Bankless - 117 - Timeless Wisdom for Crypto Investors | Jim O'Shaughnessy

Episode Date: May 9, 2022

✨ DEBRIEF ✨ | Ryan & David's Unfiltered Thoughts on the Episode https://shows.banklesshq.com/p/117-jim-debrief  ----- Jim O’Shaughnessy is a Wall Street legend and the Founder, Chairman, and Co-CIO of O’Shaughnessy Asset Management, which has over $6 billion in assets under management. Tap in for timeless investing wisdom to last in crypto for the long-haul. We like playing long-term games, and Jim has decades of investing experience. He’s also a lot of fun to listen to. Since Jim fell into the world of investing, how has the game changed? What’s stayed the same? And most importantly, what does the crypto investor need to know about staying ahead of the curve? ------ 📣 OPOLIS | Sign Up to Get 1000 $WORK and 1000 $BANK https://bankless.cc/Opolis  ------ 🚀 SUBSCRIBE TO NEWSLETTER:          https://newsletter.banklesshq.com/    🎙️ SUBSCRIBE TO PODCAST:                 http://podcast.banklesshq.com/    ------ BANKLESS SPONSOR TOOLS:  ⚖️ ARBITRUM | SCALED ETHEREUM https://bankless.cc/Arbitrum  ❎ ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across  🏦 ALTO IRA | TAX-FREE CRYPTO https://bankless.cc/AltoIRA  👻 AAVE V3 | LEND & BORROW CRYPTO https://bankless.cc/aave  ⚡️ MAKER DAO | THE DAI STABLECOIN  https://bankless.cc/MakerDAO   🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave  ------ Topics Covered: 0:00 Intro 5:45 Jim O’Shaughnessy 11:30 The investing zeitgeist 17:15 How has the narrative changed? 29:28 Are fundamentals dead? 41:08 Picking the right one 54:44 Investing hacks 1:08:10 The age of social media 1:15:00 Anchoring the crypto space 1:22:08 Psychological hacks 1:29:45 Knowing when to sell 1:36:11 Final thoughts 1:41:38 Conclusions & Disclaimers ------ Resources: Jim O’Shaughnessy https://twitter.com/jposhaughnessy?s=20&t=h5tIizdYwRmThOJTC-03oQ  Devil Takes the Hindmost https://www.amazon.com/Devil-Take-Hindmost-Financial-Speculation/dp/0452281806  Securities Analysis https://www.amazon.com/Security-Analysis-Foreword-Buffett-Editions/dp/0071592539/ref=sr_1_3?keywords=securities+analysis&qid=1651919905&s=books&sprefix=securities%2Cstripbooks%2C107&sr=1-3  The Intelligent Investor https://www.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/ref=sr_1_1?crid=10L16SFDNU20V&keywords=the+individual+investor&qid=1651919926&s=books&sprefix=the+individual+investor%2Cstripbooks%2C97&sr=1-1  The Internet Contrarian https://www.osam.com/pdfs/The_Internet_Contrarian_-_4-22-99.pdf  The Simpsons - Sideshow Bob Steps on Rakes https://youtu.be/aRq1Ksh-32g  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Welcome to bankless where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Guys, today we've got a special treat. We're talking timeless wisdom for crypto investors. These are the things we need to know. We've got Jim O'Shaunise, who is an expert in investing and comes to us with some fantastic ideas we can implement in crypto. A few things you should take away.

one, you suck at investing. And be real with you. And Jim makes the case as to why. Not just you, so do I, so does everyone. Number two, how to short circuit this monkey brain that we're dealing with? Jim calls it human OS. There are all sorts of traps we can fall into and we need short circuits. And number three, some really tactical hacks.

We got at least 10 of them, maybe a dozen. Actual tips for how you can avoid cryptofomo and fear, uncertainty, and doubt and maximize your long-term gains. David, this was at once kind of a very wise and practical episode. What were some of your thoughts? I was completely reminded of this one book that I read called Devil Takes the Hindmost, and it was just a book about the history of financial bubbles going as far back as financial bubbles existed. And the main takeaway that I learned from reading that book was that there's one common denominator to all markets, no matter what asset class, no matter what decade, no matter what century. And that common denominator is human DNA. Like humans perceive value.

And that's what comes to define markets. And so, like, Jim has seen many markets across many decades. And so he has just like wisdom. He just has seen a lot of markets and has seen the same patterns play out through all markets. And so while crypto, it's a new paradigm. It's a new technology. We're going to change the world. It's still operating on what Jim calls human OS. And so there are still going to be the same tricks, the same traps, and the same things to know to make sure that you can actually navigate through markets. Because crypto is not different. It's just another market. It's just the structure is different. Yeah, absolutely. And that's why this conversation with Jim is so valuable. And there's so many things that crypto investors can actually learn from

traditional investing. Because to your point, David, it ain't changed. I mean, we're still the same human beings and we're going to make the same mistakes as traditional investors. And so he gets right to the heart of it. David, I'm really excited to record the debrief with you, though, because there are some other quibbles that we probably have about like... I got some bones to pick, actually. Some asset allocation and like whether crypto is a store of value and these sorts of things. But guys, if you are a premium subscriber of bankless, did you know, you get an extra podcast. That is the recap that we do after all of these episodes where David and I talk about the episode that was. If you want to upgrade to a premium member, click the link in your show

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security of the best privacy browser on the market. Whether you're new to crypto or a season pro, it's time to switch to the Brave wallet. Download Brave at brave.com slash bankless and click the wallet icon to get started. Bankless Nation, we are super excited to introduce you to our next guest, Jim, O'Shaughnessy is a Wall Street legend. He is the founder and chairman and co-CIO of O'Shaunicee Asset Management. They've got over $6 billion in assets under management. That number could be up outdated, Jim. I'm not sure how many you guys have now. Yeah, it is outdated. It's like $7.5 billion now. There you go. It keeps going up. Up only. And Jim has decades of investing experience in a world of

crypto, like podcasts and investing where many of us have mere years. So we are looking at Jim to tell us some timeless investing wisdom, something that would last us in crypto for the long haul. I think, Jim, we want to cover three different things in a few sections. So the first is what's changed with investing throughout your decades of experience? Some trends, some changes that you've identified, maybe different seasons of investing and kind of fundamentals and narrative. And then secondly, what stayed the same? That might be actually an even more interesting conversation to have.

And then lastly, what does all this mean for a crypto investor as most in the bankless audience are? Like we're kind of getting into crypto now. Many are young. Many have their first investing experience in crypto and actually don't know. know investing in the traditional and the outside world. So that's what we want to cover. Does that sound good?

Sounds great. All right. Let's start here, though. First, would love to hear a bit about how you learned to invest in your early years. What did that look like for you, Jim? So let me take you back to the Paleolithic era before Internet, where like if you wanted to do something, you actually had to go to the library. I don't have it handy, but I could put up the cover of my first brochure, which took like four

months to do because I had to physically go to the marble query to take the pictures because I wanted it to look really cool. And then after getting the one I liked, I had a design firm, an entire design firm try to work it. And we can't do that. You know, I was telling him what I wanted. Three months later, it looks okay. But like, you do it now? One second. Done. So when I really started to learn and became passionate and a bit obsessive about investing was in the late 1970s, early 1980s. So I was a teenager, 19 and 1979, and then a young guy who got married young and then a young dad. So I had people who had to put up with all my craziness. So I found a library. I used to live in St. Paul, Minnesota. I found a great research library called the James J. Hill Library, where they had literally

all the data, literally all of it. The problem was, was getting it from here to there. And you guys probably have never even seen one, but they used to have big, big spreadsheets, paper spreadsheets. So you could have, I can't remember, like 18 rows across and 50 rows down. And so I started with the Dow, because just 30 stocks, and I'm legendarily lazy. But it was all by hand, literally. Then I got every book that I could find on investing. And I read all the ones that most people do, you know, securities analysis by Graham and Dodd, the individual investor by Ben Graham himself, just on and on and started to build a thesis around investing, which was that the biggest problem in investing is that people are probably looking at the wrong things.

