Afford Anything - Your "Diversified" Portfolio Might Secretly Be One Big Bet on AI, with Alec Litowitz

Episode Date: September 15, 2026

#750: Free worksheet: question the belief that might be keeping you stuck — before reality forces the update for you: http://affordanything.com/turn-it-around Alec Litowitz spent three decades building one of the world's largest hedge funds, and he says the highest-IQ people in the room are often the last to notice the world has changed. His answer isn't more intelligence — it's the willingness to be wrong, quickly, and update before everyone else catches up. Alec co-founded Citadel alongside Ken Griffin and later founded Magnetar Capital, one of the largest alternative asset managers in the world. His new book, The Adaptability Quotient, is out September 15. In this episode, we discuss: How adaptability quotient (AQ) differs from IQ and EQ — and why it matters more now What a doomed Antarctic expedition reveals about real adaptability Why AI makes knowledge abundant and judgment scarce How to stop needing to be right so you can update faster The real reason Blockbuster lost to Netflix (it wasn't a bad decision) A 4-part test for telling a temporary shift from a permanent one Why a "diversified" portfolio might secretly be one big bet right now This episode is for anyone whose career, portfolio, or plans feel less certain than they used to — a way of thinking that doesn't require predicting the future, just noticing when your old model has stopped working. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Things are changing faster than ever, and that means we need to sharpen our decision-making and become more adaptable. When a resource goes from being scarce to becoming abundant, its cost declines, its use increases, and something else becomes the scarce thing that turns into your edge. Speaking of having an investment edge, today's guest is one of the most successful investors and entrepreneurs of our day. Alec Littowitz is one of the four original partners of the hedge fund Citadel, and Citadel, which was originally founded by Ken Griffin, is widely recognized as the most successful hedge fund in history. Ken Griffin started Citadel in 1990 using money that he made trading from his dorm room at Harvard. Four years later, today's guest Alec Littowitz joins.

He becomes one of the four original partners. He's a principal at the firm. He had almost no trading experience. Ken Griffin asked him to build out Citadel's merger arbitrage business from scratch. He becomes the global head of equities. Ken Griffin gives him a part-ownership stake. Citadel becomes the most successful hedge fund in history, posting over 90 billion in cumulative net profits since its inception.

It manages somewhere between 69 billion to 77 billion in net investment capital, and it employs more than 3,100 people, highly selective. Littowitz ultimately left Citadel in 2003, sat out his non-compete, and then started his own powerhouse hedge fund called Magnitar Capital, which he created in 2005. Now, Alec has spent most of his career outside of the spotlight. He's more of a behind-the-scenes guy. But right now, he has a message that he really wants to share, and it's about AI. The way he sees it, a lot of the conversation, the public discourse right now, is about AI technology. How do you guardrail it? How do you regulate it? How do you align it? How do you make it more capable? That matters. But he believes that we're not spending enough time thinking about the other side of the equation, which is what is it doing to us? How is it affecting how we learn and the judgment that we execute? How does it relate to our authorship, our agency, our authority, over the decisions that we make?

That's what he joins us today to discuss. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. The show covers five pillars, financial psychology, increasing your income, investing, real estate and entrepreneurship, acronym Double I Fire. I'm your host, Paula Pant. Today's episode is about how humans think and decide. It is thinking about your thinking. It is metacognition. We recorded this interview on Wednesday, September 2nd, which was one day before OpenAI unveiled GPT6 Astra, which led the CEO of Nvidia, Jensen Huang, to declare, quote, AGI is here.

So just so you know, because we do talk about AGI later in the interview, this episode was recorded one day before Astra was unveiled. So context that you should know when you listen to the AGI portion of the conversation. But this interview is not about AGI. It's about you. It's about humans. It's about thinking. It's about decision-making. It's about adaptability. Littowitz is the author of a new book called The Adaptability Quotient. All proceeds go to charity. He's not writing it for money. He doesn't need money. He's writing it because he believes that in the face of rapid technological acceleration, these are essential conversations that our society needs to have. So, welcome Alec Littowitz. Hi, Alec.

Hi, it's great to be here. Thank you for being here. Can you tell us the story of Shackleton and his Antarctic Adventure? Yeah, I mean, this is, I think, one of the epic adventure stories that exists in history. It's almost a miniature version of AQ in operation, you know, adaptability quotient in operation. But it's a classic story of, you know, explorers that are searching for some achievement that hasn't been done before and Ernest Shackleton sets out to cross Antarctica. I've been to Antarctica.

I've been there with my family, and I've been to the South Pole. Fewer people have been to the South Pole than the top of Everest. So I can say conditions there are unfriendly, and they vary quite a lot. So even in the luxury that I went there, there isn't really luxury in Antarctica. Conditions can change quite rapidly. Your ability to even fly in and out, much less do many excursions, you know, on land. vary a great deal. So his original mission and their original goal with his team was to literally cross the continent. And just to give a sense of that, because I don't think people have scale here,

the land mass underneath Antarctica is twice the size of Australia. It's not small, okay? It is 98% covered by ice with an average thickness of two miles. So when you go on land, you're at 10,000 feet above sea level and you have a massive continent to cross. So thinking about prepping and how you're going to achieve that is a daunting task. So sets out with his men and they get to Antarctica and they, you know, if you see around Antarctica, that land mass is quite large. But there's sort of these flows of ice adjacent to it that sometimes freeze up, sometimes loosen up. It varies depending on the weather and the season.

Also remember one other daunting piece is that there's only one sunrise and one sunset a year in Antarctica. It's either pitch black or. or it's 24-hour sun. So spend any extended time there, and you will be in pitch black, and you will be in extreme cold. So he sets out, with those facts in place, he sets out on this journey to cross Antarctica. And in the process of sort of approaching the mainland mass, some of the ice starts freezing and starts limiting the maneuverability of his boat. Eventually, they get caught in some of this ice, and they literally can't move.

and ice is incredibly powerful and strong. You're talking about massive pieces of ice. And the ice starts crushing the boat and eventually destroys their boat. And what they're left with is going into these sort of safety boats that are quite small, by the way, and they go to shore, shore being a piece of ice that's large enough to sit on. And the rest of the story is that they've now abandoned their main purpose. They're not going to cross the Atlantic. They don't even have a boat.

They don't even know how they're going to get back. it's really one of the great leadership stories, but it's also one of the great teamwork stories. The beauty of the story is that it isn't always about your original mission. At the end of the day, they couldn't complete their original mission. And so what becomes the mission and what Shackleton decides, and the team decides, obviously, that becomes number one priority is, can we get every single member of the team back alive?

Can we find our way back? Forget about Antarctica. Can we find our way back and everybody be alive? Now, you would probably say, and we would all say, well, wasn't that part of like mission subpart two or something? Like, we probably want to cross the Antarctica and everybody makes it back. But this becomes priority number one. But in the process, they go through what is an incredible, I mean, it's hard. When you're reading it, you think it's fiction.

It's not like they sit on a piece of ice, figure it out, row their way back, and it all is good. They just face one difficulty after another. The beauty of going through the storyline, which I'll spare all the details of it, there is IQ and EQ. There is getting the team to stay together. There is using judgment and their knowledge about navigation. But they're being thwarted constantly by the environment. They have a response to the environment, but they don't get to choose the environment.

It crushed their boat. It makes weather. The wind blows into wrong islands. The ice starts tilting. You know, they're eating seals for dinner, seal cakes for lunch. I mean, they're just trying to, just every bad thing that could happen actually literally happens to them. And it's their ability to adapt to what nature throws to them.

What mentally is incredibly the physical challenge, the mental challenge. And it is sort of that story of what is it that makes us uniquely human? And it isn't just our IQ. It's not our IQ. It's that we are adaptive by nature. We have the ability to overcome our environments. We have the ability to exercise agency, even in the most difficult of times. And that's a fair analogy for right now because I consider this to be one of the most challenging times.

we're facing an era of incredible change. And what it requires to exercise judgment is an agency, is adaptability. It's the ability to respond to the uncertainty we're facing. This is maybe one of the greatest stories ever of a team facing uncertainty of epic proportions and succeeding because of their adaptability. And by the way, they made it. An incredible story. I don't want to ruin it.

They make it back with everybody. And they have these images later, these haunting images of the entire team, when they get back. And these are people with families, with children, with, you know, spouses. You often in these, like, haunting images, it's sort of like the sad story or there's, they're all made it back. They all made it back through sort of sort of courageous acts of adaptability. I first read the book, by the way, a couple years ago, I had broken four ribs and had a collapsed lung from a bike accident. I was sitting in the hospital overnight. I was a little bit feeling sorry from herself in pain. And I started reading this book and I'm like, okay, I no longer

feel bad for myself at all. This is true adversity. This is this is true adaptability. So that's a little bit of the story. I just, I felt like it was a real microcosm of this grit, curiosity, the ability to overcome your circumstances through incredible adaptability. You mentioned just both grit and curiosity. And in a moment, I'm going to ask a bit more about how those concepts tie into adaptability. Yes. But before we get to that, let's first define adaptability, adaptability quotient, and how that differs from IQ and EQ? Yes. Yeah, it's a good question. I use AQ surrounded by IQ and EQ because I think it provides context, but it is very, very different. So I consider AQ, and for listeners, that stands for

adaptability quotient. I use that to describe a learnable framework for making decisions in a world of uncertainty. I think what people think of IQ and EQ, those are incredibly powerful tools that help you navigate a world as you understand it. But what happens when the world starts changing, right? IQ and EQ, which are incredibly valuable, a very smart person who believes something when the world is changing is going to be the best at explaining to you why their world is still true and not updating to what the world is. Someone with EQ is going to sit and coordinate with other people and help manage the people in that frame that might be old. AQ is the ability to sit and go, is my mental map of the world, which is how I make decisions,

I act based on what I think is true. If that mental model becomes old, what skill is it that makes me update? And we'll talk about grit and curiosity as part of this. What makes me sit and go, where might I be wrong? Let me question my own thoughts. Let me look and see what other possible explanations there are for the facts on the ground. And then come up with a new model. Once I have that, I will redirect my IQ and EQ to solving the problems in that mental state of

the world than that model of the world. And in a world changing fast, it's very, very easy to be running your really strong engines of IQ and EQ pointed in the wrong direction. I have an analogy for this from when I used to do Iron Man's. Think of a little bit of two things when you're swimming in the water. One is your stroke and your engine, how powerful you are. Let's call that IQ. IQ is your ability to solve a problem within a frame. You have an incredibly fast stroke. And then you coordinate with other people because swimming around and behind other people is very efficient. It makes you 30% more efficient. You can do a lot less work if you swim behind somebody. So you're going to do a 2.4 miles swim. Go behind somebody and do your stroke and that's what you do. But everybody could be swimming

really fast as a group in completely the wrong direction. So what I learned early is is that you learn to have a stroke, keep your head down. That's efficient. Do you look up? How often do you look up? Should you look up and go, well, am I even pointed in the right direction? I'm following. these people, but are we all going in the right direction? The answer to that question is, when the wind and the current is moving faster, you have to look up more. It disrupts your stroke. It makes you slow down, but at least you're not going fast in the wrong direction. And so I view AQ as like the meta-skill. It's what's needed today more than ever, because when things are changing quickly, you're in a constant state of saying, am I pointing my other

skills in the right direction or am I not? It's that meta-skill that says, do I have the right and understanding of the world as it is right now, because applying my skills only matters if I'm heading down the right track. For the audience, as they're thinking about how to apply this to their lives, some of the things that people who are listening to this are grappling with right now, number one, living in a world in which nobody knows what impact AI is going to have on their career. Most people listening to this are knowledge workers, and knowledge workers, probably more so than any other subset of workers might be concerned about the impact of AI on their careers.

