Investing Billions - E417: $20B Investor on Risk, Adaptability & the Magnetar Method

Episode Date: August 17, 2026

Most investors spend their careers trying to eliminate risk. David sits down with Alec Litowitz the founder of Qstar Capital, founder and former CEO of Magnetar Capital, and one of Citadel's earliest partners to explore the difference between risk and uncertainty, why adaptability is becoming the world's most valuable skill, how elite investors make decisions when there is no model to follow, and the cultural principles behind building one of the world's leading hedge funds. Alec also shares lessons from building Magnetar, working alongside Ken Griffin during Citadel's early years, hiring exceptional talent, creating organizations that continuously learn, why ego destroys great investing, and the core ideas behind his upcoming book The Adaptability Quotient.

Alex, I'd like to start with the idea that seems to tie together your investing career. The difference between pricing risk and uncertainty. What's the difference? Risk is a world where you have possibilities and probabilities. And so with possibilities and probabilities, I can do expected value. I can do mean variance optimization. It's a casino. It's a rolling dice.

I know there's a one, two, three, four, five, or six, and I know there's a one-six chance. It doesn't mean you and I know what the next role is going to be, but we can do the math around it. Uncertainty is slightly different. My focus has been on where is there no model? Where are things changing so much? There just is no model. And if I can go into those spaces and I can resolve the uncertainty, let me try to model where that world's going before everybody else does.

Then I think that you can structure much better upside, downside opportunities. And then as other people catch on and it compresses over to risk, that's where you make your money. You've obviously become a billionaire pricing uncertainty. Give me an example of investment you made pricing uncertainty versus risk. So when I had graduated from grad school and I was at investment banking, I was hired and to go work with Ken at Citadel. It wasn't called Citadel at the time. I was there right before.

We had a name the firm contest in 1994 and Citadel won. And he had a convertible bond, Arb business. And he wanted me to do Risk Arb because he was worried about. the impact of mergers on convertible bond pricing and particular ones that we hold. So he said, Alick, you got a, was February of 94. He said, you have to go be in 10 merger Arb deals by April. I didn't even know what a risk garb was. There was no books on it.

He's like, you can call the Bear Stearns desk. I talked to the converts desk. They have a risk arb desk. Ask them what to do. So I started talking to them. And what I realized, because I'm the son of two psychoanalyst, it was always peeled the onion back. Nothing was as it seems.

So I started with the beginner's mind. I start looking at risk arb. And risk garb, about 92% of announced deals go through. But the market trades at like 87% goes through. So the market's giving you excess return to bear providing liquidity, et cetera. So I could have just said, that's risk. I know the possibilities. I know the probabilities across all these deals.

Maybe I just play a bunch of deals, play a lot of them, and I get this extra return, and I go home. But then I started asking the question, well, what makes deals break? I'm going to be in some then that break. Why did they break? Turns out they break for two big reasons. One is financing risk and the other is antitrust. Can I predict when the market's going to turn down when financing risk blows up? Can't.

But antitrust, that was my favorite class in law school. So now I sit and say, so the deals that tended to trade at wider spreads that more return, those tended to be the complex antitrust deals because people had no model. How do you model if the deal is going to go through or not? What do you do? And everybody basically called ex-DOJ, ex-FTC lawyers. You'd call them. They used to work there and you'd say, what's the probability of this deal going through?

And they would say, 70-30. What do you do with that? If I make an investment and it blows up, can I go back to my investor and go, well, my lawyer said it was 70-30. Is that good enough? Well, what does the DOJ and the FTC do? How do they do this? They're not experts on every industry. Well, they call customers, competitors, suppliers.

They try asking how does this? industry work, is this bad for the industry? Who's at good, bad? So what I effectively wound up building over time before there was a GLG, before there was a consulting network, I built an internal group of hundreds and hundreds of consultants and industrialized the process of gathering that information. A long time ago, there was a merger between Boeing McDonnell-Douglas. There's three wide-body aircraft manufacturers in the world, Boeing-Metado-Douglas and Airbus. If two of them merge, you basically get blocked. When you go from three to two, you get blocked.

