at the central node in this particular network. The more listeners, the more connections, the more connections, the more great conversations you’ll hear. It is a virtuous cycle. So please, send me guest ideas, send me topic ideas—things you want to understand but don’t. Send me anything, I read it all. I’ll do my very best to keep the quality up, and then depend on you.
Give your audience credit. There have been a few conversations—the recent one with Michael Mauboussin comes to mind—that have been pretty complicated. But these episodes often generate the most positive feedback. The accepted rules for content are that simple and short are good, but I’ve found the exact opposite. There is a strong positive correlation between the length of an episode and the number of listeners, and between the complexity or newness of the ideas explored and the number of listeners. I get emails from people all the time, and they are often a lot smarter than me. I’ve had countless coffees and lunches all over the country with listeners who have written incredibly thoughtful emails which help me understand fields like private equity and venture capital at a much deeper level. Because I push myself to the very limit of my brain’s abilities, I have been lucky to attract a ridiculously interested, smart, and kind audience. They say you get the investors you deserve, but its clear you also get the listeners you deserve. The biggest compliment I am paid is by the army of smart people who just give me their time. I think the real rule for content should be: just operate at your own level—don’t try to move simpler or more generic. The beauty of the internet is the power of the niche—find one and own it.
Avoid colonized topics. I have a lot to say about smart beta strategies, but it is a topic that has been so thoroughly picked over by the investing community that it is no fun anymore. It is a very good rule that if I’m bored of some topic, everyone else will be too. Instead, I search for aspects of the investing world that I don’t know much about, because if I don’t know, it’s a decent indicator that some chunk of the audience won’t know. I think this lesson is key. It is so easy to explore the same stuff as everyone else, because it’s less work. But as many guests have pointed out: the key to their personal success was that they wrote the playbook instead of reading someone else’s. If the playbook is already out there, look for a different question to explore.
Consider the user experience. An upcoming guest observed that most bank customers aren’t customers at all, but suppliers. They give banks the capital they need to do business, and are therefore treated like suppliers, not customers. I think it’d be easy to view podcast guests as suppliers—in this case suppliers of content—so I am very careful to remind myself that the opposite is true. The guests are my customer just as much as you are. I try to make the experience of coming on the show easy and fun, before, during, and after taping. I am careful to provide lots of feedback to each guest once the episode launches. I like Airbnb founder Brian Chesky’s notion of an 11-star experience. He suggests any business go through the thought experiment of explaining what an 1 through 11 star experiences would be for the product or service. When you do this, star levels 7 through 11 are ridiculous, but it helps you calibrate and re-orients you to your customer. I like to think I provide a 4-5 star experience now, but in the coming weeks I’ll sketch out what an 11-star experience might be and see how I can make it better. In fact, this is something I’d love to discuss with you: how to make both the guests and the listeners’ experience better. I’ll explain how to be a part of that conversation at the end of this episode.
Find great partners. The show sounds so clean because of my excellent producer Matthew Passy. If you want to start a podcast, he is your guy. He has already started working with others that I know and my plan is to fill his entire schedule. He is one example of a key partner. The show also works because I don’t have to spend much time on finding guests. This is because of the great network, but a few nodes in that network stand out. Khe Hy, Jeff Gramm, Brent Beshore, Morgan Housel, Josh Brown, and Ted Seides, among others, have been instrumental in introducing to some of the best guests on the show and for that I am deeply grateful. People often ask how I have time to do this show, but the secret is it doesn’t take that much time! This is only possible because of the great partners I’ve found in the last year. The person whose voice or face is attached to something always gets way too much of the credit. Partners drive everything, and I’m thankful to have such great ones.
A generalist mindset can be a huge advantage. It is easy to pay homage to Charlie Munger’s latticework of mental models, but when you live it, you see why he is right. Knowing the key drivers and major ideas in a variety of fields is a huge source of leverage. It is difficult to study broadly and deeply, but the two aren’t mutually exclusive. I could talk to you about quantitative equity strategies until you pass out, but a key to the podcast’s success is that I can usually fake it in other fields like history, psychology, science, philosophy, travel, books, food, economics, mythology, sports and so on. Having these in one’s repertoire is like having a set of keys to getting the best out of other people. Different keys unlock different people. I think that a lot of being a good investor is asking good questions. If you know a little about many different fields, it makes that task much easier, and increases the odds that you’ll get the goods from whomever you at talking to. If these seems too daunting, I’ve found food, travel, and sports to be the most widely accepted keys.