In addition to that, there are subsequent questions. You know, most of the people who are listening to this are passive index fund investors, Boglehead investors, who are wondering, all right, that's been my model so far, you know, VTSAX and chill. Like, do I stay the course? Do I need to update that model? Like these are the questions that are on people's minds. And then I'd say the third subset of questions on people's minds are.

prioritization. I've got this goal of retiring. I also want to pay for my kids to go to college and max out their 529 plans. I also want to make sure my elderly parents are taken care of. I'd also really like to go on this big six-month adventure with my spouse. And so how to shuffle and prioritize all of those. I'm kind of lumping a lot of things into one mega question. But I'm thinking about the concept of AQ, as it applies to these more, would the word be prosaic, like these more day-to-day questions of how a person should think about how they steer the direction of their life? Yeah, those are, I mean, I understand that there's a variety in there, but I do think

there's a core element of what you're describing. And so let me try to frame it a little bit, and then I'll try to answer it. If you go back and why people, I think, have a difficult time with it. And I don't think it's because people are not intelligent. I think broadly people are very intelligent. The problem is, is the world changes and they don't know what to do about changing world. So let's go back to, I'm the son of two psychoanalysts. Somewhere in this storyline, there's going to be a going back to when you're a little kid because it's part of who I am. So if you go back to, you know, when you're born, you're constantly experimenting. You don't have a model of the world. And so you play with things and you drop them. And you're trying to figure out the rules

of the environment. And other than, you know, when your mother or father watches you attempt to put your finger in a socket, you know, which is it, don't do that. Otherwise, you let them explore and all these things you do wrong, a glass breaks or this, whatever, are not mistakes. They're just you mapping the world, right? We don't, you don't have an identity yet. So you don't sit around going, oh, I'm in a mistake there. You're just learning. It's no problem. But then you start to interact with your parents, a lot of people. My parents were a little unique, but most people in they interact with their parents start following and realizing, well, when I act a certain way I get a certain response. I kind of like that. I know, I know, it's like Pavlovian.

I go to school and when I do certain things, I get good grades. And you begin to take this exploring, which happens when you're young, I'm just exploring the world. And you almost, what I call exploit. I'm going to start acting a certain way or answering things a certain way. And that becomes very pattern-like. And what happens is people get used to having answers and certainty. And they have a model of the world and they don't like it changing. People don't like uncertainty, and we'll come back probably in this conversation to why it's an incredible gift uncertainty. But I understand why people are born and develop in a way to not liking it. What starts to happen is they start to identify with it. Coming up with right answers

and coming up with answers that they feel certain about is rewarding to them. And that becomes very dangerous. Now, when you describe three different versions, whether it's investing, you know, whether it's raising kids, whether it's deciding what to do for your retirement, et cetera, the challenge of the day is that there is something centered on all of this. And it's driven by what is different about right now? Why do so many people feel this anxiety? And why is it, it's almost beautiful that you said it, why is it infecting so many different areas? You didn't just say, oh, it's infecting investing.

The great financial crisis adjusted the way we have to invest. So that's it. There's something different about this one. And so let me talk about what that is. I'm not avoiding the question. And then we can come back to, well, because we have to diagnose what the problem is, and then we can say, oh, is there one problem across all of these, or are we trying to solve different problems? My conjecture is there is an underlying function here. So the first is,

everybody is born and develops in a way in this world we're in, to want certainty, and they don't like uncertainty. But now let's just say, well, what's the world we're in right now? And what I describe to people is, I consider us to be in the fourth industrial revolution. The first one, we manipulated atoms and we offloaded some agrarian work, right? We made steam engines. We made tools for land. The second one, we did even more of that. We built railroads and electricity and real industrial production.

People moved into the cities. Again, we altered the way we worked by manipulating atoms. So the first two, we manipulated atoms. But we didn't really change the way we think. It's just the way we work. Now, I understand there's subtleties that, well, if you move from the hinterland to the it changes things. But for the most part, we offloaded labor. In the third industrial revolution, we manipulated bits. And we stored, retrieved, and we calculated, we created data, we created

the internet. All of that, again, changed how we work. But this time, what we're producing and manipulating atoms, we're not manipulating atoms. What is produced with AI is tokens. And tokens have meaning. A bit doesn't care if it's next to another bit. A hammer doesn't care. or if it's next to a chisel. But a token carries meaning and meaning carries knowledge. What I mean by that is, if I say, let's go to the bank to withdraw money, let's go to the bank of the river, you can bank on it. Three same words all mean something different because context matters. So why do I go through this diatribe? The point of it as follows. This one is different. AI is a tool with the interface. We probably both in your audience, everybody probably uses AI,

but it's more than a tool. It affects the environment in which we think. It's a partner now. And I call that this second cognitive revolution. The first cognitive revolution was you and I sitting there, and once we can talk, I can say, hey, there's an animal around the corner. You go this way, I go that way, we'll attack it, and we'll have dinner tonight. Okay, we can coordinate.

You're now coordinating with a third party. Whose actual output is becoming part of your input. Part of what used to be human only, and that you used to be human only, and that you used to solve things is actually involved now in your decision-making. So now let's put these two together. You're born and you develop in a way. You're born exploring. You start to exploit.

You start to like certain answers. And you get used to that. Now, AI and the fourth industrial revolution and the second cognitive revolution are altering things so quickly, so fast. There are things that, you know, it used to be, go back to the example you gave. above the person retiring. When it was a world where there was a defined benefit plan, you got money, it was a certain amount of money, and that was it. There was no decisions.

Now it's defined contribution. You're your own portfolio manager, and you're like, I'm my own portfolio manager. I don't know what I'm supposed to do. And so along comes AI to say, I'll tell you what to do. I'll give you an answer, what to do. So it gets very confusing, I think, to sit and say, I was born a certain way liking certainty. This change has accelerated so much that it's causing greater uncertainty. But if you start to understand the underlying map that I have this tendency, this is bringing something in, you have the solution.

And the solution to the problem is pretty simple. And it is the following. When AI makes knowledge abundant, something else gets scarce. And what gets scarce is judgment and agency. Judgment is your ability to weigh the evidence and decide to act. And agency is acting. what enables judgment and agency to happen is adaptability. That's it.

Adaptability is the ability to sit and go, my judgment's based on a world, is that world still two? And if I update that, I can express my agency and apply it to the world that's changing now. So we can go through each of the individuals of what those individual, like you give three examples, should be doing. But my answer is going to be adaptability

is the answer to all of them, because what's being affronted to everybody is an increasingly complex and uncertain world where they have to go back to the mode of exploring and being adaptive when they've been functioning at a world that's stable where you don't get rewarded for that. That's time-consuming.

Why adapt when I have a pretty good answer right now? And so it doesn't matter which vector you pointed at. The answer's the same. Adaptability, judgment, and agency is what we have as humans left. and that is what you point no matter what problem you're solving. I know it sounds like a universal tool, but what is it that we have that makes us human?

It's not the production of knowledge anymore. Knowledge is getting commoditized. Judgment, agency, adaptability, that's our advantage still over the computers, and that is what you have to use to answer, not every problem, but a lot of the problems people face and challenges. Let me kind of summarize what I've heard. So first cognitive revolution, we develop language,

now we can coordinate with one another. Yes. Second cognitive revolution is happening right now. Yes. And we are partnering with AI. And we can talk more about that and the way that humans and AI might co-develop together. I know you're also a fan of Yuvalua Harari.

I am. So second cognitive revolution is happening right now. AI is now a thinking partner with us. Given the AI as a thinking partner, it is still up to us to exercise judgment as a thinking partner to AI, that means prompting. It means prompting. It means evaluating those prompts.

It means building agents. It means being a better partner to AI, essentially, stepping into the role so that we can, you know, because AI itself can make decisions, but it can't necessarily execute those decisions without us. And I guess that's where the agency piece of it also comes in. Yeah, I think you're on the right track. I would maybe if I try to round it out,

a little bit. I would say the following. I would say that what is the production function of a company? What's the production function of a university? What is it that we as humans produce judgment and outcomes with? All of it flows on knowledge. That's what is behind me. For a hundred years, humans have had knowledge and we use it to make decisions. Universities transfer knowledge to you and then stamp a credential on it, right? Companies, what is the value of a company? It doesn't matter if it produces a good or a service, what it stores is human capital, human knowledge, right? Now along comes AI and it says, I can produce knowledge, and I could do it for close to zero. Okay, what is the value of the company, right? What is the value of the humans in there? What's the value of a university education?

You begin to question, what is it that is uniquely human versus, why don't we just give AI our questions and let it answer it? And I think you were heading exactly down the right path, which is, that the human capability, what happens at a company, what you should be taught in school, what matters to you, no matter which of the situations of the three that you were describing earlier that we were talking about, what becomes uniquely human

is not the possession of information or the possession even per se of knowledge. It's the judgment on top of it, right? You mentioned prompting, but AI is going to give you a probabilistic answer. It doesn't have a stake in it. It's not embodied. It's never experimented.

physically in the world. It doesn't understand causality. It's very fluent. Okay. So what is AI really, really good for? AI is really, really good when it can cheaply verify its answer. So why is it so good at math, coding, and language? Math, it does something, makes an equation, and it can figure out whether just digitally figure out, is it right or not. Coding. It does, it writes code. Does it work or does it not? Language, it writes something and it says to you, is that good? Do you like that word? Did I come up with the right words and you go, that it's pretty fluent. So you start to get lulled into thinking, man, it does these things really well. I assume it does all these other things really well. But there's a lot that's still reserved for humans. And that part of it is the part where we

partner with AI, but only in a particular way. You reserve judgment. You reserve the capability to say, is it even in the right frame? Is it even answering the right question? Who decides whether, I mean, the AI, whatever one you are using, was trained six months ago. So it's already outdated for whatever information came in the last six months. But more than that, it's trained on data that we have as a society in enough scale for it to do its, you know, modeling. There's a lot of things that we have as humans that it just doesn't have the data for. I think you may know this, but Jan Lacoon, well-known AI pioneer, had said that by the time a human is four years old,

you've taken in more tokens than any AI has taken in, meaning that you as a human, because you not only take in words, audio, visual, which is incredibly content rich, that's how much information you're taking in. The best computer is still a human. You may not be as good as math and coding as AI, but there's a lot of things you can do better. And so when I say the way you have to partner and work and what this means is part of the second cognitive revolution is that it's like anything. You should see to AI and take its answers where you know there's truth there. Coding is truth. Math is truth. But you shouldn't ask it about your relationships where it has not had a relationship, okay? You know, would you teach your kid to ride a bicycle by just reading? Or would you be like,

go out there, wobble, fall a little bit, et cetera, et cetera? You'd be like, oh, no, you got to go out in the real world. Then why are we asking AI for answers to problems that it just has not experienced, right? It's not, you can read about it is different than experience it. So I think that going back now to your concept of the partnership, my answer is you can either resist the change of AI. You can adopt it and go, I'm just using it as a tool, or you can adapt to it. And the point of adapting to it is understanding AI isn't a tool, it's more than a tool. It changes the way you think because it's part of your thinking. So understanding, which we're trying to get into, when to use it, when not to use it.

