What the World’s Great Philosophers Can Still Teach Us About Wealth and Wisdom (TIP765)

Summary

• Investment Themes: Extensive discussion of Meme Stocks, China Equities, Index Investing, and the Canadian Cannabis landscape, framed through behavioral and philosophical lenses.
• Key Companies: Positive alignment examples cited with Constellation Software (CSU.TO), Topicus (TOI.V), and Lumine (LMN.TO), highlighting broad-based employee incentives and escrowed share rewards.
• Meme Stock Risk: GameStop (GME) used as a case study of price detaching from fundamentals, illustrating simulacra and reflexivity dynamics that can drive extreme volatility.
• China Equities: Reflective segment on past positions in Chinese stocks and the pitfalls of biases and timing, underscoring the need for rigorous fundamentals and skepticism toward broad generalizations.
• Index Investing: Debate around efficient markets and passive indexing, acknowledging its suitability for many investors while recognizing room for differentiated active strategies.
• Cannabis: Lessons from the Canadian Cannabis industry and a specific consolidation play emphasize risks tied to failed M&A and accounting changes, and the importance of emotional control.
• Market Outlook: Advocates contrarian discipline at extremes of euphoria and despair, focusing on intrinsic value, alignment, and the long-term process over short-term sentiment.
• Overall Perspective: Emphasis on ethics, process quality, and intellectual humility; success is framed as aligning incentives, avoiding abstraction traps, and learning from errors.

Transcript

(00:00) Key to skepticism is to remain  skeptical but not allow yourself to become   excessively skeptical. The way to utilize healthy  skepticism is that by injecting some common sense   and reflecting into your thinking processes.  While common sense may not be the most refined   type of sense that you can get, it more than  suffices for a healthy dose of skepticism.  (00:23) [Music] Hey, real quick before we jump  into today's episode. If you've been enjoying   the show, please hit that subscribe button.  It's totally free, helps out the channel a ton,   and ensures that you won't miss any future  episodes. Thanks a bunch. We're going   to discuss a topic that isn't particularly  heavily discussed in most investing circles,   and that's the topic of philosophy. (00:48) So to better help us understand   the interplay of philosophy and investing,  we're going to be examining the book The   Investment Philosophers by Ethan Everett, who  did an absolutely terrific job of showing just   how many lessons can be drawn from  philosophy to help us think about   investing in different more beneficial ways. (01:07) Benjamin Graham was one of the earliest   investors to actively discuss philosophy in  investing lectures. According to Graham students,   Graham began teaching his courses by saying, "If  you want to make money on Wall Street, you must   have the proper psychological attitude. No one  expresses it better than Spinosa, the philosopher.  (01:25) " Spinosza said, "You must look at things  in the aspect of eternity." Now, Graham had a   strong background in philosophy before he began  discussing investing, so it made sense that he   would draw on it to understand the investing world  better. One of Spinoza's principles pertains to   narratives and that was that traditional stories  made it easier for the lay person to relate to   moral teachings specifically within religion. (01:49) Incredibly, Baroo Spinosza knew the power   of narratives in the 17th century. Numerous  studies conducted more recently supported   his premise that storytelling is just key for  activating rational and emotional pathways,   engaging memory systems more fully, and  fostering empathy. All of which make the   embedded lesson in a story much more stickier. (02:10) Now, the problem that Spininoza   identified was that listening to a story  was a great introduction to a teaching,   but it wasn't really optimized, you know, for the  highest quality level of understanding. It was   more surface level. And if you wanted to truly  understand principles, you had to really dig a   layer deeper to get to those lessons. (02:30) And that is why the book's author   believed that Graham came up with the Mr. market  analogy to help his students best understand the   underlying principles and wisdom that guide the  market. Now, let's revisit Graham's mentioning   of Spinosa and eternity. We know the market  sentiment is impermanent. It changes tearly   daily. So, to try to understand the market at the  deepest level and transcend that impermanence,   you must realize intrinsic value. (02:57) This was Graham's gift to   the investing world, the ability to understand  what an asset was worth and separate that value   from the market's opinion of it. We'll return  to Spinosa shortly, but first, let's go over   the most valuable company that the world has ever  seen. If I asked you what that company was today,   you might open up your computer, search  for which Mag 7 company is most valuable,   or maybe just simply ask Chat GBT. (03:21) As of September 8th, 2025,   the most valuable company in the world  is Nvidia, which is valued at around   $4.2 trillion. But that's actually the  incorrect choice because the Dutch East   India Company is actually the winner. At its peak  valuation in 1637, the business had an inflation   adjusted market value of around $7.5 trillion. (03:42) Now, why is that important? because a   gentleman named Rabbi Menace had very very deep  respect for the Dutch East India Company and   perhaps gained a pretty substantial portion of  his wealth from owning shares in that company.   Rabbi Menace would later become Baroo Spinosa's  teacher. Now let's dive into one of Spinosa's   key lessons that we can apply to investing. (04:02) So Spinosa used a term that had great   important to him, kannatus, which is derived from  the Latin term for striving. Spinosa wrote, "Each   thing in so far as itself endeavors to persist  in its own being." You could easily argue that   essentially drives everything, especially things  like markets and business leaders. There's no   doubt that businesses ascribe to this principle. (04:26) It's the core of companies to remain in   business and to continue to provide their  owners with an attractive investment. Once   the business is no longer appealing, the asset  loses its value and may one day become worthless.   Now the driving force of a company is kannatus  which strives to maintain its competitive   advantages and positioning and to avoid losing  those attributes to the forces of capitalism.  (04:48) Spinosa outlined two types of striving.  Number one, the striving of the whole of nature   and number two the striving in individual things  to maintain and preserve their own existence. Now   the important lesson here is that the two types  of striving can very very easily be misaligned.   The book outlines an example inside of a business. (05:10) So the individual units within a company   such as a lower level employee, the CEO and the  shareholder may all have different objectives that   they're striving for. Lower level employees want  a good job and good pay. Shareholders want a good   return on their investment. And CEOs might be more  concerned with just building a good reputation   for the next job that they have in mind. (05:30) A CEO that's more concerned with building   an empire can easily do this at the expense of  both the employees and the shareholders. Now,   I think you see this happen pretty often  and it's a big reason why it's vital to   find management that is very well aligned  with shareholders. And great businesses will   help make their employees shareholders as well. (05:49) A company like Constellation Software,   Topicus or Lumine have incredible incentives  for employees all across the board. When they   create value, they are rewarded with shares on  the open market that stay in escrow for 3 to 5   years. This creates exceptional alignment.  When you have all three parties aligned,   then you get a better chance of making sure  that the principle of kannatus is benefiting   the whole and that the individual parts of that  whole are mutually benefiting from improvement.  (06:14) Fin's second lesson concerns the power  of emotion, which often do more harm than good   to investors. It's important to understand that  bad ideas can corrupt kannatus and these bad ideas   tend to stem from irrational emotions. Spinosa  wrote the term bondage is appropriate for man's   lack of power to control and check the emotions. (06:35) For a man at the mercy of his emotions is   not his own master but is subject to fortune in  whose power he so lies that he is often compelled   although he sees the better course to pursue  the worse. We are all emotional to some degree,   but the best investors can exercise some control  over their emotions through observing themselves.  (06:57) Spinosa's underlying lessons for combating  the deletterious forces of our emotions is just to   understand them very clearly, make them known to  us, which then allows us to have some degree of   control over them and avoid them becoming passive  emotions. Now, I own a business called Simply   Sovereignless Concentrates, which I sold in full. (07:16) With that position, my emotions were just   all over the place. When I first bought it, I  was really impressed with management. I thought   they were doing a great job of consolidating  the fragmented cannabis industry in Canada.   