Winning Long-Term Games and Ergodicity with Author Luca Dellanna | S07 E36
Summary
Investment Philosophy: Luca Dellanna emphasizes the importance of ergodicity, a concept where survival is prioritized over performance, highlighting that irreversible losses can absorb future gains.
Long-Term Strategy: In his book "Winning Long-Term Games," Dellanna argues against short-term optimization, suggesting that strategies should focus on sustainable growth over time, even if they are suboptimal in the short term.
Risk Management: Dellanna discusses the Kelly Criterion, noting its mathematical optimality but cautioning against its aggressive nature due to uncertainties in real-world variables, advocating for a fractional approach.
Reproducibility of Success: He advises against mimicking strategies that are not reproducible, emphasizing the importance of understanding why certain strategies fail to ensure long-term success.
Behavioral Insights: Dellanna highlights the dangers of hindsight bias and the tendency to adopt non-reproducible strategies based on perceived intelligence or past successes.
Time Horizon: He suggests that giving oneself a reasonable time horizon opens up better options and reduces the pressure to succeed quickly, which often leads to poor decision-making.
Network Effects: Dellanna underscores the value of building relationships and trust, which compound over time and are crucial for long-term success in both personal and professional contexts.
Practical Application: Dellanna applies these principles in his own career by focusing on trust-building over short-term gains, writing multiple books to mitigate variance in success, and avoiding viral content that does not build long-term trust.
Transcript
I think we're live. This is Value After Hours. I am Tobias Carl joined as always by my co-host Jake Taylor. Our special guest today, Luca Dana, one of our favorites. He's back again. >> Luca, he's in the house. >> Lucas, >> thank you so much for having me again. >> Our our absolute pleasure, Luca. Thanks for coming back on. Luca's got uh lots and lots of really great ideas. Uh, two of my favorite books Luca has written. One is erodicity. Incredibly powerful idea. Very simply, a very, very hard idea to explain, but Luca does a phenomenal job articulating. >> And then, uh, winning long-term games. We're just going to talk very briefly about erodicity, then winning long-term games. And Luca's always got lots of stuff going on, so we're going to talk about that as well. Luca Delana, welcome. >> Thank you so much. and give give us give us the little taste of uh what is erodicity. >> So I always explain it with a story because it gets the concept much more powerfully true and that's the story of Macin who was a great skier since a very early age. He made it even to the world championship for his age bracket but then one leg injury after another he had to quit professional skiing. And from him I've learned the lesson that performance is subordinate to survival. That it's not the fastest gear who wins the race but the fastest one amongst those who make it to the finish line. And here I'm just not I'm not just making the banner point that survival matters to performance. We all know that. But I'm saying that it matters more than performance over the long the the long term. And to drive this point, I always make a numerical example. So imagine a ski championship consisting of 10 races. And my cow's in very good skier. He has a 20% chance of winning each race, but also 20% chance of breaking his leg. And the question is, how many races is he expected to win over a championship of 10 races? The naive answer would be two races because we think 10 races 20% chance of winning each that makes two. However, if you crunch the numbers, the the real expected number of wins is only 0.64. And the reason why of this big difference 2 versus 0.64 is survival. Because if he breaks his leg in the first race, not only he loses that race, but he also loses all following ones. And this is the importance of of survival. It's because irreversible losses absorb future gains. And this phenomenon is what we call aodicity. And basically the definition is that when irre losses are not irreversible, you are in an erotic environment and you can extrapolate averages. But in the real world, all losses are irreversible. They all absorb future gains and so you cannot extrapolate averages. And that's the basic principle of agodicity. >> And that would then be non-erotic for everybody. >> Exactly. That would be non-arotic. >> Yeah. Yeah, I love the way I love the way you explain it. I also love the fact that the book wasn't written for a finance audience, but I think you've been embraced by the finance community who understands this idea like pretty it's that's a powerful idea in finance. >> I'm not sure they do understand it though, TC. I mean, uh I think it's one of the like least understood but most important things that's missed. >> That's that's that's I think I would say the finance community as a whole. I'm sure I think that every there's there's quite a lot of there's a cycle in finance where there's a new crop of people who assault the shore and wind up broken on the shore >> and make the mistake of erodicity and then >> yeah just running leave it all running a little bit fragile that's it's a it's a phenomena we've seen like we saw it in 2020 I think we're we're in the middle of it again now but um I think that one of the nice things is that uh you had Nasim Taleb who who's probably the black swan. He sort of has embraced the idea. Have you had any discussions with Taleb or what what did he think about the idea? >> Did he yell at you or anything? >> I didn't actually have any conversation with him like which we we only talked very briefly because twice we happened to be in the same city but never managed to actually meet. Once I just arrived in a town in in Istanbul and he was taking a plane out of it and something like that. So I never managed to really talk to him but it's from him that I first heard about agodicity. He mentioned this briefly in his book antifragile or or was it skin in the game? Anyway he mentions it in the book. Then I've read Oie Peters writes the most theoretical um about erodicity and then I wrote let's say the practical part about it. Yeah. Do you think that the so your the book that you brought out I I don't know so recently but it's in the last >> it's going to be the five year anniversary in in next week >> of erodicity. >> Yeah. >> What what I was I actually was talking about winning long-term games which is another book that I loved which is that I think an extension of the idea of urgicity. It's sort of a more practical application of the idea in and you're talking about surviving. So perhaps you can just walk us through because we haven't had you on to discuss winning long-term games. walk us through the idea for the book and the ideas in it. >> Yeah. So, the book is centered around the fighting the false belief that if you get the most out of every day, you will also get the most out of the year. >> And that's false because if you want to get the most out of the year, you also need to do things which are not optimal for the day. Sometimes they even don't bring any returns for the day, but that's what allows you to grow beyond a certain level over the year. And so this applies for example, it applies for investing in the sense that survival is one thing that doesn't bring you any return today or tomorrow, but it's necessary to make sure that your returns keep growing over over a certain amount of time. But it also apply to personal life and to professional life. I make the example of um lying. For example, lying can be a great short-term tactic. Imagine that you have a that you are a very good liar and you have a 99% chance of getting away with lying. That sounds like a perfect tactic. However, if you lie once a week, that 1% chance of getting caught means that you have a 99.5% chance of getting caught over the next 10 years. So, what looks like a great short-term tactic becomes a terrible long-term strategy. And there are so many things that work this way. Another example is with sales. So for example, I have a newsletter and there are two ways in which you can run a newsletter. You can build trust or you can consume trust. And there are so many newsletters which for example they consume the trust of the readers by trying every email they're trying to sell something and that and there are other people like me who instead try to build trust. I don't write the email to sell something but I try to write the email so that people are more likely to read to read my next email. Now the crucial thing is what's the best strategy? It depends by the time horizon because if you consider a six months time horizon the first strategy is much better. They will make more sales but if you consider a 10 years time horizon my strategy is better. So we go back towards extrapolation. Just like argodicity was about survival doesn't allow you to extrapolate expected expected uh averages. The topic of winning long-term game is that the effect of skills, the effect of trust and the effect of relationships do not allow you to extrapolate the return of short-term tactics to long-term. And if you want to win over the long term, you need to accept that you will have to run strategies that are suboptimal in the short term. Luka, how do you think um how is AI do when it comes to like it, you know, it's using these probability weightings? Does it is it thinking more in averages that are more like ensemble averages or uh does like erodicity factor into AI for you at all? How do you think about that? Well, so to answer the first part of your question, whether it it talks about ensemble averages, for me it really depends by how you prompt it. >> Okay. >> Like I've noticed a super big difference in how AI answers the same question depending on how you prompt it, depending on how much details you give about your goals, about your background, your situation, what you're trying to optimize for. And then of course if you don't specify any of these it will make some assumptions about you which might be wrong. And then of course >> probably prefaceed a little bit in saying that the AI being trained on humans and their thought and their words is going to exhibit humanlike traits and humans are typically not very good at sort of the intuition around erodicity. So that's that's what I was trying to drive at. >> Yeah. >> So the AI has a a blind spot as well potentially. I think that that the bl that it's smart enough, at least the most recent models, they're smart enough not to have the blind spot if you you remind them of the of that. So it's, as you said, like their default behavior mirrors the above average but still relatively average human. But if you prom them correctly, if you remind them that I think that they are relatively good at they can be a relatively good and of course you never you should never trust them. You should always use a grain of salt. But but it's really a lot about how you prompt them. Yeah. About what you tell them that matters to you as well. >> Yeah. >> Luke, have you ever looked at anything like the Kelly criterion in a concert? Yeah. How can you can you how do you how do you think about the Kelly criterion? >> Yeah, so the Kelly criterion just for the people who don't know about it, it's a very simple uh algorithm, let's say, to decide how much to bet. And the basic idea is uh the better your odds, the higher the fraction of your wealth you should put on any single bet. And the interesting thing is that mathematically the Kelly criterion is optimal. But in the real world, any real world sports better or investor, they will tell you that the Kelly criterion is too aggressive. And the reason is because the Kelly criterion is a formula. And like all formulas, they're only as good as the variables that you plug into them. And the thing is when we plug variables into formula, we often do not know their true value. And this is even true for variables that represent historical data. So for example, imagine that I ask you what's how much did the standard and poor 500 grew you? What's the value of the increment of the standards and poor last year? And you might check the data and maybe the data says that it was plus 25%. And you plug that in the formula and you think is the real value of the variable. It's not. Why? Because what happened last year is that the conditions of the market produced the distribution of possible variables of possible outcomes from which random process picked 25%. But that's not the real value even if it's the historical value. And if you pluck the what the historical value where there should be another value of course all formulas even if they are mathematically optimal they will produce a suboptimal result and they will lead you to misunderestimate your risk or to overallocate uh on your bets and that's the problem with the Kelly criterion and that's why serious bettors they use a fractional Kelly criterion which means you add a margin of safety. Yeah. >> Yeah. Not not just for Sorry, TDC. I was just going to say uh not just for the potential of being wrong about the inputs, but also Kelly gives you the median optimized outcome. And there's a whole bunch of outcomes