And then the last thing I'll say about that is for a pretty clear rule of, well, then Alex just tell me, so how do you use it? How do you not? Think about doing the following, which is if it expands your set of possibilities, that's great. Don't use it to shrink it. So if I say to it, give me an answer. It is now gone to the internet, gathered information, compressed it, giving you one answer, okay? Just one answer. And here it is. And it sounds really fluent. So you're going to just say, that's, I saved me a lot of time. That is not what you want to do, because you're having it take over your judgment for you. What you want to do is say, I've thought about the problem, and here's my thinking on the problem.

Where do you think I'm wrong? What have I not thought about? Now you're not saying to it, you compress and give me the answer. You're saying to it, expand my thinking. It's great. That's like having a bunch of smart people around going, what other ideas do you have and where might I be wrong? That it's incredibly powerful.

So ultimately, if you don't resist it, because it's coming, and you don't just adopt it, it's a tool, use it whenever you can. That advice, which I hear going around a lot, is bad advice. Because how you use it is everything. You use it to augment what you do. You don't use it to atrophy. If you start using it in ways that substitute, that shrink things for you, then you are going to atrophy that capability, which for a large part of problems is still uniquely

human and we still have a better capability of doing it than any other animal on the planet or any synthetic animal on the planet. So use it as a sparring partner, use it as a debate partner? Great, great uses. Absolutely great uses. 100%. Don't use it to just shrink what you do and offload it. We've done this experiment before. This might be helpful for listeners. For the last 20 years, we literally just ran this experiment. You offload, or anybody, offload's attention to social media. What were you supposed to get back? You were supposed to get back relationships and connection, right? Is that what we got back? Because studies show we got back

loneliness. We got sadness. What went wrong? I'll tell you what went wrong. You offloaded tension and it gave the friction, like the leftovers, so to speak. So like, I'll give you a couple examples. First of all, I used to go on dates. Now I just swipe left, swipe right. Okay, the digital version is not like the friction of going on a date. Those are two different things, right? I used to go on vacation with my friend. Now, they go on vacation, post really cool pictures, and I go thumbs up, like, wow, that's cool, that's amazing. But I wasn't there with you. So the example we just gave of using AI, how could social media be used well? Because it can. Okay. Here's how. You know, I have not connected to my old friend from high school in 40 years. I found that person

on Facebook, and I wouldn't have found them without. I expanded the set. I use it to define things in other people that I hadn't connected to a while. I have a bunch of friends and we're trying to coordinate getting together and I use it to organize a meeting or a trip together, you know, using social media. Great. I expanded the set. But in each of those cases, the digital version follows with a physical, like, I'm going to do the embodied work of then meeting with the people and hanging out with them.

To the extent you sit and say, let's not meet. Let's just digitally connect. You know, I say to my four sons, say to one of my young, you know, my son, did you connect with so and so? oh yeah, what they mean is they texted them. Well, that's not the same thing, right? That is an artifact and not the friction and the real thing. So we all use social media that way, and we all, through an act of omission, nobody came out

and said, this is bad. There was mixed reviews on it. People were like, maybe it's good, maybe it's bad. I personally think it's going to come out that the way it was used is bad. It's being used to atrophy, not augment. It could be used for better. It's not. And part of that is the problem of the people that have provided it to us, because

because they run on algorithms. How do the algorithms work? They give you whatever, what gets engagement? Extremes. So it gives you extreme beliefs. Now you think, everybody thinks I'm crazy, I think they're crazy. And here's the irony.

What does AI do? Instead of giving you the extremes, it gives you the average answer that someone would give. It's like a double whammy. Social media has made you feel like the world is extreme. And AI that you're offloading to if you're not willing to have it expand,

if you say you give me the answer, it gives you the average mean answer. So the fear I have is, hey, wait a minute, we just ran the experiment and you offloaded some of what it means to be human in terms of social interaction. If you go now and offload to AI, your cognition, I mean, what about what makes you human? Your ability to have agency. If you are listening to things that are fed to you in a certain way and you're getting answers fed to you, what have you retained, where is your agency, which is what makes you human? And it is my argument that when the world changes and the examples going back again to the three you gave of people being confused and we're happy to come back to that, the only way to solve

that problem, given the world right now, is for you to be adaptive and for you to think through things and retain your agency. And what I consider my book is it's a field guide for retaining agency. There are a lot of entrepreneurs out there, of which I've been one. and when we go out into new businesses, we have no model because we think the world is different in the future than the past. So I don't get to use AI

or get to rely on some past model because I think it's wrong. So how do the best people who serially are successful compress and model that new world when there isn't a reliance. IQ and EQ don't help you figure out. I don't know where to point them because I don't understand the model.

I have to figure out the model of the future. Once you do that enough times, you begin to realize if you talk to other people that everybody's using the same underlying set of processes, this is what's going on inside the heads of people that are highly adaptive. And so when they face a problem, when you face the problem that you described, what do I do with my children, how do I do it? How do I do this problem in my company? The answer is thinking a particular way because the world isn't the same as it was.

It's different. And you have to map that a particular way. and I wanted to write down for people, here's how you map it, and it doesn't matter what the problem is, there is a way to map things in a world of uncertainty. And let me give you that sort of underlying source code

to do it. But I think that's particularly important, as I said, because I think we went through this with social media. We're doing it in AI. And that's kind of, if we let go of cognition, in addition to social, I'm very fearful that we're beginning to lose a little bit of what it means to be human.

and I'm very pro-human. Where some see heroes and others see egos. Bloomberg sees the era of billionaire athletes. While others follow the noise, we follow the money. Learn more at Bloomberg.com. You gotta try breakfast. You gotta try your w. And what better way than with a delicious pre-organic coffee?

Starting with just $1 all day, every day now until December 30. First. You got to try breath. I participating in W locations in Ontario. If we move in the wrong direction, we often don't know that we're doing it until we have the benefit of hindsight. Social media is one good example in which when social media first came out, and I remember Facebook back when you still had to have a college email address in order to access it, at that time, we didn't have the foresight. to see that this would cause social atrophy. We thought that it would cause social augmentation, right?

And it isn't until 20 years later that we have the hindsight to know what has happened. Similarly, I know you've given the example of Blockbuster, where Blockbuster did not have the foresight to recognize that prioritizing foot traffic, right at the moment when everybody was starting to stream video, was setting the wrong priority. And so they made a whole bunch of highly efficient business to see. decisions moving in the wrong direction. So given that our judgment, you know, you just talked about the importance of judgment

and agency, given that our judgment is so often wrong, what do we do with that? Well, first of all, that's an excellent question. I'll get to the end answer first and like the actual answer. And the answer is that a lot of times people think that successful decisions, you're like, okay, they're obvious in hindsight. But I can tell you at the foresight time when people are making them, people aren't sure that they're right. And this is one of the big, big keys, okay? It is switching your identity. A person who's high aQ is someone who can sit and say, I'm relocating my identity from the

need to be right to being an adapter. To be willing to be wrong, I just want to update. So why does that matter? Because what all these people did, if they were making the right decisions, is what is what is the least amount I can do to get feedback to tell me if I'm going to? in the right direction. So it isn't cliff-like. It's not like somebody's clear-boant and they know, but everybody else doesn't know that's the future. They think they have a hypothesis. I think that this might be the future, but I don't know. I mean, you know that Netflix tried to sell themselves to Blockbuster. So it's not like, if they knew in advance, they would have been like, they're done, we're going to be huge. Why would we sell ourselves? This is a

learnable skill. IQ is a trait. IQ is a trait. AQ is learnable. Everybody, because they're born adaptive, we went through that. As a child, you're adaptive. You start to lose it. And I'm trying to say to people, you've got to bring it back. But the way you're adaptive is just like a child. I'm going to play with this. I'm going to play with that. Don't put your finger in the socket. If you want to keep learning, don't make a huge bet on something. Just probe a little bit. And so when you think about the methodology in my book, which broadly is metacognition, that's clear your lens, understand that you have a view on the world. Two is simulate possibilities. And three is test it. someone around said, hey, I want to have an objective view. I don't want to be biased. I'm not sure blockbuster is the right way. Maybe there's a streaming thing. Then they have simulation. You know,

they tried doing books that originally they wasn't just DVDs in stores. Netflix was sending you DVDs. And then they bought the company. They were involved in like you go buy Walgreens and there was like a self-service kiosk. But eventually they're probing. They're trying things. And then eventually the streaming becomes the big thing, right? Where I think it differs a little bit is, is that you don't have to be clear-orient, and you don't have to bet it all on red. What you do need to do is sit and go, I don't care if my experiments are wrong. I don't care. I've lost my identity being associated with.

Well, I'm afraid to experiment because what if I'm wrong? I don't care. I don't, like, it's better to make decisions right than make the right decision. I want to be in a process, which is what AQ is, to experiment, get feedback, and then be a little closer and a little closer and a little closer. And so if you really go back and look at Blockbuster and Netflix, what it shows is someone said, Blockbuster sat around and didn't have metacognition to go,

what if we're wrong? What if the world is moving in a different direction? I mean, Netflix went to them and they were like, yeah, no thanks. Someone else has to sit and go, well, if we are wrong, what could possibly be the future state? Is streaming a future state? I don't know. Instead of dismissing it and going, well, that would have

hurt our identity. We're the people that people come into our store, get popcorn and, you know, raisinettes and leave with the DVD. We don't want to be streaming. But you're in the entertainment business. It's not your job to determine how people want to consume it, right? You let your identity stop you from experimenting and getting feedback. Someone else then comes in and goes, well, I'll do it. I don't care if the answer is in-store, out-of-the-store. I'm going to experiment. So I think my answer to your question is, is there's simple answers. It doesn't require hindsight or foresight. It's simply what it does require is, are you willing to experiment, get feedback back, listen to it? It sounds easy. But to be willing to experiment is part of being curious. And one of the things that

is a derivative to being curious is the willingness to go, I may not know the answer. People don't like doing that. They don't like running into uncertainty. They like it when they're like, I have an answer. I think this is the answer. But all of learning is the willingness to go, I have an opinion. It's provisional. The only thing that's stable is my identity that I'm willing to adapt. If I fuse my identity to an answer, I'll defend that all day, every day. If I fuse my identity as being, I'm adaptive, I fuse, I'll update. I'm always willing to update because I'll learn and I'll adapt. And so what is confidence? Confidence comes from not just I spring and all of a sudden, I am confident because I'm always right. You will not be right. Most of the time you'll be

wrong. What confidence come from is the ability to sit and go, I don't care what's coming. I will learn it faster than everybody else. I will drop the thing that no longer works. That's being adaptive. And if I'm adaptive, I don't care what comes. I don't care which of those problems you give me. The solution is to be adaptive. Update and learn quickly with as little risk as possible that keeps me learning and then whatever it is, I'm stable in my own opinion. I'm an adaptive person, but my answers are always provisional. Reality gives me the right answer. I have an opinion. Reality has the answer. And so all I do is just try to explain to people, here's a process for letting reality speak and being open to the feedback loop. And part of doing that, though, is being able to

go back to your original self and go, I'm going to just play around with this toy and it might drop on the ground and it might do other things. I'm going to, teach my kid to bike and he's going to get a skin knee and otherwise. But nobody ever said to me, Alec, when you were teaching your four sons how to ride a bike, did they wobble? How many times did they fall? Everybody just says, so how did it go?