Amplify what works. The most downloaded guest on the podcast so far is Brent Beshore. He has been on three times, and you can bet he will be on again. The second most downloaded is Michael Mauboussin, also a repeat guest. Andy Rachleff told me that one of his best business lessons is that you learn far more from success than from failure, and that you should use success as a compass. Drive hard in the direction of what works rather than trying to shore up weaknesses. If something is working, more of that thing, or a better version is likely to work too. A better version of a failure is likely still going to fail. A lesson within this lesson: this is all even more true for unexpected successes. Brent is now a close friend, but I didn’t expect him to be the most popular episode. This has been a recurrent theme in my conversations on venture capital: it is usually the thing you didn’t expect which yields the biggest payoff. When something is expected or obvious to you, it is expected and obvious to others. That means competition. If Brent had been on 10 other podcasts before mine, the results would have been very different. Instead, Brent my eyes (and about 100 thousand other sets of eyes) to a fascinating new area of investing.
Don’t expect anything in return. People always ask me what my goal is with the podcast. The answer is simple: none. I don’t expect to get anything out of this other than the conversations themselves. The means and the end are the same. This is so important to me. When the process itself is the goal, magical things happen. When I have a guest on the show, it is like buying a call option. Actually its better, because I’m not even paying for the option: instead the option is “purchased” through a conversation: it is free, and highly enjoyable. The beautiful thing about call options is that the potential upside is enormous and the downside is limited, or in this case close to zero. Investors everywhere hunt for asymmetric outcomes: low downside, huge upside. And that is exactly what I’ve found this podcast to be. The second–best compliment I get is from guests who often tell me that the podcast generated a bizarre amount of inbound feedback, or even opportunities that they never expected. I don’t expect anything in particular to happen, but now I know that crazy things just will Its hard to escape the most obvious example—so let me tell this story in closing. The entire podcast began because of a rule of mine: when I read an interesting book, I email the author and ask them to lunch. I emailed Jeff Gramm after I read Dear Chairman, we got lunch, and we hit it off. We hatched a plan to record a conversation, and that was the beginning of the podcast. Very simple. 6 weeks later, the same strategy paid off again, and I met and recorded an episode with Ted Seides on hedge funds. We give Ted endless grief for his losing bet with Buffett, but I have learned so much from him about all corners of the investing world. He quickly became a friend and confidant. Ted also happens to be friends with the best investor of all time—something I didn’t know when I first met him. Fast forward to this past week. Ted, Brent Beshore and I flew to Omaha to have dinner with Warren Buffett—street value of almost $3 million dollars, my dad reminded me. I’ll get back to Warren in a second, but first a key observation here: not in a million years would I have thought a podcast would turn into a three-hour private dinner with Warren Buffett. If I had had the temerity to set that as a goal, it would have probably been impossible. If I’d been angling to get a private dinner with him, it most likely would never have happened—because everyone hates that guy. I think that because I am never angling for anything, the outcomes are far more interesting and improbable than if I was trying to achieve some specific goal. Another thing: the best thing about the dinner wasn’t that it was with Warren, but that it was with Brent and Ted, who have become such close friends. And the chance to meet Todd Combs, who was fantastic. Back to Warren. He is incredible. Kind, sharp, funny as hell, and relaxed. Early on he said to us “do you know what it says on Wilt Chamberlain’s tombstone? It says, finally I sleep alone.” We spent the first hour talking about college football. He could be a football color commentator. The amount of facts and dates and people he was throwing at me was staggering, and I know a lot about college football. I went to Notre Dame, and he had 5 Notre Dame specific stories that were some of the best I’d ever heard. He told me he once got through to an ND captain by calling his dorm room. He’d heard that the player was a big Buffett fan, and when he called the kid was awestruck. The reason for his call was an offer: two stock picks in exchange for Notre Dame’s playbook for the upcoming game against Nebraska. I don’t idolize people, and I never will, because idols are just people like anyone else. What was most refreshing about this dinner was realizing that Warren is just a person too—an exceptional one, but still a normal person. One that wants to shoot the breeze, tell stories, tell jokes, and learn about you. Knowing that even the greatest investor of all time is just a person is so reassuring. It makes anything seem possible. I’ll keep most of the details of the dinner to myself, but suffice it to say it was something I’ll never forget. But, and this may be more important, it was something I never expected. If you can find some way to give back to other people which they enjoy, and do so without any expectation of a return, you’ll be so happy, and great things will result. It has worked for me and I’m sure it will work for you.
So those are ten of many observations and lessons learned so far, and here is a bonus: there is room for a lot more. In the coming year, I plan on experimenting with lots of ways of bringing this community together, digitally or in person. If you are interested in being more involved in the podcast in general, stop by Frontier to learn more.