But the deal went through. Why did the deal go through? What I realized was, there's a Paris air show going on. Who goes to the Paris Air Show? All the manufacturers of the planes, all the buyers of the planes. So I sent someone to the Paris Air Show. There were no other arms. Nobody else was there.

And we started talking to the people looking at the planes, talking to the CEOs, talking to the companies that were the buyers. So if you dial up in the yellow pages, can I talk to the person at United that buys the plane? like, you're not going to get anywhere. So it was, how do I solve? I have this unknown that I need to know. How am I going to go after it? So for me, that's an example of you can peel things apart, figure out where the uncertainty is. The edge is usually greater there. As soon as everybody else figures out if it's going through it or not, that edge is gone. So another way, there's things that are unknowable, things that are unknowable. You might have a coin flip. So you know that it's going to be 50% heads, 50% tails. That's risk. Yes. So that's perfectly priced. But a sports game, you you might know that the home team wins 60% of the time. People just assume that there's no other factors to it.

But then as you add more and more factors, and as you start to model that out with more granularity, you start to predict maybe you could predict 65 versus 35, and that's what you've been able to do across your career. You said something really important that's very subtle, and that is not all uncertainty is resolvable. And the question is, can I resolve it or not? So let me give you an example of a failure of mine, okay?

doing almost the alternative of the example I gave of Boeing, McDonnell Douglas. Many, many years later, there was a merger between Abbey and Shire. I don't know if you remember, there was this time period where everybody was doing these tax inversion mergers. They were effectively merging into a shell into a foreign entity that made them pay a lot less taxes. And I sat and said, I'm really good at this regulatory stuff. I know how to look in antitrust really well. Can I figure out whether this is going to get approved or not? And at that point, if you remember, this was in the teen, in 2014-ish, the Treasury came out and said,

we're not sure what we think of everybody evading taxes doing this. And everybody started announcing these mergers. Well, I did what I normally do. I tried analyzing that. I think I understood the deal really well. We were talking to everybody we could. And we had a very large bet that the deal would go through. And we had done a lot of great analysis.

And I mean a very large bet. When we ultimately were on the wrong side of this losing a large amount of money, We're not talking tens of millions of dollars. And what I realized that I had done wrong in hindsight compared to the Boeing-Maddonald-Douglas is the following. In Boeing-Mettold Douglas, I could call customers, competitor suppliers. Those are feedback loops. I could poke and get answers back. I couldn't talk to anybody at Treasury.

And it was just up to a few people. So I took my confidence, my skill that we had built up as an organization in resolving one set of uncertainty. and said, you can do it so easily. But really the answer was that uncertainty either couldn't be resolved because it was in the heads of one or two people at Treasury. There was no feedback loops to check on other people. Or I couldn't resolve it. I conflated my confidence of understanding the nuance and following things along with this is not an uncertainty that I can resolve. Unfortunately, sometimes you evolve your mental models only by going through painful experiences. For me, one of the things is I want to go where uncertainty is, but I want to go where it's resolvable.

And the biggest tell on that is do some probes, get feedback loops. And if you're hearing nothing back, migrate on to the next opportunity you have where you can resolve the uncertainty. I want to get into how you built out the group at Citadel, Magnetara Capital, which now has over $20 billion in your family office in a bit. But as I was preparing for this interview, I spoke to a lot of mutual friends, and they've talked about your tenacity and your obsession. Where does that come from? Well, I think that's a good question. I think it comes from my childhood. I mean, first of all, I'm the son of two psychoanalysts, and I think I alluded to that before. I mean, my mom was a PhD in linguistics, and it was a pretty intense childhood. I'm very close to my parents, but I mean, to give

an example, I would walk by my parents and I would say, are you happy? And my parents would say, Alec, Alec, happy's a strong word. What's your definition of happy? Come over here. Let's have a meaning of life discussion. So there was sort of this intensity. I felt like Neo dodging awkward questions like in The Matrix. It was just, it was tough. And it made you think you're constantly, constantly thinking about what is an illusion and what's reality and what's underneath. So that's one. The second was that I was the youngest of three boys. And part of it is probably nature as well. I mean, I was very competitive. I played Monopoly before I could read. He's just always interested in sports and competing and trying to win. There was a.

