Patrick O'Shaughnessy's Blog, page 23
November 8, 2016
Cultivating a Disaster Resistant, Compound Interest Machine – Brent Beshore [Invest Like the Best, EP.10]
This week’s guest is Brent Beshore, Founder and CEO of adventur.es, a family of companies that invests in family-owned companies. Brent has a very specific mission with this company, to cultivate a disaster resistant, compound interest machine. At just 33 years of age he has already built a portfolio of private companies that has produced impressive results. He’s done all this out of the limelight and with no outside investors. Brent discusses his rewarding but difficult journey and what he has learned, including sourcing and evaluating businesses, how he and his team have improved profitability at his portfolio companies after acquisition and so much more. The description of his process starting at 21:40 was very unique–I learned a lot of about evaluating smaller, private businesses.
If you are not already, subscribe to Invest Like the Best here:
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TuneIn
Please enjoy!
Books Mentioned
Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger
Wild Company: The Untold Story of Banana Republic
Mistakes Were Made (but Not by Me): Why We Justify Foolish Beliefs, Bad Decisions, and Hurtful Acts
The Honest Truth About Dishonesty: How We Lie to Everyone–Especially Ourselves
The Robert Collier Letter Book
Links Referenced
Shane Parrish of Farnam Street
Show Notes
1:34 (First Question) – Start with some background on Brent and how he has gotten to this point.
3:14 – Brent highlights the types of companies he wants to get involved with and what they hope to accomplish with their acquisitions.
4:20 – Looking at Brent’s early background, including what he studied in school and some of his early jobs
Washington & Lee University – Produced most presidents, also top party school
6:58 – A look at his first business and how that led him to the entrepreneurial journey of buying companies
8:56 – How Brent was able to use his own capital to make his first acquisition and grow from there
11:51 – Some of the books that have influenced Brent’s earliest strategies
12:36 – Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger
12:48 – The Fish that at the Whale
13:20 – Wild Company: The Untold Story of Banana Republic
15:24 – Mistakes Were Made (but Not by Me): Why We Justify Foolish Beliefs, Bad Decisions, and Hurtful Acts
15:59 – The Honest Truth About Dishonesty: How We Lie to Everyone–Especially Ourselves
16:34 – How Brent secures capital to buy companies and the discussion of debt
18:03 – A look at some of the holdings in Brent’s portfolio
21:40 – Patrick asks Brent what he looks for when choosing an investment target
26:11 – What motivates the people who are on the other side of the table that are willing to sell their companies to people like Brent.
29:16 – Would Brent ever consider outside capital on an investment
30:27 – The type of returns that Brent is seeing on his investments
34:10 – How Brent is able to get the profitably model to grow quickly in their investments, often with some pretty simple improvements
40:40 – What are the benefits of content marketing to boost your business
44:32 – The Robert Collier Letter Book
44:38 – Scientific Advertising
45:32 – A closer look at marketing with respect to his business Influence & Co.
48:39 – The conversation shifts to data and how Brent incorporates that into his business decision. Plus, his relationship with Shane Parrish of Farnam Street
53:01 – Patrick asks Brent about his opinion of the public markets
55:31 – Looking at Brent’s most interesting days both personally and professionally
1:01:00 – A look into Brent’s foray in wine making with his wife and the Beshore family vineyards.
1:04:36 – Looking at debt beyond money; culture debt, code debt, systems debt, expectations debt and more.
1:09:39 – What is the biggest miss that Brent has ever had, and what lessons did he learn from that and other deals he hasn’t done.
1:12:37 – What about ones that Brent said no to but then it was a good move
1:15:57 – Brent explains his theory of not over-negotiating for a company that he is bidding for
1:18:46 – The personality traits and skills that would help people thrive in the small to mid-market private investing space
1:25:58 – What is the motivation for Brent to continue doing this
1:28:22 – The daily values and habits that have aided Brent in his career
1:30:55 – The kindest thing that anyone has ever done for Brent professionally
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 1, 2016
The State of Automated Investing, with Jon Stein – [Invest Like the Best, EP.09]
Would you be comfortable with a robo-advisor running your entire investment portfolio? That’s the hope of our guest this week, Jon Stein, founder and CEO of Betterment. Betterment manages $5 billion dollars for over 175,000 clients. Patrick and Jon explore the challenge of getting young people to invest, Betterment’s recent foray into areas like the 401(k) market, and how Betterment works with financial advisors. If you’re unsure about robo-advisors, this conversation will make you better understand what they can do for you.
If you are not already, subscribe to Invest Like the Best here:
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TuneIn
Please enjoy!
Books Mentioned
Millennial Money: How Young Investors Can Build a Fortune – Patrick O’Shaughnessy
Sapiens: A Brief History of Humankind – Yuval Noah Harari
Guns, Germs, and Steel: The Fates of Human Societies – James Diamond
Sex, Evolution and Behavior – Martin Daly and Margo Wilson
The First Tycoon: The Epic Life of Cornelius Vanderbilt – T.J. Stiles
Links Referenced
Show Notes
1:55 (First Question) – Jon explains what Betterment does and how it serves individual investors.
2:55 – Patrick asks Jon about the challenge of acquiring younger investors and getting them to invest. Jon explains why this challenge forced them to make the platform as efficient and seamless as possible.
3:04 – Millennial Money: How Young Investors Can Build a Fortune – Patrick O’Shaugnessy
4:52 – Jon explains the history of Betterment and how his presentation at Techcrunch in 2010 helped to put their company on the map.