Yeah, my kid rides the bike. Like, well, how did they get there? Through a lot of little problems and a lot of little errors. That's what learning is. I talk about shallow failures and deep failures. Shallow failures on failures, they're just feedback loops. So the answer to your question is you don't have to have clear buoyance. You have to be willing to run an experiment.

Don't bet everything. Run it on the least amount that you can get feedback and just keep adjusting and adjusting. And if you do that because you have a willingness to explore, then you'll get to better answers slowly over time. It won't come all of a sudden. And I think most, most great entrepreneurs, what from the outside looks like,

they had some one great idea and it worked perfectly, is absolutely not true. What they're really good at is adaptability. And running through a process that says, I want the right outcome, the right product for this group. I have an opinion. I call it a strong opinion weekly health, and I'm going to let reality give you.

That's what you hear about people doing in minimally viable product or an A-B test. What are those? Feedback loops. Just test? Oh, they didn't like that. That feature is no good. This one, they like that one better.

Okay, I do that. It looks in hindsight, well, they got it right. No, they got it right over a long period of time of errors and other things. So that's where I think there's an important aspect and why adaptability is so important. I hear there's this process of iteration and experimentation. Yes.

How do you balance that with also having the courage of your convictions? Yeah, I've run into this before, even when I was thinking about the wording, I think I mentioned earlier, my parents were psychoanalyst, but my mom is a PhD in linguistic. So words sort of matter and don't matter, but I try to be careful with words. It is a very subtle distinction, but it's a critical one. my methodology is first metacognition, which just says, you observe the world, you're eventually going to get feedback from this experiment, right? If you are biased, you won't see reality. You'll see some version of it based on your biases.

So try to have an objective sort of like view. And then you go out and you simulate possibilities. And I think that's where we come to your question, which is, if I'm willing to be updated, then how do I square that willingness to be wrong with the courage and conviction to go test something. Those are sort of at odds. And I wind up before I go experimenting in this phase two. So remember, it's like, check my assumptions, what else could be true, experiment, get feedback. Those are the three. So I check my assumptions. Now, what else could be true? And what it ends up on there is what I call a strong opinion weekly held, SOWH. So the word itself, strong opinion,

okay, so you should hold it with conviction, but it's weekly held. How do you have something that you have a strong opinion on weekly health? And here's the distinction that matters. It is the best answer that I have so far, but I haven't tested yet. I have a strong opinion based on thinking about the problem that this is the best one. But I hold it weakly because, again, I care more about the process of testing than I do about being right. Just because I came to the conclusion that that was my current opinion, I'm an adaptable person. If new information comes, if you told me, oh, now this just happened. Okay, I changed my mind. I go to that answer. Like, is truly not caring whether you're the one in possession of the right answer.

Here's what you're in possession of. The process to get closer to an answer. That's what AQ is. A process to get closer to an answer when the world is uncertain, right? In a stable world, probably all of your heuristics and the things you do day to day get you pretty right. We're not in that world. We're in a world that changes rapidly. If you're in a stable world, I mean, one of my favorite authors I see on the shelf here is Andy Duke.

She has written incredible books, I think are really excellent. I've read them multiple times, you know, on how do you make decisions when you know possibilities and probabilities there's like optimal, you know, how do you make optimal decisions? The problem is the world we're in right now. We know possibilities. We can talk. Will AI take over? Will it not?

Will it do this? We'll do that. We just can't assign probabilities. And therefore, that is not the same world. That's a world of uncertainty. That requires testing and experimenting. I can't know the answer using math. I have to experiment and get feedback.

Don't kill yourself getting feedback. Don't just do a little bits, get information, and iterate really quickly. So the end answer to your question, which is, well, wait a minute, courage of, you know, the conviction. You have conviction at that moment that you're right, but it's always provisional. Have more conviction in the process than in the outcome. If you hold your conviction that you have the right answer, you've just transferred over to having conviction in the outcome.

That's the error. Don't have conviction in the outcome. Have conviction in the process to be adaptable. And whatever reality tells you is the answer at that moment, that's what you go with. But an adaptable person, AQ override, says, even when you get an answer, and it's right for five years, the next day, the world might say that doesn't apply anymore. Sorry, that's out. So do you hold on to that opinion and continue, or do you go, well, I'm the first to see the, that that world's changed.

I'm dumping my old opinion and I'm going through a process to formulate the new set of rules. That happens a lot throughout history. I've lived through a bunch of these. I lived through the internet. I live through the Shale Revolution. I live through the great financial crisis

where lending was changed. I'm living through the AI revolution. And in each of those cases, I as an investor and leading financial businesses, we made money monitoring, mapping those, and being one of the first to participate in those changes.

This revolution, this regime change, is not about an industry like drilling for oil or otherwise. It's not about lending. This affects everybody. It's washing over everything. This literally, because we've never had a tool or a change that actually enters into our head and changes the way we actually function in every way.

I looked at what I did. I said, I never wrote it down. I think this is what other people are doing. I'm going to hand people sort of the sort of, code for when the world's changing this fast, here is how you get to be the first person to map it, and then you can go with what you do, but it requires certain types of modeling of your mind. It's a different way of thinking because the last 10 or 20 years was relatively stable, and you could have your rules, and they worked. But there will be times, especially going forward

with that changes, more and more and more. So again, knowledge, which used to separate you from or everybody else. In fact, 20 years ago, you had information and nobody did. You know, when I was young, I went to the library and I just source it. And then Google and others, you know, the third industrial revolution created mass data and information. SAS companies came out to say, well, you have so much, let me order it for you. So that was really scarce. Engineers and people to order all that information. AI comes out and makes that scarcity abundant, right? Now, coding's abundant. Knowledge is abundant. The part that is saved for humans is,

that judgment and the ability to be adaptive, the ability to do that higher order function. This wave was overcoming everything. The only thing that you can have conviction that is permanent will be whatever values you will hold and your ability to direct your life toward whatever goals you have, which I consider to be agency, the ability to be the owner of your decisions to direct the way of your life in whatever reality there is that's changing quickly, that literally requires you to be adaptive. It doesn't matter if you're...

The smartest person in the room is not the one who knows they're in the wrong room. I haven't seen in my life that the best people and the most successful are always the smartest people. They're adaptive. They're highly adaptive. And I said before, sometimes if you have a high IQ,

you're the best at going, I don't see the world's changed. Let me explain to you why the world hasn't changed. I have 20 reasons why the world hasn't changed. Now you're fixing that old world into your adept. identity and you're not being adaptive. And so it's a different skill. I'm trying to square this with, because sometimes things come along and your mental model of the world is now outdated because of new changes. That is true. And then simultaneously, there's also the famously,

the most dangerous words in investing. This time it's different. Yes. And so both of those truths need to be held simultaneously. Going back to how this a applies in the lives of the people who are listening. The three examples that I outlined, essentially one was career, one was investing, and one was the trajectory of your life and the priorities that you set across your lifespan. To hone in on the middle one,

because that's the one that I think that is resonating right now with what you're talking about, the investing piece of it. Most people who are listening to this are index fund, passively managed, again, VTSAX crowd. but again, how do they square knowing that this time it's different? You know, the danger, the inherent danger of thinking this time it's different every time. You know, because there's the temptation that like April 2025, Liberation Day and a whole bunch of people are going, oh, but this time it's different.

Yeah. Pandemic, this time it's different. Like every time there's some upset in the markets, it's tempting to think this time it's different. Yeah. But if you panic, that would be a mistake. So how do you save yourself from that while also embracing adaptability in AQ? Yeah. So let me give you a very concrete answer to that.

Yeah. A shock is not the same thing as a regime change. Let me give you my definition of regime change. It's very useful for people to say, when I say this time is different. I'm saying when a regime change occurs, you have to change your mental model. and when a shock occurs, if you can withstand it, it'll probably come back. What is the difference? And then we can apply it to this exact example of people investing.

Let me give you the four parts of a regime change. Other people can have a different model. This is my model. First is the production function changes. Okay, so I'm going to use an example. When the shell revolution occurred, prior to hydraulic fracking on horizontal drilling, we can leave aside whether people agree that it's good or not, just from the pure mechanics of it.

We were drilling vertically, and now we can drill horizontally. The U.S. was—so the actual production method changed, okay? That's number one. The second thing is what was previously scarce becomes abundant and something else becomes scarce. Okay. What was scarce? Oil and gas were scarce. We were a huge importer in the United States.

What happened post-hydraulic fracking? We are the number one producer of oil and gas in the world. Okay, so something was scarce and it's not anymore. It's abundant. Scarcity doesn't go away, it moves. Okay, what became scarce? Well, we don't have the pipelines to connect all this stuff. We don't have the capital.

There were so little development going on. There was some $5, $10 billion a year of capital going into drilling a new, putting a rig, drilling, moving it a little bit. You went from $5 or $10 billion a year to hundreds of billions of dollars a year. First of all, the capital was scarce. Second of all, who has that many rigs lying around? You didn't need them. You had a physical layer to it, and then the capital layer.

layer to build the physical layer out, that became the new bottleneck. And then the fourth element, so you've got production function changes, the scarcity and abundance flip-flop, bottlenecks migrate somewhere else, and then it's irreversible. Nobody ever sits and goes, let's go back to vertical. Like, forget that. Sorry, that was just temporary change. We're going to go back. It's irreversible.

It doesn't ever change. That is my measure for if you think it's going to revert, but it's gone through all four of those, it isn't. Okay? It's done. We only go forward from here. When the banks in 08, for a variety of reasons, regulators came in and said, here's what you can't do anymore. It was the rise of shadow banking. It was people like Magnetar or BlackRock or others, private equity firms that came in and did a lot of the whole rise of alternative lending. Well, the production function of loans changed. Regulatory came in and said, you who are the biggest, cheapest source of capital, you can't do certain things anymore. that opened up the gates

before Magnetar couldn't do a loan because the return was too low relative to what my investors wanted. Banks had a lower cost of capital. Move them out. We get to move in. There hasn't been a point where the regulators are like,

okay, banks, back in, right? It's just like, so people build whole businesses around being the provider of that. What happens? Well, does production function change? All of a sudden, capital went scarce. It was abundant. Banks were lending everywhere,

whether they did a good job or not, they were lending everywhere, that went away. Someone else now, bottleneck alternative private equity hedge funds go, I'll be the capital provider into that. That production now is just forever changed, right? And so we can keep doing this like AI is the same thing. The production from chips, GPUs, power, scarce materials come together to produce knowledge. now every other regime change and every industrial revolution was a regime change altered and it met all four of these requirements okay it's something that was produced changed right we produce like now we're producing what's changed the production function of knowledge is now I mean AI produces knowledge that was always humans that had knowledge now AI produces knowledge

the second is well wait a minute knowledge was scarce it was and humans' possession. Information was voluminous. But converting it into knowledge, that was our territory. We literally have GPUs and data centers producing something. We didn't have that before. What it's producing was scarce and it made it abundant. The bottleneck move. What's the bottleneck now? Well, turbines, you know, transformers for power, GPU, the material to make the knowledge is now scarce. Does anybody think we're going to go back to a world where we don't have social media and don't have AI? I don't think so. I think it's irreversible.