And back then, again, Paleolithic era, everybody just talked about people, right? So I had my aha moment when I was invited finally to the big dinner when my uncles and aunts were in town. You had to be a certain age to go to the grown-up table. And I was so excited because like, anyway, so there's 14 of us around the table. And my father and my uncle were having this like really intense discussion and fight about IBM and its prospects. And I listened and didn't commit and just kept listening. and I just noted it was all just talking about the CEO. That was it. They were not talking about what its earnings were, how much you had to pay for it, what its prospects were. And so I finally interjected

and I'm like, Uncle John, who was more on this than my dad, I think that's totally wrong. And he's like, oh, okay, well, so enlighten me. And as you know, well, you might not know. If you're at a mostly Irish families table and there are 14 people, there's probably a minimum of 20 opinions. But it gave me that push, that first push, right? And it's like, I think they're wrong, but I might be wrong. So let's go to the videotape, as the old sportscaster used to say. And thus was my first dive into empiricism and now call systematic or quantitative investing. Jim, I'm wondering what the context or like zeitgeist was around society and investing at the time. Because if you're telling me that you had to go to the library and go through like these cumbersome like documents to get an edge to like do your research, that seems if it was hard, then you were doing things that other people weren't doing.

And that reminds me of like the early days of crypto where learning and researching and like valuating things, there was no consensus about these things. and so there were only people carving their own path. Was that what it was like? And how easy was it for you to generate your own understanding and models for how to invest back then? So that's a great question, David. And it speaks to the zeitgeist of that era. Every era has its own zeitgeist, right? And that era, because we were coming off the worst bear market,

1972 through the end of 1974 for stocks, since the Great Depression, inflation was rampant sounds familiar and like literally so i was like 21 right so all of my contemporaries said you know are you out of your fucking mind why would you be interested in stocks stocks are for widows and orphans i mean the real money is in hard assets so like all of my contemporaries were going into real estate they were going into commodity trading they were investing and trying to figure out how to get into hard assets. So the attitude toward stocks was just grim. I mean, it was like everyone thought I was crazy to be interested in stocks. And like I gave the standard, well, you know, they seem to have done pretty well over the last century. So I think that they'll come back. But the question

always highlights something that anticipates your question on what's changed. It was really hard to get good actual data to study. And most people did not. If you go back, like I was reminiscing with a friend about there used to be a very popular show called Wall Street Week with Lewis Rukeiser. So I watched the one that they did right after the crash of 1987. I turned to my wife and I'm like, that world no longer exists. It was because people were still basing their actions on what their broker told them to do. And I use the term specifically, broker. Now, we've seen a huge change to registered investment advisors who their pitch and everything is very different than a broker's, right? So brokers were there by this. Why? Because it's going to go up. Why? Because I said so.

And basically, even like supposedly sophisticated like corporate pension plans, they had no idea how their money was being managed. In fact, the first company I started, O'Shauncey Capital Management, started as a consultant. And it was because I had done a lot of research. By this time, I finally had computers, so it made it a little easier. So I had come to the conclusion, which I wrote extensively about in my first book, Invest Like the Best, that you could clone any manager you want it to by not paying attention to what they say, but paying attention to what they do. What they do is accessible in their portfolio. So I would take their portfolios, put them on a huge database of stocks and suck out the most relevant factors, right?

And it gave us what was at the time called normal portfolios. In other words, the portfolio had the same characteristics as the manager. And so, A, the pension finally got to see, are they doing what they tell us they do? And again, spoiler alert, most weren't. And secondly, are they the manager adding value through their trading, right, through their buying and selling throughout the year. We got about three years into that, and that's what I decided, holy shit, I got to become an active manager because the so-called clone portfolios

were killing the managers that they cloned. And my thesis was that's because, like the old Pogo cartoon suggests, we'd met the enemy and it's us. So that got me involved in the whole human nature stuff. And I mean, like, I've been studying that ever since. and it's just so remarkably clear that well our world has dramatically sped up our access to good, high quality information. It's the highest it's ever been in my lifetime.

And things like crypto, great example. So invented, it had a thesis supported by a white paper. I like the little rasmataz of it being an anonymous white paper. But it already had the defense of the thesis built-in. into that white paper. Back when I was doing it, no way. And this sounds weird, but it's true. Like, the highest indicator of who you might hire as a money manager, again, you were like a pension guy, was who you golfed with. And that world, I think, for the better, is gone. So, Jim, there's so much to unpack there. And I think we're, like, hinting at a conversation

to come on this podcast. But I've already gleaned one learning lesson for us that is probably timeless in crypto is you have to put in the work. That's the edge, right? Because there's a lot of people who are looking at crypto and not putting in the work right now. And if you want to make outsized returns and outperform them, you can't just like watch YouTube videos and just consume bankless, do consume bankless, but you also have to put in the work. Maybe one of the more timeless lessons that you alluded to that we'll get to later is also that humans, it sounds like they kind of suck at investing. Like we want to talk about that a little bit.

Sure. And I think in crypto, there's no exception. But first, you talk. about the zeitgeist of the era in kind of the 1970s when you entered. And you've seen some decades. So you've probably seen different zeitgeist, different narratives, different movements. And as I said in the intro, many of us in crypto, we've been here for years, when I mean here is investing. And we haven't seen decades play out. So we haven't experienced the paradigm shifts of different zeitgeist and different narratives and different investing temperaments.

And I'm wondering what you think about on this topic of how has investing change is kind of like how has the narrative changed across generations, like growth versus meme versus value investments and what are all of these things? One illustration that comes to mind is a chart, and I'll show it on screen for people who are watching on YouTube, but if you could visualize this Forrest Jim, so it's Tesla versus the market cap of all of these other car companies, all right? Tesla market cap, $1 trillion. All right? Every other single car company combined, the market cap of that is less than Tesla. It's $0.9 trillion. Okay, so that's market cap. That's valuation of these assets. But if you look at the gross revenue, Tesla is $53 billion in gross revenue. And all of

the other companies combined, it's like $1.6 trillion. There's a mismatch here. What era are we in, Jim? How does this even make sense? So, great question. And let's take a step back and say, if you study all the various eras of mostly stock and bond investing, but it includes real estate, all that kind of stuff. What happens is that my thesis around markets, all markets, are that they're complex adaptive systems with feedback loops and that they work very, very well when beliefs of participants are heterogeneous. In other words, I may have some Apple stock that I want to sell

because I want to help set up a college fund for my grandson. You might want to buy something for your children if you have them or anticipating them. And both of us are right, right? In terms of if you're just looking at it from a transaction point of view, we're not both right about the price, but we're both right about my reason for selling makes a lot of sense. Your reason for buying makes a lot of sense. So that's the majority of markets, market environments.

And in those kind of market environments, markets are made. They clear. And you run into trouble when you hit on one of these crazes. Okay. And what happens is those feedback loops speed up and they create what I call information waterfalls. And what are they? Information waterfalls are just a fire hose of information hitting your perception field, but with all the same story. And so what? What you see over time is that investors' expectations move from heterogeneous to homogeneity. In other words, everyone's thinking of the same thing. What most people don't quite understand is this is the way it has always worked.

I mean, you go back to the South Sea Trading Company and Isaac Newton losing his entire fortune in it, and the reason for that was what I just described. They got the information a lot slower, but they still got it. and he got hit with so many, oh my God, South Sea is going to make everyone a millionaire, everyone a millionaire, everyone a millionaire. And so if you looked at the chart of the South Sea company, it looks like the NASDAQ prior to the crash, the dot bomb crash, and then afterwards. So this chart pattern, basically you see it everywhere where a craze are what like a mine

virus takes over. So it starts back there, you know, fast forward to. the United States were the biggest market. So there's a lot of examples here. Railroad stocks. I mean, people who think that like Tesla is overvalued, go back and look at how they valued some of these railroad stocks. I mean, they were totally insane. And yet people kept believing the story they were telling themselves, right? I am smart because this brand new technology is going to be revolutionary. There is a really important lesson. If the object of, investors desire is an innovation and a technology, that's when they get super, super whipped up

about saying it's still early. And, you know, I could give you a million examples, but I'll give you three. So RCA, radio came out, right? So you got to remember before radio, like, you listen to other people talk. That was it. So radio comes out and everyone is like, holy shit, this is amazing. So they ran RCA's Radio Corporation of America's stock up to a price that was priced not only for perfection, but for deification. And when the ultimate reckoning came, and we'll get to that part later, that's the not fun part.