5:57 – A look at the most common Betterment users and who it helps best
6:51 – What it’s like to go through the setup of the program and what goal most people are using the system for
7:54 – A look at Jon’s history that led him to creating Betterment
9:47 – Jon explains that Betterment is a tech company that is solving customer problems in investing and how the company is comprised of a healthy mix of product managers and investment professionals.
10:34 – Exploring the investment portfolio choices and ETF’s that Betterment provides to its customers and why there seems to be a focus on value.
12:28 – Will Betterment get into the business of creating its own ETF’s or investment funds?
14:27 – Why you can never promise to have just one investment strategy, but why it’s so important to remain diversified
15:45 – A look at some of the new spaces that Betterment is expanding into, starting with the launch of their own 401(k) and their partnership with Uber.
15:56 – When everyone says a business is tricky to get into, Jon sees it as an opportunity
18:55 – What happens when an employer looks to use Betterment’s 401(k) process
20:50 – Looking at why Betterment gated people from trading during Brexit and why Betterment focuses on minimizing the impact of volatility to ensure everyone gets a fair price on their trade.
21:48 – How do we expect Betterment customers to respond during the next bear market.
23:30 – How does Betterment serve financial advisors as a technology support tool
25:30 – Betterment’s new relationships with Vanguard and Goldman Sachs, to give people more options.
27:07 – A look at the management of Betterment, their values, and how they explore new potential business ventures.
28:48 – How do you decide what projects get resources and who decides when to move forward or pull the plug on something.
29:49 – Looking at the future of robo-advising and whether or not some of these first generation features will become complimentary in the next 5-10 years.
31:05 – A look at Jon’s family and what he expects his children will be doing when they get ready to start saving money for retirement.
32:46 – Exploring the most memorable day in Betterment’s history, which Jon says is the launch presentation he gave at TechCrunch.
34:48 – What were some life changing books.
34:58 – Sapiens: A Brief History of Humankind – Yuval Noah Harari
35:06 – Guns, Germs, and Steel: The Fates of Human Societies – James Diamond
35:15 – Sex, Evolution and Behavior – Martin Daly and Margo Wilson
35:35 – The First Tycoon: The Epic Life of Cornelius Vanderbilt – T.J. Stiles
36:57 – Patrick asks Jon about his daily systems, which Jon says includes getting home every day so he can read his daughters bed time stories
37:31 – Jon says prioritization is crucial professionally
37:58 – Jon is given a chance to tell people to explore robo-advisors if they’ve never checked it out.
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
October 28, 2016
An Internal Locus of Control — Kiley Adams [Invest Like the Best EP.08]
This episode is a major departure from the norm. My guest, Kiley Adams, is only 21 years old. She has crammed more learning and adventure into two decades than most people could hope to in a lifetime. She’s track-and-field star, valedictorian, varsity soccer player, Tae Kwon Do fourth degree master black belt, and philanthropic researcher. She has travelled all over the country and the globe, recently spending two months by herself in India. I had the pleasure to meet here while teaching and investing class at Notre Dame and am thrilled to share her incredible story and her attitude that makes all of this possible.
If you are not already, subscribe to Invest Like the Best here:
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TuneIn
Please enjoy!
Books Mentioned
Behind the Beautiful Forevers: Life, Death, and Hope in a Mumbai Undercity– Katherine Boo
The Health Gap: The Challenge of an Unequal World – Michael Marmot
The Silent Boy – Lois Lowry
Show Notes
2:11 (First Question) – Start by learning about Kiley’s Tae Kwon Do career which started when she was 4 years old.
3:50 – Kiley talks about her progression to becoming a 4th black belt.
4:40 – Kiley talks about her competition schedule and what allows her to be so good at this
5:50 – A dive into the attitude that makes Kiley thrive in so many different ways
7:22 – A look at some of the places around the globe where Kiley’s Tae Kwon Do experience proves to be a passport to amazing opportunities
10:08 – Patrick asks about the practice habits that go into training
11:21 – What are some of the shared traits among the folks who have achieved this high level of accomplishment in Tae Kwon Do masters.
12:04 – A shift into Kiley’s travel aspirations and how she got into it
12:33 – A look at Kiley’s time in India, her experience, and what she has learned while working at an NGO there
13:41 – An interesting cultural difference that Kiley learned in India because of their greetings
15:02 – What are the future places that Kiley is looking to discover
15:41 – A look at Kiley’s research which his strongly rooted in the Community Based Rehabilitation (CBR) Model
17:19 – Kiley tells Patrick about her travels, in which she was alone for much of it.
17:52 – Some of the books and teachers that have helped to shape Kiley’s outlook
18:07 – Behind the Beautiful Forevers: Life, Death, and Hope in a Mumbai Undercity– Katherine Boo
19:06 – The Health Gap: The Challenge of an Unequal World – Michael Marmot
21:09 – The Silent Boy – Lois Lowry
19:20 The social determinants to healthcare, especially in the US
21:47 – A look at Kiley’s most memorable day in India, which includes someone sneaking her into Myanmar, and the drug trade
24:16 – Kiley then explains how she found herself in Pakistan…accidentally
25:40 – Patrick asks Kiley about her most memorable fights in Tae Kwon Do
27:01 – How Tae Kwon Do and Kiley’s attitude of always moving forward has helped her to have such an incredible life already
29:27 – What are the aspects of Kiley’s life that can be replicated by average people
32:00 – Patrick asks Kiley about some of the other areas that she is looking to master in the coming years.