So that's different than, so you gave the example of like a shock as an example. So let's use tariffs. I don't consider that to be a, what production function changed? It's a tax. And I'm not saying it's going to stay or go. It's not a complete reorder of the way something's produced. It can happen at the industry level. It could happen at like, this one is the size.

society. We have held knowledge for 100 years as the owners of using knowledge, producing knowledge, to do things, either to transfer to people in college, to use it in a company to make goods or sell services. We have never had a non-human participant in making knowledge and or judgment because it is not just knowledge. Agents are now using that knowledge and at least at a micro level with your instructions, making decisions. So you can't even say decisions are solely the part of humans now. Let me tell you, this is not only a regime shift. If you think somehow this isn't, I think, that's why I'm very specific, this is the second cognitive revolution. If I say the fourth industrial revolution, which it is at the physical layer, people will be like, oh, we've had

these before, yeah, there's regime changes. But I say second cognitive because this, this is the big one. And I really believe it. But I'm not. I think we're prepared for it if we move, if we act. Social media, we didn't act. We all fell into a slumber and one by one gave away our attention and got crap back, in my opinion. Could have been good, but it didn't. Are we going to do that again? So it sounds great.

It's good at certain things. You're still the best at certain things. And it is exactly what you have left and what you need to stay ahead because AI doesn't know when it's in the wrong frame. It doesn't know when its data no longer fits the world. It only is training on our data. But when we see the world's changing, only then does data come up for the AI then to train on, and then it becomes.

So we're ahead of the game. But the way to stay ahead of the game is to be adaptive and to keep modeling the world as it's changing. When that regime change occurs for investing, so let's say you're someone and you're a retired in a retired account, why does that matter for you? Why does any of that have to do with investing and otherwise? Let's assume you're not even picking stocks like, well, Alec, pick Micron or pick, you know, NVIDIA, and we can talk about whether there's a bubble or not.

But here's the important part. If you're a retiree and you are in the S&P 500, and you used to have 500 stocks and you had a diversified portfolio, what does this regime change mean? It means that, first of all, well, seven stocks are driving the S&P 500. So you're not diversified, okay? Not only are seven stocks, that'd be one thing if they were seven diverse stocks. But it's one theme, which is AI. So you are now rising and falling. So you could sit and go,

I don't think the world's changed. So I'm going to leave my portfolio. I'm nearing retirement. I'm in the S&P 500. I'm diversified. Things are stable. But it's the recognition that, you know what? This actually isn't diversified because the world, the model has changed. Not only isn't more concentrated, but I see that everything is riding on one theory. And I need to diversify not by stocks, not stocks and bonds, but by thesis. Because if I said to you before like a SaaS loan, software as a service loan, land, GPUs, semiconductors, copper company, you would have been like, that's pretty diversified. All of it correlated to AI right now. So it's the recognition, why? Because the world regime has changed.

Something's changed. The fourth industrial, second cognitive is making a change that is now your portfolio that an old risk model would have said, wow, really good, very diversified. You know, now you're going to throw it into the old model. It's going to still say that. It's just going to start going, yeah, it says diversified, but some weird stuff's been happening. It's been moving up and down a lot.

Why? Because that old model's wrong. That's why. it's not a bunch of different stocks in different industries. They're all related to the same factor. That should possibly change how you invest your retirement account. You know, my dad is 92. My dad doesn't need something moving up and down based on whether AI is in mode or out mode.

That's a terrible idea for my dad. So if he's in the S&P 500, somehow you have to say, now you can say, well, Alick, it'll go away. I don't know. I don't think AI is going away. It could subdue. We could over time get answers. But if you think that this rate of change, you know, we're never going back and we cannot forecast how having a participant that is just getting started getting better is going to

change and alter the way we live our lives when we see what it's done to social media and we're now about to do this test again and run it again in cognition, that to me is uncertain future. And there's only one way to succeed and solve an uncertain future. and that is to be adaptive and figure out and be the fastest person to go, I'm remapping and I'm updating. I'm remapping and I'm updating because it's a moving target, right? The longer you stay on the old one, well, I've been in that S&P 500.

It's always been this way. It's always, no, it has not been correlated this way and moved with this way. It just has not. So that's sort of an example of an application to it, if that helps. Where some see heroes and others see egos. Bloomberg sees the era of billionaire athletes. A fad to some, the future of money to others. We see crypto's trillion-dollar swings,

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Two follow-ups. There have been times in history where the S&P 500 moved in tandem largely with railroad stocks, for example, or there were a few key leading stocks like railroads that drove the majority of the game. of the broad market. Many people have argued that the Mag 7 leading the bulk of the gains was not a bug but a feature, that it's a part of a long history of a few outperformers driving the majority of the overall market. That's one piece of it. The other piece, I'd love for you to elaborate on the idea that you diversify not based on stocks and bonds, but based on thesis. Can you talk more about that? Yeah. So let's go to the first one. I've

tried to study a lot about the prior industrial revolutions, and I read a fair amount about railroads and otherwise, but let's just remember, and I am going to harp on this, a railroad did not participate in my thinking. It is simply different this time. This is not just the fourth industrial revolution. If you ask me about data centers like railroads, if you ask me about those things, I'll agree. Okay, there's a physical nature to this. But railroads, this is different. We have a... another entity that is thinking. And let me add one element to this.

AI is a tool at the interface, but it is a regime shift at the system level. You use it like a tool. But literally using it changes your mental architecture. It's an environment. And if you think, so that's why I keep saying, you can be a resistor. You can be an adopter.

And a lot of people on the West Coast are like, the best thing you can do is use as much as you can. But if you use it in the wrong way, it atrophies you. Okay? You can use it in the right way. I'm a fan of using it. in a particular way.

We talked about that earlier. But you better understand that's on the way to being an adapter, because it literally is right now, just like social media has clearly altered the way people socialize in their mental framework. We are about to run the experiment again. A railroad didn't do that.

It is simply different. There's two things driving, both public stocks as well as some private ones that are now probably going to be coming public shortly, like AI and Open AI and Anthropic. And that is that some of the stocks are representing the physical layer of what's produced. They represent the fourth industrial revolution. What happened here? What happened, and this bubble talk needs to be separated a little bit.

What happens is the production function changes. You need to literally take data centers, power, semiconductors, et cetera, materials, copper, optics, et cetera, put them together. All these inputs, massive demand goes up. We need to redo some of the grid. All these changes occur at the physical layer. And a lot of public companies respond into that. But the two big private companies are the ones at the second cognitive revolution. They're the knowledge providers. They're not the only ones. Google does it. Meta Amazon. I mean, I'm not saying that I'm just, I'm simplifying a little bit. The railroad piece is public and it's moving up and down. And so people sit and go, okay, well, if the knowledge is being produced and here's how it's being produced, this is scarce. What's scarce?

Oh, GPUs are scarce. Memory is scarce. The first thing people realize who have modeled this going through my regime shift is, where's the next bottleneck? Oh, I found out before anybody else does. Micron's cheap because that's the bottleneck. And the stock goes from 100 to 1,000 in less than 18 months, because you modeled it first. You followed, well, where is the bottleneck? Just go through Alex thing. What's production changed? What is now abundant? What's scarce? Oh, I'm going to go buy that scarce thing. Now I look at the scarce thing. The stock goes way up. Now the question, is it a bubble where it's trading here? Well, here's the question.

Once you realize what the bottleneck and what the level is, now we get to the question of what's the duration of it. How long will that bottleneck an newer to the both pricing and quantity capability of that company? The reason why they're gone up a lot but trade at low multiples is because people don't know how to answer the duration question. I'm afraid to say it's going to cut, you know, is this a temporary change in bottleneck or is it a long bottleneck? How big is your moat? and is their reflexivity like Soros? Well, the more they make and the more they produce, the more and encourage someone else to come up with a better, cheaper version,

in which case, that'll cut short their own duration because they're sowing their own demise by making more and pricing more, creating more profits that other people come in. So this is why AI is not a bubble. This is getting started. This is a once-in-an change, in my opinion, because of the second cognitive. The physical layer is going to have ups and downs and bubbles in different things,

correlated, they're correlated, but that is what you're seeing that's closer to related to the railroad. But that, to me, is not the most interesting. I can play it, you know, in our family office. We bought Micron a year and a half ago. We were following the bottleneck. But what's interesting to me as a human, this is different, okay? And so going back to your question around, so the railroad to me is more like the fourth industrial physical layer and not the knowledge side of it. We've seen other industrial revolutions before. So we can sort of map out parts of this now and what will last longer, what is going to be a mode or not. I don't know.

It was a long time ago since we saw a cognitive revolution. I'm not sure it's that easy to map out what that's going to look like. We can debate what can AI do, what can it not do, what is it going to gain capability of doing or not? I think that is really, really difficult. All I can say is the following, which is that if I said to you for the language, I'm assuming a lot of the audience, but if I use the word Tam, which is the total addressable market. Like, how big is the TAM for knowledge? Well, the first thing someone says is, well, knowledge is a 50, 70 trillion dollar market. Will AI take some of that? Probably how much we can debate. But what about the latent demand? What about all the things that you couldn't do until the

cost of knowledge went to zero and now you can do? Nobody said I needed my iPhone. Someone says, well, what's the TAM? Someone would have been like, I don't know how many Blackberries, you know, here's how bad. It's gotten way bigger than we imagine. Because the late, and demand was there. So knowledge, when the cost of it goes to zero, what will it be used for? How big will that market be? And my answer simply is, it has been the production function of society. And it has been the scarce input. And what happens, like Jevin's paradox, like when the scarce input goes down to zero, it gets used nearly infinitely. And there's a lot we can do with knowledge. That's why these two things are slightly different, and I separate them a little bit as a

relates to that. Right. Well, I've been thinking about Jevin's paradox with regard to AI because it seems, you know, in terms of latent demand, I mean, all of the things that we cannot yet imagine, building whole cities underwater, for example, whole nation's underwater. I know there's lots of talk about colonizing the moon or Mars. There are many, many things that I cannot imagine, that nobody has imagined that will likely be done. Knowing that we are on the cusp of that, I'd love for you to elaborate on the idea of diversifying based on thesis. You said not based on stocks or bonds, but based on thesis. Yeah, I think that they answer there.

And look, I spent 30 years in the hot pursuit of trying to understand the risk in portfolios. You know, both when I was at Citadel and building Magnetar, these are complex portfolios. These aren't just stocks. They're stocks. There's fixed income. There's options. There's derivatives. there's a lot of complexity.

I was a math major and anthropology, which is a weird combo, but there are lots of people I've worked with that are better mathematicians than me and PhDs. I was always sort of like there trying to think through both factor models like Bara and then principal components models always at search around like,

why do hedge funds tend to correlate things together? Why do they tend to go up and down together? How do you stay independent? How do I make sure I know what I'm betting on? It's a pretty challenging exercise and most of the time you kind of are trying to narrow down to like, oh, this is what's driving my stocks. And then there's, for anybody who here who knows a lot about regressions and math, there's an error term. There's like the stuff you can't figure out.

For most of my career, it's sort of, well, the error term is alpha. Like if you can explain stuff, then, and it's liquid and you can bet on it, then you could get those exposures, maybe for cheap. And anything left over is, oh, you outperform because that's stuff that nobody can recreate. Sometimes we would talk return on labor, return on sourcing. like things that are hard to reproduce. The problem is, is that error term is really, really tricky. What I was articulating before is if I sit around and I go, well, I own semiconductor stocks, right, a model might say to me, okay, Alec, I close my eyes and say, is Mike

or I'm going to be up or down tomorrow? What are the questions you want to ask? Like 20 questions. You're going to go, well, is a stock market up or down? Are large-cap stocks up or down? Our technology stocks up or down. you're going to go down a row of things because there's an association between Micron and these things. Those are categories.