below that that are very bad for you potentially. And so you you'd want to trao those out of the distribution as much as you can. Conceptually, it's conceptually it's a good idea because it says the objective of Kelly is not is to avoid ruin. So that that is a that that would sort of accord with both of our philosophies, right? You want to you want to avoid ruin. And then it says you want to size your bet to the frequency and magnitude of the opportunity that you have. And you want to lean more, you can see mathematically that you want to lean more heavily on the frequency than you do on the magnitude because that the bet size is more closely associated with the frequency even though both contribute. But I think the main problem is that Kelly is conceived as something that you play in series like sitting at a blackjack table where you have kind of you have a better idea of the fixed mathematics of what you're doing rather than most investments and most bets and most people we just we live in a world where there is an abundance of opportunity to take bets on and properly understood Kelly should include all of those other bets which might mean that you have to you sort of have to size down uh you know I don't I don't know how you do it mathematically, but mechanically you have to size down for every opportunity out there, which means that you're not putting 40% of your book into a single position because it ignores all of these other high or low expected but positive expected value opportunities that are out there. But I I I just like I just like it rather than the actual use of it. I just like it as an idea that it avoids ruin and sizes to you know the the quality of the opportunity which in sort of rough terms is what most investors are trying to do. I just wondered if you if you'd encountered because it's very analogous to sort of what you talk about. >> Yeah. Yeah. Exactly. like I actually uh in the book Godicity I actually mentioned that Kelly criterion and then I also mention I cite a fantastic article by Harry Crane uh I think if you if you Google Harry Crane St. Peter St. Peter's book paradoxic or hurricane Kelly criterion it should pop up and basically what he's saying is the Kelly criterion when you're using it it implies that you have an edge >> so that the bet is better for you than than uh than the house that exactly the other side >> the thing is that you have uncertainty on the edge like you think that you have an edge but you don't know whether you really have it and how big it is. And so you need to start betting small so that if you discover that you do not have the edge or that the edge is smaller than you think, you discover before you lose you lost too much money. And I also like this interpretation because it really shows that the point is that there is this aspect of seriality that you mentioned about trying to understand whether the information you have and whether your assumptions are correct before you bet too much. >> Yeah, that's a good point. The information gathering there is important. >> Yeah, it it's also clear that over betting is a big issue. So, if you have any of that uh lack of clarity about how good your data is, then you definitely need to be sizing down for that. >> Toby, you only live once. Let's go get in the game. >> That's that's what's been holding me back so far. Uh, one of the ideas, and this is sort of a related idea, but one of the ideas from winning long-term games is this, uh, that reproducible success strategies, which I love, and I like the way you frame it up, that if it's adopted by a 100 people, it leads to success for most of all of most or all of them rather than requiring luck or leaving many casualties behind. Can you perhaps expand on that a little bit? Yeah. So this is uh this is something that a the reproducible success strategies. It's something that came uh that came up to me talking with investors and talking with entrepreneurs who are always saying I am I'm doing okay. I'm doing good but there is someone else that is doing much better. And I'm always telling them, are they doing better in a way that's reproducible or not? Because if they're doing better in a way that's reproducible, which means if they do it again and again and again, they always get greater results, then you should learn from them. But if instead they're doing better than you in a way that's not reproducible, then you should absolutely not learn from them. You should ignore them. Do you have pract practical examples of that? >> Yeah. So, for example, imagine that um I think that in the book I make I make the example of imagine that the three of us we go to the casino and we all play at the roulette but we play with some weird strategy. So, for example, Tobias, you always play on the red and Jake only plays on the even numbers and I only play on the 36 for example. And then let's imagine that maybe uh Luca and Jake we lose a lot of money and Tobias makes a lot of money. Does it mean that Tobaya strategy was good? Absolutely not. It was not a reproducible strategy and if Tobias we went a second night maybe the results would be different. Now the thing is that this is banal because we know about the rules of Russian roulette and it's clear that our three strategies were stupid or random and non reproducible. However, imagine that we are talking about stocks and imagine that we all invest randomly on stocks and we have weird rules such as Tobias only invests in um I don't know >> yeah in young in young entrepreneurs uh that have a that have a background in food and beverage whatever and Jake you only invest in um I don't know in uh uh Norwegian entrepreneurs and I I only invest in entrepreneurs that um never listen to earning calls and after one year it turns out that Tobaya strategy for example was good. Now this example is analogous to the example of the Russian roulette of the kazin roulette. They were random strategies. But somehow when we were dealing with stocks, it's a bit more plausible that Tobaya strategy of only investing in entrepreneur that come from a food and beverage background whatever was much better. But we should recognize that again it was not reproducible. >> Luka, do you have any Oh, sorry. Go ahead. Finish your point before I >> No, no. I I was just going into the importance of asking yourself whether a strategy is reproducible and and and how to answer that. Yeah. >> I was going to ask you if you had any heruristics or shorthands for us on across a lot of different indust uh you know uh domains on how much data do you need to see to kind of understand if something is reproducible or not. >> Yeah. So for me, modern data, it's about asking yourself good questions. And so one good question is if you ask yourself like in 20 parallel universes, in how many will this strategy succeed? It's it's a great question. And in general, you want to shift your thinking from maximizing the expected average of to maximizing the distribution of of averages. Like I don't want to be as rich as possible uh to have the highest expected wealth, but for example, I just want to be wealthy in 20 out of 20 of the of the universes. And for me, that's much more important. So that that's one way of thinking. Then another uh another question is whether the this the the strategy has a failure rate because there are some strategies which the worst that can happen is it's a little bit bad but you can keep carrying it on and there are some strategies where instead you might be uh constrained to stop playing and usually those strategies are not that reproducible. That's the second question. And then the third question is whether those are strategies in which you you get closer to where you want to be even if you lose. And that by this I mean that there are strategies which lose poorly and strategies which lose well. So for example imagine in the context of entrepreneurship you might do a cycle of entrepreneurship. You gather funding, you start a company and then the company fails. But it can fail well or fail poorly in the sense that you fail well like you never promised, you learned skills, you demonstrated good things, you learned things along the way and your investors, even though of course they're not happy that they lost their money, they would still want to invest with you again because they they saw that you demonstrated skill, that you learned things along the way. And it's if they bet on you three or four times, it will go well. Or >> I'm going to get Toby >> I'm going to get Toby a t-shirt that says uh value investing failing well since 2008. >> Ah damn it. >> Just >> Yeah. Yeah. But but but you get the way or you can lose pool in the sense that you overpromise to people, you take some bad bets and then you they will never bet with for you again. So that's that's another telling point of the of whether a strategy is producable. I think value investing failing well since 2009 because I think it failed along with the market in 2008 and I think it's been failing since then. But uh one of the questions that I wanted to ask you uh Luca, there's this um you've always got this tension between playing the longer term game and the shorter term game. And it's it's not really it's not like it's an intellectual choice that some people can make. when you're when you're younger and poorer, you're more focused on making rent or, you know, feeding yourself and you have no sort of asset cushion. And as you get older, you should get a little bit more of an asset cushion. I found it's with a little bit more of an asset cushion, it's easier to be a long-term thinker and not worry so much about what you're doing with the money. You don't need any money that you don't need immediately. It's easier to invest. So, how do you reconcile that those sort of two positions? Well, so for me it's it's a bit like the question of what's the optimal time horizon for your life and the naive answer would be like life expectancy is whatever 80 80 years old and uh I am 37 so my time horizon should be 43 years. But the problem and and we all know it this instinctively is that there is a high variance on the time horizons like maybe maybe I die next year or maybe I live until 100 years. So for me it's rather than optimizing for a single time horizon you want to make sure that you will do well no matter what your time horizon or no matter what time horizon life gives you. And so for me that means that every month you do a few things which are only good for the short term and you do a few things which are only good for the long term. And that means in the context of life, it means for example that you do a few things that are good for the long term like you build long-term relationships, you save a bit of money, whatever, and you do something that's good for the short term, like I don't know, you enjoy life, you do a few things like that. In the context of business, that will mean that of course you spend part or even a large part of your working week doing small or medium-term things to keep your investors happy rather than whatever. But the question is, do you also do something every week or every month at least one thing that brings absolutely no return now but is necessary to grow beyond a certain point over the long term. And for me that's the question that you want to ask yourself. >> Uh >> and that for example could be did did do you train your did you train your employees this month? You don't need to do it a lot, but if you never do it, you will never go beyond a certain point. Did you build some relationship with some key people in your industry? Did you learn some skill yourself? That's the kind of thing of of thinking. >> Um, let me let me give a shout out to everybody and then JT, you want to do some veggies? >> Yes sir. >> I don't want to miss the Oh, we got Pitikva in the house. What's up? Tallahassee, Brandon, Mississippi, Breenidge, Nashville, Tennessee, Valpareo, what's up, Mac? Tombell, Texas, Bolognia, Italy, Lance, Swit Switzerland, Mayfair, London, Boisey, Casper, Wyoming, Toronto, Jupiter, Florida, Cromwell, New Zealand. Early start for you. Lods, Poland, Belleview, Main Streets of Jared, Jared's Cross. I love it. Uh, Gulam, India. Wilchshire, England. Tampa, Dubai. Torino, Italia. >> Oh, wow. Who's that? I'm in >> Patrick Rossy. Patrick Rossy. >> Wow. >> Says says hello. Uh, >> world. >> JT, I think I I think I got everybody. Apologies if I missed you. Uh, jumps around a little bit, but JT, you want to hit us with some vegetables? >> I will. And uh before I'd be remiss if I didn't uh you know I'm in New York this week and I happen to be at uh Santangel's event and so got to give a little shout out to those guys and Steve Freriedman for getting me set up with like my own little private podcast studio here which I will tell you is actually the uh like a little maternity closet for breastfeeding apparently. That's what I but uh I digress. But thanks to those guys for being so accommodating. Um, so I've been saving this particular segment knowing that Luca was coming on the show and as I think Hugh will enjoy it and also probably be able to add a lot more wisdom than I even uh am able to start with. So uh you've no doubt heard of the rule of 72, right? That's the quick refresher is just a quick way to estimate how long something takes to double. So divide 72 by the annual growth rate in percent and that gives you how many years you would need. So let's say 8% return takes 9 years then to double 8 * 972 double in 10 years requires a 7% return. You get it? Now there's another number that seems to be somehow created by the universe. Uh and that is 63%. And it's hiding in the background of of almost everything that feels like luck or fate or randomness. And it's not actually mystical. There's something mathematical that's happening here. And it's it's a probability that that's found in u if something has a one and in chance of happening in one single try and you try it n number of times the probability that it happens at least once in those n number of tries is about 63%. It's not 50, it's not 90. It's this strange kind of middle number of 63. Uh and that's actually not a coincidence. Like the shadow of the math behind it is this constant e which is 2.6. 