33:30 – What Notre Dame has done for Kiley and why she picked that school
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
October 27, 2016
The Best “Per-Page” Books
Let’s get right to it. For more every month, sign up for the book club.
Non-Fiction
Because the criteria is “per-page,” many of the non-fiction books I’ve chosen are very systematic. They tend to describe/explain how one or more system(s) work. This is so valuable because understanding a system is like having a big lever—it allows you to do more with less. A book like Shadow Divers is one of the most enjoyable books I’ve ever read, but doesn’t pass the “per-page” filter I am after in this post. For this list, “conceptual” beats “narrative.”
This book gets top billing because you probably haven’t read it (or heard of it). It is about the theatre, which I know sounds awful. I hate the theatre, yet still place Impro atop this list. The book explores how to be more creative, why traditional education is a creativity killer, and how all of our interactions with other people are mini-status games. Each of these three sections/ideas has changed the way I act or think about the world.
Lessons of History by Will and Ariel Durant
The book that sparked this whole idea. Imagine spending an entire lifetime studying a writing about history. The Durants did just that, which resulted in several million (beautifully written) words. Those millions of words were themselves a distillation of human history. Now take those millions of words and distill them down again to 30,000-40,000 words. Then you have Lessons of History. Just buy it.
The Devil’s Dictionary by Ambrose Bierce
Satire is often the fastest way to convey a truth. The definitions in this book are gleeful. Here are a few examples of how potent they can be:
CRITIC, n. A person who boasts himself hard to please because nobody tries to please him
POLITICIAN, n. An eel in the fundamental mud upon which the superstructure of organized society is reared. When we wriggles he mistakes the agitation of his tail for the trembling of the edifice. As compared with the statesman, he suffers the disadvantage of being alive
OCEAN, n. A body of water occupying about two-thirds of a world made for man—who has no gills
PHILOSOPHY, n. A route of many roads leading from nowhere to nothing
Everyone may have already tackled this one, but it belongs on the list.
A qualification: the wisdom in this book is only accessible if you are ready for it. It wasn’t until my 10th reading or so—after hundreds of other books/essays/lectures on the topic, tons of experimentation with meditation, and a full immersion in eastern philosophy—that it finally shook me to my core.
Reflections on the Art of Living by Joseph Campbell
Like Lessons of History, this is a “best of” from one of the most curious minds of the last 100 years.
Thinking in Systems: A Primer by Donella Meadows
Meta, I know.
Scientific Advertising by Claude C. Hopkins
The ultimate book on business communication.
Self Reliance by Ralph Waldo Emerson
Taught me how to live.
Essays and Aphorisms OR The Wisdom of Life by Arthur Schopenhauer
Ditto
The Joyous Cosmology by Alan Watts
Most of Watts’s books would qualify for this list, but this one is my personal favorite.
Hackers and Painters by Paul Graham
I’m cheating a bit here, because this book by Graham only contains some of his many brilliant essays. If I had to pick just one essay, it would be What You Can’t Say.
Tragedy and Hope: a History of the World in Our Time by Carroll Quigley
The longest and most dense book on the list, but holy cow can Quigley sum something up, like this on the agricultural revolution:
“Agricultural activities, which provide the chief food supply of all civilizations, drain the nutritive elements from the soil. Unless these elements are replaced, the productivity of the soil will be reduced to a dangerously low level. In the medieval and early modern period of European history, these nutritive elements, especially nitrogen, were replaced through the action of the weather by leaving the land fallow either one year in three or even every second year. This had the effect of reducing the arable land by half or one-third. The Agricultural Revolution was an immense step forward, since it replaced the year of fallowing with a leguminous crop whose roots increased the supply of nitrogen in the soil by capturing this gas from the air and fixing it in the soil in a form usable by plant life. Since the leguminous crop which replaced the fallow year of the older agricultural cycle was generally a crop like alfalfa, clover, or sainfoin which provided feed for cattle, this Agricultural Revolution not only increased the nitrogen content of the soil for subsequent crops of grain but also increased the number and quality of farm animals, thus increasing the supply of meat and animal products for food, and also increasing the fertility of the soil by increasing the supply of animal manure for fertilizers. The net result of the whole Agricultural Revolution was an increase in both the quantity and the quality of food. Fewer men were able to produce so much more food that many men were released from the burden of producing it and could devote their attention to other activities, such as government, education, science, or business. It has been said that in 1700 the agricultural labor of twenty persons was required in order to produce enough food for twenty-one persons, while in some areas, by 1900, three persons could produce enough food for twenty-one persons, thus releasing seventeen persons for nonagricultural activities.”
The True Believer: Thoughts on the Nature of Mass Movements (Perennial Classics) by Eric Hoffer
The “formula” behind mass movements. For the would be leaders of new mass movements out there, here is the formula: frustrated people + vague but near-term hope + a common enemy (devil).
Fiction
Most of my favorite fiction books are long. These are shorter and pack a high per-page-punch.
I remember the train I was on when I read this. I remember what music was playing on my iPod. So, so good.
All the Pretty Horses by Cormac McCarthy
Same. Amazing short read.
“I must not fear. Fear is the mind-killer. Fear is the little-death that brings total obliteration. I will face my fear. I will permit it to pass over me and through me. And when it has gone past I will turn the inner eye to see its path. Where the fear has gone there will be nothing. Only I will remain”
Incredible book.
Foundation series by Isaac Asimov
There is a little phrase from Foundation that I keep pinned up everywhere: “past glories are poor feeding.” I think that is such a wonderful expression. It reminds me about the dangerous of pride and “achievement,” and helps me maintain a growth mindset.