RCA never went higher than that price of 1929. Warner Brothers, the movie company, they went up 600% in one year. Why? talkies and our human reaction to these new technologies seems very predictable. We get super excited about it. And by the way, it's not wrong that we're super excited about it because we're often right about the ultimate thing, right? Like this bad boy is rewiring our minds right now. And it's very powerful and it's very cool. But Jim is holding up a cell phone for the podcast listeners. But so, you know, rinse, repeat. And every era has an idea.

right, that becomes dominant as well. So back then, it was all the tech, right? And it's kind of funny to think about tech as radio and talking pictures. But this is how far we've come. But another narrative like the one discussed earlier is like stocks will never go up again. Bonds will never go down. And that's just idiocy. If you take the time to do a little bit of homework, you can see that we all think that we're different than other generations. No, we're not. We know more, but there's still so much more we have to learn. And many lack the humility of understanding how little they really know. And that's why, like, one of the things that I base all of my stuff on is evidence, right? Directionally, more times than not, I'm right. That's about as good as I can get for you.

directionally more times than not I'm right. Well, that's quite an edge. And it also has the ability to negate as to meme stocks. So this is one where people, after this comes out, you'll get lots of angry comments. And that is because the evidence suggests that narrative follows price, not the other way around. And so obviously from the stock market, the good example is the meme stocks, right? all these people with their diamond hands and all that kind of stuff. I was talking to another guy, he's right around my age, and he's been an investor as long as I haven't.

He's like, so what do you think of the whole AMC thing? And I'm like, well, I said I feel really bad because there's a lot of earnest people, and I really do mean this, young people especially, a lot of earnest young people who want to learn about how to invest, which I'm massively in favor of. being manipulated because you know the chat rooms right wall street bets and all that kind of stuff if you don't understand that there weren't probably a dozen employees of some of the biggest hedge funds in there under assumed names you need to maybe splash some water in your face in the old days that was called painting the tape so william harryman who was a railroad barren but was also

a really good stock speculator. A syndicate, which is what they used to call people in the 20s that poured money together to try to manipulate the market, essentially, came to him and they said to Harriman, I can't remember the name of this company, but can you get the stock of XYZ, which was then at 100? Can you get that to 120? That's where we really want to sell. And Harriman goes, no way. He goes, on the other hand, I can move it to 200 and you can sell it on the way down. He intuitively understood that a 20% move doesn't ignite anyone's passion or imagination. A hundred percent move back then did. And so the whole diamond hands thing, all of that, that was a highly manipulated market.

And there were people from those hedge funds who wanted to punish each other playing a very different game. And the narrative just writes itself, David versus Goliath. So stories work really well in experience. explaining what happened. If you want to explain what will happen, oh, that gets a lot harder to do. But if that one was just so juicy, and so I guess the takeaway that I would offer your listeners and watchers is if you get enticed by a story, don't say, oh, that's just a story and that's being manipulated. Go back to your original point. Do some homework. Say, okay, this story seems to be here. Now that I know what that old guy that they had on, their podcast said, I'm going to look

into like whose benefits and who doesn't. And, you know, the simple rule is follow the money. When you do that, you might become a little bit disillusion. So that's what I guess I would say about that. Bankless listeners, there's two lessons that we just heard there that I think is incredibly relevant and implicable to everyone who is doing anything in crypto, which is this. narrative follows the price, not the other way around. Okay? So when you're looking at narrative investing and all of these assets that are pumping based on the narrative, realize that the price influences these things. It's something we can come back to. And also, let's not be naive, painting the tape, as Jim is calling it, happens all of the time in crypto. It just happens with

a YouTuber who's talking about a specific cryptocurrency or a Twitter thread or an anon who's pumping their bags in various ways. So let's not be naive to these facts. But, Jim, I do want to go back to this Tesla thing just for a second because what's super weird about this is like, you know, people who went to business school or like the traditional investing sort of thing is how do you value a stock? Well, it's price to earnings ratio, right? And that's how you value a stock. But like we see the price to earnings of all of these car companies exceeding Tesla. And yet Tesla is an order of magnitude higher in terms of value. And I'm asking you about this. Like, are fundamentals dead? Or is this just another narrow? that we've told ourselves right now. And by the way, this is true in stocks and equities, of course, but we also see this playing out in the crypto world where there are assets in crypto that we might say, could these revenue inflows from it? Look how much cash is being generated from this particular defy protocol or this particular asset. But that seems very disconnected from the reality of the market caps of these things and what's actually going up in

price. Is this just an era that we're in where fundamentals don't matter and do you think we'll reset to the meme? So let me preface it by saying, I can only speak to my personal experience in markets and additionally studying prior markets before I was around. It's different this time, right? That's the call. That's the thing that gets people really excited. My thesis is that as long as human beings price securities or crypto or whatever asset class,

this is ubiquitous and it's applicable to all asset classes. as long as human beings determine ultimately their price, you're always going to have situations like this. I have seen it personally just so many times that you get this, when you see a pattern endlessly throughout your career, your intuition gets very imbued with understanding that pattern. And so just give you several examples. In the late 1960s, one of the most speculative decades for stocks since the 20s,

They had a thing called the nifty 50. The nifty 50 were 50 stocks that essentially serious or apparently serious-minded analysts said, buy them at any price because these 50 stocks are going to always rule, of course. They were the consensus stocks. Yep. And you don't even have to be terribly bright to go to the end of this story. They got absolutely hammered in the correction in bear market, actual bear market of 1973, 74. Flash forward to oil when oil was crazy in the late 70s, early 80s. Everybody was

buying every oil stock that they could do. You know, multiples be damned oil because we were running out of it. Every magazine was screaming, peak oil. We're going to run out of oil in 20 years. The world is going to be completely without oil, right? And so I did an exercise. I went through what was then called the pink sheets, which were stocks that weren't worth enough to get listed on an exchange. And in under a week, I'd highlighted all of the stocks that were trading under a buck, right? So under $1. In under a week, there was not a single one trading under a dollar. So guess what happened after that? They realized that maybe those predictions that the pessimistic journalists like to spread were maybe wrong. And then, of course,

let's come up to the granddaddy of all similar things to what we're seeing right now was the dot-com craze. And you've got to understand, and this is so difficult to understand theoretically. I'll give you a good example, though. In April of 1999, I wrote a piece that's still available somewhere online called the Internet Contrariant. And in this piece, I said, when the crash comes, 85% of these companies are going to be carry it out feet first. They're going to die. They're going to go away. And then I used Amazon as an example of a company that I thought was a winner. But I said in the essay, but Amazon, when this happens,

is going to go down 95% in price. That's exactly what happened a year later. But here's what's interesting. And this is the better part of this story, in my opinion. I wrote that based on just data. What did I do next? I started an internet company. You should have been shorting Amazon. Did you do any of that, Jim? Exactly. Exactly. But what I want to underline here, because it's so hard, if you haven't experienced it

yourself, it's so hard to learn from the example, my example. Our world back then was so monomaniacal about the Internet is going to replace everything. So don't ever invest in a bricks and mortar company. They're dead. They're dead. Don't have anything to do with anything. In every example, every lunch you were at, even with people you didn't know, hey, did you see that new store that you don't even have to buy shoes anymore? You'll put your foot on this thing. It'll transmit it over the internet and the shoes will come right to you. And so like everybody had this fever, right? And not unlike, I think, Newton and back in the day, much slower back then, of course. But that's another part that's changed. The ability for these cycles to speed up and play on themselves creates these emotionally, because these are not intellectual thoughts. Because remember, I had written a piece based on empirical fundamentals that said, dead. And it has to be. But I was so taken up in this idea of the internet that I started a company called Netfolio, which interestingly enough, O'Shaunosia asset management now has

basically what I was trying to do back then. We call it canvas that allows us. to individualize people's portfolios. But the point is that came and the price plunged and suddenly there were all sorts of narratives. And this is where the understanding of human beings, and by the way, me too, you two, anyone who is running human OS, unless we have aliens among us like men in black suggests, my guess is everyone on this planet is running human OS. And if you're running human OS, you're going to fall for this.