718. And um you might remember that from calculus, but I uh I'm not sure I'm sure I'm more confusing than helping when it comes to that. And we'll probably save more details about E for another veggie segment. And we can forget about all the math. But what makes the 63% rule so special is that it connects all these things that seem very unrelated. Money, marketing, risk, failure, persistence, habits, inevitabilities. Um so let's just play with a few examples to help build our intuition around this. Let's say in your job that you send out cold emails to potential clients and each one has a one in 10 chance of of getting a reply. So if you just send one, odds are bad, 10%, right? You send 10, your chance of at least one person responding jumps to 65%. So it's it's around that 63% rule. Uh let's say you drive a car every day, your chance of an accident is on any given trip might be one in 10,000. Basically zero feels like, right? But if you drive 10,000 times once a day for 27 years, the probability of having at least one accident in your lifetime is about 63%. Or imagine an investor taking small independent bets every day. 1% chance of a catastrophic loss sounds safe enough. You know, it's never going to happen, right? One in 100. Uh that we as humans, we round that down to zero, right? But after a 100 trading days, the chance of avoiding that big loss drops to just 37%, which of course is the the flip side of 63% chance of something rare happening. Um, so it's almost almost like this little rule of the universe almost like gravity's 9.8 meters/s squared. Uh, but it's that rule for randomness. >> Um, so you don't really need to understand the formula. I just wanted to give you a little bit of intuition around, you know, one one over n and then times n number of entries gets you somewhere around 2/3. >> And that's really sort of the the intuition that we're trying to build here. >> Wasn't that was the expected Didn't you say, Luca, that it was the expected two 20% chance of blowing up, 20% chance of winning. Your chance of winning one race was 64. >> No. So that was the expected amount of wins over 10 oasis. >> It's like >> why is it why is that number what's the significance of E? >> How does E get to 63? >> I'm not sure. >> Toby, I told you I don't know the math and I said I I can't explain it. I mean I'll give you the there >> here's what the here's what the equation is. Okay. If you if you want to see >> but I just wanted to I just wanted to say that the the 0.64 in my example is a coincidence. It's unrelated. Yeah. Sorry. >> Right. Uh I mean so it's the math is is parentheses like 1 - 1 / n in parenthesis to the power of n which equals e to the -1 which is 37%. Now whatever the hell that means I'll let you uh interpret. Uh but that's that's the math behind it. U there's one other thing to bring up in here though that's kind of interesting is that you know we talking we're talking a lot about risk and you know you're taking stupid chances maybe that have very small probability but a very extreme outcome. >> Um and of course erodicity plays a big factor in this. Um there's a big difference between a 100 people playing Russian roulette at one poll and one person playing it by themselves a hundred times, right? Um, but there's a there's a positive side to all this which is actually about habits. And if you are doing positive things in your life that have a very small upside but a consistency to it, there's a compounding that happens here that actually makes success almost unavoidable uh or inevitable. And that I think that's you know we we talk a lot about kind of negative things and maybe we're a little biased that way sometimes but there's actually kind of an uplifting story to this is that if you take the right actions uh and do it consistently enough those habits then turn in and they become very powerful. >> Yeah. Exactly. Like in winning long-term games one of the things I say is that your strategy should be inevitable. And by inevitable I mean it should have exactly these compounding effects and these properties that even when you fail in an endeavor you kept building skills, relationship and trust so that you are almost guaranteed success uh over over a certain amount of years. >> I want you want to let that really like you want to be on the right side of that 63%. You want to have it work for you and then also you want to make sure that you don't give that 1% risk 100 chances of killing you. >> Exactly. You want to make your success inevitable and not your your demise. Yeah. I wanted to add one thing Jake when you mentioned uh the probability of crashing in a car. M >> the good thing is that you can estimate your probabilities of crashing because probabilities of the car the average is very different on people like even if you discover that the average probability is one in X for the average population. What happens really is that this driver has one has three times as much as that and the other driver maybe three times less than that because and the interesting thing is that so it becomes much more important in addition to knowing the B the base rate to know how you're personally doing and the tip for this to me for me is to look at near misses. So, for example, in the in the case of driving, what you want to check is how many times are you checking the phone or how many times do you see yourself crossing the red line or doing something stupid. That's what's going to estimate your probability of crashing because you can almost say that you will crash after 10 times that you check your phone or something like that. Like now, of course, maybe the number is higher, but that's a very good estimate. That's that's a relatively good way of saying it. The the more frequently you catch yourself checking the phone, the more likely you will crash over the next 10 years or something. >> There's a lot of latent data points out there that you're you might not be seeing. >> Exactly. And this applies to everything in business. How many times are you doing near misses in business? How many times are you doing your misses in investing things which you realize it was a terrible decision but I got lucky or oh I missed this piece of data or like that's a very good indicator of how long it will happen to before you crash if you don't change your habits. >> There there's been a there's been a huge spike in pedestrians getting hit over the last 10 years and it just gets bigger every year after being like virtually rubbed out 10 years ago. It's it's back to where it was 10 years before that. So that's a very real sides. >> I think so. I think so. Probably. Yeah. >> Um, one of the things you discuss in the book, Luca, is hindsight bias, which is uh a topic near and dear to our hearts as well. How does hindsight bias lead people to adopt non-reproducible strategies and then I want to talk to you about hindsight gerrymandering, which is a great term. >> Yeah. Yeah. So hindsight bias is basically the fact that Well, it's a bit what we were say saying before uh with uh with the example of the three of us going to the casino or playing the stock market. >> Can I win this time Luka in the example? Okay, good. >> Yeah, there are the that's the again like we can have three strategies that are exactly equally as worth, but if Jake makes more money, his strategy looks smarter. >> Yeah. Yeah. >> And if his strategy looks smarter, we are more likely to imitate him. And that's not necessarily that's not necessarily right. And the the key the the mistake we do is that we often judge we often think it's true that maybe this is investing this way is risky but smart investors or people with smart strategies make profit with this and I am smart and therefore I will also make profits. We very often tend to think this way. The problem >> exception to the rule. >> Yeah. Or we think that we are just like the rule. Like it's a real like it's a real rule that smart people usually make money. The problem is that we don't know yet if we are smart or not. >> Like and it doesn't translate like it's not because I was good at I was smart at school that I'm smart with investing. And it's not because I made money last month that I'm smart at investing. To know whether I'm smart at investing, it takes 20 years, 30 years, whatever. And the problem, the problem is that though that people think I am smart and therefore I will do well or I am smart and therefore I can get away with not taking some precautions. But you don't know yet whether you're smart. That's that's the problem. And the thing I I I I mention when I talk about insight gerrymandering is this fact that we gerrymander good strategies and best strategies before we know. So the fact that we think I don't know we we can think something along the lines of um um yeah it's true that only uh I don't know now I don't know the percentages but it's true maybe only 20% of investors bit the mark bit the market but >> it's true those that those are >> yeah but it's true that those are smart investors and I am smart so I will beat the market. Here you're gerrymandering the strategy on a characteristic smartness which cannot be known before the fact. So you're using hindsight and that's what I'm calling inside joy mandering and you are increasing your expected probability of survival based on something that doesn't exist and that leads to a lot of problems down the road. Yeah. >> What about something in the like like the market where >> what works everyone kind of starts copying and it becomes a self-neutralizing thing. So like non-stationerity of data. How do you how do you handle that? Yeah, this is this is another big problem that like maybe you were smart once you discovered a strategy or a hedge but the the question is will this hedge remain and if not again you cannot use the the insight of the past you cannot extrapolate the thing that stayed good for you in the past for for for the future uh completely yeah >> Luca you mentioned that there's value in asking how can I achieve achieve this in 30% of the time and how can I achieve this in three times the time? Why why is that a good way to ask a qu approach a problem? >> Yeah. So I always make the example of imagining that one day a mafia guy comes to you and he says I will kill you if you don't give me $1 million tomorrow. Now imagining that you don't have uh that you are a normal person. You don't have a million already in your bank account. What do you do? Maybe you sell your organs and you take the proceeds and you go to the casino and you put them all on the 36 and you hope that you win. The the thing is because of the very short time horizon, you only have bad options. Now imagine that the mafia guy tells you you have five years to give me 1 million. Now your options are a bit better. You're still not certain, but you have a bit better options. Maybe you open a startup. You work super hard for five years and then let's say that you have I don't know a good a decent possibility of grabbing the 1 million. Now imagine that the maf guy tells you I will kill you if you don't give me 1 million in 30 years. Now it's almost certain that of course you need to work hard, you need to make some sacrifices and but if you are decently smart and work decently hard, you can do it. So the point is the longer your time horizon, the better options open up to you. If you want to build a successful business in uh 30 years in but even just in 10 years you have some decently good options. If you want to build a very attractive physique in five in three years you have very decent options and you do not take need to take risk or weird med weird medicines or whatever. But again, if instead you tr same thing if you want to get a a super great attractive girlfriend spouse in five years, completely doable. But if instead you give yourself an artificially short time horizon, I want to get an attractive physique in one month. I want to get a girlfriend tonight. Then I want to to become a millionaire next year. Then you only give yourself bad options. And so my suggestion is give yourself a reasonable time horizon for which you can be solidly certain in which you can build success in a solid way that gives you relatively certain and the plus it enables you to enjoy life while you're pursuing the success you seek. It's a much better strategy. What's the Do you have like a What's the name for that? Is there a any like math behind it or something like that we could