Patrick O'Shaughnessy's Blog, page 22
December 20, 2016
The Prospects for Active Management, with Morningstar’s Jeff Ptak
Joining me on the podcast this week is Jeff Ptak, head of global manager research at Morningstar. Jeff’s role puts him in the unique position to discuss the state of active management because he gets to see mutual funds from both the bottom-up, through deep diligence on investment strategies and firms, and top-down, using Morningstar’s data to assess industry-wide trends. Jeff is one of my favorite myth busters and discuss different variables for assessing active managers and mutual funds, but we also cover his favorite punk rock bands.
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Please enjoy!
Links Referenced
(Referenced) My Bloody Valentine – Loveless
Show Notes
2:04 – (First Question) – What trends in the mutual fund and ETF space have Jeff’s attention today, which Jeff says is the shift towards lower cost, passive investments.
3:48 – Any particular places where we are seeing the most and least flight into passive management from active management and vice versa
5:28 – What catalysts could get people to flow back into active management
8:44 – What are the important things to look for when evaluating active managers
12:31 – Exploring active managers and the amount of money they keep in their own fund typically and how that goes into their evaluation
14:21 – Is there a preference in the type of firms that run funds
15:31 – How does tenure of the manager play into their evaluation
17:24 – Why winning funds can often look like losers
20:45 – Looking at the behavior gap, where the fund is acting in a manner that is more positive than the returns may indicate at the time
23:20 – What will Jeff tell their kids when it comes to investing their money in the future
26:41 – What are the qualitative aspects that Jeff thinks about when evaluating a fund manager
28:53 – How does Jeff weigh holding space and return space as factors when looking at a manage
31:55 – Does Morningstar look at the expense of actively managing a fund over the long term of an investment
32:34 – ActiveShare.info
33:27 – Looking at moats and how managers build them around their business to help them outperform in the future
36:59 – Building a moat around distribution
41:02 – The most interesting manager Jeff has researched – Primecap Management and why their incentive structure works so well
44:26 – What are active fees going to look like in the future?
49:37 – Why more transparency isn’t always better, (disclaimer: it is very important to Morningstar)
51:52 – Exploring behavior gaps and how they can be avoided
55:45 – Thoughts on the value-growth paradigm
57:49 – Jeff’s most memorable day throughout his career
59:57 – What was the kindest thing that Jeff has done for others and the kindest thing that was done for him.
1:02:37 – Two bands Jeff would encourage people to check out that are a bit under the radar
(Referenced) My Bloody Valentine – Loveless
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
December 19, 2016
Favorite Podcast Episodes
This is a post that I will try to keep updated as I come across excellent new episodes of some of my favorite podcasts. This has quickly turned into my favorite medium, both as a producer and as a listener.
Yvon Chouinard on How I Built This. Maybe my favorite single podcast episode, ever.
Cal Fussman on Tim Ferriss. This guy is just wonderful in every way. This episode is chock full of both stories and advice
Steven Pressfield on James Altucher. Incredible review of storytelling. I think storytelling, public speaking, and coding should be three core curriculum elements.
Yuval Harari on EconTalk. I am part of the Sapiens fan club, and love Russ Robert’s respectful but skeptical interview style.
The American Peril on Hardcore History. I love all of Carlin’s work, but this one was really great. I knew almost nothing about the Spanish-American War.
Aswath Damodaran on Masters in Business. Barry guest list is A-list. This was my favorite episode of the year on his wonderful podcast.
Every Michael Rappaport episode on Bill Simmons. Linking the most recent, but listen to every single one. This guy is over-the-top hilarious.
Porter Stansberry on Meb Faber. I am just a sucker for stories behind businesses. Don’t care for forecasts, and this is not an endorsement of Stansberry newsletters at all (I’m agnostic, having never seen one), just was fascinated by the history and how the business works.
Alain de Botton on Tim Ferris. Alain de Botton is great because he is a classic “invite you into the search” type of guy. You won’t agree with him most of the time, but he will get you thinking.
Jon Favreau on Recode/Decode. Kara Swisher might be my favorite podcast host. You can sense the respect she garners.
Bradley Tusk on Recode/Decode. This guy is a venture-style political consultant. What a neat job.
Chris Dixon on the Knowledge Project. Shane has had a very diverse group of guests on his show, and this was my favorite.
Peter Thiel on Conversations with Tyler. Cowen is a wonderfully quirky interviewer. Thiel is always interesting.
December 13, 2016
Obvious vs. Clever Thinking
My kids’ faces often light up with wonder. They’ve made me realize adults are doing something wrong. We must reprogram ourselves.