But my emotions changed significantly for a  few reasons. So, first was that there was an   acquisition that they had planned which fell  through and that really spooked the market.  (07:36) And then they made a significant  accounting adjustment which hurt their financials.   When the deal kind of fell through, I had a note  in my journal that I looked back in preparation   for this episode and it said that I was happily  surprised by the price drop because I felt like   it was a decent opportunity to buy more shares. (07:52) But I also noted that this might be a   mistake. Then 3 weeks later, when it was known  that the accounting had changed significantly   due to the auditors, I angrily wrote that I had  failed to understand revenue recognition well   enough and ended up selling all of my shares.  Now here my emotions harmed me in terms of   seeing the opportunity to pick up shares when the  price dropped and then helped me sell out of a   business where I think I just had very little  faith in the company's ability to return to   normaly and prove that I just didn't understand (08:18) the business well enough to account for   this outcome. Time will tell if this was a mistake  or was the right move. Had I had a better grasp   of my emotions when the initial uncertainty of  that material adverse condition arose, I probably   would have stayed away from adding shares. (08:36) After all, I don't think I had enough data   to put more money behind that idea. That would  have meant I lost less money, which is really   a py victory. Now, speaking of victories in life,  we can still be victorious or defeated not only by   the outcomes, but also by the process. And this  process is often hidden from public view. This   leads nicely to our next philosopher Friedrich NZ. (08:58) Don't worry, I'll circle back on this in   due time. Now, Nietze proposed an interesting  thought experiment which he called the   eternal recurrence. Imagine you're approached  by a demon who tells you this life as you now   live it and have lived it. You will have  to live once more and innumerable times   more and there will be nothing new in it. (09:18) But every pain and every joy and   every thought and sigh and everything unutterably  small or great in your life will have to return to   you and in the same succession and sequence. Now,  if we use this thought experiment on ourselves,   there's probably going to be a lot of  questions we'd have to ask to make sure   that we lived an extraordinary life. (09:38) After all, it would be repeated   eternally. We probably prefer a life full  of joy rather than a life full of pain. Now,   knowing this, we'd be much more thoughtful in how  we act and consider the long-term consequences of   all of our actions. Listening to this, you might  already be connecting the dots to how Buffett   has lived his life with an inner scorecard. (09:56) He focuses more on what he knew was   right on the inside versus doing what might  appear right on the outside, but just feels   wrong on the inside. So, why did Nichza teach us  to think this way? The moral lessons of Nichzche's   time were underpinned by religious philosophy.  This system relied on the use of reward and   punishment to encourage people to act morally. (10:16) If you did wrong, you were damned for   eternity in hell. And if you did right, you  were blessed with eternal life in heaven. But   Nze disagreed with this incentive system.  Nze felt that dangling these incentives in   front of people to inspire moral actions can  only bring about actions that themselves are   not moral since they will only be performed out  of the self-interest of those performing them.  (10:39) Now, this does a great job of shining a  light on specifically why Buffett placed such a   high importance on his inner versus outer  scorecard. Both Nishza and Buffett believe   that there was a battle between how people acted  outwardly and how they felt within. In Buffett's   case, just because something was considered  legal or a well-known business practice did   not mean that it was the right thing to do. (10:59) A good example of this is when Buffett   took over as the interim chairman of the  Solomon brothers after their treasury   bidding scandal. So Buffett, who was already a  large shareholder, came in to try to improve the   poor image that Solomon Brothers had had. And  while he was in charge, he said a great line   that I think really highlighted his process. (11:18) Lose money for the firm and I will be   understanding. Lose a shredded reputation  for the firm and I will be ruthless.   While many inside Solomon felt they could  generate more revenue for the company,   Buffett believed that some of those  approaches were just in gray areas,   which prompted him to say this quote as a warning  to employees to make sure they weren't doing   anything that would harm Solomon's reputation. (11:40) It didn't matter if it was considered   legal or not. In Berkshire's 2010 annual  report to shareholders, Buffett writes,   "We must continue to measure every act against  not only what is legal, but also what we would   be happy to have written about on the front page  of a national newspaper in an article written   by an unfriendly but intelligent reporter. (11:59) " Sometimes your associates will say,   "Everybody else is doing it." This rationale  is almost always a bad one if it is the main   justification for a business action. It  is totally unacceptable when evaluating   a moral decision. Whenever somebody offers that  phrase as a rationale, in effect, they are saying   that they can't come up with a good reason. (12:20) If anyone gives this explanation,   tell them to try using it with a reporter or a  judge and see how far it gets them. If you see   anything whose propriety or legality causes  you to hesitate, be sure to give me a call.   However, it's very likely that if given course  of action evokes such hesitation, it's just   too close to the line and should be abandoned. (12:40) There's plenty of money to be made in   the center of the court. If it's questionable  whether some action is close to the line,   just assume it's outside and forget it. Now,  we've discussed the similarities of Nichzche's and   Buffett's thoughts on morality. Now, let's turn to  success and their thoughts on living a good life.  (12:58) Neither Nze nor Buffett believed  a person's success should be measured by   their wealth. Buffett says that if you get  into your 90s and nobody thinks well of you,   the size of your bank account doesn't matter  and your life is just a disaster. Nichza said,   "Are you accompllices in the current folly of  the nations, the folly of wanting above all to   produce as much as possible and to become as  rich as possible? What you ought to do rather   is to hold up to them the counterreckoning. (13:23) how great a sum of inner value is   thrown away in pursuit of this external  goal. Nze also lived in a time when   speculation was running absolutely rampant  in Germany. So in 1769, 72 firms traded on   the Berlin Stock Exchange. In 1871, following  the unification of Germany, Prussia's corporate   statute was adopted nationwide, leading  to an increase in publicly traded stocks.  (13:47) By 1873, the number of stocks expanded  to 441 companies making up 25% of Germany's GDP.   However, over the following decade, sentiment  really shifted as the euphoria started to   wear off and the number of listed companies  decreased to 387. So, Nichze observed the money   that was made and lost by speculators  in the stock market during this time.  (14:10) Nze referred to many of the actions that  he saw as illegalized fraud and speculation.   This is a subject that Buffett has endlessly  discussed and his stance is completely in   agreement with niches. As with all speculation,  we often judge the result that people get from   an outward view. The media highlights the  overnight millionaires but refuses to discuss   the amount of risk that speculators took. (14:32) Nan Buffett suggests that you   look inward to observe whether the way  you create value is the right or wrong   approach because even a good outcome can be  the product of a flawed internal process.   Now, if you invest long enough, chances are that  you're going to own a stock that maybe eventually   is going to be part of some sort of bubble. (14:51) So, no matter what stocks you own,   you must always look at the price and value and  aim to be skeptical of where the price is after it   appreciates to a very high degree. Skepticism is  an excellent tool for combating the inner demon of   greed. But can we have too much skepticism? This  is a question that David Hume can help us answer.  (15:11) So Hume thought of skepticism in two  primary ways. One, healthy skepticism and two,   excessive skepticism. Luckily, if you have a  healthy dose of healthy skepticism, Hume believed   that it would self-correct for any excessive  skepticism that might be lingering around. Now,   excessive skepticism, if you're wondering, is to  argue from the opposite of everything mindlessly.  (15:33) The problem with excessive skepticism  is in the word blind. If you blindly argue,   you will never reach a helpful conclusion. Hume  writes, "For here is a chief and most confounding   objection to excessive skepticism, that no durable  good can ever result from it, while it remains   in its full force and vigor." He need only ask  such a skeptic what his meaning is, and what he   proposes by all these curious researches. (16:00) He is immediately a strand,   and knows not what to answer. his philosophy will  not be beneficial to society. On the contrary, he   must acknowledge if he will acknowledge anything  that all human life must perish where principles   universally and steadily to prevail. Now, the  key to skepticism is to remain skeptical but not   allow yourself to become excessively skeptical. (16:25) The way to utilize healthy skepticism   is by injecting some common sense and reflecting  into your thinking processes. While common sense   may not be the most refined type of sense that you  can get, it more than suffices for a healthy dose   of skepticism. Now, the question becomes, how do  we use skepticism to become better investors? As   an investor, I know that a business's stock will  go up when the market starts to form a perception   of a company that aligns with my hypothesis. (16:53) Sometimes this can take longer and   sometimes it can take shorter, but  it will happen eventually. Should   I concern myself with trying to persuade  the market to take my stance? Hume once   wrote a letter to Adam Smith where he  discussed the importance of relying on   a few capable people to examine his work. (17:10) I think this is a great way to look   at investing and it's one of the biggest  reasons that I've gotten so much out of   our tip mastermind community. I can share my  ideas with people who will intelligently look   at the business and give me honest feedback on  maybe where I'm overlooking something. However,   the key Hume was discussing here was a need to  filter your ideas through highquality filters.  (17:31) If you seek consensus from  those who have lowquality opinions,   they're just not going to be nearly as useful as  someone who you can trust and who understands the   business in question at a much deeper level.  This leads to Hume concluding that you do not   need to seek consensus. Hume believed that the  consensus was actually a good feedback mechanism   to be extra skeptical of our own assertions. (17:52) Perhaps that's why many more traditional   value investors are just so eager to sell their  winners when price and value converge. The problem   with chasing people down to agree with you comes  down to emotions. When you have a consensus,   it's easy to allow emotions to cloud your  judgment or let your guard down. And when   your guard is down, that's when you're most  likely to get comfortable, think irrationally,   and make some pretty costly mistakes. (18:15) But here's what Buffett thought   about comfort in investing. We derive  no comfort because important people,   vocal people, or a great number of people agree  with us. Nor do we derive comfort if they don't. A   public opinion poll is no substitute for thought.  When we really sit back with a smile on our face   is when we run into a situation that we can  understand, where the facts are ascertainable   and clear and the course of action obvious. (18:38) In that case, whether conventional   or unconventional, whether others agree  or disagree, we feel we're progressing in   a conservative manner. The point here is that  being a contrarian or skeptical can be a great   thing. However, there's one more key to being  a contrarian that matters greatly, and that is   that you're correct on your contrarian opinion. (18:57) Excessive skepticism can lead to holding   incorrect contrarian opinions. And investing,  these types of views are basically a death   sentence. Michael Steinhart claimed that being  contrarian was easy. Anybody can do it. But the   key to being a good investor was to be a good  contrarian who was also right in their judgment.  (19:15) When you can think differently from  the market, make a bet and then be correct,   that's where the big money lies. Howard Marks  gives some of his best advice possible on how   to utilize skepticism in investing. If we are  skeptical, we should take an opposite view of   the consensus at extreme times. During extreme  euphoria or extreme despair, taking the opposite   approach to the market is usually the right move. (19:38) During extreme euphoria, the herd deploys   all its cash into increasingly more expensive  opportunities, hoping to find more easy home   runs. The skeptic will sell their overpriced  stocks and start hoarding cash. The skeptic   will believe the market is expensive, and  participating in an overly hot market is   likely to result in a loss rather than a gain. (20:00) During extreme fear, the herd sells much   of their holdings and hoards cash out of fear  that the market will continue to go downwards.   The skeptic may either accept temporary  losses and wait until the market sentiment   improves or they may just deploy  all their cash into all the cheap   opportunities that are now available to them. (20:16) You can see here that the skeptic   is taking part in healthy skepticism. They're  intelligently viewing where price and value have   disconnected. Then they rashly make decisions  based on their observation of the market as   a whole. Hume teaches us to strike a balance  between open-minded doubt and practical decision-m   a lesson that's just essential for investors. (20:35) is navigating a very volatile market. Yet,   even with this balance, another challenge remains,  which is our tendency to cling to conforming   beliefs even when the evidence changes. This is  where Voltater steps in helping us confront the   stubborn optimism and confirmation bias that often  appear in investing. So, one of Voltater's books,   Candida, is a literary classic that is a tale  focused on a key psychological bias that every   human has, and that's our inability to  change our beliefs or decisions despite   overwhelming evidence that contradicts (21:07) our initial assumption. Everett   circles back to Voltater's key concepts regarding  investing, discussing it through the lens of the   efficient market hypothesis. Now, believers  in the efficient market hypothesis believe   that zero work needs to be done in investing  other than to just hold an index because people   are incapable of beating the index. (21:29) Efficient market hypothesis   provides an assurance to believers in efficient  market hypothesis. Now, when you think about   it for a few moments, it's actually pretty  comfortable assurance for index investors.   I'm totally fine with index investors, but to  say that there aren't investors out there that   can beat the index just seems dishonest to me. (21:46) The people saying investors can't beat   the index are investors who either a don't wish  to put the work into attempting to understand   numerous businesses that could provide superior  returns compared to an index or b they're just   incapable of having an edge in the market. And I  think the first option really relies on honesty.  (22:06) Many investors fall into this category  which is perfectly fine. Not everyone enjoys   reading financial statements and thoroughly  learning about a specific business. However,   you get some investors who clearly cannot beat the  index and therefore become the index themselves   over time. I've seen this with a few funds where  as they scale, they just no longer outperform   simply because they diversify their position  so much and they just try to mirror an index   rather than have any differentiating factors. (22:29) And differentiating yourself is the only   way to outperform the index. Everett writes, "As  opposed to believing that the world is governed   by some divine providence that ensures everything  happened for the best, Voltater believes that the   modern world is largely shaped by human-built  institutions that affect history's outcomes.  (22:48) It is the nature and structure of those  institutions along with the good or bad traits of   the people constituting those institutions that  ultimately shape our lives. Now, an institution   that Voltater believed was highly influential  was the stock market. The stock exchange is a   powerful symbol of both evil and greed, yet  also embodies numerous positive aspects.  (23:06) While some people believe the stock market  is evil due to the greed that it fosters, they   overlook many of its positives. The stock exchange  does many great things for society. A few things   off the top of my head. They provide companies  access to capital, which allows for growth,   which often means more jobs available and higher  tax dollars that are paid to the government.  (23:25) The stock exchange can bring people  together from diverse backgrounds. and it   allows the average person to access the upside of  owning a great business. The last part on Voltater   I'll mention reminds me of Morgan Howell's  the psychology of money. So Voltater writes,   "We have no other conscience than what is created  in us by the spear of the age by example and   by our own disposition and reflections. (23:47) Man is born without principles,   but with the faculty of receiving them,  his natural disposition will incline him   to either cruelty or kindness." So, how we  are raised and the social institutions that   we're a part of all heavily influence how we  may act in the market. This illustrates why   some investors with a propensity for gambling  might opt to use leverage and trade to maximize   their profits just as quickly as possible. (24:11) Or why people who maybe were raised   to be distrustful of institutions may not  believe in other institutions that are   trustworthy to those who were maybe brought  up to be trusting of those institutions.   