pinpoint that or is that just a Luca special? Uh, you know, off this >> Well, >> the idea of optionality opening up on farther windows. >> Well, that's I don't I don't know if there is any any uh any mathematical principle. I it's just one of my rules. Let's say, yeah, that one of my rules for winning long-term games is to give yourself a reasonable time horizon and everything becomes easier after that. >> Call it Lucas Razer. >> Yeah, you call it Lucas Razer. I like that. >> There we go. We got it. Yeah, >> I think that there's a lot of uh performance chasing and uh there's a lot of FOMO potential in this market right now because it's one of those times in the market where people posting huge >> personal accounts lapse right now >> very very quickly using options. >> Yeah. Um I I imagine that a lot of that contributes that social pressure and that fear of missing out contributes to a lot of the short-term thinking. How do you what do you think about that? >> No, completely agree with that. Like the biggest problem in life, the biggest limit in life and I strongly believe that is exactly the fact that you look left, you look right, you see people getting more successful than you, you feel like you're falling behind. You're feeling some kind of existential dread and you think like you can you must success as fast as possible. It feels existential and because of that you close yourself some good options. I I personally saw it myself. If I remember when I was 16 years old, 17 years old and almost everyone around me had a girlfriend and I did not and I was feeling it existentially and so I wanted to find a girlfriend tonight and I only had bad options like going to the club but it but if I wasn't attractive myself it wasn't helping. Problem is that I literally did this for three or five years. That was my mindset and I didn't had a girlfriend until I was like 212 I think something like that. What changed? It changed that I started having as little longer time horizon. So I instead of going out and meeting people I was taking some time to to go to the swimming pool like get a bit more like back in shape and things like that and then the problem solved itself. So, it's really about this noticing that the fact that you feel like you're falling behind. Number one, the people who are getting ahead, maybe they will crash if they're getting ahead in ways that's not reproducible. And number two, even if it's true that you're falling behind, trying to get back as fast as possible will not help you. Yeah. and and and and for the people who don't still don't believe it or they believe it but they want an argument to show it to people because maybe they need to justify it to their boss or to their clients and so on. I give an example in the book which is the example of Alice and Bob. Uh I think the skiers I don't remember exactly because I I made different variations and I don't remember which final example went into the final version in the current version of the book but the basic idea was that Alice and Bob they ski and they one takes is more conservative so he has a lower chance of winning each race but also a lower chance of breaking his leg. and it's Bob and instead Alice takes more risks so she has a higher chance of winning each race and the higher chances of breaking his leg and the question is who has the best strategy and the answer which is very in I think that the percentages was Alice 20% chances of winning 5% chances of breaking her leg and Bob 10% chances of winning and 1% chances of breaking his leg I don't remember the exact numbers. But the answer was the best strategy. It's neither Alice, it's neither Bob. It's it depends on when we measure it. And the I was showing that if we measure it in five races or less, Alice has the highest numbers of expected wins. And if we measure it after with more than five races, Bob has the more. However, there are two two problems with like psychological problems. The first one is that even if Bob has the best long-term strategy, the risk is that after three or four races, he notices that Alice is ahead and he switches to Alice's strategy. That's the first risk. And then the second re the second problem is that even though Bob is expected to win more races over 10 races, if there are a 100 Alyses and a 100 bobs and after 10 races we only look at the top 10 skiers, they will all be alyses. The problem is that there are a few analysis at the top then all the bobs and then all the analysis at the bottom. But if we only look at the top, we think that ali strategies is better. However, if you are a Bob, if if you are a single person, Bob strategy will be much better for you. And we have trouble humans at understanding this at understanding that if we see someone at the top it doesn't mean that his strategy is better. >> That's very >> I think you just described 90% of the problem in the investment world right there. >> Exactly. I mean it's it's very similar to TB has that idea about dentists being >> the median dentist is more successful than the median you know sports star or or not sports star like someone who tries to turn pro in >> sports or music or film acting or something like that >> and the the ones that you the successes that you see are the ones that are the unusual outliers and then the median dentist or the median Bob is better than the median Alice I think is it was would the median be the don't measure there >> probably. >> Yeah. Yeah. Yeah. But this that's an interesting example because when when I talk about those things, some people they tell me, "Yeah, but I still want to be one of the top 10 or I still want to become a singer and to be a super successful singer." Okay, let's imagine that that's your choice and you are conscious of the tradeoffs and you are conscious what's the next best thing you want to do. It's not to copy what the people at the top did because there is an incredible amount of luck and most likely even if they did something good, you probably don't know what amongst the 10 or 20 things that they did which is the one that actually brought them success. You will probably not be able to know that and you will copy the wrong thing. Instead, the much better question to ask is, how did the other people that tried fail? So, what caused other talented singers to not become superstars? That's the key question that you want to ask yourself. What caused other talented investors smarter than smart as me to not become Warren Buffett or whatever? That's the key question that you want to ask yourself. >> I like that. That's >> it. >> Yeah. Does it change anything, Luca, if the payoff to the outcomes are like incredibly hugely power law driven? >> Well, the the more they're powerdriven, the more is the impact of chance. Uh, of course. And then the the good question is then how do you expose yourself to chance? So I make an example for for myself. I am an author. I write books and the thing that you realize as an author is that writing a great book is the prerequisite but it's definitely not sufficient to get the kind of success that I don't know Stephen King got. So the question is what do you need to do as an author to to get that kind of success? And then you started you start thinking and I'm not sure that I still have the answer but you start noticing that it has things that have relatively little to writing a great book and much more for example with getting your book in front of the in the right places and and and and things like this. So the thing is the more the outcome is is fatailed the more there is a difference from the thing the kind of things you need to go to do to become good and the things that you need to do to become great let's say and then of course what this mean is extremely domain specific. Yeah. >> What about um how about network effects and compounding? What's the relationship between network effects compounding and long-term games? [Music] >> Well, so I think that there is one aspect that you want. So more than network effects I will talk about relationships because the problem with network effects is that if we are talking it in an entrepreneurial way then it's easy to then become a winner takes all we we get into a winner takes all and winner takes all is not compatible with winning long-term games in the sense that of course like there is the again there's the discussion of let's assume that you decide that you want to enter a winning long-term game race but you need to to know that because it's a race with a limited number of winners that means that you cannot have a a certainty of winning because even if you have the best strategy all it takes is another person running the same best strategy and then it becomes a flip of the coin so there is the and that's why I don't like the term win network effects much in this context because it brings to these considerations but let's talk about relationships which is similar to that or about trust about which is also similar to that and I think that that's a key element in winning long-term games the fact that you need to build relationships you need to build trust past. Those are all compounding assets that become more valuable when the time passes and become more valuable as you keep doing it. So each relationships can bring more relationships and acquires more value because with your relationships you can give more to your existing relationship and so on. So that's the angle I will get. Yeah. >> Uh h you you've been a you've published several books and you're a consultant. How do you I use these ideas in your own life and career? >> Uh so I used >> aside from getting girls when you were younger. >> Yeah. So for example for the well you can see it in my in my career in the sense that if you subscribe to my newsletter you will see that I definitely don't consume the trust of my readers and instead I I write the emails to build trust. there is extremely low amount of selling. Like of course like when I publish a book I mention it to my newsletter but that's not the topic. Like most of the email I send I send them to build trust so that people are more likely to read my next email to buy my next book not the current one and so on. That's the same that's the same thing. Another thing you will notice is for example um well another thing is that I published 11 books because I know that you can write what you believe is the best book you will have no idea how much book can sell. Um there is extremely high variance low control of that. If you want to become a successful author you need to buy to write more than one book. uh for example if you want to have a high degree of certainty that's another way in which in which I use that and then another thing is I I I am very often on Twitter and I am definitely try resisting the temptation to write viral tweets uh because viral if you want to write viral tweets that will bring you to consuming the trust of your people like because the quickest way to write a viral to it is to exaggerate or misrepresent or playing on the outrage or telling a funny joke. And the the problem is that it gets you a lot of likes, but it's not the right kind of likes. It's the kind of likes of I liked the joke or I trusted the lie, but it's not the kind of like that says I trust the author more. And that's the kind of what you want when you write on Twitter is to write things that makes you trust the author more. And you will realize it yourself when you are on Twitter very often when you put a like. It's not a like that means I trust the author more. I will give the author my money. It's a like of I like the tweet. The tweet made me laugh. But maybe you even trust less the author. Luka, can you give one habit that you have that you think is the least likely that people listening would have and have the biggest impact for them? >> So I think that the biggest the simp the biggest habit is to ask is to have a ask yourself did I last week do at least one thing that is unnecessary in the short term but necessary for to grow beyond a certain level in the long term. I think that's that's one of the greatest habits. And then the second thing is to keep asking yourself. I always say the risk the risk the risk. So always ask your ask yourself how did other people with the same goal as mine fail >> and that will give you a lot of insight into into improving your life. >> Ladies, liquor and leverage according to Charlie Ma and Warren Buffett. >> Hey Luka, we've come up on time. It's always a pleasure. The hour goes really quickly. Uh if folks want to follow along with what you're doing, buy one of your books, get in touch with you, what's the best way of doing that? >> Yeah, so you can find all my books on Amazon, on most online web stores or some print web stores as well. And otherwise, my website is luca-delana.com, luca-de.com. And uh I'm also very active on Twitter and on YouTube >> and uh Twitter you're Delana Luca. You've got the got to start with a D if you're looking for if you're looking for Luca author of >> exactly >> erodicity and winning long-term games the ones that I've read. Uh thanks so much Luca. We'll hope to have you back again in the future. >> Thank you so much. I would love that very much. >> And thanks team JT. Any final words? >> Just always a pleasure to have Luca on. One of my favorites. Check out journalic folks.