The fix, says improv god Keith Johnstone: focus on the obvious instead of the clever. This changed me, and I think it will change you too. Here’s Johnstone:
“I began to think of children not as immature adults, but of adults as atrophied children… “I decided just before my ninth birthday not to believe anything the grown ups said. The next day, I decided to always see if the opposite could be true. I think it changed my life, I’ve been doing it ever since. It taught me to be looking for the obvious and not the clever. The obvious is really your true self. The clever is an imitation of somebody else”
Clever thinking is outside-in: thinking and acting based on external conditioning or expectations. WHAT WILL THEY THINK?
Obvious thinking is inside-out: instinctual, common sense, no-one-is-watching thinking. WHAT DO I THINK?
“What would you do if you had $100MM.” This common question gets you thinking about your obvious path. But we screw up. Clever thinking dominates. (You can spot a cleverest people easily: they use fancy, complicated language)
When you start looking, you realize that there are many things we say or do that you’ve never questioned. We’ve been conditioned. We say “bless you” after people sneeze, and we thank people for saying “bless you.” Origin stores vary… one says a sneeze was a way of ejecting evil spirits. One, that YOUR spirit might fly out during a sneeze. All explanations are nuts. But even knowing that, try to stop saying it! That difficulty you’ll find reveals how powerful “outside-in” thinking/behavior can be. You may think, that’s just a harmless custom. Ba-humbug! It allows you to realize how easy it is to be a customary thinker in other areas.
Successful improv is about removing these conformity filters and exploding from the inside out. Society watches and judges, so we self-program little judges into our intellect. The judges start watching our ideas, sorting out the insane.
Society favors the norm, the known. Heroes are heroes because they’ve survived trips to a forbidden land, the unknown. The hero’s gift is often permission to be insane, or different. Or just yourself. Their gift comes in the form of the examples they set.
Permission is one thing, action another. So here are two ways to be more obvious: 1) listening, and 2) “Fire. Ready. Aim.”
Listening to yourself is hard to do, because often the obvious is “strange,” or outright forbidden. And because we are distracted. The obvious thing’s voice is often buried under layers of convention, so you can’t hear it. Imagine a typical conversation. Most conversations are about 1) collecting information and/or 2) influencing. We hear a fraction of what’s said. If we weren’t so distracted, we’d be better conversationalists. Because listening is so important, here is my conversation w/ the best listener I’ve ever met. You can use his method of listening to listen to others and to yourself.
Second, try this method: Fire, Ready, Aim. Historian Jacob Bronowski said, “We have to understand that the world can only be grasped by action, not by contemplation.The hand is more important than the eye” I find that carpenters are often more interesting than professors.
When you start in the traditional way, with “Ready,” you are designing. You are trying to control the future.
“It’s this decision not to try and control the future which allows the students to be spontaneous.”
If “Ready” is about the future, “Fire” is about the present. When you start with “fire,” you are getting in there and seeing what works. This leads to what we think of as failures, But they aren’t failures! To even think that failure is possible is to miss the point. Failure doesn’t exist if you don’t let it.
Fear is about failure. “Fear is the mind-killer. Fear is the little-death that brings total obliteration.” It is dangerous to conceal fear, but we are taught to do so! @cshapiro told me, “don’t shine the turd.” Don’t be controlled by fear. Let fear pass over you. Fear is about the future, but beware the past too. Bragging is about the past. I struggle with this.
“When we tell people nice things about ourselves, it is usually a little like kicking them.”
In the Foundation series, Asimov said, “past glories are poor feeding.” Can you imagine five more true or useful words? So cleverness is about the past and future. Obviousness is very much about the present. It is of-the-moment. The present is wondrous. We don’t live there often enough. The past and future are “important.” We spend too much time there.
By trying to be clever you become boring. By listening to and sticking to the obvious, you become interesting. So ditch cleverness, seek out the obvious. Listen. Get in there and tinker. Fire first. Remember, this is how evolution works… It tinkers (mutation, etc.), it “listens” to what works without preconceived notions, and then it amplifies. We should do the same. At dusk, my three-year-old son said to me “when you turn on the lights it gets darker.” “Huh?” “when you turn on the lights it gets darker outside. Turn off the lights so we can see more trees.” I think we really are atrophied children!
At dusk, my three-year-old son said to me “when you turn on the lights it gets darker.” “Huh?” “when you turn on the lights it gets darker outside. Turn off the lights so we can see more trees.” I think we really are atrophied children!
Reading list: Impro by Keith Johnstone, Self-Reliance by Emerson, Finite and Infinite Games by Carse, Sapiens by Harari, What Do You Care What Other People Think by Feynman. But especially Impro. It might change your life. More each month in the book club.