The Razor’s Edge by W. Somerset Maugham
I’ve never more identified with a character than Larry in The Razor’s Edge. I loved every page.
*******
So what would be on your list? Leave suggestions in the comments below.
October 25, 2016
A Deep Dive into Hedge Funds with Ted Seides [Invest Like the Best EP.07]
This week’s guest has forgotten more about hedge funds than most people will ever know. This episode will appeal to managers, allocators and any investor interested in the world of hedge funds. Ted Seides worked under David Swensen at Yale’s endowment and was a co-founder, President and Co-chief investment officer at Protégé Partners, a multibillion-dollar alternative investment firm. I met Ted after reading his book, “So You Want to Start a Hedge Fund: Lessons for Managers and Allocators.” He has taught me a lot ever since. Hedge funds have taken a beating, so this very nuanced investigation into the industry comes at the right time.
If you are not already, subscribe to Invest Like the Best here:
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Stitcher
Google Play
TuneIn
Please enjoy!
Books Mentioned
So You Want to Start a Hedge Fund: Lessons for Managers and Allocators – Ted Seides
Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment– Swensen
The Hero’s Journey: Joseph Campbell on His Life and Work – Joseph Campbell
How to win Friends & Influence People – Dale Carnegie
Big Data Baseball: Math, Miracles, and the End of a 20-Year Losing Streak– Travis Sawchik
Moneyball: The Art of Winning an Unfair Game – Michael Lewis
Links Referenced
Show Notes
1:32 (first question) – Since both are huge Joseph Campbell fans, Patrick starts by asking Ted how he discovered Campbell and the Hero’s Journey retreats.
4:51 – A dive into Ted’s backstory including his time at Yale and the formation of Protégé Partners
5:49 – Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment – David Swensen
6:29 – Lessons learned from David Swensen and his work in endowment management
8:22 – What were some of the checklist items that worked out well in David Swensen’s model for investments in Yale’s University Endowment assets.
11:06 – A look at the structure that Yale had in their investments given their massive influence
14:04 – Shift from Yale to Protégé and how many seed investments they made there.
16:00 – The success rate at Protégé and how it was measured
17:20 – What styles were most prolific at Protégé Partners
17:50 – The economics that a seeder takes in a hedge fund
18:34 – What did they look for in the managers that they made investments in
22:27 – How Ted was able to get his first investors to support Protégé at the beginning
23:46 – Exploring the current state of fundraising
25:45 – What role does charisma play in raising money in a hedge fund launch
26:51 – The state of fees and where they need to be
35:26 – The paradox of skill and why we seem to have higher fees for lower skilled managers
39:29 – Ted talks about fee structures for hedge funds that mimic frequent flyer programs and why that could work for hedge funds.
43:34 – Patrick suggests something radical, taking fee discounts, investing them over time, but investors lose them if they divest within a certain amount of time.
45:17 – A look at some unique styles of funds
48:54 – Which of the edges would be most important to Ted in an investment decision: a strong pedigree, an impressive track record, or a unique idea?
51:05 – Patrick questions whether or not all of the folks who are “successful” are in fact talented or did they just become lucky to be a part of the right team/company.
55:25 – Advice to allocators in terms of over concentration vs over-diversification
57:40 – A look at the most memorable investment during the Protégé Partner days
1:00:22 – How would Ted counsel someone that wants to start a hedge fund
1:04:27 – Is it getting too hard for allocators to compete with hedge funds
1:07:43 – What other authors/resources have been helpful to Ted over the years
1:08:28 – How to win Friends & Influence People – Dale Carnegie
1:09:14 – Big Data Baseball: Math, Miracles, and the End of a 20-Year Losing Streak– Travis Sawchik
1:09:20 – Moneyball: The Art of Winning an Unfair Game – Michael Lewis
1:10:45 – The habits that have been most helpful to Ted’s wellbeing
1:13:03 – What have been the benefits of meditation for Ted
1:13:31 – 10% Happier: How I Tamed the Voice in My Head, Reduced Stress Without Losing My Edge, and Found Self-Help That Actually Works – Dan Harris
1:14:28 – What are Ted’s next interests
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
October 18, 2016
Humble Giants – Vanguard’s Gerry O’Reilly and Jim Rowley – [Invest Like the Best, EP.06]
There is a good chance that this week’s guests manage your money. This episode is a rare and fascinating look into the world’s largest asset manager. My first guest is Gerry O’Reilly, who is the portfolio manager for the largest mutual fund in the world, and oversees more than $800 billion for Vanguard. My second guest is Jim Rowley, a Senior Investments Analyst with deep knowledge of indexing and ETF’s. The two provide incredible insight into some of the particulars that make Vanguard and its funds tick.
If you are not already, subscribe to Invest Like the Best here:
Itunes
Stitcher
Google Play
TuneIn
Please enjoy!
Books Mentioned
Thinking, Fast and Slow – Daniel Kahneman
Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions – Dan Ariely
Malcolm Gladwell Books
Freakonomics: A Rogue Economist Explores the Hidden Side of Everything – Steven Levitt and Stephen Dubner
Links Referenced
CRSP – Center for Research in Security Prices
Show Notes
1:40 (first question) – Patrick starts by talking about his recent interest in running and questions Gerry about his running escapades starting back in high school and how that led him to a job at Vanguard.
5:43 – Jim discusses how he arrived at Vanguard
7:02 – A look at the key cultural components at Vanguard that has led to longevity among the employees.