Winning Long-Term Games and Ergodicity with Author Luca Dellanna | S07 E36
Summary
Transcript
I think we're live. This is Value After Hours. I am Tobias Carl joined as always by my co-host Jake Taylor. Our special guest today, Luca Dana, one of our favorites. He's back again. >> Luca, he's in the house. >> Lucas, >> thank you so much for having me again. >> Our our absolute pleasure, Luca. Thanks for coming back on. Luca's got uh lots and lots of really great ideas. Uh, two of my favorite books Luca has written. One is erodicity. Incredibly powerful idea. Very simply, a very, very hard idea to explain, but Luca does a phenomenal job articulating. >> And then, uh, winning long-term games. We're just going to talk very briefly about erodicity, then winning long-term games. And Luca's always got lots of stuff going on, so we're going to talk about that as well. Luca Delana, welcome. >> Thank you so much. and give give us give us the little taste of uh what is erodicity. >> So I always explain it with a story because it gets the concept much more powerfully true and that's the story of Macin who was a great skier since a very early age. He made it even to the world championship for his age bracket but then one leg injury after another he had to quit professional skiing. And from him I've learned the lesson that performance is subordinate to survival. That it's not the fastest gear who wins the race but the fastest one amongst those who make it to the finish line. And here I'm just not I'm not just making the banner point that survival matters to performance. We all know that. But I'm saying that it matters more than performance over the long the the long term. And to drive this point, I always make a numerical example. So imagine a ski championship consisting of 10 races. And my cow's in very good skier. He has a 20% chance of winning each race, but also 20% chance of breaking his leg. And the question is, how many races is he expected to win over a championship of 10 races? The naive answer would be two races because we think 10 races 20% chance of winning each that makes two. However, if you crunch the numbers, the the real expected number of wins is only 0.64. And the reason why of this big difference 2 versus 0.64 is survival. Because if he breaks his leg in the first race, not only he loses that race, but he also loses all following ones. And this is the importance of of survival. It's because irreversible losses absorb future gains. And this phenomenon is what we call aodicity. And basically the definition is that when irre losses are not irreversible, you are in an erotic environment and you can extrapolate averages. But in the real world, all losses are irreversible. They all absorb future gains and so you cannot extrapolate averages. And that's the basic principle of agodicity. >> And that would then be non-erotic for everybody. >> Exactly. That would be non-arotic. >> Yeah. Yeah, I love the way I love the way you explain it. I also love the fact that the book wasn't written for a finance audience, but I think you've been embraced by the finance community who understands this idea like pretty it's that's a powerful idea in finance. >> I'm not sure they do understand it though, TC. I mean, uh I think it's one of the like least understood but most important things that's missed. >> That's that's that's I think I would say the finance community as a whole. I'm sure I think that every there's there's quite a lot of there's a cycle in finance where there's a new crop of people who assault the shore and wind up broken on the shore >> and make the mistake of erodicity and then >> yeah just running leave it all running a little bit fragile that's it's a it's a phenomena we've seen like we saw it in 2020 I think we're we're in the middle of it again now but um I think that one of the nice things is that uh you had Nasim Taleb who who's probably the black swan. He sort of has embraced the idea. Have you had any discussions with Taleb or what what did he think about the idea? >> Did he yell at you or anything? >> I didn't actually have any conversation with him like which we we only talked very briefly because twice we happened to be in the same city but never managed to actually meet. Once I just arrived in a town in in Istanbul and he was taking a plane out of it and something like that. So I never managed to really talk to him but it's from him that I first heard about agodicity. He mentioned this briefly in his book antifragile or or was it skin in the game? Anyway he mentions it in the book. Then I've read Oie Peters writes the most theoretical um about erodicity and then I wrote let's say the practical part about it. Yeah. Do you think that the so your the book that you brought out I I don't know so recently but it's in the last >> it's going to be the five year anniversary in in next week >> of erodicity. >> Yeah. >> What what I was I actually was talking about winning long-term games which is another book that I loved which is that I think an extension of the idea of urgicity. It's sort of a more practical application of the idea in and you're talking about surviving. So perhaps you can just walk us through because we haven't had you on to discuss winning long-term games. walk us through the idea for the book and the ideas in it. >> Yeah. So, the book is centered around the fighting the false belief that if you get the most out of every day, you will also get the most out of the year. >> And that's false because if you want to get the most out of the year, you also need to do things which are not optimal for the day. Sometimes they even don't bring any returns for the day, but that's what allows you to grow beyond a certain level over the year. And so this applies for example, it applies for investing in the sense that survival is one thing that doesn't bring you any return today or tomorrow, but it's necessary to make sure that your returns keep growing over over a certain amount of time. But it also apply to personal life and to professional life. I make the example of um lying. For example, lying can be a great short-term tactic. Imagine that you have a that you are a very good liar and you have a 99% chance of getting away with lying. That sounds like a perfect tactic. However, if you lie once a week, that 1% chance of getting caught means that you have a 99.5% chance of getting caught over the next 10 years. So, what looks like a great short-term tactic becomes a terrible long-term strategy. And there are so many things that work this way. Another example is with sales. So for example, I have a newsletter and there are two ways in which you can run a newsletter. You can build trust or you can consume trust. And there are so many newsletters which for example they consume the trust of the readers by trying every email they're trying to sell something and that and there are other people like me who instead try to build trust. I don't write the email to sell something but I try to write the email so that people are more likely to read to read my next email. Now the crucial thing is what's the best strategy? It depends by the time horizon because if you consider a six months time horizon the first strategy is much better. They will make more sales but if you consider a 10 years time horizon my strategy is better. So we go back towards extrapolation. Just like argodicity was about survival doesn't allow you to extrapolate expected expected uh averages. The topic of winning long-term game is that the effect of skills, the effect of trust and the effect of relationships do not allow you to extrapolate the return of short-term tactics to long-term. And if you want to win over the long term, you need to accept that you will have to run strategies that are suboptimal in the short term. Luka, how do you think um how is AI do when it comes to like it, you know, it's using these probability weightings? Does it is it thinking more in averages that are more like ensemble averages or uh does like erodicity factor into AI for you at all? How do you think about that? Well, so to answer the first part of your question, whether it it talks about ensemble averages, for me it really depends by how you prompt it. >> Okay. >> Like I've noticed a super big difference in how AI answers the same question depending on how you prompt it, depending on how much details you give about your goals, about your background, your situation, what you're trying to optimize for. And then of course if you don't specify any of these it will make some assumptions about you which might be wrong. And then of course >> probably prefaceed a little bit in saying that the AI being trained on humans and their thought and their words is going to exhibit humanlike traits and humans are typically not very good at sort of the intuition around erodicity. So that's that's what I was trying to drive at. >> Yeah. >> So the AI has a a blind spot as well potentially. I think that that the bl that it's smart enough, at least the most recent models, they're smart enough not to have the blind spot if you you remind them of the of that. So it's, as you said, like their default behavior mirrors the above average but still relatively average human. But if you prom them correctly, if you remind them that I think that they are relatively good at they can be a relatively good and of course you never you should never trust them. You should always use a grain of salt. But but it's really a lot about how you prompt them. Yeah. About what you tell them that matters to you as well. >> Yeah. >> Luke, have you ever looked at anything like the Kelly criterion in a concert? Yeah. How can you can you how do you how do you think about the Kelly criterion? >> Yeah, so the Kelly criterion just for the people who don't know about it, it's a very simple uh algorithm, let's say, to decide how much to bet. And the basic idea is uh the better your odds, the higher the fraction of your wealth you should put on any single bet. And the interesting thing is that mathematically the Kelly criterion is optimal. But in the real world, any real world sports better or investor, they will tell you that the Kelly criterion is too aggressive. And the reason is because the Kelly criterion is a formula. And like all formulas, they're only as good as the variables that you plug into them. And the thing is when we plug variables into formula, we often do not know their true value. And this is even true for variables that represent historical data. So for example, imagine that I ask you what's how much did the standard and poor 500 grew you? What's the value of the increment of the standards and poor last year? And you might check the data and maybe the data says that it was plus 25%. And you plug that in the formula and you think is the real value of the variable. It's not. Why? Because what happened last year is that the conditions of the market produced the distribution of possible variables of possible outcomes from which random process picked 25%. But that's not the real value even if it's the historical value. And if you pluck the what the historical value where there should be another value of course all formulas even if they are mathematically optimal they will produce a suboptimal result and they will lead you to misunderestimate your risk or to overallocate uh on your bets and that's the problem with the Kelly criterion and that's why serious bettors they use a fractional Kelly criterion which means you add a margin of safety. Yeah. >> Yeah. Not not just for Sorry, TDC. I was just going to say uh not just for the potential of being wrong about the inputs, but also Kelly gives you the median optimized outcome. And there's a whole bunch of outcomes below that that are very bad for you potentially. And so you you'd want to trao those out of the distribution as much as you can. Conceptually, it's conceptually it's a good idea because it says the objective of Kelly is not is to avoid ruin. So that that is a that that would sort of accord with both of our philosophies, right? You want to you want to avoid ruin. And then it says you want to size your bet to the frequency and magnitude of the opportunity that you have. And you want to lean more, you can see mathematically that you want to lean more heavily on the frequency than you do on the magnitude because that the bet size is more closely associated with the frequency even though both contribute. But I think the main problem is that Kelly is conceived as something that you play in series like sitting at a blackjack table where you have kind of you have a better idea of the fixed mathematics of what you're doing rather than most investments and most bets and most people we just we live in a world where there is an abundance of opportunity to take bets on and properly understood Kelly should include all of those other bets which might mean that you have to you sort of have to size down uh you know I don't I don't