The Ace of Spades, with Eric Maddox – [Invest Like the Best, EP.15]
This week we explore a rare and underappreciated skill through the lens of an incredible story. My guest is Eric Maddox, whose name you probably don’t know but won’t soon forget. Just trust me that you need to listen to this entire episode, and listen carefully—because that is what the episode is ultimately all about: how to listen to others, with care and empathy, in the age of distraction.
Sometimes it’s fun not to know what’s coming and be surprised, so I won’t say anymore. After the episode, you can learn more about Eric at Ericmaddox.com.
On his wall, Eric has a framed Cuban cigar, he starts his story by explaining the significance of that cigar. Enjoy this episode, and try Eric’s method. It has worked wonders for me.
Subscribe here:
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Please enjoy!
Links Referenced
If you want Eric’s suggested listening outline, reach out to him at eric@ericmaddox.com
Show Notes
1:35 – (First Question) – Eric explains the significance of the framed Cuban cigar.
2:53 – How did this journey start and what were Eric’s skills that led him to being part of this momentous event
3:55 – Eric is told he is going to Iraq, specifically Tikrit
5:24 – Early experiences with interrogation and how he shifted his strategy to listening more than intimidating
10:07 – What was the rate of success with the typical interrogation methods vs what Eric was trying to do
11:57 – Why was Eric the right guy to alter how investigations were handled
18:33 – Eric explains why he throws false evidence at his interrogation subjects and why it would help him
27:59 – The moment he realized he was on to Saddam Hussein
29:05 – Some politics started to interfere with the investigation but Eric pushed back to continue down his path
30:22 – What happened from December 1st to December 13th of 2003 when they ultimately captured Saddam Hussein
31:40 – The significance of fish in this investigation
35:24 – The prisoner that broke and took them to the house
36:30 – After the raid, how they found the actual bunker housing the Ace of Spades, Saddam Hussein
37:40 – The role of empathy and was it genuine in the process of interrogating enemies of the state. Also, how anyone can use empathy more effectively
42:56 – Why it is difficult to really listen to each other
45:45 – How to get past the constant distractions that we are faced with, both internally and externally
49:40 – Is confirmation bias the biggest distraction to listening
51:12 – What is the kindest thing anyone has ever done for Eric
52:26 – What are Eric’s daily habits that help him most
54:44 – Any advice to help people cultivate this skill of being able to listen better and empathize
Books Mentioned
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
December 6, 2016
Josh Brown, The Reformation [Invest Like the Best, EP.14]
My guest this week is one of the reasons that this podcast exists. Josh Brown is a financial advisor and the CEO of Ritholtz Wealth Management. He is also the creator of TheReformedBroker.com, a blog about markets, politics, economics, media, culture, and finance that has become one of the most widely-read sites on the financial web. He is the author of Backstage Wall Street and Clash of the Financial Pundits. Josh was instrumental in finding me an audience years ago when he shared one of my research pieces with his rapid base of fans. This conversation includes a look at his journey, what he’s learned along the way, and most importantly, his top five, dead or alive.
Subscribe here:
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TuneIn
Please enjoy!
Books Mentioned
Links Referenced
The Big Picture – Barry Ritholtz Blog
Show Notes
2:02 – (First Question) – Top 5 dead or alive hip-hop rap artists per Josh Brown
2:48 – Listening to right now
3:30 – Why it’s tough for newer artists to crack the all-time lists
5:23 – What appears most in Patrick’s playlists
6:04 – What was the moment that he transitioned away from bad investment practices and what are some of the things he can’t stand to see
9:05 – A look at how Josh’s portfolio has changed as his perspective on investing has transformed
11:47 – The Big Picture – Barry Ritholtz Blog
12:13 – What kind of investments does Josh use personally
13:15 – How Josh uses individual stock investments to teach his kids about how the markets work
14:31 – Has the role of the financial advisor changed? And what can advisors offer that are future-proof?
17:45 – What does Josh screen for when looking for people to work with both as employees and as clients
23:22 – What are some things that don’t feel like work but appear to be hard work from the outside
25:07 – How do both Josh and Patrick characterize themselves and each other as a company.
26:19 – Exploring Josh’s success on Twitter…@reformedbroker
28:30 – Why you shouldn’t fight on twitter
28:39 – Cliff Asness @cimmerian999
28:45 – Doug Kass @dougkass
30:21 – What services, technologies, platforms are we in the early days of that Josh could be excited about
32:53 – Why Josh and his team loves Slack
35:38 – Most memorable individual day in Josh’s career
37:32 – Who are people that Josh is learning from right now
Ben Carlson and Michael Batnick
Nick Murray (His Book mentioned – Simple Wealth, Inevitable Wealth: How You and Your Financial Advisor Can Grow Your Fortune in Stock Mutual Funds
39:33 – What does Josh like most about doing the show Halftime Report on CNBC
42:18 – If Josh had to give his money to someone, who would it be.