This is a fascinating concept because it can  open our eyes to why others might act or invest   in ways that just feel nonsensical to us. (24:30) Are you looking to connect with   highquality people in the value investing world?  Beyond hosting this podcast, I also help run our   tip mastermind community, a private group  designed for serious investors. Inside,   you'll meet vetted members who are entrepreneurs,  private investors, and asset managers. People who   understand your journey and can help you grow. (24:50) Each week we host live calls where members   share insights, strategies, and experiences.  Our members are often surprised to learn   that our community is not just about finding  the next stockp, but also sharing lessons on   how to live a good life. We certainly do not  have all the answers, but many members have   likely face similar challenges to yours. (25:10) And our community does not just   live online. Each year we gather in Omaha and New  York City, giving you the chance to build deeper,   more meaningful relationships in person. One  member told me that being a part of this group   has helped him not just as an investor,  but as a person looking for a thoughtful   approach to balancing wealth and happiness. (25:33) We're capping the group at 150 members,   and we're looking to fill just five spots this  month. So, if this sounds interesting to you,   you can learn more and sign up for the weight  list at thevesspodcast.com/mastermind. That's   thespodcast.com/mastermind or feel free to email  me directly at clay@theinvestorspodcast.com.   If you enjoy excellent breakdowns on individual  stocks, then you need to check out the intrinsic   value podcast hosted by Shaun Ali and Daniel Ma. (26:07) Each week, Shawn and Daniel do in-depth   analysis on a company's business model and  competitive advantages. And in real time,   they build out the intrinsic value portfolio  for you to follow along as they search for   value in the market. So far, they've  done analysis on great businesses like   John Deere, Ulta Beauty, Autozone, and Airbnb. (26:27) And I recommend starting with the episode   on Nintendo, the global powerhouse in gaming. It's  rare to find a show that consistently publishes   high quality, comprehensive deep dives that cover  all the aspects of a business from an investment   perspective. Go follow the intrinsic value podcast  on your favorite podcasting app and discover the   next stock to add to your portfolio or watch list. (26:52) Knowing this allows us to be introspective   about why we do things the way we do and why  we may be making errors. Hume taught us about   skepticism and Voltater showed us that we should  think about how to apply our thinking to the   outside world. But now we're going to focus  on looking inward at ourselves as investors.  (27:10) And to look inwards, the book's author  chose one of my favorite characters from history,   Bla1 Pascal. Now, why did he choose Pascal?  Pascal along with Pierre de Fairmat laid the   groundwork for thinking about how luck  influences our daily lives or as ever   puts it how much we have contributed to our  investment success and failures. It's easy   for people to assume that their success was a  product of skill but in reality much of their   success is a product of pure blind luck. (27:38) Pascal helped show us why that was   through mathematics. If you'd like to know  more about his equation, please check out   WSB701 where I discuss it in much more detail.  But one of Pascal's lesserk known narratives,   which I've never actually heard of before reading  this book, was from an essay that he wrote titled   Discourses on the Condition of the Great. (27:57) Now, Bla1 Pascal's fathers, Etienne,   placed an interesting financial wager  in 1634 on the French government bonds,   and this bet actually paid off very handsomely.  In the years following the investment,   Etienne and his family were able to live  comfortably off the income from this investment,   enjoying a very luxurious lifestyle. (28:15) But only four years later,   the investment would sour, and young Blae Pascal  was highly impacted by the loss of his family's   fortune. What happened to the bonds shows that  investments and especially bonds are never truly   risk-free. The chief minister of France decided  that the government should actually default on   these bonds to help fund the 30 years war. (28:34) And as a result of that default,   the bond's value was essentially wiped out. Bla1  learned that fortunes can change in an instant,   and a life of modest means could easily  replace a life of luxury if someone's   luck were to shift. Everett writes, "He  understood that since the slightest change   in fortune could lead to undeserved harms or  benefits for anyone, all rich people exist   under a significant degree of conditionality. (28:57) " Now this is a fascinating insight   because it showed blaze that wealth was not  a product of pure skill but also a product   of luck. And just as a wealthy person could be  seen as being skilled, the unwealthy could be   seen as having a lack of skill. However,  his point in both scenarios was that luck   played a significant role in part in these  outcomes rather than solely relying on skill.  (29:20) Pascal wrote a short passage in which  he asked the readers to imagine themselves   in this scenario. So, you're a sailor of low  means, and you find that the ship that you're   on is falling apart underneath you in the  sea. You're the lone survivor of your boat,   and you find yourself awakening on the shore  of an unknown island in a far away land.  (29:38) As you spit out salt water and sand, you  spot a group of the island's inhabitants looking,   actually more like admiring you while they  walk towards you. The people pepper you   with gifts and services that are just  fit for a king. You learn that their   king went missing shortly before you arrived. (29:55) and that you very closely resemble the   king. You're smart enough to put two and two  together and conclude that they are treating   you as their king strictly because you bear a  remarkable appearance to their real king. But   as time goes by, the truth begins to weigh on you.  While everyone in the kingdom believes you to be   their king and treats you as such, you know that  you are just a man of lowly means and no titles.  (30:16) As you reflect, you realize that you are  no true king. The only reason that you're being   treated as such is based purely on luck. proper  appearance, proper time, and right place. None of   these factors were within your control. Yet, you  are living a life that you never deemed possible.   This short story is an excellent parable about the  role of chance and circumstance and how they can   shape one's status or fortune quickly and easily. (30:42) Just as the man's kingship was a product   of chance rather than merit, our position, whether  that be in wealth, birth, or social standing,   are often also the result of random events that  are entirely out of our control. This principle   aligns well with Buffett's quote about being  born in America at the time that he was and   how he felt that he had won the ovarian lottery. (31:02) Now, how do we circle this to investing?   By helping to infuse a degree of humility into our  investing process. By accepting that much of the   success in investing is a product of a mixture  of luck and skill and not allowing ourselves to   get too high on our successes or too low on  our failures. I often think about luck in my   own journey towards tip. I'm just very fortunate. (31:24) I can honestly say that there was never   a point in my life where I thought  I'd be on a podcast talking about   finance as my vocation. I was fortunate to  discover crypto. I got lucky that I failed   miserably in that experience. I was again  fortunate to rediscover investing which co   provided me with the opportunity to do. (31:42) I was blessed to discover value   investing rather than adopting some sort of  leverage approach. I was again fortunate to be   the type of person who loves to learn and already  developed a passion for writing to help educate   others which in turn made me better at learning  things myself. I got lucky that my co-host Clay   read some of my writings and that it resonated  with him and I was lucky to be invited onto one of   TIP's communities and that Stig listened to that  chat and I was very fortunate to be just a great   fit with tip as I know that tip is a good fit for (32:11) only a very small minority of people. Now   even with investing I wonder if my entire  track record is just a matter of luck. I'm   often the right person looking at the right  opportunity at the right time. Now, I believe   that investing skill allows serendipity to play a  part. And without skill, you're probably closing   yourself off to that opportunity for serendipity. (32:32) So, when I wonder if my track record is   pure luck or not, I'm always brought back to  reality that the truth is probably somewhere   between luck and skill. And I'm perfectly fine  with that. Now, the thing about luck is that   it can be perceived as an abstract concept.  