10:44 – The conversation shifts to investing, with a look at what is the equilibrium between active and passive investing, and how Vanguard has handled the transition recently.
16:30 – Patrick asks them about using CRSP’s and why they use a third-party to benchmark themselves.
18:15 – What impact has proxy voting had on the active manager and how does Vanguard handle the active investors that will hold large portions of several companies.
20:18 – Patrick asks what skillsets would be important for new hires at Vanguard.
22:35 – A deep dive into risk and market structure, what dimensions of risk do they think about in their trades.
23:39 – What are some aspects of market structure that are subpar.
25:10 – The conversation shifts from passive investing to active and what strategies are being employed in making those trades.
27:29 – A look at the market efficiency debate and how Jim and Gerry view it.
30:12 – Patrick explores their feelings on high-frequency trading and whether these players are just taking advantage of market players.
31:56 – What does their quarterly rebalancing policy stand and what impact does that have on their daily trading activity.
34:14 – How do buybacks play into rebalancing.
36:52 – Gerry is questioned about the rise of factor investing.
39:45 – A look at how they invest, on a macro level.
40:32 – A look at the perfect portfolio balance and how it used to reflect what the total market asset classification looked at.
42:58 – Is the tax advantage of ETF’s significant enough for prospective investors?
44:28 – In a scenario when there’s net outflows of the market, Patrick wonders what strategy would be considered to produce the best tax efficiency.
46:03 – What are their favorite components of their jobs at Vanguard?
47:51 – A look at their most memorable days at Vanguard.
51:16 – What was the kindest thing that anyone has ever done for Gerry and Jim in their careers?
53:55 – What are the books that have shaped the way they thought, with extra points for books that might be less known.
54:15 Thinking, Fast and Slow – Daniel Kahneman
54:30 Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions – Dan Ariely
55:33 – Malcolm Gladwell Books
55:55 – Freakonomics: A Rogue Economist Explores the Hidden Side of Everything – Steven Levitt and Stephen Dubner
56:28 – What is the areas that each of the guests are most interested in improving upon.
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
October 11, 2016
The Quantified Self – Christian Rudder [Invest Like the Best EP.05]
In this episode, I speak with Christian Rudder, who is the co-founder of OK Cupid, a NY Times best-selling author (of the awesome Dataclysm), a data and math junky, and a musician. We discuss interesting and unsettling trends in OK Cupids dating data (age, race), artificial intelligence, the NSA, great books on the Civil War, and more.
If you are not already, subscribe to Invest Like the Best here:
Itunes
Stitcher
Google Play
TuneIn
Please enjoy!
Books Mentioned
2:05 – Dataclysm: Who We Are (When We Think No One’s Looking) – Christian Rudder
27:23 – Civil War a Narrative – Shelby Foote
27:48 – Dune – Frank Herbert
28:06 – Look Who’s Back – Timur Vermes
28:37 – The Age of Miracles – Karen Thompson Walker
28:58 – Station Eleven – Emily St. John Mandel
29:14 – H is for Hawk – Helen Macdonald
30:21 – SPQR: A History of Ancient Rome
36:27 – Superintelligence: Paths, Dangers, Strategies – Nick Bostrom
44:35 – The Singularity Is Near: When Humans Transcend Biology (44:35)
58:09 – Eating Animals – Jonathan Safran Foer
Links Referenced
Christian Rudder’s band – Bishop Allen
Early member of SparkNotes
CEO and Founder of OKCupid
Essays on AI – Wait But Why
Show Notes
1:32 (First Question) – First an exploration of how Jeff Gramm (first podcast episode guest) introduced Patrick and Christian.
2:22 – Patrick questions about the transitions in Christian’s career
Part of the band Bishop Allen
Early member of SparkNotes
Author of Dataclysm: Who We Are (When We Think No One’s Looking)
3:19 – Goes through his first few years out of school from creating his own startup, to baking bread, to eventually landing a job at SparkNotes
4:53 – Deep dive into SparkNotes
5:52 – The formation of Bishop Allen and OKCupid
7:12 – A look at the book Dataclysm and how Christian was able to sort through the incredible data buried within the dating site.
12:17 – First piece of data that they dive into, “Wooderson’s Law”, based on a character from “Dazed and Confused.”
15:15 – The idea of the Pratfall Effect and the role of variance in people dating
19:56 – Do people on dating sites say they want one thing and do another
21:22 – Exploring the trends in race and dating that show we are far from being a post-racial society
27:04 – Shift to some of Christian’s favorite books
29:59 – Christian explains how he finds new books
30:52 – Patrick asks Christian to explain his latest project which requires some background some famous math classes that are taught at Harvard, which are often a source of NSA employees.
33:15 – How corporations are using data versus how the government is using it and the privacy concerns of both.
35:20 – With big data comes bigger, smarter computers, which shifts the conversation to artificial intelligence.
39:09 – Can artificial intelligence take over creative ventures and completely replace the role of humans in the future?
40:40 – If more people are put out of work by artificial intelligence, will there need to be some sort of redistribution to ensure basic quality of life for all.
45:17 – What advice would you give to a 20-year-old looking to get into a data driven tech company. Importantly, it’s not just about being able to collect the data, but how you analyze and use it afterwards.
49:27 – Breaking down the right and wrong people to go after the entrepreneurial lifestyle
51:39 – How do you know if you should continue to go down the road of an entrepreneurial idea?
52:53 – Looking into OKCupid and what each person’s role was in the business.
54:45 – Patrick asks Christian about being the CEO after serving in more of a creative role for most of his career.