know how you do it mathematically, but mechanically you have to size down for every opportunity out there, which means that you're not putting 40% of your book into a single position because it ignores all of these other high or low expected but positive expected value opportunities that are out there. But I I I just like I just like it rather than the actual use of it. I just like it as an idea that it avoids ruin and sizes to you know the the quality of the opportunity which in sort of rough terms is what most investors are trying to do. I just wondered if you if you'd encountered because it's very analogous to sort of what you talk about. >> Yeah. Yeah. Exactly. like I actually uh in the book Godicity I actually mentioned that Kelly criterion and then I also mention I cite a fantastic article by Harry Crane uh I think if you if you Google Harry Crane St. Peter St. Peter's book paradoxic or hurricane Kelly criterion it should pop up and basically what he's saying is the Kelly criterion when you're using it it implies that you have an edge >> so that the bet is better for you than than uh than the house that exactly the other side >> the thing is that you have uncertainty on the edge like you think that you have an edge but you don't know whether you really have it and how big it is. And so you need to start betting small so that if you discover that you do not have the edge or that the edge is smaller than you think, you discover before you lose you lost too much money. And I also like this interpretation because it really shows that the point is that there is this aspect of seriality that you mentioned about trying to understand whether the information you have and whether your assumptions are correct before you bet too much. >> Yeah, that's a good point. The information gathering there is important. >> Yeah, it it's also clear that over betting is a big issue. So, if you have any of that uh lack of clarity about how good your data is, then you definitely need to be sizing down for that. >> Toby, you only live once. Let's go get in the game. >> That's that's what's been holding me back so far. Uh, one of the ideas, and this is sort of a related idea, but one of the ideas from winning long-term games is this, uh, that reproducible success strategies, which I love, and I like the way you frame it up, that if it's adopted by a 100 people, it leads to success for most of all of most or all of them rather than requiring luck or leaving many casualties behind. Can you perhaps expand on that a little bit? Yeah. So this is uh this is something that a the reproducible success strategies. It's something that came uh that came up to me talking with investors and talking with entrepreneurs who are always saying I am I'm doing okay. I'm doing good but there is someone else that is doing much better. And I'm always telling them, are they doing better in a way that's reproducible or not? Because if they're doing better in a way that's reproducible, which means if they do it again and again and again, they always get greater results, then you should learn from them. But if instead they're doing better than you in a way that's not reproducible, then you should absolutely not learn from them. You should ignore them. Do you have pract practical examples of that? >> Yeah. So, for example, imagine that um I think that in the book I make I make the example of imagine that the three of us we go to the casino and we all play at the roulette but we play with some weird strategy. So, for example, Tobias, you always play on the red and Jake only plays on the even numbers and I only play on the 36 for example. And then let's imagine that maybe uh Luca and Jake we lose a lot of money and Tobias makes a lot of money. Does it mean that Tobaya strategy was good? Absolutely not. It was not a reproducible strategy and if Tobias we went a second night maybe the results would be different. Now the thing is that this is banal because we know about the rules of Russian roulette and it's clear that our three strategies were stupid or random and non reproducible. However, imagine that we are talking about stocks and imagine that we all invest randomly on stocks and we have weird rules such as Tobias only invests in um I don't know >> yeah in young in young entrepreneurs uh that have a that have a background in food and beverage whatever and Jake you only invest in um I don't know in uh uh Norwegian entrepreneurs and I I only invest in entrepreneurs that um never listen to earning calls and after one year it turns out that Tobaya strategy for example was good. Now this example is analogous to the example of the Russian roulette of the kazin roulette. They were random strategies. But somehow when we were dealing with stocks, it's a bit more plausible that Tobaya strategy of only investing in entrepreneur that come from a food and beverage background whatever was much better. But we should recognize that again it was not reproducible. >> Luka, do you have any Oh, sorry. Go ahead. Finish your point before I >> No, no. I I was just going into the importance of asking yourself whether a strategy is reproducible and and and how to answer that. Yeah. >> I was going to ask you if you had any heruristics or shorthands for us on across a lot of different indust uh you know uh domains on how much data do you need to see to kind of understand if something is reproducible or not. >> Yeah. So for me, modern data, it's about asking yourself good questions. And so one good question is if you ask yourself like in 20 parallel universes, in how many will this strategy succeed? It's it's a great question. And in general, you want to shift your thinking from maximizing the expected average of to maximizing the distribution of of averages. Like I don't want to be as rich as possible uh to have the highest expected wealth, but for example, I just want to be wealthy in 20 out of 20 of the of the universes. And for me, that's much more important. So that that's one way of thinking. Then another uh another question is whether the this the the strategy has a failure rate because there are some strategies which the worst that can happen is it's a little bit bad but you can keep carrying it on and there are some strategies where instead you might be uh constrained to stop playing and usually those strategies are not that reproducible. That's the second question. And then the third question is whether those are strategies in which you you get closer to where you want to be even if you lose. And that by this I mean that there are strategies which lose poorly and strategies which lose well. So for example imagine in the context of entrepreneurship you might do a cycle of entrepreneurship. You gather funding, you start a company and then the company fails. But it can fail well or fail poorly in the sense that you fail well like you never promised, you learned skills, you demonstrated good things, you learned things along the way and your investors, even though of course they're not happy that they lost their money, they would still want to invest with you again because they they saw that you demonstrated skill, that you learned things along the way. And it's if they bet on you three or four times, it will go well. Or >> I'm going to get Toby >> I'm going to get Toby a t-shirt that says uh value investing failing well since 2008. >> Ah damn it. >> Just >> Yeah. Yeah. But but but you get the way or you can lose pool in the sense that you overpromise to people, you take some bad bets and then you they will never bet with for you again. So that's that's another telling point of the of whether a strategy is producable. I think value investing failing well since 2009 because I think it failed along with the market in 2008 and I think it's been failing since then. But uh one of the questions that I wanted to ask you uh Luca, there's this um you've always got this tension between playing the longer term game and the shorter term game. And it's it's not really it's not like it's an intellectual choice that some people can make. when you're when you're younger and poorer, you're more focused on making rent or, you know, feeding yourself and you have no sort of asset cushion. And as you get older, you should get a little bit more of an asset cushion. I found it's with a little bit more of an asset cushion, it's easier to be a long-term thinker and not worry so much about what you're doing with the money. You don't need any money that you don't need immediately. It's easier to invest. So, how do you reconcile that those sort of two positions? Well, so for me it's it's a bit like the question of what's the optimal time horizon for your life and the naive answer would be like life expectancy is whatever 80 80 years old and uh I am 37 so my time horizon should be 43 years. But the problem and and we all know it this instinctively is that there is a high variance on the time horizons like maybe maybe I die next year or maybe I live until 100 years. So for me it's rather than optimizing for a single time horizon you want to make sure that you will do well no matter what your time horizon or no matter what time horizon life gives you. And so for me that means that every month you do a few things which are only good for the short term and you do a few things which are only good for the long term. And that means in the context of life, it means for example that you do a few things that are good for the long term like you build long-term relationships, you save a bit of money, whatever, and you do something that's good for the short term, like I don't know, you enjoy life, you do a few things like that. In the context of business, that will mean that of course you spend part or even a large part of your working week doing small or medium-term things to keep your investors happy rather than whatever. But the question is, do you also do something every week or every month at least one thing that brings absolutely no return now but is necessary to grow beyond a certain point over the long term. And for me that's the question that you want to ask yourself. >> Uh >> and that for example could be did did do you train your did you train your employees this month? You don't need to do it a lot, but if you never do it, you will never go beyond a certain point. Did you build some relationship with some key people in your industry? Did you learn some skill yourself? That's the kind of thing of of thinking. >> Um, let me let me give a shout out to everybody and then JT, you want to do some veggies? >> Yes sir. >> I don't want to miss the Oh, we got Pitikva in the house. What's up? Tallahassee, Brandon, Mississippi, Breenidge, Nashville, Tennessee, Valpareo, what's up, Mac? Tombell, Texas, Bolognia, Italy, Lance, Swit Switzerland, Mayfair, London, Boisey, Casper, Wyoming, Toronto, Jupiter, Florida, Cromwell, New Zealand. Early start for you. Lods, Poland, Belleview, Main Streets of Jared, Jared's Cross. I love it. Uh, Gulam, India. Wilchshire, England. Tampa, Dubai. Torino, Italia. >> Oh, wow. Who's that? I'm in >> Patrick Rossy. Patrick Rossy. >> Wow. >> Says says hello. Uh, >> world. >> JT, I think I I think I got everybody. Apologies if I missed you. Uh, jumps around a little bit, but JT, you want to hit us with some vegetables? >> I will. And uh before I'd be remiss if I didn't uh you know I'm in New York this week and I happen to be at uh Santangel's event and so got to give a little shout out to those guys and Steve Freriedman for getting me set up with like my own little private podcast studio here which I will tell you is actually the uh like a little maternity closet for breastfeeding apparently. That's what I but uh I digress. But thanks to those guys for being so accommodating. Um, so I've been saving this particular segment knowing that Luca was coming on the show and as I think Hugh will enjoy it and also probably be able to add a lot more wisdom than I even uh am able to start with. So uh you've no doubt heard of the rule of 72, right? That's the quick refresher is just a quick way to estimate how long something takes to double. So divide 72 by the annual growth rate in percent and that gives you how many years you would need. So let's say 8% return takes 9 years then to double 8 * 972 double in 10 years requires a 7% return. You get it? Now there's another number that seems to be somehow created by the universe. Uh and that is 63%. And it's hiding in the background of of almost everything that feels like luck or fate or randomness. And it's not actually mystical. There's something mathematical that's happening here. And it's it's a probability that that's found in u if something has a one and in chance of happening in one single try and you try it n number of times the probability that it happens at least once in those n number of tries is about 63%. It's not 50, it's not 90. It's this strange kind of middle number of 63. Uh and that's actually not a coincidence. Like the shadow of the math behind it is this constant e which is 2.6. 