45:20 – Are investors doing a disservice by glorifying some of the big name investors like David Tepper?
49:37 – What is the kindest thing anyone has ever done for Josh?
52:24 – What are Josh’s daily habits
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
December 3, 2016
Reading Tweet Storm
I’m often asked how I read so much and how I choose books. So, my I’ll try my first tweet storm
1/ I love @naval ‘s idea to ask yourself: what that you do looks like hard work from the outside, but doesn’t feel like work to you.
2/ For me, one answer is reading. In most down time, I read. Probably 3 hours a day, in 2-3 chunks. Sometimes much more.
3/ (I’m sure there is something similar that each of you do that would blow the rest of us away. I suggest amplifying that thing in your life)
4/ Reading is meditative and calming. It is a way of being in the moment & connecting.
5/ Reading changes the past. This is important. The past isn’t fixed. A new book often makes you realize something essential about an old book.
6/ This is why knowledge compounds. Old stuff that was a 4/10 in value can become a 10/10, unlocked by another book in the future.
7/ Metaphors We Live By unlocked Julian Jaynes. The Act of Creation (Koestler) unlocked Zero to One. Krishnamurti unlocked everything…
8/ But it took five other books to prepare me for Krishnamurti.
9/ This is why picking “best” books is hard and maybe misguided. Usually, it’s some combination of books that has a non-linear impact.
10/ Accordingly, while many books I suggest seem unrelated to one another, they are all related.
11/ When you start out reading, you are collecting distant dots in a constellation with no apparent connection
12/ As you keep going, say past 100 books, you start to realize all the good ones, even those on wildly different topics, are connected.
13/ Just as Joseph Campbell discovered a common cycle in the world’s myths through history, I’ve found several common threads in the great books.
14/ Growth. Evolution. Human behavior. Emotion. Circles. Ego (destruction). Authenticity. Iconoclasm.
15/ These major threads are then just aspects of the single topic: what it means, and what it is like to be human.
16/ In most books, even good ones, I find about 20% of the text useful. Because the past isn’t fixed, I still view this as time well spent.
17/ In a small subset of books, the author doesn’t give you ore, he/she gives you gold. Impro. The True Believer. The Tiger. Shadow Divers. Bird by Bird.
18/ I used to spend a lot of time searching for books. In the library, on Goodreads, Amazon, and reading lists. Now I exploit a network effect.
19/ I’m known for recommending books, so now everyone recommends books back to me! Most of what I read comes from the 8k people in the book club.
20/ As the club (http://investorfieldguide.com/bookclub/) has grown, I spend less and less time finding books.
21/ Campbell: “If what you are following is your own true adventure, if it is something appropriate to your deep spiritual need or readiness…
22/ “…then magical guides will appear to help you” That has been true for me with reading.
23/ Ten years in, I now have an incomplete but dense set of interconnected dots. It is my most valuable asset.
24/ Beyond being an asset–“a stock” or sorts–it is also a “flow.” I hear runners talk about a bliss or flow state. I feel the same reading some books.
25/ Reading gets more and more enjoyable the more you do it. So here is 60 pages worth of reco’s: http://investorfieldguide.com/wp-content/uploads/2016/07/Full-Reading-List.pdf
26/ 82 books may sound like work, but I don’t even feel it. That kind of joy is an EDGE. Yours may not be reading, but you have one somewhere.
27/ Get going.
28/ Extra stuff from here on, taking notes, stopping and skipping, gifting books, etc.
29/ NOTES: I highlight and write notes in kindle, and then export each book’s notes/highlights into Evernote.
30/ I prefer physical books, but because I have to type up 100+ notes, I can’t justify reading that way unless kindle version isn’t available.
31/ I probably highlight 50-100 things in each book, and take a more detailed note on 10-20. Most notes are about building out the constellation.
32/ Notes are essential. Without them, I’d forget almost everything. Sometimes I’ll just root around in my Evernote book section for hours.
33/ I may start buying hard copies of the best books, so I can see them more often.
34/ STOPPING & SKIPPING: I stop a good chunk of books between 5-100 pages in. Never keep going if a book sucks. Most books are bad.
35/ I skip a lot in non-fiction. If a paragraph’s opening sentence seems repetitive, I move to the next. The “body” of most books is way too long.