unless you figure out a way to make that impossible. And so what's going to happen in crypto? I have no idea. I have no idea. But I can tell you that it seems to me that on the plus side, they've tried to kill crypto so often and it hasn't died. That's a really interesting sign to me. Because back in 1930, whatever, FDR decided, yeah, the gold standard,

Fouca broke, man. So they passed an edict and they literally went house to house with guns. Give us your gold. And we're going to pay you 35 bucks. And we're now going to fix the price of gold. And, you know, that was that. We don't live in that kind of world anymore. So what I believe will happen is that as crypto evolves, as the various protocols of the blockchain evolve, there will be early on many, many different competing things.

To your Tesla example, right. each one of those various coins or protocols is going to have what I call true believers. True believers, and this is very uncharitable of me, but they're brain dead. They have replaced the thought process with a set of talking points, which, like, look at the most fundamentalist religion in the world and these guys trump those guys all day long. because like if you are ignoring against the one true fate, man, it's lucky that we don't have Otto Defaz, which is burning at the stake anymore, because they'd kill all the heretics. That's how passionately they believe. But that gets chipped away at and when you start getting a bit of a history, which is happening now, by the way, when you start getting a bit of a history over,

okay, did that work or did that not work? Right. And people become a little, less committed. More people come online that like listen to the proselytizer on behalf of that particular coin or protocol, but they are not immediately brainwashed. They're a little more skeptical. And then the whole thing is eventually washes out. Let's stay with cars. In 1900, there were over 200 car companies in America, 2.0. And by the way, about 15% of them were making, you guessed it. electric cars. And so they were all competing. They were all doing this. And then the big three one, and now it's the big one. So about the question, do fundamentals no longer matter? Yeah, they still matter. But it's going to be a little bit like the famous conversation between

Hemingway and Fitzgerald when one asked the other, you know, how did you go bankrupt? And it was slowly at first and then suddenly. And that's what your price patterns are going to look like. So you're going to be popping along and it'll run up and that'll get people excited. They'll buy some more. And then the people who want to get rid of their holdings will go down and then all the way down. And that is an outcome that you really do need to consider for your particular passion, whatever that might be.

But as I said, crypto has a lot of interesting things in its favor. And its inability to be killed, I think is one of the strongest ones. The lesson here, of course, is that. there are dangers when it comes to just consensus in communities where, look, if everyone is believing the same thing, the opportunity of being the contrarian in that is perhaps strong. But Jim, I want to present the devil's argument because there are plenty of times and examples where having consensus about something kind of feels like, well, we all see the same thing and we're all early. And, I mean, there was consensus amongst, you know, the early bitcoins. If you saw Bitcoin between

2009 and 2013, all the crazy libertarians who saw Bitcoin that early had consensus about it. And that was before it was $100. And the other trap that I'm seeing is that when we talk about just like the thought leaders of every single community have like the same lines and the same tropes about how we're all early. We're all in on this thing. That seems to be normal in crypto for every single asset. Like every single asset has its tribe.

You talked about the mine virus, right? don't get infected by the mine virus. Well, literally the Bitcoiners will use the phrase like, you get infected by the Bitcoin mine virus and you can never like get it out. You just are compelled by the Bitcoin vision. Ryan and I talk about this frequently on the weekly rollup where like crypto is a one-way street. Like once you learn about crypto, you can't go back. Everyone has consensus about crypto. And then there are different tribes and different communities in crypto, some with varying degrees of like tribalism and toxicity. Some will objectively like lean into these strategies in order to get people on their ship. Others will use more like pragmatic strategies

like talking about fundamentals. That's what I like to think that we do. But like in crypto, there is no absence of tribes. And so therefore, there is no absence of just complete consensus inside of communities that this is the next big thing. At least one of these communities is going to be right. And many of these communities are going to be wrong, but some will be right, probably over the long term. And so I'm wondering if you have just any thoughts or wisdom about how to navigate just like the timing of when these communities decide that they're right or not. Because again, if you were 2009 to 2013 Bitcoin, you were super right. And there was consensus among those communities. And I think perhaps there's evidence to say that some communities in today's crypto are also going to be like the 2009 to 2013 bitcoinsers if they are right about the right thing.

And so like, yes, global consensus is like a big like red siren. We should be totally scared of that when everyone believes the same thing. but also aren't there enough examples to illustrate that, well, I mean, if we pick the right one, then we are right. Yeah. So if you take it any logic courses, there's a thing called a planted axiom. A planted axiom, an axiom by its definition is obviously true. Okay. So you don't even have to argue about it.

When you plant an axiom, that means you're saying something is obviously true that is not obviously true. And if you study logic a little bit, you can see if you can get away with planting an axiom, which is the planted axiom here, is that those early guys were right and they were totally right. And look at all the money they made. Okay, factually, that's true. Right. But you need to do a much deeper dive on that. And some good metaphors are wars, right? So everybody thinks that God is on their side. Everybody thinks that, They are fighting the righteous cause. Everybody thinks that we are the one true faith. We are the one true belief. We have access to the truth that others don't have. That's why this intertribal rivalries often get so violent in the old days. Thank God it's mostly just people flaming people on Twitter.

But like in the old days, you literally killed them because they did not adhere to your belief. That was the definition of a heretic, somebody who was like, no, fuck you. Or an apostate, even worse, an apostate was somebody who used to believe, but then leaves the tribe because of his or her insights about what's going on with the tribe. The second thing you need to think about is that, and this is a little harder, to be honest, but I've always been a big fan of alternate histories. And if you can run enough alternate histories, you can see all the times when that original tribe wasn't the winner. And trying to, getting back to my definition of markets, all markets, crypto markets included, complex adaptive systems.

Complex adaptive systems are very different than simple systems. A complex adaptive system, all of the innovation and emergence comes from the bottom, not from the top. So if you get people like the idiots in Washington, I don't care what party you support, if you be all the way over here on the left or all the way over here on the right, you're wrong. And you're members of a cult and a mind virus. And you shout at each other all day. And it's ludicrous.

Because the one thing they share is this belief that there is a top-down system that will work. And we can rule the world this way if we just do it this way if you're on the left or if we just do it this way if you're on the right. They're both wrong. Emergent systems, which are why things. got the way they got, right? If we weren't in a complex adaptive system, society is one. If you have like a couple of things that are also defining of that particular society or a system, if you have a rule of law and you have the basic freedom for people to do whatever they want,

well, guess what type of country goes to the top of the league table in inventions, in material wealth, in extending rights that would have been thought of as privileges, long ago, that type of system. And so the thing that I would also add, I mean, it's just like, this is now we're going to get into why we're so hard to figure out and why I opted to just tie myself to the mast

because I realized that I was going to be just as dumb as everybody else because I'm running human OS. So my friend Annie Duke writes about this really well, and she calls this process resulting. In other words, let's say you don't think about an underlying process at all. You don't look at fundamentals at all. You might just be at a party and like your friend shows you this cool coin and you just go and buy it. I've heard

that many, many times. All the time. All the time. So here's the part that really screws with your head. So you do that. You're at a party. A friend tells you about this new coin. You buy it. It goes up. You immediately say, I made a great decision. And my friend's a genius. Exactly. Thank you for adding that. What you've done is you have created a thought process in your mind that is so difficult to reverse. And the only way it gets reversed is when you get wiped out. Because what you're doing is you're saying, okay, cause a friend, genius tells me to buy shit coin a result. I make 200% in a month. Genius. Good. Good way. to do it. No. I'm reminded of Pavlov's dogs right now. Exactly. And like we are domesticated primates. I know people don't like to hear that, but that's what we are. You can program people the same way you can program dogs. And it happens. And the challenge there is there's a concept that can break you free of that. And it's called base rates. What is a base rate? A base rate is, okay, I used this process to generate my buy and

else, how often did I win? And as you go forward in time, your base rate gets longer and longer. This is a big reason why I'm a big believer in testing historically, because you can get massive base rates, right? When you do that, you suddenly realize, oh, buying that shit coin at that cocktail party was really, really stupid. Maybe I should have a process that is repeatable. I'll give you an example. And by the way, everybody is guilty of this. Two, you guys, all of your listeners, we're all guilty if we're a human being because that's the way human OS runs. We haven't had an upgrade to human OS in a long, long time. And unless you are very skilled at meta-programming, it's going to be hard for you to have an upgrade.