Those are buckets. In my career in investing, the best money is made taking advantage of people that place things in buckets. It's because a lot of the edge and opportunities between them. It's in the error term. It's not in the special spots where everybody's competing. It's, you know, why was converts where Ken started his career? Ken Griffin, my former partner and the founder of Citadel. converts is not the bond, it's not, it's debt and it's equity, but it's this middle ground.

And everybody are equity people are debt people. Well, if you're early on in the middle trying to understand where there's a big opportunity there, getting back to answering the question, why does that matter? Because people want to take their portfolios and use old models and go, oh, here's your portfolio. It's these buckets. But the error term is starting to show up. Stocks are moving together. you have an inkling of it.

You can call it momentum. And I think people want to go, you know, nowadays people probably are learning what momentum is, which depending on the duration, it's like, what is this price movement of a stock over six months or a year? And if a lot of things move up together and then down together, they have positive or negative momentum. And you see momentum when people are really excited about it because these go up and they go down.

So there is a factor that associates it. Why is, for example, an energy stock? Why does a company, you know, there's a public company that provides. housing and trains electricians, right? If you had been in the past, you know, semiconductors are moving. Is that not going to move? But if that's the company that is providing housing and training the electricians that are needed to go build the data centers, that company now is not per se a housing and just a hospitality or, you know, real estate company, its output is related

and demand is related now to how many engineers are building data centers. Now it's correlated. So my point is that when people sit now and say, well, what are the things that are moving and why are they moving together? The reason they're moving together, you could say, well, those are momentum. What does that mean? It means that they have the same thesis, that everybody is buying or selling them at the same time, because that is a unified thesis around AI, both the physical production of it, and how much demand there's going to be, and what the shape of that, how are people going to use knowledge? Is it going to be open models or closed models? Is it going to be in a vertical like I'm going to use Harvey for law or am I going to use Claude for law?

We just have a lot of unknowns. It's almost like sitting and going, you can use these old models. And I'm not saying they're worthless. But they want to fit you in buckets. And even when you fit in a bucket, you have to sit and simulate, okay, I'm not going to just sit and say for 30 years I risk manage the same way. What else could possibly be true? What else could be driving this?

oh, that they have the underlying demand function and they move together. That's what momentum is the output of the fact that their demand drivers are all the same. So the real problem is that it's the same thesis. So that's what I mean by not going to old models. And I'm not saying, you know, I always like to have my models around. And, you know, it's a mixture of models, as they say in AI. But you shouldn't blindly sit and go, oh, I can, I can, this new world, I can take that old model and apply it. that's not recognizing this for an actual regime shift.

And this is two at the same time, I don't think we've ever had before, and the one that matters the most by far is that it's the second cognitive revolution. To stay on the concept of this is the second cognitive revolution, and this actually links back to something that earlier in this interview, I mentioned you've all know Harari and said, hey, we'll address that later in the show. as he is written about first cognitive revolution

humans developed language which was huge we were anatomically modern humans for 100,000 years prior to the development of language the writer Tim Urban refers to that as the unimpressive era and then we developed language and everything changed and that was the first cognitive

revolution and now we're in the second that points to sapiens as a species might not even be the same again where do you believe we as a species are headed next. Yeah. First of all, I'm a huge fan, probably just like you, Yval Noah Harari.

I've read all his books. I watch his videos constantly. Yeah, same. He's a clear thinker. He takes a lot of information, compresses it, conveys it to you, tells you where he's making a hypothesis, doesn't project it like he has all the answers. He's really just asking a lot of questions.

So huge fan. We do differ a little bit. And here's where I tend to think that we differ. And then we can get to the question around what is the end result. and I have to go to the difference, and I don't want to speak for him. He might, if he's watching, say, Alex got it totally wrong. So that could be, right? It's an opinion, as I say, strong opinion, weekly health.

I would say the following. I would say he tends to want to ask about governance of AI. He thinks he's not worried about the robots running while killing us, but he is worried, I think, about this cognition and what guardrails can we place. Demis had written an article recently about the guardrails around, you know, so I think there's a bunch of people sitting and saying, someone's got to be the adult and come in and put guardrails around this. I agree with that, but I think it's necessary not sufficient.

Because where I think that that language tends to talk, and I think there's a little bit of this in Silicon Valley, who, you know, some brilliant people way smarter than me. And Yuval does this. It tends to talk a little bit too much for me about it using it as a tool. I'm more interested in how it changes what humans do and what we're like and our thinking. And so I worry about not just AI as a tool, but AI as an environment in which we live every day. Social media did that. It wasn't just a tool.

I can be on Facebook. It's changing the way my behavior. It changes my kids' behavior in ways I don't love, right? So I'm worried about the policing of the tool so that the tool doesn't do cyber war and it doesn't do things. But I'm worried about the human and what we become. and how we're infected by the environment being changed. And so one of the things to come out and say to people is, hey, forget about portfolio.

Okay, I'm worried about people's portfolio. I want people to have retirement, you know, and everything. This is existential, okay? This is literally existential. And it goes directly to the heart of your question, which is what happens, what happens to humans going forward? I don't think we're anywhere near AGI, okay? And yet I think AI is very useful.

Do you think we're close to RSI, recursive self-improvement? You know, I hear the same stuff that you do. I think we're at the beginning of that. I don't think, I mean, other people can answer. I think also we get into this problem, but what's definitions? I understand what the acronyms mean, but that doesn't. If I say the words knowledge, judgment, and information, we can have a debate all day about, well, what are those words mean?

Much less these kinds of things. Here's what I would say is the following. I would say that AI is very good at math, coding, and language because they're cheaply verifiable and because there's incredible amounts of data on which to train those. There is a lot about human and human decision making

and other things that is either very little of it written down. And also, we operate differently. We operate several things, right? First of all, we operate with causality. I not only know that if I drop that glass down on the floor, it'll break, but I understand why.

AI is probabilistic. It doesn't have a why. It just is probability all the way down. Okay? It can speak like it has a why, but it doesn't have a why. It doesn't have a world model. It has a language model and otherwise.

I know people want to develop a world model. It is hard to develop world models. It's really, really hard. I mean, humans are incredible animals. I view, will we make progress 100%? Will some of that begin to look like it can do certain things? 100%.

Do I think AI has incredible, powerful capabilities and that it could be used for good? 100%. I'm asking the different question, which is great, what is it that is uniquely us? And I'm going back to what I was saying about AGI, and we could talk about RSI, but for the near term, and I don't know how long that is, because it's moving fast, 10, 20, maybe it's 50. I don't know how many years. We still have capabilities that I don't think are within the reach of AI. That's not to say that AI won't get more useful, more powerful, and help solve a lot of problems that we have.

I do. But it doesn't mean it's going to become human. We humans dream. Humans have emotions. Humans have stake. We understand cause. We get feedback loops that AI cannot get. You know, anybody right now who's listening or anybody on any station that is listening,

and they are sitting and going, it's so fluent, I'm going to ask it about my relationship. I think it's this terrible idea. It has never been in a relationship, okay? It has no feedback. It is training on a bunch of people. It's like literally going to a bunch of strangers and saying, okay, what does this group of strangers think that doesn't really have all the details about your relationship? It only knows you prompt it a little bit and you think it's going to understand

everything and it's going to give you an answer is really, really not how it works, right? So one is, I think it's far out that we get really across the chasm to really being more human-like. As a result of that, my answer to you is in the next 10, 20 years, humans are going to evolve alongside AI. and what I'm talking about is not just prescriptions for the AI companies to police themselves. There was a group that got together 70 years ago called the Macy Conference, some of the smartest people ever lived. But who was in it? Anthropologists, psychologists, psychoan analysts, technology people, mathematicians. It was an incredible group that sat and said it was on the topic called cybernetics. What is cybernetics? Cybernetics is how systems control themselves. Also how they adapt to environments.

Why is this temperature in the room kept to a certain thing? There's an environment and you're in control of your response to the environment. My whole book is sitting and saying, let's talk about the human side of it. I get the AI side. You can invest in it, whatever, but like, what are we doing as humans and where are we going? This is in a way of saying we, in some ways, have to evolve to make the highest use out of what is currently only our capability. What is uniquely human? I'll tell you what it is. All animals adapt over eons. You were going back hundreds of thousands of years.

All animals, not just humans, adapt over hundreds and hundreds of thousands of years, millions and millions of years. And we do it by mutation. Random thing occurs. It's either selected for or not. We then breed and it gets passed on, right? We have no control over that. It happens. But here's what's uniquely human, even beyond, for the most part, most animals. And I would say in the fullest extent, no animal. and no AI. We have the ability to override our genes. AI doesn't sit and go, I think that all my data's wrong. I want a new set of data. It doesn't do that. Humans can do that. We can sit and get, I don't want to have kids. Nothing wrong with that. But your genes want you to have kids. I know. I'm overriding it. You get choice. You have agency in your lifetime to alter your direction. nothing, not AI, not any other animal has the full capability to do that other than a human.

You want to give that away? You want to give that unique. That is a cue. That is the ability to adapt in your lifetime. The one unique human trait that beyond every other animal or synthetic being, it has that, you have that ability. Use it. Do not let that atrophy. It is the best skill you've got.

It survives any condition, any. environment. You don't control the condition in the environment. You control your response to it. Use it. This is another environment, AI. Let's think about how we react to it. If you let it just use it and everybody does like social media, we have now dictated everybody's reaction to it. It takes over and it just bleeds in and we're lazy and we just let it answer things. Why would you do that? Why would it this moment would we do it both socially and cognitively? We're about to make choices one by one that affect everybody. And so, yes, I do think there should be policing.

And I think Yval is more on that front. And I agree with him. And Demas, they are like, what do we need to police the encroachment of AI? But it is already affecting the humans. We have to make an active co-mission, not omission, which is stay adaptive. Nothing else on this planet is as adaptive. Nothing else can control your outcome in your lifetime. use it. It's our unique ability. We're human. We're not Chinese, American. We're not, you know,

pick your gender, pick your nationality. Like, as you know, anybody who study anthropology, I mean, we're all the same, whether geologically, I mean, yes, we have a different opinion. But by the way, different opinions is the source of all richness. Otherness is the source of all richness. If you and I have the same opinion and somebody comes in the room and they speak to both of us, it is literally no different than speaking to one. There is no new information. on the second person. The only way someone could learn anything from the two of us is only where we differ. Otherness is the only source of any learning for someone else. I don't want something to confirm something for me. I want something. We talked about this earlier. I want to know otherness.