56:32 – Patrick asks about some other entrepreneurial ventures that Christian might have up his sleeves, possibly something to do with animal rights and fair treatment.
59:08 – Other entrepreneurial ventures that are exciting Christian
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
October 5, 2016
Podcasting Lessons, and PodGod
I’ve fallen in love with podcasts as a medium. They are the perfect tool for enjoyment, discovery, and education.
I.
It is very easy to launch a podcast if you are willing to pay someone to help you produce it. Far easier than setting up a website. I rely heavily on Matthew Passy, who makes my podcasting job as simple as taping a conversation and putting in a shared folder on dropbox. If you want to start a podcast, give him a call.
Some early stats: I am 4 episodes in, have taped an additional 7, and have another 6 lined up. The first four episodes have been downloaded (more on this next) about 20,000 times, total. Ideally, I can ramp it up to 20,000 listeners per episode before too long.
II.
Ok, now back to the downloads. This is by far the most frustrating aspect of podcasting: the lack of granular data on listeners. I just finished a fascinating book: Streaming, Sharing, Stealing: Big Data and the Future of Entertainment. The book makes clear that gathering data on your customers is crucial in any business, but especially in entertainment/content-based businesses. Netflix, and other aggregators of content, are able to use their data to better serve customers, and, in turn, create a wider moat for their own business and grow their subscriber base. They are in the process of destroying the advertisement based model for entertainment content.
Because of how well it knew its customers, Netflix was able to tear up the “fund a bunch of pilots and see what sticks” model of TV shows. Instead, it made an extremely calculated bet that House of Cards would play well among its subscribers. Netflix knew the director (David Fincher) and lead (Kevin Spacey) were popular among subscribers, and that many searched for the obsucre original version of the show that aired on BBC. Netflix ordered two full seasons, not just a pilot. When it came time to promote the show, the trailer you saw was tailored to your preferences.
Typically, the best they can do for a new show is promote it alongside a similar established show, in the hopes that viewers of the latter will be interested in the former. Netflix, because it knew its customers as individuals, was able to do much more with House of Cards. It could see what each subscriber had viewed, when, how long, and on what device, and could target individual subscribers on the basis of their actual viewing habits. Netflix even created multiple “trailers”14 for the show. One featured Kevin Spacey (for subscribers who had liked Spacey’s movies); another featured the show’s female characters (for subscribers who liked movies with strong female leads); yet another focused on the cinematic nuances of the show (for subscribers who had liked Fincher’s movies).
The only data item I really get access to through Libsyn (which hosts podcasts) is “downloads.” I have no clue who is listening (demographics), or how long they listen, or what parts they rewind, or how many episodes they listen to. I would love to know who my most valuable listeners are. No dice. The engagement data is garbage. More on the power of the Netflix model:
In short, Netflix’s platform and business model gave it several distinct advantages over incumbent studios and networks: a new way to green-light content (through detailed observations of audience behavior rather than expensive pilot episodes) a new way to distribute that content (through personalized channels rather than broadcast channels) a new way to promote content (through personalized promotional messages based on individual preferences) a new and less restrictive approach to developing content (by removing the constraints of advertising breaks and 30- or 60-minute broadcast slots) a new level of creative freedom for writers (from on-demand content that can meet the needs of a specific audience) a new way to compete with piracy (by focusing on audience convenience as opposed to control) a new and more economically efficient way to monetize content (through an on-demand bundled service, as opposed to à la carte sales).
We need a Netflix of podcasting. Let’s call it PodGod.
Simple model:
New app which plays podcasts like any other player (takes best elements of all players). This is free and accesses normal shows.
Subscription fee of
$5/month OR
A per episode “micropayment” and “tip” model. Call it 25 cents an episode, with the ability to “tip” more in the app itself right at the end of a podcast you really enjoyed. This gets you access to exclusive podcasts not available off platform. PodGod keeps half of the $25 cents. It gets rid of ads on those shows forever, which are awful. If I have to hear about MeUndies, Casper, or Blue Apron one more time my head is going to explode (I’m sure they are good products, but my god). I really don’t want to ever run ads on my show. But at some level of listeners, it would be very stupid not to! I hope someone solves this problem.
You could also capitalize on the pricing discrimination used by the entertainment industry (Hardcover vs. paperback, movie theatre vs. streaming/blu-ray, vs. streaming rental). By staggering the cost of each podcast episode (say from $1 when first released down to 25 cents over a few months), you’d better capture value from those willing to pay. In this sense, I think the freemium model that Dan Carlin uses may be backwards (he gives recent ones away but charges for archive).
Full detailed data for podcasters themselves (many of whom are selling something other than the podcast and could use that data) and for PodGod to use to steer future exclusive content.
Obviously, getting some big names early on would be the key to making this work. I am sure I am missing major problems. But get Tim Ferriss to do this, for example. He’s closing in on 100 million downloads. That would be $12.5 million of revenue for him, assuming PodGod took HALF the revenue and he got zero tips (podcasters would keep 100% of tips). From the listener’s perspective: I’ve listened to almost all of Tim’s episodes (190 of them). His show is exceptional. If each one has been about 2 hours long, his 190 episodes represent the equivalent of almost 16 days of uninterrupted entertainment, for which–at 25 cents an episode–I would have paid $47.50. Sign me up! SOMEONE TECHNICAL OUT THERE, BUILD THIS WITH ME!
III.
Ok sorry, back to the podcast.