So you put up a chart. It's 1968. And you show for the last five years, if you had just bought the stocks with the highest gain in sales, right? So their sales went up the highest over the previous five years, right? And then you looked at the results, like just smoked everything else. Like they were 28% per year versus like the market was at 10. And then if you really want to add some symmetry, let's add what happened to the ones that had declines in sales. Like nothing.

T bills, right? And people are looking at this and they're looking at it and they're thinking, well, that's a process. Not enough time. because first off, does that make intuitive sense that you're going to buy the stock that just doubles its sales, keeping everything else equal? I don't know. Could. What I would be driven to is, huh, that's an interesting idea. Let's test it. And that's what I did. Tested it all the way back to 1927. That was a highly anomalous cherry-picked period where that actually happened. You look at the long period of consistently buying the stocks that, whose sales go up the most, return is less than T-bills. There are just so many mind traps and other traps waiting for we gullible, naive humans to fall into them. You ever see The Simpsons episode where Krusty, the clown, everywhere he turns, he steps on a rake.

And it's shown from like up here, he gets to the rake and he's just surrounded by rakes. We're a little bit surrounded by rakes. And I do not advocate that people beat themselves up over making mistakes. Like everyone makes mistakes. I made a shit ton of mistakes over my career. So rather than beating yourself up over that mistake, learn from it. Say, you know what? Maybe he's right.

Maybe if I could start building out my own ideas about why this particular coin or this particular blockchain or this particular process is going to work better, you'll at least keeping the mind open zone. what we often do, again, all of us including me, we often go looking for, it's called motivated reasoning. When I want to buy crypto because I want to get rich really fast, my reasoning is motivated by that. And I only go looking for reasons why I'm going to get rich by buying crypto, right? And I block out or reinterpret all of the reasons that are out there that are legitimate reasons for why that might not happen. And when you add in the research on how unreliable our memories are, it's a perfect storm, man.

Our memories, the brain thinks it's doing us a kindness. And what it does is it upgrades our memories to make them consistent with what we believe now. With what makes us feel good. Exactly. And so if we swung the camera over here, you'd see boxes and boxes and boxes of journals that I've been keeping since I was 18 years. old. And when you do that, you realize that, well, I would never be that dumb. And then you go back to like 1989 and read what you wrote. And I was, shit, I was that dumb. This is so great, Jim. This is like exactly, I think, what we need to hear. I just want to, you know, link this because

all of the terms you're using, we use in crypto right now. And we can identify all the patterns you talk about. You talk about survivorship bias. There's also this term crypto often uses of like FOMO, fear of missing out, right? And so many crypto investors get caught up in the fomo of whatever narrative is popular. Also, many fall into the trap of becoming brain dead maximalists, where they only have one view of the world and they can't escape it. But I think the bottom line is this. Like, some things have changed in investing, right? And you have different eras and different zeitgeist and narratives that are popular. But actually, more has stayed the same. And the thing that's stayed the same is we're all still a bunch of monkeys with human OS. Yep. And a question to you,

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if we're ready to come to terms with the fact that we're all kind of shit at investing right now, and the crypto included, we might have some good ideas from time to time, but we're not really good at controlling all of the cognitive human psychology biases we have. Well, what are some hacks? What are some tricks that we can learn to actually short-circuit and create some process, create some guardrails in place so we don't screwed up? And one that you mentioned that seemed super practical is the base rate method, where you're like doing active logs of what you're doing.

and over a long enough time frame, you can actually go back in time and see the mistakes you made, where you were right, where you were wrong. You could go into that a little bit. Another method that we advocate often on bankless is just like dollar cost average in. If there's an asset that you think is going to appreciate it in the long run, and you slept on it, you've thought about it, you've done your research, you've done your deep dive. You don't necessarily have to buy all in now. You could just dollar cost average in over time. And that's kind of a human psych trick that works for many listeners. But how can we get out of this? How do we short circuit human OS and not screw this whole crypto opportunity up? Yeah. So that is the ongoing and eternal question. And what I have come

to believe, there is no one, you know, external strategy that works for everybody, right? So my solution of being an entirely acquaint, it negates all of my emotions because obviously I built the model, but once I've built the model, then I set the research team on improving the model, because you're always going to be able to improve. No model is always right. Again, what I said at the beginning, directionally over seemingly a majority of time, right? So that was my solution. My solution was, I know I'm wise in the Socratic sense of knowing how little I know.

And I'm very willing to admit that. and I'm very willing to admit that I would probably fall into every one of these behavioral traps, just like everybody else. And so I have that little bit of wisdom. And so what I'm going to do is I'm going to use empirical evidence and I'm going to arbitrage human nature. Other people might just say, I can't do that. Well, there's all sorts of what I call interrupt methodologies that can work with people. I have a good friend who's a trader in Europe.

He's kind of an intuitive trader. what he does, which is very effective for him, is like when the market starts going against him, he literally closes his workstation down. He keeps running close at his office. He puts him on and he goes, he lives in Vienna. If you've ever been there, it's a beautiful city. So he goes for a five-mile run in Vienna. And like what he stumbled on to is when we allow for these cool down periods, the emotions are like,

oh, I like this. This is nice. The weather is nice. It feels good to run. And what happens is the brain resets and the emotions get calm down. And like if you want to really whip people up, just keep going at it. Right. You must believe you're the maximalist way and all that kind of stuff. If more of your style is deep breath, got to think about this. I feel like really compelled to do this. I know that I have this huge fear of missing out. Yeah, I'm going to go for a run. Another way that I have found that is like really work for some younger people that I work with is to write it out. I have been a passionate believer in writing your ideas out forever because it's almost magical. A, first off, when you have to write it out, when you have to get it out of your head and into the world on a piece of paper, or I find using your actual handwriting works best and there's some studies that engages different parts of the brain. but write it out. What you're going to find really quickly, let's say you think coin A is still going to be the winner, right? And you're sitting there and you're talking to your significant other or your friends or whatever and you're making the arguments and they're like countering. And, you know, it's a conversation. If you do this part instead of that part, sit down and say, I'm going to write why my thesis for coin A is right. And then you're going to start writing. What you're often going to find. What you're often going to find.

find is that you have no reasonably good argument for why coin A is going to win. And you teach yourself, it's a great way to give yourself feedback on your own thoughts. Because if you can't build a cogent, understandable argument for why you believe what you believe. And by the way, this is a ubiquitous process. You can do this for anything. It doesn't have to be just crypto. It can be whatever. If you can't write it out or after you've written it out, you read it and you go, What dumbass wrote this? This is bullshit, right? That way, you've interrupted yourself and you're like, oh, I guess coin A isn't going to be the winner. Another thing that could happen and sometimes happen. By the way, the first one happens more frequently than the one I'm about to describe is you write out your thesis. It's pretty compelling. Then you run into the trap of the curse of knowledge. So if you've got a very compelling thesis, let's say you're pretty smart.

I love the irony of this. The smarter you are, the better you can convince other people and yourself of your argument. So it's just like, oh my God. So if that happens, you still got to go on to the next stage. You have now written down a cohesive thesis that is compelling for why coin A is going to work. Find somebody that knows nothing about crypto and have them read it. And then listen to the question. that they ask you, what you're going to find.