Tell me where I'm wrong. Tell me what else I'm missing. There is nothing else to be learned. And the only way to adapt is to be perpetually learning, allowing that learning to come in and changing your mind. Just I'm open. I'm experimenting. Not enough to kill me. I'm not doing it to be perfect, because I don't know. It's an uncertain world. I can't put all my bets down because, you know, life at this moment isn't quite the same as poker. But if I understand the model, then I could start betting like it's poker because, oh, I know the rules. I've got the rules down now. And until the rules change, I can go with that. I see what humans can do as being very unique and different. the adaptability is the end state that drives agency and it drives judgment because you have no agency

if you don't update and adapt you're running on an old model and let me tell you what happens either reality is going to force something on you or someone else's model is going to force something on you you are not going to be the one deciding other things will overrun you because you just are running on some old map you only shot you have is i don't care if i'm right or wrong i just want to be close to reality. That's it. And I'm the person who's, I had that idea. Yeah. You know, you just gave me a better one. I dumped that one. I take yours. You might go, I'd say, I don't care. Your idea's better. I like your idea. Thank you. Now I get to go use it. Great. The first person to do that is the one who's closest to reality again. And that's how we as a species

survive ahead of AI, which just doesn't have the capability to do that yet. Adaptability is how we get that judgment and that agency, which is what makes us so uniquely human. How does adaptability differ from grit and curiosity? I think of adaptability as a method, and I think they're very valuable. You know, grit and curiosity are traits. And so they're used, just like IQ and EQ, they're usable, but they fit within and sort of like AQ is the meta-skill. So let me explain what it is.

And by the way, I recommend for anybody, if you want to read about both grit and curiosity, Angela Duckworth's book on grit is phenomenal. Let's start with grit. So where does grit fit? I think grit a lot of people think of the following. And I did Iron Man's. I did mountain bike races. I've done these crazy things.

And I think people normally think of grit. They're like, can you just suffer and keep going, you know, and survive? Like, that's what grid is. And I think there is a component of grit in that respect and a valuable one. And I've had several times in races where I've not wanted to go on and you just go on and you finish the race. But there's another form of grit, which is not. You know, think about what that says. It says, it's a simple one, but I have a goal.

I have a model. I'm going to keep going and I have the grit. And you might say, hey, there's adaptability in there because I got thrown a curveball with the weather in that race, but I overcame it, et cetera. But grit sort of says, you know, keep going. There's another kind of grit. If you come in with an opinion already, right? You go through metacognition and you're like, I have a world model. Grit is also the ability to hold it off.

Okay? Here's a bad form of grit. I have a world model, and I'm sticking with it. No matter what. Well, that's a bad kind of grit. It's good in a race, but it's a bad kind of grit. So I consider one form of grit to be, hold your biases, hold your opinions.

We're going to play a what-if game. Okay? I know you have a strong opinion. Let's play what if. Let's go think of what else could possibly be true or why that answer might be false. You don't have to let go of it. I'm just saying suspended over here.

Just put it over here for a second and play what if. Open your mind. Play what if. So now grit is being used. It wants to come back in because people like certainty. It doesn't want to explore. It wants to just collapse into an answer. But you hold it.

You use grit to hold it. Curiosity then is the twin power that says, okay, go explore. Go explore other possibilities. And so that is what enables you to separate your identity and begin to think about other possibilities. Grit says, I know you think you know the answer, but wait. Curiosity says, go explore. Come up with other possible answers. and eventually you come up with the best version of another answer.

You still don't know if it's right. Your answer could be right. This new one could be right. But who's the judge? Reality. Okay, I have my old answer. I have my new best version of a new one. I'm going to go probe and get answers and see what's right.

I'm going to get a little information. It comes back. It might lead me to my old answer. It might lead me to my new best answer. It might go, well, some of the new has to mix with some of the old. but you're still off, go do another experiment. Okay, I'm going to do another one. And then slowly I iterate to get closer and closer and closer.

So I view those as traits that enable me to go through AQ. AQ is the dominant piece of, in my view, of adaptability, which is adaptability includes the ability to check your assumptions. That's grit. Hold it. Check it. It is, think about other possibilities. That's curiosity and exploring.

and then I call it in my book exploiting, being able to sit and go, great. I have my strong opinion weekly held. It's conviction, not that this is right. It's conviction that this is the best answer that I got so far. And at some point, I have to test it. I'm going to go test it. I go test it. I get feedback.

And now I iterate. So that's how I view grit and curate very, very important and necessary. But it's part of the framework that starts with metacognition. There's lots of embedded things in there. and then how you think about other possibilities and then run an experiment. But that's where I fit grit and curiosity. Grit, not stay with the thing and don't ever consider an alternative. Hold your old answer and then use curiosity to explore around before you go test.

That's how I use those two. Yeah, I agree. Angela Duckworth's book is excellent. One of the things she said that really resonated with me was she talked about the study of her students, the study of students and how the ability to just power through boredom or frustration. And I think about all of those times when I'm trying to log into a website

and they want me to do two-factor authentication and I'm like, ugh, forget it. You know, like the little bit of friction can really throw a person off. But the point you just made is it really, it's important and I'm going to just take what she says in that book and with a slight twist angle, which is, what is boredom that people, it's the desire to collapse.

Like, I'm working on something, now I'm bored, can't we just get to the end answer? Can I just act? Like, I don't want to work through the rest of it. Grit in my vernacular is it's not boredom. It's excitement. I get to go explore. That's why I think uncertainty is incredibly powerful. I don't know what the answer might be. Let me learn and see what it might be. What other possibilities could be. You don't get rid of boredom by collapsing. That's what I think, you know, one of the lessons was the best students and the best thinkers later, they don't want to collapse prematurely into an answer just because it feels better and they're used to it. hold it, explore possibilities, and then later get better answers because they haven't collapsed

down. And that collapse can feel like a stall. It can be like, oh my God, I keep like, how long do I have to try coming up with something else before I just go with my answer? I know that feeling. It's a bad one. It is a bad trait. Like it's a, you know, you have to be willing to go, listen, make it fun. I mean, who knows what happens? You don't know what you'll discover. You might learn something, might meet new people, like probing around, trying to figure out what might be different than you thought. For me, I grew up in this family where nothing was certain. Every answer was provisional. I've said before, I mean, I'm not joking. You know, I'd walk by my parents, the youngest son of two psychoanalyst, and I'd be like,

mom and dad, are you happy? And they'd be like, happy. Happy's a strong word. What's your definition of happy? Come over here. Like, let's talk about what it means to be happy. So you couldn't even collapse on the definition of the word happy, right? It was just like, well, let's explore. I mean, I can't even have the grit to just, can I just solidify that there is a definition of happy? Nope. So I'm a little unusual on that my training early on, I said when you're a little kid, you explore, and then you go and you start to get a reward from your parents to a particular answer and then school. But the way my parents do this is it was different, right? It wasn't me, but my older brother was in fifth grade in a class. He was looking out the window and he got called up to class later.

my mom got a phone call at home. My mom goes into the teacher. The teacher says, your son, Malcolm, was staring out the window. Should be paying attention in class. And my mom's like, he was probably thinking. And she goes, well, in this class, we don't think. We do. And my mom's answer was, well, in our family, we think. Okay. And so, like, that is the atmosphere that I grew up in, which is you don't collapse. You think about possibilities always. Eventually, you do have to make a decision. But it is not boredom to think through those up. It is, it is a gift to have the time and the moment to think about what might happen. It is a gift to sit and say, I actually, it's actually relieving, to be honest. Having to be right all the time and predict the future kind of stinks.

I mean, it's really hard. You talk about having like going crazy. How much easier is it to sit and go, I don't have to be right. I just have to be willing to be wrong and be the first person to go and be adaptive to figure out what looks more right next time. That's a way more comfortable spot. Man, it takes a lot of pressure off. Like, I'm willing to change my mind. Oh, you're an idiot. Oh, you just don't have strong convictions. No, I have conviction that the world is moving really quickly and conviction and confidence that I'll find the right answer. I may not know it, but I'll find it. And my willingness to move is itself the confidence and the adaptability to get to better answers. Because at some point, your confidence will cease to be right.

Right, because everything's provisional. When I was a kid, there were nine planets. I think there's eight now, unless it went back to nine. I don't know. But, like, you know, that's knowledge. But adaptability is, tell me how many planets there are. You know, what's the definition of a planet? I mean, that, by the way, right?

That's how we got into the trouble in the first place. There were nine until we, well, what's a definition? Okay. Until there were, yeah. New definition. We're, okay. All right. Final question that I'd like to ask.

Earlier, we talked about the three major things that the people who are listening to this are thinking about in their own lives. one was investments which we've addressed. But the other two, one is career and how you, a framework, a framework for how to think about career-related decisions that you may need to make as we move into this new era. Yes. And then in addition to career, more broadly, priorities across their life, priorities around how they want to plan out their retirement, their elderly parents.

caregiving. They're supporting their kids as kids grow up and leave the nest. We've talked about these concepts of grit, of curiosity, of adaptability, of EQ, of this new cognitive revolution and using AI as a thinking partner and a sparring partner. Like, as we try to synthesize all of this together, how does a person synthesize this and apply it to these big questions that they are facing and that they will continue to face around the domains of both career and life? So let me go to the career first. I've written some substacks.

In fact, I wrote one recently around graduation time as a letter to graduate. So I have a bunch of thoughts on the career side. And I think of that as a decision-making process. And so it's slightly different than the other one, which I consider it a bit more of like what is your mission and purpose and what's your utility curve, which will come back to in a second. So I consider them slightly different. Here's my advice that I give to graduates.

your skill that travels is an ability to build a new skill perpetually. When I got to Citadel, it wasn't called Citadel Investment Group. It was me, Ken, who started it, and then Dave Bunning and James Jay. And the three of us collectively did, I mean, Ken did. I mean, he had started it out of his dorm room. We didn't know anything. I never traded a day in my life. I started doing risk arb.

I couldn't have told you what it was before the interview. James was a string theory guy. Dave was a wrestler slash football player. We didn't know anything. It was total beginner's mind. What we did know is how to think. All you have is how you think, not what to think. A lot of school, which I think needs to massively change, I'm a believer in education.

But the education people need is not a transfer of knowledge. Okay. Knowledge, the cost of it is zero. As an output at a university, if that's all you do is transfer knowledge and a credential, the value of that is going to zero. So you've got to do something else. So the first thing I would say on the career side, you have to learn how to think, critical thinking, and being adaptable. These are the skills that apply wherever vector you decide to apply it to.

And so the first thing is literally separate your job and your skill is not whatever knowledge you just learned. You can go to school and still learn coding. I don't consider the value to be that you can code. I consider the value you must have understood logic. You must have understood how to solve problems. Like learning how to think, I also suggest people take a class in philosophy, take a class in economics, take a class in psychology. Learn how problems are solved in those areas, in anthropology. What were the problems of the day?

How did people solve them? What are the mental models in all these different areas? That is incredibly valuable because if you sit and get it in one place, it doesn't, it's great to have that sort of perspective. So the first part of a career is whether you're in college graduated or you're young or lost your job. or not. If you're a relatively young person, I'm turning 60 in a few months. So that's most everybody. Your skill is not what you know. It is your ability to learn, unlearn, relearn. That is your skill because the half-life of knowledge right now is going down very quickly. Someone might sit and go, oh, but wait, judgment, Alec. Like even judgment, I mean, you know,

what is judgment? It's compressed experience. So here's the problem. The perimeter of judgment is moving. AI is going to take up more and more territory as people with experience convey that in, AI trains on it, it's going to crowd out some of that. Where it won't crowd out is the stuff that's uniquely human that can't be compressed and otherwise. So again, I go back to the important part of this is get yourself in the mentality. It's not that I know something that I can convey to this new company or otherwise. It's that I can help solve problems, whatever those problems are. So that's one. The second is what matters a lot, and I don't think it's really around now, but a couple years ago it was, which is, I don't care if they have a ping pong table, serve great food, have a coffee bar.