718. And um you might remember that from calculus, but I uh I'm not sure I'm sure I'm more confusing than helping when it comes to that. And we'll probably save more details about E for another veggie segment. And we can forget about all the math. But what makes the 63% rule so special is that it connects all these things that seem very unrelated. Money, marketing, risk, failure, persistence, habits, inevitabilities. Um so let's just play with a few examples to help build our intuition around this. Let's say in your job that you send out cold emails to potential clients and each one has a one in 10 chance of of getting a reply. So if you just send one, odds are bad, 10%, right? You send 10, your chance of at least one person responding jumps to 65%. So it's it's around that 63% rule. Uh let's say you drive a car every day, your chance of an accident is on any given trip might be one in 10,000. Basically zero feels like, right? But if you drive 10,000 times once a day for 27 years, the probability of having at least one accident in your lifetime is about 63%. Or imagine an investor taking small independent bets every day. 1% chance of a catastrophic loss sounds safe enough. You know, it's never going to happen, right? One in 100. Uh that we as humans, we round that down to zero, right? But after a 100 trading days, the chance of avoiding that big loss drops to just 37%, which of course is the the flip side of 63% chance of something rare happening. Um, so it's almost almost like this little rule of the universe almost like gravity's 9.8 meters/s squared. Uh, but it's that rule for randomness. >> Um, so you don't really need to understand the formula. I just wanted to give you a little bit of intuition around, you know, one one over n and then times n number of entries gets you somewhere around 2/3. >> And that's really sort of the the intuition that we're trying to build here. >> Wasn't that was the expected Didn't you say, Luca, that it was the expected two 20% chance of blowing up, 20% chance of winning. Your chance of winning one race was 64. >> No. So that was the expected amount of wins over 10 oasis. >> It's like >> why is it why is that number what's the significance of E? >> How does E get to 63? >> I'm not sure. >> Toby, I told you I don't know the math and I said I I can't explain it. I mean I'll give you the there >> here's what the here's what the equation is. Okay. If you if you want to see >> but I just wanted to I just wanted to say that the the 0.64 in my example is a coincidence. It's unrelated. Yeah. Sorry. >> Right. Uh I mean so it's the math is is parentheses like 1 - 1 / n in parenthesis to the power of n which equals e to the -1 which is 37%. Now whatever the hell that means I'll let you uh interpret. Uh but that's that's the math behind it. U there's one other thing to bring up in here though that's kind of interesting is that you know we talking we're talking a lot about risk and you know you're taking stupid chances maybe that have very small probability but a very extreme outcome. >> Um and of course erodicity plays a big factor in this. Um there's a big difference between a 100 people playing Russian roulette at one poll and one person playing it by themselves a hundred times, right? Um, but there's a there's a positive side to all this which is actually about habits. And if you are doing positive things in your life that have a very small upside but a consistency to it, there's a compounding that happens here that actually makes success almost unavoidable uh or inevitable. And that I think that's you know we we talk a lot about kind of negative things and maybe we're a little biased that way sometimes but there's actually kind of an uplifting story to this is that if you take the right actions uh and do it consistently enough those habits then turn in and they become very powerful. >> Yeah. Exactly. Like in winning long-term games one of the things I say is that your strategy should be inevitable. And by inevitable I mean it should have exactly these compounding effects and these properties that even when you fail in an endeavor you kept building skills, relationship and trust so that you are almost guaranteed success uh over over a certain amount of years. >> I want you want to let that really like you want to be on the right side of that 63%. You want to have it work for you and then also you want to make sure that you don't give that 1% risk 100 chances of killing you. >> Exactly. You want to make your success inevitable and not your your demise. Yeah. I wanted to add one thing Jake when you mentioned uh the probability of crashing in a car. M >> the good thing is that you can estimate your probabilities of crashing because probabilities of the car the average is very different on people like even if you discover that the average probability is one in X for the average population. What happens really is that this driver has one has three times as much as that and the other driver maybe three times less than that because and the interesting thing is that so it becomes much more important in addition to knowing the B the base rate to know how you're personally doing and the tip for this to me for me is to look at near misses. So, for example, in the in the case of driving, what you want to check is how many times are you checking the phone or how many times do you see yourself crossing the red line or doing something stupid. That's what's going to estimate your probability of crashing because you can almost say that you will crash after 10 times that you check your phone or something like that. Like now, of course, maybe the number is higher, but that's a very good estimate. That's that's a relatively good way of saying it. The the more frequently you catch yourself checking the phone, the more likely you will crash over the next 10 years or something. >> There's a lot of latent data points out there that you're you might not be seeing. >> Exactly. And this applies to everything in business. How many times are you doing near misses in business? How many times are you doing your misses in investing things which you realize it was a terrible decision but I got lucky or oh I missed this piece of data or like that's a very good indicator of how long it will happen to before you crash if you don't change your habits. >> There there's been a there's been a huge spike in pedestrians getting hit over the last 10 years and it just gets bigger every year after being like virtually rubbed out 10 years ago. It's it's back to where it was 10 years before that. So that's a very real sides. >> I think so. I think so. Probably. Yeah. >> Um, one of the things you discuss in the book, Luca, is hindsight bias, which is uh a topic near and dear to our hearts as well. How does hindsight bias lead people to adopt non-reproducible strategies and then I want to talk to you about hindsight gerrymandering, which is a great term. >> Yeah. Yeah. So hindsight bias is basically the fact that Well, it's a bit what we were say saying before uh with uh with the example of the three of us going to the casino or playing the stock market. >> Can I win this time Luka in the example? Okay, good. >> Yeah, there are the that's the again like we can have three strategies that are exactly equally as worth, but if Jake makes more money, his strategy looks smarter. >> Yeah. Yeah. >> And if his strategy looks smarter, we are more likely to imitate him. And that's not necessarily that's not necessarily right. And the the key the the mistake we do is that we often judge we often think it's true that maybe this is investing this way is risky but smart investors or people with smart strategies make profit with this and I am smart and therefore I will also make profits. We very often tend to think this way. The problem >> exception to the rule. >> Yeah. Or we think that we are just like the rule. Like it's a real like it's a real rule that smart people usually make money. The problem is that we don't know yet if we are smart or not. >> Like and it doesn't translate like it's not because I was good at I was smart at school that I'm smart with investing. And it's not because I made money last month that I'm smart at investing. To know whether I'm smart at investing, it takes 20 years, 30 years, whatever. And the problem, the problem is that though that people think I am smart and therefore I will do well or I am smart and therefore I can get away with not taking some precautions. But you don't know yet whether you're smart. That's that's the problem. And the thing I I I I mention when I talk about insight gerrymandering is this fact that we gerrymander good strategies and best strategies before we know. So the fact that we think I don't know we we can think something along the lines of um um yeah it's true that only uh I don't know now I don't know the percentages but it's true maybe only 20% of investors bit the mark bit the market but >> it's true those that those are >> yeah but it's true that those are smart investors and I am smart so I will beat the market. Here you're gerrymandering the strategy on a characteristic smartness which cannot be known before the fact. So you're using hindsight and that's what I'm calling inside joy mandering and you are increasing your expected probability of survival based on something that doesn't exist and that leads to a lot of problems down the road. Yeah. >> What about something in the like like the market where >> what works everyone kind of starts copying and it becomes a self-neutralizing thing. So like non-stationerity of data. How do you how do you handle that? Yeah, this is this is another big problem that like maybe you were smart once you discovered a strategy or a hedge but the the question is will this hedge remain and if not again you cannot use the the insight of the past you cannot extrapolate the thing that stayed good for you in the past for for for the future uh completely yeah >> Luca you mentioned that there's value in asking how can I achieve achieve this in 30% of the time and how can I achieve this in three times the time? Why why is that a good way to ask a qu approach a problem? >> Yeah. So I always make the example of imagining that one day a mafia guy comes to you and he says I will kill you if you don't give me $1 million tomorrow. Now imagining that you don't have uh that you are a normal person. You don't have a million already in your bank account. What do you do? Maybe you sell your organs and you take the proceeds and you go to the casino and you put them all on the 36 and you hope that you win. The the thing is because of the very short time horizon, you only have bad options. Now imagine that the mafia guy tells you you have five years to give me 1 million. Now your options are a bit better. You're still not certain, but you have a bit better options. Maybe you open a startup. You work super hard for five years and then let's say that you have I don't know a good a decent possibility of grabbing the 1 million. Now imagine that the maf guy tells you I will kill you if you don't give me 1 million in 30 years. Now it's almost certain that of course you need to work hard, you need to make some sacrifices and but if you are decently smart and work decently hard, you can do it. So the point is the longer your time horizon, the better options open up to you. If you want to build a successful business in uh 30 years in but even just in 10 years you have some decently good options. If you want to build a very attractive physique in five in three years you have very decent options and you do not take need to take risk or weird med weird medicines or whatever. But again, if instead you tr same thing if you want to get a a super great attractive girlfriend spouse in five years, completely doable. But if instead you give yourself an artificially short time horizon, I want to get an attractive physique in one month. I want to get a girlfriend tonight. Then I want to to become a millionaire next year. Then you only give yourself bad options. And so my suggestion is give yourself a reasonable time horizon for which you can be solidly certain in which you can build success in a solid way that gives you relatively certain and the plus it enables you to enjoy life while you're pursuing the success you seek. It's a much better strategy. What's the Do you have like a What's the name for that? Is there a any like math behind it or something like that we could pinpoint that or is that just a Luca special? Uh, you know, off this >> Well, >> the idea of optionality opening up on farther windows. >> Well, that's I don't I don't know if there is any any uh any mathematical principle. I it's just one of my rules. Let's say, yeah, that one of my rules for winning long-term games is to give yourself a reasonable time horizon and everything becomes easier after