I've never yet worked on these mentoring things with some of the younger people I work with, but one guy came close. The questions they're going to ask you are going to change what you think about point A, point B or point C, right? Because you're going to realize you're going to take your notes. And again, this is back to your initial assessment, Ryan. It was like, do the homework. Well, this is homework.

Third part of the process, you take your compelling thing, have them read about it. They're going to ask you questions. You write those questions down, and then you redraft your essay. Does it get stronger or does it get weaker? And so the whole point here is less important about how compelling your thesis is. You could still be wrong, right? Nothing's 100% ever, and nothing ever is certain. We're deterministic zero to 100 thinkers who happen to occupy a probabilistic world. And generally, that leads to hilarity or tragedy. So, but what you're doing here is you are giving yourself a chance to slow down and letting your deeper thinking part of your mind get involved. That's the real secret here.

By taking the time to write it out, all of that, guess what goes away? FOMO. You're no longer like, I got to do this now. The sad part about this is there's a guy Edward Bellamy, who was a real asshole. He was Freud's nephew or cousin or something. Anyway, he's the guy who was the master of propaganda, and of course, he changed his name to public relations, much nicer sounding. There are a lot of these techniques that are like automatic, that just hack into your

base code of being a human. Another book I would recommend for your listeners and people watching is a book called Influence by a guy by the name of Childini. he also has a pretty cool website if you prefer to learn by watching him talk about it. What he's good about is showing you, no, no, no, no, man, those are routines. We always compare the brain to whatever the latest technology is. I love that. I mean, like back when steam engines were at, everyone compared the brain to a steam engine.

And then it was whatever the current new technology was. And so now we're all saying, well, the brain is just like a computer. It's not really. But it's convenient. So there are ways to hack. in to those subroutines running in your brain silently that just take you over. So a lot of duplicitous people do that. And this slows that down. And it kills for the most part. I haven't yet worked with somebody who actually did this, who actually said, you know, Jim,

that was bullshit. And at the end of it, I felt even more FOMO because I was doing this ridiculous exercise of yours. And then finally would be the kind of, okay, I think that crypto is going to win. And I think that the blockchain is going to win and permissionless protocols and all that kind of stuff. I think that's going to win. They're finally building indexes of all of the various coins and stuff like that. Buy one of those. And so that makes it a lot easier on you because indexes are really momentum funds in disguise, right? Because back to Tesla, Tesla keeps getting to be a bigger part of the S&P 500.

So these innocent investors who think that they're past. of investing are actually investing in a mutual fund that is based on momentum because they have to reallocate the cap waiting as Tesla grows. And they have no idea that they have in their S&P 500 fund a huge position in Tesla and that Tesla could shit the bed and they could go very, very wrong. However, it's the cleanest way for somebody who doesn't want to make it kind of like their life's mission to participate. And if you get it wrong, well, then it's better than trying to speculate in all the coins. Because if the index fund goes to zero, it means we were wrong.

We got that wrong. And something happened, whether it was the U.S. government outlawing crypto or whatever. There was some external exogenous event blew the whole thing up. Those I would offer as ways to at least think about it. It's really good advice, Jim. I just want to plus one, one of those in particular. and then talk about a few others and then ask you a question, actually. So I just want to plus one to write out your strategy.

And everything that Jim said is 100% true. You know, bankless has a newsletter. It's effectively what we do. In podcasts, too, we are basically like, you know, talking about our strategy and ideas. The one, I think, add that we might have, we have the benefit of the internet now, is you could publish it to social media. And then everyone in the world can tell you all of the flaws of your idea. In fact, they'd be happy to tell you the flaws of your idea.

me guarantee you, you will find haters on anything you post in social media. So even developing a social media presence, developing a blog that's well read, that can be a way to get that feedback cycle a little bit tighter. Also, I want a plus one on the go for a jog. Another strategy is like, look, if you're listening to bank lists, you're probably checking crypto prices like half a dozen times a day. Okay? I know that because more than that. David's like, you know, how many times you check, David? You got to pump those numbers out. Those are rookie numbers. He's checking right now.

He's checked three times since we started the podcast. I think go for a jog. Also, stop the amount of times you check crypto prices. What new has happened? What's the market telling you? Like, if you believe in this asset class for the long term, do you need to check it 10 times a day? No.

What if you checked it once a week? Yeah. How would that change how you're thinking about things? Go ahead, Jim. Those are both plus one. Great. I started moving all of my work to social media because I owe a lot of success to the traditional media, right? I was on CNBC all the time. I got written up in the journal

and all the various things, which was really great. I'm incredibly grateful. That's the point in the cycle. I was able to, you know, have that advantage. But I study these things and I started to see that everything was moving to social media. And so that's when I got active on Twitter, even though I'd gotten an account earlier. That's a great idea. So let me just endorse that idea. Because, man, if you can strap on your armor, it's going to be very helpful. But the checking prices. So there is a thing called hyperbolic discounting. And I'm guilty of this. It's a term of art. What it really means is you're shortening your time horizon without knowing you're doing it. Every time you check the price of crypto or anything, like 10 times a day, what your brain is saying is, oh, we need to pay attention

to these short, probably very meaningless, moves up and down. And when you become a hyperbolic discounter, you pull triggers way too fast and almost always to your detriment. So like another idea that I have been planning with, which I think is now getting some pretty good support, which is this idea, I always say arbitrage human nature. Well, there's this other thing about temporal arbitrage, right? What's temporal arbitrage? It's basically like I'm just going to, this particular algorithm that I've developed does it pretty well.

I'm just going to let it keep running, right? And you get a massive advantage over people who are running around like, what's crypto now? What's crypto now? What's it doing? What's it doing? Literally, if you'd walked into my office, all you would hear is Bach. You wouldn't see a TV. You wouldn't see at Bloomberg.

I didn't have any of that shit in my office. I think something that the crypto industry is really, really missing. that would make this whole thing a lot easier, this whole thing being able to be sober about our thoughts, removing emotion from investing, and looking for the long term, is that there's so many competing ways to value crypto assets. And no one really knows how to do it.

Different tribes will give you their version for valuating crypto assets, and it will always favor their particular crypto asset, right? There is no consensus. This is my shock face. Yeah, yeah. There is no consensus on valuation models. And I think when you were getting into the world of investing with stocks, I think perhaps that was about a similar context as in there was no general consensus with how to value equities.

Maybe you can correct my memory because I wasn't around back then. But something that we're really missing in the crypto space is like an anchor to all ground ourselves in about how to measure the valuations of these things. There are no fundamentals, right? Because no one can agree what fundamentals even mean. Right. There are no fundamentals. It's all in our heads. Right. Is this an important point that we're missing in the industry that we should really work on?

So Ryan's interjection there is hit it on the head. There are no fundamentals that, like, you can't move over the fundamentals of companies, right, to crypto. Because I used to use a joke meme that was essentially crypto CEO needs to raise prices. So I have, in my thinking about crypto, I think that. the best way to approach crypto is to use momentum filters. That's the wisdom of crowds. And quick and dirty, you wanted another way for people to kind of approach this is momentum has a solid history. Going back, my book What Works on Wall Street takes it back to the early 1920s. Other books, the data is really sketchy and so I'm low to like recommend them. But momentum is essentially

wisdom of crowds. It's not always right, of course. But it's right a lot more often than it's wrong. And I don't know that that would be a valuation approach, but it would certainly be an external way to say, I'm not going to listen to the story as to why coin A or coin B is better. I'm just going to look at the momentum, which one's winning the most adherence and which one are people buying the most of. I think the other thing about crypto that I always just like tried to get my head around this. because in the early days of crypto, I'm an early adopter. I love listening to people with no ideas because, you know, there's a lot of great ideas out there.