36/ Campbell had a great rule of thumb: the fewer citations, the better the book. This isn’t always true, but it’s true an awful lot.
37/ I am increasingly tired of books which follow the “academic study + cute anecdote” formula
38/ Books that use “proprietary data” are best. That data could be experience, conversations, actual data that isn’t publicly accessible like @christianrudder book.
39/ This is good advice for writers too. I’ve tried very hard to stop citing others.
40/ GIFTING. I’ve just started sending people books through Amazon. I think reading needs to be your own journey, so I do it sparingly.
41/ I also read one book at a time. If I find myself reading a second, that means I should quit the first. So I do.
42/ Ok, done! Let me know if you have other questions. Happy to explore it more.
December 1, 2016
The Best Books of 2016
Each year on this site, I share two of the emails that I send to my “book club,” which now reaches ~8,000 people each month. Here is the year-end email I sent yesterday. To sign up and receive suggestions every month, head here.
This year I read 82 books, down from 103 last year. Having two kids is no joke! Below, I share my favorites from this past year.
Because I am committed to “growth without goals,” I will always be doing new things and sharing them with you. This year, the big new addition (on top of the website and this book email) was a podcast. The most popular episodes (measured by downloads) have been with Brent Beshore, Ted Seides, Jason Zweig, and Michael Mauboussin. The one with the fewest listens (understandably, she’s only 21!) was also the person who changed me most: Kiley Adams. The one that still has me thinking and confused in a good way is with Chris Cole.
I’ve realized that what connects all these pieces is inviting others into a search which has no end, where the search itself is the reward. That will continue. Because I don’t have goals, I don’t know what I will bring you in 2016, but I hope you’ll find whatever it is fun and useful.
Now back to the good stuff.
Just like last year, I have collected the best books that I read in 2016, with one sentence describing why I loved each book, and one passage to gauge (and pique) your interest. I’ve started the list with books I haven’t recommended before (think of these as my suggestions for December, with longer descriptions). As always, I hope you find something great to read.
At the end of 2015, this email went to four thousand people. In 2016, we doubled the list to eight thousand avid readers. I want to double it again. For that to happen, I need your help! If you have a friend that loves books or loves learning, send them this link so they can join our club: http://investorfieldguide.com/bookclub/.
I am deeply grateful to you all for your time, your kind notes, your book recommendations, and your willingness to engage in interesting conversations. Because of your interest and kindness, this book club has become a wonderful part of my life.
The Sovereign Individual by James Davidson and Lord William Rees-Moog
Sometimes, a book comes at me from all different directions. Out of nowhere, this book was being recommended by several people I count on for great recommendations. It was published in the late 1990’s, but is enjoying a very well-deserved resurgence. The first 2/3 or this book was the most interesting text of the year, filled with incredible history and visions of the future. The book outlines what the authors refer to as “mega politics” through the lens of “returns to violence.” They examine what the rate of return is on using violence through history, and suggest that we are entering (or already in) a long period where the returns to violence will fall considerably. This will have profound implications on government, sovereignty, creativity, jobs, property, laws, and so on.
Many of their predictions from the late 90’s have come true. Many didn’t. But they seem to get some of the biggest trends right. There are passages that are downright eerie in the context of Trump’s rise to the presidency. The message of the book was ultimately very hopeful for me.
In the future, one of the milestones by which you measure your financial success will be not just how many zeroes you can add to your net worth, but whether you can structure your affairs in a way that enables you to realize full individual autonomy and independence
Finite and Infinite Games by James Carse
A deep thank you to Taylor Pearson for recommending this book to me. I absolutely loved it. It hits at a lot of the themes that I think about a lot—play, growth, meaning, etc—through a neat dichotomy of infinite vs finite games. Most people are “finite players,” but abiding joy comes through infinite play. I really, really loved this book and will re-read it often.
Finite players play within boundaries; infinite players play with boundaries.
Because infinite players prepare themselves to be surprised by the future, they play in complete openness. It is not an openness as in candor, but an openness as in vulnerability. It is not a matter of exposing one’s unchanging identity, the true self that has always been, but a way of exposing one’s ceaseless growth, the dynamic self that has yet to be.
The joyfulness of infinite play, its laughter, lies in learning to start something we cannot finish.
The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone
A history of my favorite company and its enigmatic leader.