an intensity to just constantly and to be in a constant state of improving ingesting information, improving ingesting techniques, tools. It's either good or bad for those around me. I think I've mellowed as I've gotten older. I'm almost 60, but I don't think anybody who knows me would call me me mellow. But I actually think I was even more intense when I was younger. So depending on who you spoke to and how long ago they worked with me, everybody would probably say that is born.

But I think it really comes out of the nature of my childhood, really. I've seen this in a lot of the world's greatest founders is they had to, to activate their brain at an early age. They were either hypervigilant or in Elon Musk's, he was literally bullied at school and beat up. And they had to, in essence, grow up early and they started to develop their mental capabilities at extremely young age.

It's a good point. And I guess maybe I should add one thing to the environment in which I grew up. One of the things that I did early on, and I think I was forced a little into doing it, and I do think some of the people you mentioned also have this ability. There are people who can be at multiple sort of, I call it telescoping in my book, multiple altitudes of abstraction. So I could be inner escarp. And then I could be zooming up and

looking down on it, looking at the structure of it. And then you could do that multiple layers up and down. So I grew up thinking things were a system. Everything is a system, right? You need to learn the system. What are the rules of the system? What is the model you have for a system? And so my family was a system. Games were a system. School was a system. You go into investing. Rescarbs a system.

And so I just have this attitude of breaking it apart, building it up at multiple levels. Eventually, maybe we'll talk about, but one of the great things about going to Citadel and working with Ken is Ken is a very big systems thinker, right? So I first got there, never done any trading in my life, go into these 10 risk card deals. So now I'm thinking about trades. But then I'm thinking about the industry of risk art. I learned pretty early on, well, is it about trades or having an optimal portfolio of trades? Then I, well, wait a minute. What about the business of building a hedge fund?

And what does it mean to build a firm that can scale portfolios continuously? What does it mean to build a firm that can adapt and find new opportunities, go into new areas? So these are just different layers. You can be a trader. You can be a portfolio manager. You can be a business builder. when you grow up in the environment that I did, you were in a constant state of seeing the levels between things, both from my parents and otherwise. I think some of the best investors I know

are able to be in multiple places, take something and look at it from multiple angles all at the same time and have a pretty good idea where other people are like, well, haven't you seen enough, are we ready? Sometimes you see something someone else doesn't, and that becomes the load-bearing assumption. Some of the people have that capability of zooming up and out. To go back to Elon Moss, that's something that I think is extremely underrated about him. He sits down with every engineer for five minutes and he focuses on their number one bottlenecks. So we talk about going deep in the system. Literally, rocket scientists working on a specific engine and he's able to go into the deepest weeds. And then he's able to go at the highest level at the most abstraction, which is,

what is that? That is memes on Twitter. It's not even words. It's images. that he realizes could affect billions of people. So he has this full stack of the most technical, most specific industry knowledge to the most generalizable abstractions that don't even fit in words. They're literally images. I've been invested in SpaceX since 2018,

and one of the attributes I saw on him, not knowing specifically where his business would go, you've got the physics level. He says, I'm only bounded by the laws of physics. you've got the engineering level, then you've got manufacturing, then you've got commercialization, then you've got beyond commercialized regulatory bodies, the public. There's so many layers there. To be world class at one of them is a challenge.