The process (and benefits of each step) are as follows:
Secure a Guest. I maintain a big list in Evernote of people I want to get onto the show. It grows every day. Some will be easy to get, because I already know them, some are much harder. The challenge of landing, say, Jim Simons is very motivating. By far the best thing about podcasting is that you get to meet interesting people who you would not have met otherwise. Pre-podcast, there would be no good reason for me to meet Gerry O’Reilly, who runs $800B for Vanguard. Now I have a reason. He was fantastic (his episode is in two weeks). Meeting good people and having an interesting conversation is about as good as life gets. Podcasting gives you the excuse.
Prepare For the Interview. Early lesson: asking good questions is much harder than giving good answers. I’ve experimented with a few methods of preparation, from carefully scripted questions to a total free-for-all. I’ve settled somewhere in the middle: a rough framework that allows the conversation to flow wherever is most interesting. My “edge” as an interviewer is my willingness to do an almost endless amount of reading. Luckily, in many cases, I’ve already read everything by or about the guest. I collect notes, just like I do for books that I read, so I am well practiced. This prep takes somewhere between 1-2 hours per episode.
Tape the Conversation. So far, all but one of my conversations have been in person, which I really like. That will have to stop at some point after I bleed the NYC area dry of guests, but luckily I live in the best area of the world for investing guests. I also travel to SF, LA, Chicago, and other major cities often enough to arrange in-person interviews. Typically, it takes two hours: 15 minutes of chatter at the beginning and end, and 90 minutes of taping.
Stop the Recording, Cue Best Quotes from Guest. Cal Fussman pointed out that you should ask the best questions at the very end becuase the person will be opened up. I’ve found that the juiciest stuff happens after I stop recording. Hopefully I can learn how to better tease that stuff out while the red light is still lit.
Upload to Dropbox. From this point, I do nothing. No editing, production, show notes–nada. Thank you Matthew Passy!
IV.
Gear. So easy: Zoom H6 Recorder, ATR 2100 Mics. I did have one major issue. I dropped a mic, and something happened to it. Please accept my apologies for some mic issues in a few upcoming episodes. The problem is fixed, and we did the best we could to clean up the audio.
I’ve also made every mistake in the book with recording, which has been very frustrating, but a good learning experience. I ran out of recording space on my memory card and lost an hour of an amazing conversation. I ran out of batteries (luckily had more with me). I held mics when I should have had them on stands. I am sure more errors lay ahead, but hopefully I’ve already learned from the worst ones!
V.
The Future. I love investing, so many/most guests will be investors. But I hope to start veering off course soon. Next week, I have Christian Rudder on the show (OK Cupid founder, data junkie). I am going after some really fun non-investing people. I am hungry for ideas for future guests. Almost everyone says yes, and the more I do the easier it gets. Who is on your wishlist? Let me know at patrick.w.oshaughnessy@gmail.com with the subject “podcast.”
The bottom line for me so far: this is incredibly fun, and surprisingly easy to do. It takes less time and is more fun than writing blog posts. If you are thinking about a podcast, don’t hesitate: try 10 episodes. What’s the worst that could happen? Also, there are amazing podcasts now, but imagine how much better they will get when PodGod gets going?
October 4, 2016
Thinking and Walking – Morgan Housel [Invest Like the Best EP.04]
In this week’s episode, Morgan Housel and I explore the differences between private and public market investing, how to foster innovation and creativity, how businesses are structured and organized, and how Morgan finds interesting books and topics to write about. Morgan is a prolific writer and researcher, who recently left the Motley Fool and is now a partner at the Collaborative Fund, a venture capital fund in New York City.
If you are not already, subscribe to Invest Like the Best here:
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TuneIn
Enjoy!
Books Mentioned
30:55 – Diffusion of Innovations – Everett M. Rogers
49:57 – 28 Lessons from Start-ups That Failed – Michael Dariano
1:02:20 – The Great Depression: A Diary – Benjamin Roth
1:05:04 Since Yesterday, Only Yesterday, The Big Change – Frederick L. Allen
Other Links:
http://investorfieldguide.com/bookclub/
https://www.gatesnotes.com/Books#All
http://www.meltingasphalt.com/
Paul Gramm Essays, entry What you can’t say.
Show Notes
1:36 (first question) – Patrick asks Morgan about his decision to move from The Motley Fool to the Collaborative Fund.
3:50 – What it was like to shift focus from public markets to venture capital and why it’s easier to transition to something different, but within your field.
5:40 – How does investing in the venture world compare to the public markets
7:07 – Why there is so much BS in all sides of finance
9:27 – A look at Morgan’s personal system and where is passion for reading has come from.
10:44 – Why reading is the only way to improve as a writer
11:55 – Sources of good books (Mentioned by both)
http://investorfieldguide.com/bookclub/
https://www.gatesnotes.com/Books#All
http://www.meltingasphalt.com/
13:28 – How Morgan decides what to write about
16:40 – What else are parts of Morgan’s regular routine besides reading that are valuable to him
18:05 – Exploring the Morgan’s personal views on his expensive saving strategy, which is the best way to create wealth
20:21 – The biggest areas to focus on in saving is school, house, and car
20:58 – Is college still worth it if saving money on school is still so important
25:37 – Are people happier and get more joy out of life by having less stuff
27:41 – Exploring the way that the world actually reacts to news at the time (The Wright Brothers Example)
31:48 – How the timing of innovation matters and where we see that in the world of finance/investing. Pets.com is a great example.
34:33 – Are businesses structured in a way that one day we’ll look back upon and question, are there new ways to do it that would be more interesting to look into today. Morgan highlights Zappo’s business structure
36:48 – Patrick highlights the videogame maker Valve and their self-organized business structure.