“One early challenge was that the book distributors required retailers to order ten books at a time. Amazon didn’t yet have that kind of sales volume, and Bezos later enjoyed telling the story of how he got around it. “We found a loophole,” he said. “Their systems were programmed in such a way that you didn’t have to receive ten books, you only had to order ten books. So we found an obscure book about lichens that they had in their system but was out of stock. We began ordering the one book we wanted and nine copies of the lichen book. They would ship out the book we needed and a note that said, ‘Sorry, but we’re out of the lichen book.’ ”
Spent: Sex, Evolution, and Consumer Behavior by Geoffrey Miller
A book that changed how I view human behavior forever.
The trouble is not that marketing promotes materialism. Quite the opposite. It promotes a narcissistic pseudospiritualism based on subjective pleasure, social status, romance, and lifestyle, as a product’s mental associations become more important than its actual physical qualities. This is the whole point of advertising and branding—to create associations between a product and the aspirations of the consumer, so the product seems to be worth more to the consumer than its mere physical form could possibly warrant. Marketing actually avoids materialism at all costs, for if consumers comparison shopped solely on the basis of objective material features and costs, the products themselves would be reduced to commodities—and commodities cannot be sold for serious profits in a competitive market.
The best book I’ve ever read on nature; cemented my love for the woods.
As people, we easily lose sight of what is truly old for a tree, because modern forestry targets a maximum age of 80 to 120 years before plantation trees are cut down and turned into cash. Under natural conditions, trees that age are no thicker than a pencil and no taller than a person.
Helped me understand entertainment/information based content businesses in an entirely new way.
The big companies did agree on one element of success: the ability to pay big money to sign and promote new artists. In the 1990s, the majors spent roughly $300,000 to promote and market a typical new album16—money that couldn’t be recouped if the album flopped. And those costs increased in the next two decades. According to a 2014 report from the International Federation of the Phonographic Industry, major labels were then spending between $500,000 to $2,000,000 to “break” newly signed artists. Only 10–20 percent of such artists cover the costs—and, of course, only a few attain stardom. But those few stars make everything else possible. As the IFPI report put it, “it is the revenue generated by the comparatively few successful projects that enable record labels to continue to carry the risk on the investment across their rosters.”17 In this respect, the majors in all the creative industries operated like venture capitalists.
Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism by Jeff Gramm
The best investing book of the year because of rich stories and history (also, the catalyst for my new podcast, as Jeff Gramm was my first guest).
Sadly, your ineptitude is not limited to your failure to communicate with bond and unit holders. A review of your record reveals years of value destruction and strategic blunders which have led us to dub you one of the most dangerous and incompetent executives in America. (I was amused to learn, in the course of our investigation, that at Cornell University there is an “Irik Sevin Scholarship.” One can only pity the poor student who suffers the indignity of attaching your name to his academic record.)
Shoe Dog: A Memoir by the Creator of Nike by Phil Knight
The best business book that I can remember.
You are remembered, he said, prophetically, for the rules you break.
Leaning back in my recliner each night, staring at the ceiling, I tried to settle myself. I told myself: Life is growth. You grow or you die.
The Wayfinders: Why Ancient Wisdom Matters in the Modern World (CBC Massey Lectures) by Wade Davis
A wonderful exploration of unique cultures through history and what they can teach us about how to live.
There is no beginning and end in Barasana thought, no sense of a linear progression of time, destiny, or fate. Theirs is a fractal world in which no event has a life of its own, and any number of ideas can coexist in parallel levels of perception and meaning. Scale succumbs to intention. Every object must be understood, as Stephen told me, at various levels of analysis. A rapid is an impediment to travel but also a house of the ancestors, with both a front and a back door. A stool is not a symbol of a mountain; it is in every sense an actual mountain, upon the summit of which sits the shaman.
Nobody Wants to Read Your Sh*t: Why That Is And What You Can Do About It by Steven Pressfield
I’ve given this book to more than 10 people, because it is so useful for writers.
Nobody wants to read your shit. What’s the answer? 1) Streamline your message. Focus it and pare it down to its simplest, clearest, easiest-to-understand form. 2) Make its expression fun. Or sexy or interesting or scary or informative. Make it so compelling that a person would have to be crazy NOT to read it. 3) Apply that to all forms of writing or art or commerce.
At Play in the Fields of the Lord by Peter Matthiessen
My favorite novel of the year: incredibly well written, with memorable setting and characters.
For men like himself the ends of the earth had this great allure: that one was never asked about a past or future but could live as freely as an animal, close to the gut, and day by day by day.
The second-best investing book of the year, and the most useful because it might change the way you think about your investing process.
Thus, the great commodity supercycle bears the hallmarks of a classic capital cycle: high prices boosting profitability, followed by rising investment and the arrival of new entrants, encouraged by overly optimistic demand forecasts; and the cycle turning once supply has increased and demand has disappointed.