While we know it's there, it's pretty tricky,   if not impossible, to measure it definitively. (32:53) Now, we can't allow abstractions to   cloud our judgment too much. To learn more about  abstractions, the book turns to William James,   one of the foremost experts on pragmatism,  a philosophical concepts that resonates   very deeply with me. Pragmatism resonates  with me because it's easy to take abstract   ideas that just have no real life use. (33:12) Things like the efficient market   hypothesis or the capital allocation pricing  model are two that really jump out to me. While   the academic community welcomes them, they're  often shunned by investors who actually invest   and make money for themselves and their  partners. I'd rather align myelves with   the pragmatists who find use for concepts. (33:28) Here is what James writes in one of   his books, The Meaning of Truth, regarding  vicious abstractionism. Let me give the   name of vicious abstractionism to a way of  using concepts which may thus be described.   We conceive a concrete situation by  singling out some salient and important   feature in it and classing it under that. (33:48) Then instead of adding to its   previous character all the positive consequences  which the new way of conceiving it may bring,   we proceed to use our concepts privatively,  reducing the originally rich phenomenon to   the naked suggestion of the name abstractly taken,  treating it as a cause of nothing but that concept   and acting as if all other characters from out  of which the concept is abstracted were expuned.  (34:11) Abstraction functioning in this way  becomes a means to arrest far more than a   means to advance in thought. It mutilates things,  creates difficulties, and finds impossibilities.   His primary point is that abstractions are  valuable tools, but only when we remember that   they're shortcuts and not the whole picture. (34:31) Too often we treat abstraction as the   entire picture. And this really just distorts  our reality and limits our understanding.   One example that comes to mind when thinking of  vicious abstractionism is a categorization of   value stocks versus growth stocks. Many investors  will categorize stocks into one bucket or another,   completely ignoring relevant facts. (34:52) Let's say a value investor   finds a business trading at a PE of  5. He classifies it as a value stock,   does his due diligence, and determines that it's  still a decent investment because it's cheap.   But if we zoom out, this investor might  be ignoring the bigger picture of concepts   such as the business's declining industry, the  poor management that the business has, a weak   competitive position inside of its industry,  weak competitive advantages, the ability to be   disrupted, and maybe even a very poor history  of capital allocation. Now, in this sense, the  (35:21) label of value is just mutilizing this  investor's reality. It's hiding several additional   risks and complexities behind a simple concept.  While I think simplicity is definitely the key   to investing, it's vital not to oversimplify  things like investing. Now, continuing with the   subject of abstractions, we look at simulations. (35:40) While simulations are abstractions, they   are essential tool to use in investing, especially  when evaluating a specific business. No matter how   you think a business's narrative will play out,  there is always a simulation that could occur that   is much worse or much better than what you expect.  In this sense, simulations are a great way to help   you understand how risky an investment might be. (36:04) Now, Everett chose the French philosopher   Jean Bodard to help us understand the  concept of simulation. Everett writes,   "When Bodard writes about simulation, he  is referring to representations of a real   world process and systems via different  modalities." Now what Bojiard was getting   at was that signs and symbols impact the  world beyond their basic use values of   standing in as signifiers for a signified idea. (36:33) Byard writes, "As I saw it, in that the   world of signs, they very quickly broke away from  their use to enter into play in correspondence   with one another." Or to put another way, these  signs and symbols can shift from representing   an underlying idea to taking a life of their  own. Biard refers to these signs and symbols   that take on a life of their own as simulacra. (36:56) Now there are three orders of similacra.   There's first order similacra which is a clear  counterfeit of the underlying object or idea   that they reflect. Then there's second order  similacra which are representations which blur   the boundaries between a reflection and what  is being reflected. And then there's third   order similacra which are representations that  take on an existence completely independent of   the underlying object or idea that's  being reflected. Confused? I was too.  (37:23) But let's just use an example here to help  clarify things. So Everett provides some excellent   examples of similacra in public equity markets. So  the first is a tracking stock which is an example   of a first order similacra. So a tracking stock's  value is tied to how well a specified division of   a company performs. AT&T did this for a while. (37:45) However, owning a tracking stock doesn't   mean you actually own that particular division of  the company. It simply reflects the performance   of that division. The real thing is a division's  actual business. And the similacrim is a tracking   stock which mirrors the division's result in  the stock market but is not the business itself.  (38:04) Next is second order similacra. We can  look at common stock ownership as a great example   here. When you own a business's common stock,  you receive ownership and voting rights. However,   there's a blurred reality regarding the  differences between common stock and the   company's physical business operations. For  instance, a company might increase their   profits by 15% per year with no dilution. (38:26) If there were no blurring between   a business's fundamentals and a stock price,  then the stock price should also steadily rise   by exactly 15% per year. However, the average  stock price fluctuates significantly with a   peak to trough range of about 50%. This clearly  shows how a common stock can be disconnected   from reality nearly all of the time. (38:45) Now, finally, we get to third   order simulacra. The example in the book was the  meme stock mania, and I don't think I could come   up with a better example myself. So in this case,  a meme stock such as GameStock becomes completely   disconnected from reality and takes on a life of  its own. In the case of meme stocks, their share   price become completely detached from reality. (39:04) If you look behind the curtains of the   GameStop example, numerous things  were happening in the background,   including attempts to sabotage short sellers  intentionally. This short squeeze helped propel   the share price, which had very little to do  with the business's fundamentals or value.  (39:20) Everett writes, "Buzzyard is emphasizing  that while science, in our case meme stocks,   may have previously served passive roles of  reflecting certain underlying objects or ideas,   they can ultimately detach from those underlying  objects or ideas and go on to be exchanged among   themselves in an independent virtual  realm of their own." Biard drew some   notable contrast between two significant  stock market crashes that he experienced.  (39:44) So there was a 1929 crash and  black Monday in 1987. So in the 1929 crash,   there wasn't much of a blurred line between the  stock market and reality. The economy crashed   and as a result, public stocks were affected.  But when you look at Black Monday, the events   precipitating the crash were utterly different. (40:02) In 1987, there was no obvious catalyst   to justify a 22.6% drop in the stock market in  a single day. While reading about Balter Yard in   this chapter, I couldn't help but be reminded  of George Soros's concept of reflexivity.   So I wasn't really surprised to see that  Ethan Everett directly mentioned Soros in   the book in this exact chapter. (40:22) The idea of reflexivity   is that stock prices are not just passive  reflections. They are active ingredients   in a process in which both the stock  price and the fortunes of the company   whose stocks are traded are determined. The  simplest way to think about this is that if   a business is perceived positively by  the market, it can drastically change   the strategy and outcome for that business. (40:43) The easiest way to understand this is   to think of a company's cost of capital. If a  business is trading below its intrinsic value,   then issuing shares of its stock to raise  capital to grow is just not a good idea. But   if a company's shares are above intrinsic value,  then using the company's shares to develop is a   great idea and produces quite a lot of value. (41:01) But the problem is that the company has   limited control over what the stock market thinks  about its shares. Sometimes a company will be   categorized, for instance, let's say an AI stock.  Therefore, any association can help the business   increase its share price, which can aid in  raising capital for future growth and expansion.  (41:18) So, reflexivity works well when you have  a view on the market's perception of a business.   