38:55 – Patrick questions whether the era of conglomerates over and we’ll see more, smaller and decentralized businesses
39:56 – Patrick asks Morgan what skillsets do workers need to succeed in those types of businesses. Morgan stresses the need for more empathy in workers.
43:28 – A look at introversion vs extroversion, and whether that has any impact on people’s empathy skills
45:01 – Morgan talks about his passion for visiting the Library of Congress where he can read old versions of the newspaper and see what the conversation was at the time of major events.
49:11 – Morgan lists the people that are resources for him.
49:51 – The Waiter’s Pad
50:55 – Slate Star Codex (Patrick’s suggestion)
51:41 – Paul Gramm Essays, entry What you can’t say. (Patrick’s suggestion)
52:25 – What are the things in the financial advisory world/investing world that we’ll look back on and think of as completely absurd.
55:52 – While more things are becoming automated, Morgan points out that we’ll still need real humans to hold customers’ hands and help them out
57:50 – Nicest thing ever done for Morgan professionally, he talks about previous guest Jason Zweig.
59:20 – Now Morgan is asked about the nicest thing he’s done for someone else
1:00:04 – Patrick shares a story about a second cousin that did the kindest thing for him in his life.
1:02:10 – Patrick asks Morgan about a couple of books that have changed his life
1:06:51 – Morgan is asked to look back at his time at the Motley Fool and relive his favorite times there. Morgan starts with how he first connected with them.
1:09:28 – Morgan offers advice to younger investors about getting into the finance industry
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
September 27, 2016
The Power of Serendipity – Jason Zweig [Invest Like the Best EP.03]
In this episode, Jason Zweig and I discuss investing, financial advice, books, and life in general. The method for living discussed in the last 30 minutes will be useful for everyone. Jason is the Intelligent Investor columnist for the Wall Street Journal and author of several books, including his latest, the excellent “The Devil’s Financial Dictionary.” His insights and advice are the results a life of critical thinking, reading, writing, humility, and curiosity. Please enjoy!
If you are not already, subscribe to Invest Like the Best here:
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Google Play
TuneIn
Books Mentioned in this Conversation
10:13 – “What Do You Care What Other People Think?”: Further Adventures of a Curious Character
10: 19 Surely You’re Joking, Mr. Feynman! (Adventures of a Curious Character)
15:41 – Anna Karenina – Leo Tolstoy
15:45 Life and Fate – Vasily Grossman
1:00:12- The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel – Benjamin Graham and Jason Zweig
1:01:43 – The Travels and Adventures of Serendipity: A Study in Sociological Semantics and the Sociology of Science – Robert Merton
1:02:57 – Luck Factor – Richard Wiseman
1:08:50 – Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich – Jason Zweig
1:08:52 – The Devil’s Financial Dictionary – Jason Zweig
1:15:35 – Montaigne: Essays – Michel de Montaigne
Show Notes
1:31 (first question) – In true form, Patrick and Jason shift from investing and start talking about their family and the lessons they Jason has instilled in his kids.
4:57 – Jason reveals the two most important tools to have in your toolkit in order to succeed
8:13 – Some of Jason’s life changing books and why he is such a huge fan of Richard Feynman.
13:55 – Patrick suggests that everyone check out Richard Feynman’s lectures on youtube.
14:29 – Jason explains his procedure for finding new books to check out
16:40 – While there are benefits to social media, there are dangers of living in an echo chamber and suffering from confirmation bias.
18:55 – You should probably avoid only watching CNBC all day long with the sound on
19:53 – Jason lists some of his can’t-miss writers (apologies to those that just weren’t on the tip of his tongue at the time)
Morgan Housel (link to his episode after it publishes)
21:36 – Jason highlights one of the challenges in mass communications, getting the right balance of skepticism and anger/nihilism.
23:10 – Patrick questions Jason on the current state of the financial advisory business – Now that Vanguard has absorbed much of the active management business, so the next question is what happens to financial advisory.
24:45 – Jason says there needs to be a disruption in the fee-based advisory business
27:45 – Jason explains why we should probably begin to unbundle some financial services offerings
30:20 – What changes Jason would make if he was given czar-like powers to regulate the industry
32:40 – How Jason’s investing strategy has involved over his career. (Insert link to article about his first stock purchase – I couldn’t find it)
40:18 – Diving into the impact of academia doing research on the markets and the right way to analyze the markets using data
48:40 – Reasons Jason believes some investors are better off with active managers over index funds, and some of the ones he specifically admires.
Seth Klarman – ValPost
Howard Marks – Oaktree Capital
Mason Hawkins, Stanley Kates – Longleaf Partners
53:24 – Some of the people that Jason has enjoyed interviewing
Joe Rosenfield – One of Warren Buffett’s best friends, Chairman of Younkers Department store, and Chairman at the Investment Committee at Grinnell College
57:23 – Patrick questions about the kindest thing anyone has ever done for him professionally and Jason reveals why personal relationships are so important in your professional life
1:01:26 – The importance of serendipity and luck and how they differ.
1:05:48 – Patrick reveals his tip for breaking out of the routine and improving his life, an app called Way of Life
1:07:31 – Jason references a speech given by Benjamin Graham on his 80th birthday about doing something new, nice and surprising every day.
1:08:40 – Which one book would Jason recommend people read first if they are unfamiliar with his work.
1:15:20 – Jason reveals the book that he would miss most had he not read it
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