Positioning: The Battle for Your Mind: The Battle for Your Mind by Al Ries, Jack Trout
A simple but perfect book on marketing.
To be successful today, you must touch base with reality. And the only reality that counts is what’s already in the prospect’s mind.
***
In a year that I watched my beautiful daughter enter the world, I was constantly reminded of the magic that is possible in our lives, available to all who open themselves up to it. I hope to enter 2017 with you openly: ready to learn, ready to shed ego, and ready to enjoy whatever may come!
Cheers,
Patrick
November 29, 2016
Small Bets, Huge Payoffs with Chris Cole [Invest Like the Best, EP.13]
My guest this week is Chris Cole, founder and managing partner at Artemis Capital Management. Chris’s specialty is in long volatility strategies, setting up portfolios that will benefit from significant change and volatility in markets. We discuss how a series of small bets can lead to disproportionally large nonlinear payoffs, in both life and markets. We also discuss the kind of watch Chris wears, Dennis Rodman, and movies, all as metaphors for his life philosophy.
If you are not already, subscribe to Invest Like the Best here:
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Please enjoy!
Books Mentioned
Antifragile: Things That Gain from Disorder
Command and Control: Nuclear Weapons, the Damascus Accident, and the Illusion of Safety
Devil Take the Hindmost: a History of Financial Speculation
Lords of Finance: The Bankers Who Broke the World
Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration
Impro: Improvisation and the Theatre
Links Referenced
Volatility and the Allegory of the Prisoner’s Dilemma
Dennis Rodman and the Art of Portfolio Optimization
Show Notes
2:07 – (First Question) – Chris is asked about the somewhat morbid and interesting concept of a “ticker”
3:17 – A look at volatility and convexity as Chris sees it, and what we do in our everyday lives that exposes us to these concepts.
8:03 – How does the same idea get used in investing and a portfolio
10:02 – If convexity is the non-linear payoffs to change, why is value investing a short convexity strategy?
11:20 – Antifragile: Things That Gain from Disorder
14:09 – Are there such things as positive Black Swans?
15:51 – How does Chris see the world and markets looking through his lens of convexity
18:10 – Command and Control: Nuclear Weapons, the Damascus Accident, and the Illusion of Safety
20:39 – Why democracy may not survive the strategies in place to protect us
20:54 – Devil Take the Hindmost: a History of Financial Speculation
23:05 – Lords of Finance: The Bankers Who Broke the World
23:20 – Why World War II helped the US economy get out of the depression
24:24 – Have we pulled too much future returns into our current numbers and are our expectations for market productivity too high?
26:11 – Some of the strategy thinking that Artemis uses to build portfolios in this current market atmosphere
30:40 – How does an average person access these strategies or do you have to be an institution to execute macro strategies like Artemis
33:58 – What would it take convince Chris that he is wrong and the world financial markets are in better shape than perceived
36:48 – Are we seeing above average fear in the market or are we setting up for a more horror-filled scenario where the workforce potential is decimated by technology
42:53 – How do clients of Artemis perceive their negative outlook on the economy and society
44:10 – Dennis Rodman and portfolio optimization
44:16 – The unexpected lesson investors can learn from NBA great Dennis Rodman
49:39 – Artwork seems to be a major part of Chris’s work, so Patrick questions how that developed
51:36 – What movie best exemplifies the long volatility strategy
55:14 – Chris’s most memorable day in investing
57:04 – The kindest thing that anyone has done for Chris
57:52 – Chris’s important daily habits; exercise, meditation, and reading; and he goes about them.
59:38 – The Genius of Birds
1:00:39 – Creativity, Inc.: Overcoming the Unseen Forces That Stand in the Way of True Inspiration
1:01:05 – Impro: Improvisation and the Theatre
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
November 22, 2016
Exploring the Frontier with Kevin Simler – [Invest Like the Best, EP.12]
Today’s episode features one of my favorite thinkers and writers: Kevin Simler. Kevin has a background in technology and was one of the earliest employees at Palantir Technologies, which specializes in big data and has worked closely with clients ranging from the Department of Defense to the world’s largest hedge funds. In this conversation, Patrick and Kevin explore startup culture, how to spark creativity, how social status functions like money, and how to think about the universe. This will be one of the most unique conversations you will hear on this podcast.
If you are not already, subscribe to Invest Like the Best here:
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TuneIn
Please enjoy!