Now, all this discussion on the abstract and  simulations is interesting when thinking about   things going on in the world that are specifically  external. However, it's also vital to consider   what's going on inside of our own minds. (41:35) This is where we spend most of our   time, after all. And to do this, we're  going to turn to Arthur Schoppenhower,   a philosopher that I admittedly know very little  about. Shopenhau has one compelling concept. As   much as we spend time in our own heads planning  out our lives and smoothly idealizing ourselves   in this abstract, the fact of the matter is  that reality contains all sorts of ugly bumps   in the road on the path to significant success. (42:01) The main takeaway from this simple concept   is that we just live kind of a dual life. That  first life is in the concrete or in reality and   the second life is in the abstract. One way that  some investors identify as a form of abstraction   is as a gambler. While gambling generally has a  negative connotation in society, I can't help but   think about all the really good investors that  I've heard of who have gambled at some point in   their life and have pointed to that experience  as something that enriched their investing  (42:28) process and didn't actually act as a  detriment. Charlie Munger is the first person   that comes to my mind, but the book mentions David  Einhorn, so let's go with him. Now, Einhorn used   his experience playing poker to help shape his  reality as an investor. For instance, he realized   in poker that you don't play or win every hand  and that you sometimes have to play hands that you   might not think are the greatest simply because  you have an edge over someone else at the table.  (42:52) So, when he makes an investment,  he tends to follow general principles,   but he will go outside of these principles  if he sees the right opportunity. Now,   when observing luck, Einhorn realizes that good  luck comes and goes. In a poker tournament,   you can play perfect poker and lose. This is  because poker is a game of both skill and luck.  (43:12) The profits will always go to the people  with the most skill in the long term, but in the   short term, luck guides a lot of the outcome. This  is especially apparent in poker because you must   play a significant amount of hands to see your  actual results. Now, I personally played online   poker very regularly for a little over a year. (43:30) And in that year, I played about 200,000   hands. I know this because I had tracking  software. A poker player going to the   casino and playing live games might play,  you know, maybe 20 hands for an hour. So,   for them to obtain the same sample size that I did  would have take approximately 10,000 hours. Now,   the point here is that sample size matters. (43:48) If I were to go to the casino and   play for a few hours, I might get a 100 hands  in. In that small sample size, anything can   really happen. I can go broke or I can multiply my  money. But when you're talking about hundreds of   thousands of hands, you can easily see if you  have an edge or not. And to anyone wondering,   I don't think I had much of an edge. (44:05) Now, how did Einhorn use this   principle for investing? To help him realize that  in reality, his stock picks won't always go the   way he wants them to. Instead of making poor and  irrational decisions, going on tilt, as poker   players would say, when you lose, just accept that  it's part of the game of investing and carry on.  (44:25) I like this case study in looking at  an investor and seeing what part of their life   in the abstract they're able to really pull into  reality and use successfully. It's a great tool   to use on yourself to reflect on where you  observe strength and weakness in your own   investing process. My favorite way of doing this  is to simply look at the investments you've made   that have been the most and least successful. (44:44) Then spend some time thinking about them,   why you made them in the first place.  Then draw wisdom as to how you can double   down on your successes while improving or  avoiding on your mistakes. In this case,   we want to reflect on our identities to figure  out if the identities that we are aligning   ourselves with are helping or detracting  from our success in investing and in life.  (45:04) One interesting thing that I learned  while researching the world's best investors   was just how many of the successful investors have  had very rocky marital lives or relationships with   their children. And this can obviously wear on  them very much and massively affect their levels   of happiness. It's important to remember that it's  nearly impossible to have a long successful track   record investing and not become wealthy. (45:27) But even swelling wealth cannot   fix poor relationships with loved ones. So in  that sense, money cannot always buy happiness   despite the widespread belief that money is  the solution to many people's problems. Now,   the creator of the essay itself, Michelle  de Monta, once spoke about how wealth   created more problems and solutions for him. (45:45) He concluded that the more wealth he had,   the more anxious that he became about things like  theft, trust of those around him, and the fear of   losing it. He felt that owning money brought just  more troubles than earning it. Now, Montana came   to this conclusion while thinking deeply about his  relationships with money and how it affected him.  (46:03) Interestingly, there were some people in  his time that thought that thinking of yourself   was vain and unproductive. And while Montenia  agreed that thinking of yourself solely as   self- agilation and aggrandisement was indeed  vain and unproductive, you shouldn't overlook   the positive aspects of self-reflection. (46:21) Everett writes, "If we go about   it from the perspective that we are often an  enigma to ourselves and need to spend time in   self-reflection to get to know ourselves better,  we can significantly improve our human condition."   Where many of the investors from my co-host  William Green's book, Richer Wis Are Happier,   defer from some of the unhappy ultra rich is that  they invested into intangibles that could never be   stripped away from them regardless of the number  of zeros that they had in their bank accounts.   Montenia believed that true (46:49) wealth wasn't just owning   tangible possessions, but rather wealth that  existed outside of the world of contingency,   which cannot be affected by gains or losses in  fortune. This is why being truly happy with what   you have is such a good measurement of happiness.  If you are genuinely content with what you have,   then you can have no material goods and  still be the wealthiest person in the world.  (47:13) It's an interesting notion and probably  very difficult to achieve with complete honesty,   but I think it's a good goal to strive for. One  incredible way of observing if what you do makes   you happy is to just answer a fascinating question  that was posed by Saurin Kirkagard and that is   would you pay to do what you do today? It's an  interesting question because I don't think that   many people have ever posed it to themselves and  if they did what percentage of people do you think   would say yes? My guess maybe 5 to 10%. (47:42) Before we dive more into that,   let's cover Kirk Hagard in some more detail. Now,  Kieragard lived a pretty interesting life and   experienced wealth and money losing ventures. The  book outlined one of his first financial dilemmas.   This occurred when he went to university.  So, while in university, Kirkagar was given   an aotment of cash to use at his own discretion. (48:02) He ended up spending a significant amount   of that cash on luxuries. But his love of luxuries  was actually larger than the amount of money that   was allotted to him and ended up having to dip  into credit to cover his costs. By 1837, he found   himself in an absolute financial mess. Since he  knew his father had the money to help him erase   his debts, he begged him to help bail him out. (48:22) Less than a year later, his father ended   up passing away, leaving Saurin a very large  inheritance. But it actually appears that   between the death of his father in 1838 and  the time that he graduated with a master's   degree in theology in 1841 that something  shifted in him. He now had the means to   continue living a life of luxury if he wanted. (48:41) But he felt that the society around   him had an alarming fascination with  money and he didn't want to take part.   So in his book two ages, the age  of revolution and the present age   he notes ultimately the object of desire is  money but it is in fact token money an empty   abstraction. Ultimately Kirkagard spent  the rest of his life funding the printing   of his books many of which did not sell well. (49:05) He also self-published pamphlets against   the church and he pretty much died without  anything to speak of. But let's go over the   initial question that I posed a few moments ago  here. Kickar felt that the pursuit of money as   a goal itself is a very exciting concept and I  think Ethan did an exceptional job connecting   this to investors in today's markets. (49:24) So Ethan writes essentially it is   these investors love for the process of forming  investment thesis and watching those investment   thesis play out that drives them not the pursuit  of money itself. As soon as I read this it just   kind of got me thinking ever connects the  love of investing to a game like chess.  (49:42) So chess grand masters don't want to  get good at chess because they are going to   make a lot of money from it. They do it because  they just love chess and they love the ability   to use chess as a vessel for proving their  intellectual and strategic abilities at a   world class level. Then I examine myself. (49:58) So I've always loved video games   and through my life there are probably two  games I think I've loved the most. So the   first was Madden, a game based on American  football and the second was Starcraft,   a real-time strategy game. I spent many many hours  playing these games. so many that it's probably   embarrassing to even discuss it with you today. (50:15) But I played those games because there   was a high degree of strategy and my brain had to  be operating at a very high degree to execute my   strategy. That was my big draw. I never wanted  to make money from them and I never did. But I   played purely for love of the game. Now when  I reflected a little bit about investing,   it's really not that different. (50:33) I don't worry much about   what other people are doing. I mostly just  focus on if I'm doing the best possible job   that I can do and if it's a decent job, the  secondary benefits of making money is a very   good second prize. But the verification that I  achieve a great intellectual victory is probably   the biggest prize that I get from investing. (50:49) Kirkugard said that in ancient Greece,   people had to pay to serve as a  magistrate. By the same token,   Kirkagard did pay significant sums just to be  an author. He spent money to do it and even   when he wasn't successful in making any money  simply because he loved writing and he felt his   concepts were worth sharing with the world. (51:07) Now we get back to the question and   since most people listening to this podcast  are investors the question stands would you   pay to continue investing your own money in the  market. Since our audience is probably not a good   representation of the overall population  as many of our listeners I think would   enthusiastically reply yes to this question. (51:24) Maybe I'm asking the wrong cohort of   people. So let's let Ethan Everett describe  the answer for professional investors. For   most people on Wall Street, there can be  minor interesting parts in their work. But   the reality is that their only major goal is  money as an object. Thus, they would be nowhere   near Wall Street without the monetary incentive. (51:42) When I think of my own investing journey,   there are many parts of my trip. As a matter of  fact, all of it that have been paid by myself.   All the subscriptions I paid for, the books, the  subse accounts, articles, news, software services,   and time spent have been paid for me out of  pocket just so I could find interesting investing   ideas that I thought offer significant upside,  limited downside, and intellectual satisfaction.  (52:06) Then I just have sat back and watched  to see what happens. Sometimes I'm wrong and it   hurts, but more often than not, I'm right and I've  been rewarded. The hard part about investing is   that being right is often equated with making  money. And in the long run, I agree with that   statement. I challenge you to find a business  that has, let's say, over the past decade,   grown revenue by 10% peranom, per share profits  over 15%, has no debt, is incredibly well-managed,   is a monopoly, and easily has another  decade to go, where the stock price  (52:35) hasn't at least matched that  growth in EPS. But in the short term,   things are a little bit murkier. In 1900, Samuel  Langley was seen as the man most would have bet   on to create the first powered airplane. Langley  was a well-known scientist. He had funding from   the US government. He had the best connections. (52:52) He had access to the most intelligent   engineers. And he had support of the nation  due to the media coverage that was surrounding   his mission. By 1903, Langley's aircraft, the  Aerod Drrome, made its public debut with great   fanfare and a significant media presence from the  Potmac River. It took off twice and each time it   immediately nosed dived into the river. (53:14) The media heavily mocked him and   he quit trying to make a powered airplane  just then and there. Now in the same year,   Orville and Wilbur Wright, two bike mechanics with  no formal education, no funding and no prestige,   launched their first successful flight. The  process was iterative. With each failure,   they got one step closer to success. (53:33) And when they successfully launched   their first flight, barely anybody noticed. They  weren't inundated with reporters. There was no   fanfare and there was no instantaneous reward to  be found. The great stoic philosopher Senica said   one of my favorite quotes of all time. Time  reveals truth. And this applies directly to   the story about the first successful flight. (53:54) Sometimes the successes are nearly   impossible to identify and obvious wins are  the ones that become the duds. Only time will   reveal the truth. Now, in investing, it's hard to  focus on the long term when there are things like   charts, flashing lights, apps, and alerts that  keep us focused on the short term. Yet, humans   continue to believe that they can make money  in the markets by finding stock ideas solely by   looking at stock charts and drawing a few lines. (54:19) Now, Albert Cus can help us answer this   question of why we seek meaning and patterns  in areas where they just don't really exist.   Cas was a Nobel Prize winner in literature  in 1957. He lived a life similar to many of   the philosophers that we've covered of  both being part of poverty and wealth.  (54:38) One of Cis's best philosophical  contributions was something called   absurdism. So this philosophy stresses the  importance of recognizing the randomness in   our lives as well as the positive effects  of embracing the absurdity of our struggle   to find meaning in an inherently meaningless  world. The point is that it's human nature   to search for meaning in the world around us. (54:57) But often the meaning that we find is   purely elucory. Like a stock chart. If you look  at wiggles on a stock chart and conclude that   as a result of how that chart looks now, the  lines are just going to keep going up. You're   looking for meaning in frankly a meaningless  pattern. This is a potent lesson for investors.  (55:15) Even if you are a fundamentalsbased  investor like me, there are specific patterns   that I may erroneously conclude have  led me to be right or to be wrong.   I had a great discussion today with the tip  mastermind community where one member brought   up that I Kyle have a rule against buying Chinese  equities. Completely true. He pointed out that   my reluctance to buy Chinese stock might be the  result of losing money on my Chinese investments   rather than errors on my analytical abilities. (55:40) He pointed out that perhaps I was making   an error based on resulting and confusing  it for mistakes on my analysis. And this is   actually a pretty excellent point. I pointed  out that uh funny enough all the stocks that   I had actually sold in China have actually  gone up in price over the past few years.   But I haven't spent too much time looking  at the fundamentals of those businesses.  (55:58) Perhaps my conclusion was based  on me looking at specific patterns that   didn't actually exist to come to an irrational  conclusion. So I looked a little more closely at   the basket of bets I made in China which were on  Alibaba, Tencent, and Cufin. And the business have   actually improved a little bit on fundamentals. (56:14) So, while I may not have made the worst   possible decisions with these Chinese bets,  perhaps it was all just a matter of bad   timing. Had I waited for these businesses to be  selling at heavy discounts before buying them,   I might have had a completely different  outlook on Chinese equities. This is why   Cyn's focus on absurdism is just so crucial. (56:31) You want to take lessons from information   that actually provides meaning and to skip the  rest. Now, imagine it's 2008. You're Ken Lango,   the billionaire philanthropist who  helped fund Home Depot in its early days.   this annoying guy, Bernie Maid off, just keeps  trying to get a hold of you and he says that he   wants to meet and he has an interesting business  proposition for you. You take the meeting.  (56:53) At the meeting, Maid Off delivers a  19-page pitch deck. He tells you that he's   not offering this deal to his current clients.  Puzzled, you ask why Maid Off is only offering   you this deal. And Maid Off responds that the deal  isn't big enough to give to all of his existing   clients, so he's only offering it to you. (57:10) Your gut tells you that this deal   is just no good. Your positive business  experience in life tell you that you   want to do business with people who should  prioritize their current relationships. If   this made off fellow has a great deal just  makes no sense to offer it to a stranger   rather than to his own investors whom he has  worked with previously and whom he reportedly   has done absolute miracles for. (57:30) You take a pass. Two weeks   later Bernie Maidoff's multi-billion  dollar Ponzi scheme was discovered.   