But the early days, as you guys said, it was mostly the sovereign individual types, the, you know, anarchist libertarians. And they were making the case that it was a store of value, right? What are currencies? Well, in an ideal form, a currency is meant to be a store of value. that doesn't change a lot, right? So inflation screws that up, other exogenous events screws it up. But then you got to look at, okay, another way you can say store of value is, is this going to be the most acceptable thing? Like, could I go anywhere and trade the crypto that I have on my phone for

something I want? I want to go, I don't know, riverboat tour of the Nile. And can I go and will they take my crypto? So I always... try to get my head around that because it didn't seem, especially by its price action, it seemed like a perfectly designed speculative asset and not a store of value. So I think, I don't know if it'll ever turn into store of value. I think that, you know, that would be one way I would kind of think about the fundamental side of things. And that would kind of be along the lines of, okay, so if we're thinking of this as a store of value, then it becomes applicable to say, how many people will take this as payment?

How many people are willing to accept it in terms of a worker? We have a new mayor here in New York and he went on and on about who's going to take part of his paycheck in Bitcoin, the mayor of Miami, who I've had on my podcast, like he's Mr. Bitcoin. That would be the way I would try to understand the adoption rate. So that could be kind of a fundamental thing, right? So if suddenly a country or a bunch of companies or a bunch of investors say, yeah, we'll all accept fill in the blank, right, as legal tender, that's probably going to be the winner. And keeping an eye on what's getting accepted the most, what has the most adherence, what has all that kind of stuff? I guess, and those are quasi-fundamental things, right? Because the stocks are so much easier, right? It's company A, they make X dollars. There's always going to be that crazy stock like Tesla that has, it's what I call a cult stock. And I don't mean that as any disrespect on Elon Musk. I think it's hysterical watching the haters who hate him and the people who love him. I really, I just think he's a very interesting guy. And I think that I try to divorce the person from the achievement.

and like that guy can land rockets on platforms in the middle of the ocean. I don't know how you don't respect that. And so you get that kind of cultish thing. And absent that, though, most stocks are like based on people saying, yeah, no, I'm not going to pay 100 times for every dollar of earnings. Or they, you know, see the light. And it's funny because they all collectively see the light at the same time. So I guess that's kind of a bad answer.

but it's because I really haven't been able to come up with a way of systematizing a way for us to look at crypto the way we look at investing. I think increasingly, Jim, we might find ways to do that in the future. And what we do like have to all be cognizant of is, man, this asset class is just so young, right? But the depth of data available for public networks like Bitcoin or Ethereum in terms of like amount of addresses that are like bank accounts that are holding Bitcoin, essentially, or holding ETH, you know, how much these addresses actually move Bitcoin or ETH, right? And how many of them are holding what's the time horizon? There's so much data, I feel like, that could be plugged

into quantitative models in the future to help us predict some of this stuff. I do want to go back to kind of those tactics for a minute because like also getting really excited about some of the advice you had. You mentioned momentum filters, right? And you said one of those is an index. I think that's another takeaway for people's like, hey, use crypto indexes. And there are crypto indexes that capture the total crypto market cap right now and or also capture segments like decentralized finance that you can look at and purchase. And some of these index will hold up better than others. Another, like, I guess a grab bag of strategies that I want to run by you, Jim, see if this resonates with kind of your experiences. One thing that David has mentioned in the

past is that he does. There's so much opportunity. I feel like crypto is all of the behavioral traps that you find in the regular stock market and such, you find in crypto only it's like, it's 10-X. It's on freaking steroids because there will be that guy at a party who just made 100x on some NFT that he purchased, right? And you're going to think immediately when you hear that story that you can replicate that strategy and that here's the next asset or token or NFT that you can buy to replicate that strategy. But one thing that I learned from David is what he does with a portion of his portfolios, he creates like a D-Gen portion, like a degenerate portion where he's like, this is the portion I'm serious about. And that's going to be like,

I don't know, David, what is it like 90% or whatever? But you're going to take this 10% and you're going to get it out of your system and do sort of the more D-Gen activity. Isn't that what you do? It's the scratch the itch portfolio. Scratch the itch portfolio. That's a great way to do it. Yeah, that's not crazy. That's like a way to do this a psych hack. No, not at all because that's actually a really good psychological hack. And I love degenerate because you're just, on it what it is, right? And it scratch the is good, too, because if you can scratch the edge, you don't feel the need to go all in on that scratch, right? So I think that having what I would call play money, right, that you're actually putting in the market, that can solve a lot

of fomo. That can solve a lot of that other stuff. We used to keep a portfolio at my first company, which was obviously capital management. That was the, what we call the eat, drink, be merry, and because tomorrow you die. So it was all the vice stocks, right? So it was Philip Morris, it was all the alcohol makers, the pharmaceutical companies, hospital stocks,

funeral homes, that kind of stuff. It killed it. I mean, it was like always up. And again, it's taking advantage of we humans. You know,

I mean, come on. Let's say you want to diet, right? You walk into the kitchen and there's a brownie there. I can tell you, the brownie always wins.

And again, that's back to the time horizon and the way you discipline yourself, right? You think to yourself, okay, I'm going to lose whatever, 20 pounds. And you walk into the kitchen, there's a beautiful brownie that someone's just made. And you're like, I can just have this because I'll go back to the diet after this, right? And you kind of never do. So the warning that I would have on the degenerate portfolio is you are at risk of like inevitably, you're going to hit a really great string of wins in the Digen portfolio. And you are going to pause and think, this should be the 90 percent over here. And the other one should be the 10 percent. And again, human OS, man, we're all the

side. We're, I'd think that. So as long as like if you lock it in that it's got can't be any more than 10, you rebalance out of it and take some of those gains and just do put it on automated. it right so every quarter you got to add to it if you've had losses bring it back up to 10% of your portfolio or more importantly let's say it doubled and in that quarter and you're now 20% degenerate sell it down to 10% again that helps thank you do that david do you do that that part's hard see see what i mean that's the hard part well listen man i mean like one of the greatest investors in the world, Sir John Templeton, what he used to do was really interesting. If he was worried that the markets were getting really frothy and everything, he would put good

till cancel orders in on stocks that he really liked, except let's say that the stock, when he put that good tell cancel order in, was trading at $100. He'd put in an order to buy it at $30 and just leave it, right? And they ask him, why do you do that? And he's like, Because if that stock ever got to 30, there is no way in hell. I would have the emotional ability to call in a buy order at 30. And when you think about that, that's genius. I totally agree. So he was self-aware enough to understand that he's not going to have the willpower.

And he's making that decision when everything's great, right? And he puts those in. And like, I talked to somebody who knew him. And it's like, that's where he made. the biggest killings ever was when that happened. Jim, it's just such a good freaking idea. And this happens all of the time in crypto. Okay. So like one thing I recall is, you know, Ethan Bitcoin price in March of 2020, right? And so we were hanging out and that, you know, I don't know, Eath was like the 200s or the 100s or whatever. It actually dropped down to like $80 at one point

in time. And $80 going down to like double digit for an asset that. that I fundamentally believe in with all of my freaking heart. Like the fundamentals are strong, incredibly excited about holding this thing for like 10 years. But in the moment when COVID was happening and you hit a spike down to $80 Eath, you're like, oh my God, what's happening? It's all over.

And had I had double digit buys in an order book at that time, would have snapped up Eith the cheapest is probably ever going to be for the rest of my life. It didn't do it. It's the order book hack. It's so good. Let me ask you one last hack here, because this is something I have trouble with personally. Okay.

So how do you not get too attached to your assets? So when I make mistakes, I think, in investing, it's actually not that I don't hold long enough. It's that I hold too long. And I'm like, oh, you know what? Like, I want to hold this a little bit longer because I believe it. How do you know when to sell? How do you make sure you don't get attached to your assets? So now we're pushing into, you'll understand why I made such a study of human nature and the way we are.

So literally, there's a great old Wall Street sign, which is a stock doesn't know you own it. And the idea is that we anthropomorphize our stocks, like people naming their cars or their boats, right? Oh, that's Betty and, you know, whatever. And it's just human nature to do that, right? I train myself to be completely dispassionate. Like, if you ask me right now, what are your biggest winners in your equity portfolio? I have no idea. I do know their underlying factors.