All you care about is being somewhere where you get feedback loops. Be somewhere where you see high-frequency feedback loops. Learning that mechanism of we tried, experiment, feedback. So I went to J.P. Morgan, which is a great company. I'm a client of J.P. Morgan. and I was on investment banking. And for me, for Alec, it didn't work because the feedback loops were too slow. Where did I go?

I went to trading. Every second of every day, feedback, feedback, feedback. Am I wrong? Now I could sit and go, I'm wrong right now, but my thesis is a month or a year or so. It depends on the loop there. But in a lot of cases, very, very fast feedback that you get. I like that. I like taking it, processing.

The market's right, not me, but I can try to find the patterns, right, et cetera. So one lesson for people is when you're figuring out of it, out your career, always go where you get fast. Feedback loops, you could be in an environment, you know, on a career, what are the constraints around that? And I think what are careers? What are you the most interested in working on? Who do you want to do it with? And sometimes learning what you don't want to do is completely fine. Most of the people that were talking about are relatively young. We're back to the same philosophy. Do not worry about getting it right on the first second shot. It's just as important to go, oh, I did this. I went there. Here's what I didn't like

about it. I didn't like the people. I didn't even like the work wasn't inspiring. I didn't get feedback loops. If you go somewhere and the people are challenging, they're challenging your ideas, not you personally, not ad hominem, but ad res, challenging ideas. We're experimenting, getting feedback loops. Those are exciting places to work because that is the motion of the loop that you learn that you can apply anywhere. That's my AQ loop. Just. go and see that in motion. So I think about a career as, what am I talented at? Who do I want to work with? And what makes me motivated to do? You should literally take those three and figure out, where do I get feedback loops on all of those? I'm not saying switch jobs every two seconds,

right? You stay somewhere if the feedback loops are upgrading your learning constantly. And if you go somewhere who it's a great boss and it's really nice environment, but the feedback loops are slow, You got to leave. You have to leave. I don't care if they're nice. It doesn't matter. You have to get feedback loops. That's your value.

You have to get, you know, so for me, back in the day, you know, I did a lot of work, investment banking. I prepare a deck. They're going to go present it to the company. And I was like, can I go in and listen? No. I mean, this is the early 90s. And I'm like, why?

Are you investing in me so that I can learn, get the feedback loop? Because I made, like, a better presentation if I hear directly, what did they like? Would they not? Whatever, like, why would I not be able to go in? So for me, that's just a, like, okay, you're not letting me in feedback loops. I have to go. Is risky?

I mean, at the time, it's not like I had another, you know, I mean, I was going to Citadel wasn't even called Citadel. It was like six people and $100 million. It was, you know, it wasn't, my parents were like, why are you leaving JP Morgan? They have a, I see the bank on every corner. You're going to this place. What is Wellington, which was the old name?

And I was like, but I just, I got to, I got to go. I got to get the feedback loops. So you have to be a lifelong learner and you have to know, worry about how to think, not what to think. Engage in that across a lot of different disciplines. Center yourself as being someone who's adaptive, where you don't care about being right, you care about being a learner, and then express that in three vectors. What are you good at? Who do you want to work with? And what drives your passion? Because you now are a learner that loops, if any of those, you're trying to get as much information at, and as quick as a young age,

on those three vectors as possible, that's what you should go do. So that's what I, for the most part, and I tell everybody, it's a difficult time. I think this may be the hardest time other than during war to be a young person. I sympathize. I have four children. I think it's extraordinarily difficult. So I think it's important that they feel heard and that we understand it's difficult. And the best skill that I could give them is, you know, something like this book that says,

here's where you have to identify yourself. I know the old game, you feel it's unfair. old game was, I worked really hard. I had answers. People rewarded those answers. And I went out and had a stamp and I should have the job that gives me this career. But one of the problems in the second cognitive revolution is that scarcity is now abundant and its value trends to zero. So what is the one thing you have left? This unique human ability to iterate, to get better answers in areas that AI just hasn't encroached. And I don't think will for a long time. So that's my. sort of guidance on that side.

To the other side where I think your question was, okay, now people, you know, we sort of did investing, we did the career, and now it's how do people make judgments around priorities around their life, how do they weigh these things, which I consider success personally to be family,

health, friends, success at worth, physically, mentally. I want to be good at all of those. I know that I'll never be the best in the world at any of them. it's hard enough to be the best in your industry at something, much less. You know, it's obviously a very competitive world. But I have sort of my own internal metric that I care a lot about being good at all of those.

And I know at given points in my life when I'm a little more involved in something and work, and it makes me a little less good as a father or as a spouse or as a friend. And I don't like that. And so I will adjust it. And so prioritizing for me is not how I go about doing some of those things is a decision-making, process that I incorporate AQ into. But weighing those is more of like, what's my mission? What is my utility curve? Which is when I say an AQ is you choose the mission, right? You have a goal. I'm giving you the operating system. This is an operating system for how to live your life if you choose the goal.

But you have to choose the goal. I have chosen that this matters to me. I've been very successful in business. Maybe I could have been more successful if I had been a worse father, you know, or a worse friend, I deemed that to be not worthy. I think it's much harder to be pretty good at a lot of things than be exceptional at one. And people will argue with me. That's fine. I think it's pretty hard across multiple functions to be pretty good. And again, maybe some friends would say he's not great or, you know, employee, I don't know.

This is what my goal that I set out to do. And so how I go about doing that and implementing at work or otherwise is I do think about that, even in my relationships with my kids, I think about AQ. One of the big things, you know, I've been in therapy for 10 years, son of two psychoanalyst, what is that? It's about metacognition. I need to understand myself. That's not just for making decisions at work. I need to understand where my kids are coming from. What has it been like to be my son? I'm not saying anybody's perfect at that, but the strength of my relationship, my empathy toward others, my listening to them, my understanding that I'm biased and So all of that, I do think the concept of metacognition simulating, that's all about perspective

and being able to zoom out, look down on your life and go, what matters in your life, and be able to place yourself as an actor in there, making conscious choices toward whatever your goal is. So that's what I would say, which is I don't know if I can answer for people, you should prioritize this over that. What I can say to people is when you decide what it is you want, what matters to you, rather than telling you what should matter. When you decide what it is, there are better ways in a world that is uncertain

to go about making decisions. I actually think there are. And I think this book is not just a business book. I didn't write it just as a business book. This is a life book now. It is about agency, which means it's about making decisions toward whatever goal you have.

If you take this, you can apply it. It's not a, oh, I get automatic right answers. It is a process, whether it's in relationships or other things, that will careers investing, it will lead you to more likely than not increasing the odds of getting to the outcome you want in a world that it's really hard to make decisions in. It's a manual for decision making toward whatever goal you set. But I think it is broadly applicable because this is the super in right now. So can't tell people what they should care about.

I think that's the beauty of the world we live in is that people have very different, missions and purposes. I hope that as a society and humanity that we can agree that there are certain base principles, rights, values, equalities, and otherwise that we can build off of. That would be a nice metacognitive moment for society. We'll see if we can get there. Thank you for spending this time with us. Where can people find you if they would like to know more? So my book launches on the 15th of September. Anybody on Amazon or Barnes & Noble or I guess I almost sound like a commercial wherever books are sold. And there's a website for the book. I think it's the aQ book.com. All the proceeds are going to dare to try, which is a para-triathlon organization. I did triathlons. There's a lot of people

both born with physical deformities or a lot of military vets or police or other people. And it's about empowering them and having them achieve their goals. It's not just about doing a triathlon. It's a metaphor for you can do this, you can do anything. And so all the proceeds goes to that group that's done an incredible job. In fact, they're the primary source of the U.S. Paralympic, not the only, but the primary source of the U.S. Paralympic triathlon team, incredibly inspiring people. And maybe the iconic definition of adaptability is people who have had some physical disadvantage and you get to see that a lot of them are mentally advantaged. And they're incredibly adaptable. There's a lot of inspiration, a lot of lessons learned there.

Well, thank you again. Yeah, I appreciate it. Thank you. It's been my pleasure. Thank you, Alec. What are three key takeaways from this conversation? Key takeaway number one, knowledge is abundant, but judgment is scarce. Alex's framework is that when something goes from being scarce to being abundant, then something else becomes the new bottleneck.

And so knowledge used to be scarce, but now, because of AI, knowledge is abundant. So what is the thing that's scarce? it's judgment. The ability to receive that knowledge, weigh the evidence, and then decide based on a mental model of the world that's three-dimensional and real. The attribute that keeps your judgment current, like the fuel for that judgment, is adaptability. When AI makes knowledge abundant, something else gets scarce. And what gets scarce is judgment in agency. Judgment is your ability to weigh the evidence and decide to act, an agency is acting. What enables judgment and agency to happen is adaptability.

That's it. Adaptability is the ability to sit and go, my judgment's based on a world, is that world still two. And if I update that, I can express my agency and apply it to the world that's changing now. That is the first key takeaway. Key takeaway number two, you lose your judgment, which means you lose your edge.

The moment that you allow AI, to shrink your thinking. But you gain an edge when you use it to expand your thinking, when you use it as a sparring partner. Bring your own reasoning first and then ask it, play devil's advocate, tell me where I'm wrong. Steel man, the opposing side. And let's debate this. That way you're using it to become a stronger thinker rather than to replace your thinking. How do you use it? How do you not. Think about doing the following, which is, if it expands your set of possibilities, that's great. Don't use it to shrink it. So if I say to it, give me an answer. It is now gone to the internet, gathered information, compressed it, giving you one answer, okay? Just one answer,

and here it is, and it sounds really fluent. So you're going to just say, that's, I saved me a lot of time. That is not what you want to do, because you're having it take over your judgment for you. What you want to do is say, I've thought about the problem. And here's my thinking on the problem. Where do you think I'm wrong? What have I not thought about? Finally, key takeaway number three, your S&P 500 index fund is one giant bet on AI. There are a handful of stocks that are driving most of the S&P 500's gains.

They're all riding the same AI thesis. And so investing in a broad market index fund is, textbook diversified, but the overwhelming concentration of bet is an AI bet. That's what's driving our entire stock market. So his recommendation is to diversify based on thesis. If you're a retiree and you are in the S&P 500, and you used to have 500 stocks and you had a diversified portfolio, what does this regime change mean? It means that, first of all, well, seven stocks are driving the S&P 500. So you're not diversified, okay? Not only are seven stocks, that'd be one thing if they were seven diverse stocks, but it's one theme, which is AI. So you are now

rising and falling. So you could sit and go, I don't think the world's changed. So I'm going to leave my portfolio. I'm nearing retirement. I'm in the S&P 500. I'm diversified. Things are stable. But it's the recognition that, you know what, this actually isn't diversified because the world, the model has changed. Those are three key takeaways from this conversation with Alec Littowitz. If you want a tool that can help you use AI as a sparring partner, if you want something that can help you interrogate your thoughts, challenge you to see things differently, we have a free guide.

It's called pause, question, turn it around. It's based on the research of Byron Katie. And it's a guide that can help you challenge your thinking, explore new processes. separate what's actually true from what feels true? It's a companion to your thinking that helps you question your own thoughts. You can download it. It's completely free. It's at afford anything.com slash turn it around. That's afford anything.com slash turn it around.

Totally free. Our gift to you for being a valued member of the Afford Anything community. Thank you on that note for being part of this. this community. This is the Afford Anything podcast. My name is Paula Pant and I'll meet you in the next episode.