that. >> Call it Lucas Razer. >> Yeah, you call it Lucas Razer. I like that. >> There we go. We got it. Yeah, >> I think that there's a lot of uh performance chasing and uh there's a lot of FOMO potential in this market right now because it's one of those times in the market where people posting huge >> personal accounts lapse right now >> very very quickly using options. >> Yeah. Um I I imagine that a lot of that contributes that social pressure and that fear of missing out contributes to a lot of the short-term thinking. How do you what do you think about that? >> No, completely agree with that. Like the biggest problem in life, the biggest limit in life and I strongly believe that is exactly the fact that you look left, you look right, you see people getting more successful than you, you feel like you're falling behind. You're feeling some kind of existential dread and you think like you can you must success as fast as possible. It feels existential and because of that you close yourself some good options. I I personally saw it myself. If I remember when I was 16 years old, 17 years old and almost everyone around me had a girlfriend and I did not and I was feeling it existentially and so I wanted to find a girlfriend tonight and I only had bad options like going to the club but it but if I wasn't attractive myself it wasn't helping. Problem is that I literally did this for three or five years. That was my mindset and I didn't had a girlfriend until I was like 212 I think something like that. What changed? It changed that I started having as little longer time horizon. So I instead of going out and meeting people I was taking some time to to go to the swimming pool like get a bit more like back in shape and things like that and then the problem solved itself. So, it's really about this noticing that the fact that you feel like you're falling behind. Number one, the people who are getting ahead, maybe they will crash if they're getting ahead in ways that's not reproducible. And number two, even if it's true that you're falling behind, trying to get back as fast as possible will not help you. Yeah. and and and and for the people who don't still don't believe it or they believe it but they want an argument to show it to people because maybe they need to justify it to their boss or to their clients and so on. I give an example in the book which is the example of Alice and Bob. Uh I think the skiers I don't remember exactly because I I made different variations and I don't remember which final example went into the final version in the current version of the book but the basic idea was that Alice and Bob they ski and they one takes is more conservative so he has a lower chance of winning each race but also a lower chance of breaking his leg. and it's Bob and instead Alice takes more risks so she has a higher chance of winning each race and the higher chances of breaking his leg and the question is who has the best strategy and the answer which is very in I think that the percentages was Alice 20% chances of winning 5% chances of breaking her leg and Bob 10% chances of winning and 1% chances of breaking his leg I don't remember the exact numbers. But the answer was the best strategy. It's neither Alice, it's neither Bob. It's it depends on when we measure it. And the I was showing that if we measure it in five races or less, Alice has the highest numbers of expected wins. And if we measure it after with more than five races, Bob has the more. However, there are two two problems with like psychological problems. The first one is that even if Bob has the best long-term strategy, the risk is that after three or four races, he notices that Alice is ahead and he switches to Alice's strategy. That's the first risk. And then the second re the second problem is that even though Bob is expected to win more races over 10 races, if there are a 100 Alyses and a 100 bobs and after 10 races we only look at the top 10 skiers, they will all be alyses. The problem is that there are a few analysis at the top then all the bobs and then all the analysis at the bottom. But if we only look at the top, we think that ali strategies is better. However, if you are a Bob, if if you are a single person, Bob strategy will be much better for you. And we have trouble humans at understanding this at understanding that if we see someone at the top it doesn't mean that his strategy is better. >> That's very >> I think you just described 90% of the problem in the investment world right there. >> Exactly. I mean it's it's very similar to TB has that idea about dentists being >> the median dentist is more successful than the median you know sports star or or not sports star like someone who tries to turn pro in >> sports or music or film acting or something like that >> and the the ones that you the successes that you see are the ones that are the unusual outliers and then the median dentist or the median Bob is better than the median Alice I think is it was would the median be the don't measure there >> probably. >> Yeah. Yeah. Yeah. But this that's an interesting example because when when I talk about those things, some people they tell me, "Yeah, but I still want to be one of the top 10 or I still want to become a singer and to be a super successful singer." Okay, let's imagine that that's your choice and you are conscious of the tradeoffs and you are conscious what's the next best thing you want to do. It's not to copy what the people at the top did because there is an incredible amount of luck and most likely even if they did something good, you probably don't know what amongst the 10 or 20 things that they did which is the one that actually brought them success. You will probably not be able to know that and you will copy the wrong thing. Instead, the much better question to ask is, how did the other people that tried fail? So, what caused other talented singers to not become superstars? That's the key question that you want to ask yourself. What caused other talented investors smarter than smart as me to not become Warren Buffett or whatever? That's the key question that you want to ask yourself. >> I like that. That's >> it. >> Yeah. Does it change anything, Luca, if the payoff to the outcomes are like incredibly hugely power law driven? >> Well, the the more they're powerdriven, the more is the impact of chance. Uh, of course. And then the the good question is then how do you expose yourself to chance? So I make an example for for myself. I am an author. I write books and the thing that you realize as an author is that writing a great book is the prerequisite but it's definitely not sufficient to get the kind of success that I don't know Stephen King got. So the question is what do you need to do as an author to to get that kind of success? And then you started you start thinking and I'm not sure that I still have the answer but you start noticing that it has things that have relatively little to writing a great book and much more for example with getting your book in front of the in the right places and and and and things like this. So the thing is the more the outcome is is fatailed the more there is a difference from the thing the kind of things you need to go to do to become good and the things that you need to do to become great let's say and then of course what this mean is extremely domain specific. Yeah. >> What about um how about network effects and compounding? What's the relationship between network effects compounding and long-term games? [Music] >> Well, so I think that there is one aspect that you want. So more than network effects I will talk about relationships because the problem with network effects is that if we are talking it in an entrepreneurial way then it's easy to then become a winner takes all we we get into a winner takes all and winner takes all is not compatible with winning long-term games in the sense that of course like there is the again there's the discussion of let's assume that you decide that you want to enter a winning long-term game race but you need to to know that because it's a race with a limited number of winners that means that you cannot have a a certainty of winning because even if you have the best strategy all it takes is another person running the same best strategy and then it becomes a flip of the coin so there is the and that's why I don't like the term win network effects much in this context because it brings to these considerations but let's talk about relationships which is similar to that or about trust about which is also similar to that and I think that that's a key element in winning long-term games the fact that you need to build relationships you need to build trust past. Those are all compounding assets that become more valuable when the time passes and become more valuable as you keep doing it. So each relationships can bring more relationships and acquires more value because with your relationships you can give more to your existing relationship and so on. So that's the angle I will get. Yeah. >> Uh h you you've been a you've published several books and you're a consultant. How do you I use these ideas in your own life and career? >> Uh so I used >> aside from getting girls when you were younger. >> Yeah. So for example for the well you can see it in my in my career in the sense that if you subscribe to my newsletter you will see that I definitely don't consume the trust of my readers and instead I I write the emails to build trust. there is extremely low amount of selling. Like of course like when I publish a book I mention it to my newsletter but that's not the topic. Like most of the email I send I send them to build trust so that people are more likely to read my next email to buy my next book not the current one and so on. That's the same that's the same thing. Another thing you will notice is for example um well another thing is that I published 11 books because I know that you can write what you believe is the best book you will have no idea how much book can sell. Um there is extremely high variance low control of that. If you want to become a successful author you need to buy to write more than one book. uh for example if you want to have a high degree of certainty that's another way in which in which I use that and then another thing is I I I am very often on Twitter and I am definitely try resisting the temptation to write viral tweets uh because viral if you want to write viral tweets that will bring you to consuming the trust of your people like because the quickest way to write a viral to it is to exaggerate or misrepresent or playing on the outrage or telling a funny joke. And the the problem is that it gets you a lot of likes, but it's not the right kind of likes. It's the kind of likes of I liked the joke or I trusted the lie, but it's not the kind of like that says I trust the author more. And that's the kind of what you want when you write on Twitter is to write things that makes you trust the author more. And you will realize it yourself when you are on Twitter very often when you put a like. It's not a like that means I trust the author more. I will give the author my money. It's a like of I like the tweet. The tweet made me laugh. But maybe you even trust less the author. Luka, can you give one habit that you have that you think is the least likely that people listening would have and have the biggest impact for them? >> So I think that the biggest the simp the biggest habit is to ask is to have a ask yourself did I last week do at least one thing that is unnecessary in the short term but necessary for to grow beyond a certain level in the long term. I think that's that's one of the greatest habits. And then the second thing is to keep asking yourself. I always say the risk the risk the risk. So always ask your ask yourself how did other people with the same goal as mine fail >> and that will give you a lot of insight into into improving your life. >> Ladies, liquor and leverage according to Charlie Ma and Warren Buffett. >> Hey Luka, we've come up on time. It's always a pleasure. The hour goes really quickly. Uh if folks want to follow along with what you're doing, buy one of your books, get in touch with you, what's the best way of doing that? >> Yeah, so you can find all my books on Amazon, on most online web stores or some print web stores as well. And otherwise, my website is luca-delana.com, luca-de.com. And uh I'm also very active on Twitter and on YouTube >> and uh Twitter you're Delana Luca. You've got the got to start with a D if you're looking for if you're looking for Luca author of >> exactly >> erodicity and winning long-term games the ones that I've read. Uh thanks so much Luca. We'll hope to have you back again in the future. >> Thank you so much. I would love that very much. >> And thanks team JT. Any final words? >> Just always a pleasure to have Luca on. One of my favorites. Check out journalic folks.