Some of Kevin’s Best Essays
The Economics of Social Status
Books Mentioned
Darwin’s Dangerous Idea: Evolution and the Meanings of Life
The Origin of Consciousness in the Breakdown of the Bicameral Mind
Impro: Improvisation and the Theatre
The Moral Landscape: How Science Can Determine Human Values
Links Referenced
The Crucible Effect and the Scarcity of Collective Attention
Book Report: The Psychopath Code
Alan Watts on God Playing Hide-and-Seek
Show Notes
1:35 – (First Question) – Patrick asks Kevin about his expertise in start-up culture and why Palantir will always be a start-up to Kevin.
3:56 – Growth and Government (Sam Altman Blog) “Democracy only works in a growing economy” was attributed this to Peter Thiel, but it is from Sam Altman
4:05 – A look at what other frontiers are left to explore; economic, physical, technological, etc.
5:45 – How we behave differently when the company’s trajectory is moving in the right direction
6:10 – Kevin reviews what Palantir does and his specific role there
8:44 – Kevin is asked to explain how Palantir could get people who were interested in a solution to solve the problem
11:39 – Patrick asks whether winning creates a good culture in a startup or does the creation of a good culture facilitate their success
14:11 – What are some of the most important elements of a good culture in a startup?
18:23 – The Crucible Effect and the Scarcity of Collective Attention (RibbonFarm Blog by Venkatesh Rao) – Said 11, meant 12 people
19:22 – Patrick asks Kevin whether someone can be impacted by the level of the people that are around you
21:30 – Why you only get one chance to set the right culture at a startup
23:30 – Exploring the ideas of the economics of social status
23:46 – The Economics of Social Status (Kevin Simler essay)
26:30 – Are there ways of earning social status that people practice
30:19 – How the effect of exposure impacts people’s status
32:42 – How to build prestige and some of the nefarious ways some people do it
33:56 – Honestly signaling prestige
37:17 – Why there’s always a group of cheats in life and in business and sociopaths in business
37:44 – Book Report: The Psychopath Code (Melting Asphalt)
39:21 – Most memorable day at Palantir
41:03 – The fine line between the things that will help a startup and what is pure fluff
45:14 – Changing your routine to change your mindset
45:33 – Carnival / carnivalesque
46:53 – How to improve off-sites and improve worker development
48:14 – Why these out of the box ideas have to be bottom-up/grassroots instead of top-down mandates
49:48 – Some of the most formative books/writers/essays for Kevin
50:35 – Darwin’s Dangerous Idea: Evolution and the Meanings of Life
51:08 – The Selfish Gene
51:11 –The Origin of Consciousness in the Breakdown of the Bicameral Mind
53:41 – Impro: Improvisation and the Theatre
57:24 – Two philosophy majors start to explore meaning of life
57:31 – A Nihilist’s Guide to Meaning
1:00:38 – The Moral Landscape: How Science Can Determine Human Values
1:05:39 – Alan Watts on God Playing Hide-and-Seek
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
November 14, 2016
Better for You, Better for the World – Venture Investing with Craig Shapiro [Invest Like the Best, EP.11]
This week Patrick takes a deep dive into the world of Venture Capital with Craig Shapiro, founder and CEO of the New York-based Collaborative Fund, which was an early investor in companies like Lyft, Kickstarter, and Reddit. We cover Craig’s investing roots, his process for sourcing and evaluating investment opportunities, and the very useful “villain test.”
If you are not already, subscribe to Invest Like the Best here:
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Stitcher
Google Play
TuneIn
Please enjoy!
Books Mentioned
Spent: Sex, Evolution, and Consumer Behavior
Links References
Show Notes
2:19 (First Question) – Start by looking into Craig’s personal roots and how they led him to start the Collaborative Fund.
Post – Celebrating our Strong Roots
5:03 – Why the Collaborate Fund of better for me, better for the world drives them and is effective
8:26 – Looking into how Craig identifies investment opportunities
14:08 – How do the relationships with their limited partners get cultivated
17:16 – Going back to Craig’s entrepreneurial roots
21:37 – How does Craig evaluate a company/management before making a decision to move forward
27:33 – Is there an example of a company now that is both doing good in the world and is appealing to the masses
32:18 Spent: Sex, Evolution, and Consumer Behavior
33:07 – Are there negative factors that would rule out an investment for Craig
36:15 – What advice does Craig have for entrepreneurs, and specifically for those exploring who are hoping to engage with the venture capital world
39:57 – A look at Craig’s biggest miss
41:16 – Patrick asks Craig to pick one of the categories of investments listed on their site (cities, money, consumer, kids, and health) and describe the importance of that category in their investments.
46:15 – Exploring Craig’s daily routines and systems that help him
48:13 – A Look at how Craig got into meditation
49:49 – Most memorable day as a venture capitalist for Craig
51:39 – The kindest thing anyone has ever done for Craig
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