What the story shows us is that in a deal, it  matters not what both sides are getting out of it,   but also how it's affecting hidden parties. In  this case, Langon didn't like the deal simply   because he didn't want to do business with someone  who wouldn't bring a cinch of a deal to his own   investors before presenting it to a stranger. (57:52) Screwing over the people that you do   know to do a deal with a stranger just wasn't how  Langon did business. He was a people person who   highly valued relationships. Now a philosopher  named Martin Buber has a concept that perfectly   explains Langon's deeply held skepticism on  this deal. Buber's concept is highly esoteric.  (58:12) So the name of it is IU and its  counterpart is I it. Buber's philosophy is based   on how we relate to the world and to others. So in  an I it relationship, we treat the other person or   thing as merely an object, something that can  be used, analyzed, or acted upon. There isn't   anything inherently immoral or wrong about it. (58:31) It's just very impersonal. When looking   at a business, we might focus just on the  financial statements to decide whether we   want to invest in it. The opposite of an IT  relationship is an IU relationship. Here, the   person is viewed as a whole being rather than an  object. We want to engage with them authentically,   fully recognizing them with presence and respect. (58:52) Now, the difference between the two alters   how we treat others and alters who we truly are.  Because the I in I it is much different than the   I in IU. Every moment that we interact with  the world, we choose to see others as objects   with no inherent value or as fellow subjects with  their own significance and meaning. Bernie Maidoff   saw Langon as an object using an ITI view. (59:14) He was someone who could potentially   be just a source of cash and someone who  probably would never even see that money   again. Langon took an IU view. He considered  the deal good, but since Maid Off had others in   his web who should have been prioritized over  Langon, it just didn't sit well with Langon.  (59:30) For me, the biggest lesson here reminds me  of the great Buffett quote, which is companies get   the shareholders that they deserve. If a company  treats its shareholders as a source of cash to   be tapped whenever needed, chances are it's just  not going to have a very loyal shareholder base.   If instead you treat your shareholders like true  partners, are honest and transparent with them,   and have aligned incentives, you're likely to  have shareholders who are going to stick with   the business through thick and thin, and when  you have a strong shareholder base, there's  (59:53) tangible benefits to it. Companies will  find it much easier to secure funding when their   share price is stronger, and when the markets  tumble, they're likely to have a more resilient   share price, allowing them to act counterylically,  which further improves the value of the business.  (1:00:09) The final investor that ever  chose is my personal favorite and that   man is Bruce Lee. As a teenager growing up, I  was obsessed with Bruce Lee. I had all of his   films on DVD and I watched them on repeat.  At that time, I was primarily interested in   Bruce Lee because he was great in his movies  and had a physique that I wanted to emulate.   But I also enjoyed listening to him on YouTube. (1:00:28) He gave great interviews and nearly   all of them turned into some sort of philosophical  lesson connecting life with martial arts. The two   quotes that he said that have always resonated  with me are one, empty your mind. Be formless,   shapeless like water. You put water into a cup,  it becomes the cup. You put it into a bottle,   it becomes the bottle. Be water, my friend. (1:00:49) And two, absorb what is useful,   discard what is not, add what is uniquely your  own. So, the first quote emphasizes adaptability   and flexibility while avoiding rigidity. If I may  quickly relate this to one of my passions in life,   jiu-jitsu, before relating it to investing.  So, whenever I look back to when I was brand   new to jiu-jitsu, there was a high degree of  rigidity in my body when I would do jiu-jitsu.  (1:01:13) And that's because when you lack  skills in a physical sport, the easiest thing   to rely on is your athleticism and strength.  So, novices think that they could just muscle   their way out of everything. This has two big  downsides. The first is that proper technique   easily trumps strength. This is why a decently  trained 100 pound girl can easily break a male   bodybuilder's arm who might weigh 180 pounds. (1:01:34) Second, when you rely solely on your   muscles to defend yourself and move, you very  quickly get exhausted. Once you can rely more   and more on your skill set and strategy, you  magically become less tired. In investing,   it's easy to get rigid in your strategy. We  can easily label ourselves as value investors   trying to emulate someone like Ben Graham. (1:01:54) And in that process, we forget that   the world has changed a lot since his day. Rigidly  focusing on businesses with assets and assuming   intangibles are worth nothing forces investors  to overlook large areas of the market that are   ripe with opportunity. Of course, you can be  rigid in many areas of investing. I, for one,   have a pretty significant dislike for technical  analysis as I never wanted to identify as a trader   after my abysmal experiences trading crypto. (1:02:20) But I allow myself to look at charts   now and then just to use them as a source of  information to help place bids on businesses   that I may want to add to my portfolio.  And even though I fear that those bids   will never get filled, I'm always pleasantly  surprised by how often the market will bid   down a business that I really like  and by how technical analysis helped   me land shares at an excellent price. (1:02:39) Now, the second quote here is   excellent. It's a great way to look at how you  do anything. I think most listeners of the show   are people who are trying to improve. And the  simple notion of absorbing what is useful while   discarding the rest is just a great and simple  framework. That is basically what learning is.   You find things that work for you, adapt them into  your framework, and when things don't work out,   you throw them out, then rinse and repeat. (1:03:02) It's actually the last part of this   quote that fascinates me the most. Add what  is uniquely your own. This is where your own   preferences and creativity come in handy. You get  to choose whether you resonate with something,   then add or subtract it from your strategy. In  sports, a quarterback like Lamar Jackson is known   not only as a great passer, but also as a player  who is absolutely electric on the ground thanks   to the physical gifts that he has with his legs. (1:03:25) In investing, you can pick and choose   what you want to invest in. Stocks, bonds, real  estate, crypto, alternatives, etc. You can look   at your position sizing, your holding periods,  how much you turn over your portfolio, whether   to be more short, medium, long-term oriented,  what kind of industries you want to invest in,   what market cap, cortiles, or deciles you prefer,  the quality of the business and the manager, and   just so many more other preferences and variables. (1:03:49) The list here is really endless. And if   you get to know a really good investor, you're  going to see that no two investors are complete   carbon copies of each other. And that's because  you can add your own flare to your strategy and   make it uniquely your own. It's why I think  investing is so fun and why I think you can   learn so much from different people. (1:04:05) Even though I will never   be as concentrated as an investor as  Charlie Mer, I learned a great deal   from him about his thinking processes.  And even though I have zero interest in   cheap cigar butts like Benjamin Graham, I  learned so much from his margin of safety   principle and his Mr. Market analogy. (1:04:20) And even though I have zero   interest in bonds, I've learned everything  I know about risk from Howard Marx. So,   I think that's why it's essential to keep  an open mind. Just like Bruce Lee would say,   you never know what valuable insights you're  going to learn from the most unlikely place.   But if you remain a closed book, you prevent  yourself from learning things that could provide   you with massive improvements in your wealth. (1:04:40) That's all I have for you today. If   you want to keep the conversation going, shoot  me a follow on Twitter, IrrationalMrk KTS,   or connect with me on LinkedIn. Just search for  Kyle Grief. I'm always open to feedback. So,   please feel free to share how I can  make this podcast even better for you.   Thanks for listening and see you next time. (1:04:59) So, any business that is expected to   grow but fails to meet the market's expectations  is going to experience a pretty big price drop.   The key is to just try to stay ahead of the  market. Let's suppose that you think a business is   in maybe some sort of structural decline. In that  case, I'd rather exit early, potentially foregoing   profits to avoid the mass exodus that's probably  going to follow once it's well established   that the business is in a structural decline. (1:05:22) So what Sleep and Zakaria really nailed   was that the businesses that they chose were just  so good that even if they grew at lower rates,   they still maintained a reasonable valuation  because it was just common knowledge that these   businesses had near impenetrable moes and  had high high levels of customer loyalty.