I do know what portfolio I bought them in, right? But because I automated it, I automated the cell process too. And I guess we'll go back to talking about David's DeGen portfolio. If you can automate the process and whatever, it doesn't have to be just a general, it can be your overall portfolio. It's like, you know what, just to keep it easy, let's say my net worth is $100,000. And I'm a passionate believer in Bitcoin. And so I'm going to put half my portfolio. This is not an investment recommendation, people.

Aha. Just let's underline that. So you're such a believer. You put 50% in that. and 50% in other stuff, right? Stocks, whatever that other stuff is. And you just continually rebalance. When you do that, bringing it back to 50-50,

you're forced to sell when your conviction is the highest that Bitcoin is going to rule the world, right? And you're forced to buy when your conviction is at its lowest. Because time A, 50-50, a year later, Bitcoin's 70% of the portfolio. The other stuff is 30%. You're forced to sell back to 50-50. Man, that's hard because every part of your emotional being is going to say, well, this is

different, right? It's finally cut on. It's fill in the blank. And you're going to have all your reasons and they're going to sound really good to you. But then on the other hand, right, Bitcoin, like you said, had you simply had those double-digit orders in the book. like you would have never had the guts to pull the gun then, right?

But when it's in the book, it's done for you. So the other way, all of a sudden, stocks are 70% of your portfolio, Bitcoin's 30%. And you're like, well, at least stocks have fundamental. At least these companies are actually earning money. And I guess maybe I should just probably lead Bitcoin at 30 because, you know, I'm, you know, your reasons will sound equally valid, by the way, to yourself. So that's the way I would do it. I'll give you an example. In 1999, we ran a mutual fund, which was a small to mid-income growth fund.

And it was like my most aggressive strategies, right? So 99 was a vintage year for rampant speculation. And that fund got rebalanced every six months. There were several stocks in the fund that on the rebalance had already gone up 600% from January to June. but they still qualified. And I still remember this like it were yesterday. My trader came in and he's like, we are going to override this, right? This went up 600 percent and it's got to go down.

It's just like there's no way it's going to keep going up. And I'm like, no, we're not going to override it. We're going to follow the model. And, you know, at the end of the year, it's up 1,300 percent from the first buy in January. And then same trader, this is what's so fun. Same guy walks into my office. And he goes, that was right, man. It's probably good for another thousand percent.

And the stock no longer fit in the model. And I'm like, no, sorry, man. You're selling it. What? You know? And so having this built-in rebalance, I mean, like, that works in a lot of asset classes. And it's just dispassionate, right? It's just like, yeah, okay, whatever is right for you.

And by the way, I'm using 50-50 simply because it's easy to illustrate. If I'm giving you investment advice in all of your listeners, don't put 50% of your portfolio into any speculative asset. And I think that Bitcoin still counts as a speculative asset. But other people make the same mistake in penny stocks or whatever. And the other bit of advice is you tend to do things like that because you want to get rich quick. And what does that bring us back to? It brings us back to hyperbolic discounting and how that always ends up having cost you a ton of money. slow and steady, which to other people might seem, this guy is reckless. Look at. He's got like,

he's got all this crypto and everything. But within your intellectual framework, you might think of it as boring, right? But it works. I think that's honestly, it's the bankless philosophy of sort of like get rich slowly. But like we're doing it in crypto, right? And so there's so many in crypto that want to play these short term games. But if you play the long term game, that can be your edge. Jim, this has been so much fun. We've got a lot of insights. And I feel like I want to summarize this at the very end. But last question for you, do you have anything, like just any final thoughts? So again, the listener who's listening today, maybe the bulk of their experience in investing comes from like kind of a crypto world. And that's how they learn things. And so it's like if somebody dropped you in a foreign

country where you don't speak the language, you're just kind of learning as you go, you're missing a lot of the fundamentals of how does the grammar work and how are things spelled. So I feel like people listening are probably missing some key pieces of how to invest. And this behavioral short-circuiting is probably one of them. Do you have any just parting thoughts for us? Anything else we should keep in mind as we're going on this investing journey into crypto and other lands? Sure. Thanks for having me first. So I guess what I would say is maybe one of the wisest lines I've ever seen in my life is this two shall pass. And when you think that way, the losses that you take and you will take losses become less painful.

And the gains that you take, and hopefully you will take gains, excite you a lot less in terms of look at what a stud and what a genius I am. The other parting thought would be read as much as you can, like in history. And look at what happens to people. There's a great quote from one of the ancient Greeks, which is whom the gods would destroy, they first make great. And when they make them great, they get filled with hubris, and they get filled with,

I am the greatest individual that has ever lived, and we all tell ourselves these stories. We're all confabulating unreliable narrators, and again, me included. That's just the way human OS works, and we have this incredible desire for certainty. And like, there is nothing certain in the world other than death and taxes, right?

And like, if we go into anarchy, maybe just death. So, so, there's, precious little that is ultimately important, right? And so the other thing I would say is like, I love people. People who really get obsessed about investing, it's great because it's never ending. It's the Olympics of business, right? Because you've got to understand a bunch of different things. You've got to understand human behavior. But leave room and go with what resonates with you. And by that I mean, everybody's different. You've got to find the right process. the right thing that you can vibe with and just like keep learning just keep learning listen to your

podcast read books do as many things of those things for your self-education that you can because in the real world you got to teach yourself like everybody gets oh well but i studied finance at you know wharton i don't care it doesn't matter short one futures contract with your own money and you'll have more experience than the wharton guy that freshly minted and i don't mean to pick on Wharton, all business schools, right? Lessons are hard. And unless you can understand that this happens to everybody, me, you, everyone else, every successful person you're looking at, every single one of them has a bunch of failures. And what made them different? They got back up. And when they got back up, they looked at and went, ooh, I really fucked up. What can I learn from this? And then they just

keep going. And just don't fall in love. You talked about maximalists. Like, not a good look because it's just like, oh, man, just think about it in terms of a religion. And if you're a maximalist, you would be the one holding the torch wanting to burn that heretic who you've got tied to the stake. You don't really want to do that because there is no one true faith or one true method or one true anything. Find what's right for you. If you're passionate, maybe you'll make it a career maybe you'll have a podcast on it that's great if you're not learn as much as you can and then like automate and let that work for you i wish i could give you better parts of wisdom but that's what i got for you now i think it's fantastic jim and you've given us a lot of

wisdom ending with that stay humble and keep leveling up at the same time jim this has been a lot of fun thanks for joining us oh thanks for having me was a lot of fun hey guys i just want to stop and just do a quick recap of that episode because I feel like there's so much many pearls of wisdom and I'm just going to sum it up for us here. Number one, Jim was talking about narrative following price, not the other way around. Take that into your crypto journeys. Also, putting in the work, that's the real edge here. You got to put it in the work. Humans suck at investing. We all have these monkey brains with human OS. Think about that when you're making your investment decisions. I'm just going to rattle off some tactics to put in

your bag on how to short circuit human OS. Number one, Jim was talking about writing out your strategy, then publishing it, maybe on social media. What gets written, gets clarified. Also, dollar cost averaging in, number two, we talked about that. Next time you want to FOMO, go for a jog instead. Clear your mind. Okay. Also, maybe only check the price once a day or once a week. Slim down on your price checking because every time you check price, that shortens your time horizon. Every time you look into blockfolio and coin gecko, you're shortening your psychological time horizon. Also, using momentum of filters. One of those is an index where you can capture upside opportunity, logging your ideas, creating a DGN portion of your portfolio.

That's David's idea that Jim seems to like as well. Setting your buys on the order book now, okay? And maybe also your cells because you have to continually rebalance. I don't know how many that was, but it's at least close to a dozen of practical tips to help you guys survive in crypto. And once again, this has been Jim. We appreciate you joining us today. Had a lot of fun. Thanks, Jim.

Cheers, guys. Risk of disclaimers, guys, of course, none of this has been financial advice. Crypto is risky. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.