To be able to zoom up and out of that stack down and up on a moment's notice at a second's notice is astonishing. It's very, very rare. Some of the smartest people I know and the most successful people in the investing industry, they can be in a trade. They can be in the portfolio, but they're very often thinking about the business of their business, right? And how do I institutionalize in a proper way? One of the other things that doing what he does that is incredibly impactful, aside from the focus on him, is that when you can do that in an organization, from the trade level to the portfolio, all the way up and down across the organization, when you are up and down like he is having that dialogue, you are conveying multiple things, not just his ability.

and his value add. You're teaching people abstracted back out, not just about what they're doing, but about how the whole organization thinks and acts as an adaptive entity. I think that gets lost on people. If he was up in some ivory tower and not having those interactions, they'd have less understanding of how does he think? How do we all think? And then how does it tie across so that everybody works in this very fast, unbelievably quick iterating. That's a culture. I'm not working at SpaceX, but that is a culture of cognition and adaptation that is quite unique. And that's why he's been so successful in my opinion. And you built a top financial institution in terms of Magnetar Capital, which today has over $20 billion in assets. What's an example of how are you able to

instill that into the culture? Well, it goes a little back to what you said before about personality and intensity. But I hope it starts from the top. If you talk to other people that many ways I'm demanding, I want excellence. But what I try to be demanding, about is also of myself, right? And so part I think of the culture comes from, I don't care if I'm right or wrong. I want the right answer. I have a phrase in my book, and I say it's everybody at the firm. It's better to make decisions right than make the right decision. If I assemble a great group of people and we make great decisions collectively, then we're doing a great, we're doing something really well. There's a balancing act. I think you're probably aware. There's a balancing

act as a trader between confidence and humility, right? There is something about going to that uncertainty. You don't have perfect information, but having enough of a strong opinion weekly held, I call it, to actually make a decision and act, but the humility to go, I might be wrong. I'm going to get feedback. And if I get the feedback, I don't care if I immediately change my mind. I don't care. And so I think part of it was that sort of like culture of I was on the trading desk. I was doing discard with everybody. I was doing a venture of investing. There has an. been a business that we've had at the firm at Magdatar built it and was there for 17 years. And even now, I was with Dave Snarterman most of yesterday.

Pretty close to them. I'm not running it day to day. There is a culture there of sort of collective action, non-sylos where the entity itself is learning, updating, not individuals. Some of that seeing people, how they act, actually executing on it and living it. When someone sees me stand up and go, I just screwed that up. Here's what I got wrong. And we're going to just get it best right the next time as opposed to laying blame on anything.

And so for me, it's always been the process, integrity in the process, passion, all of these sort of attributes that make this flywheel work. Ultimately, that rubs off and then hire great people and they improve that process. The culture of excellence, I call it collective aQ, the collective ability to create an adaptable organization. Magnetar doesn't look anything like it did when we launched. Probably doesn't look that much like it was back 10 years ago. Because we're in a constant state of where's the uncertainty? Once that gets resolved, you move on and find the nest uncertainty. But as an organization, one of the reasons why a lot of organizations focus on risk and not uncertainty is they're built wrong.

They're built for a stable environment. They're built to be very efficient at finding and executing on small pieces of risk, leveraging it, hoping their models right, and their risk models. But when regime shifts occur, look at the world right now. I mean, if I said to you real estate, semiconductors, power, you might have said that's a pretty good diversified portfolio, but it's all correlated to one hypothesis right now. So your old risk model that used historic correlations doesn't work going forward. Having a firm of people that are very focused on what is changing, zooming out, asking the right questions is really critical. That's Goodhart's law that we were talking about. the things that get measured are the things that are known.

There's this reversion to measuring things that we know because measuring the unknown, there's just a higher failure, right? And people don't like uncertainty. I mean, humans don't like uncertainty. If we see something uncertain, we like to give an explanation, usually something historical, and we collapse it very, very quickly, too quickly. We're not willing to be open to new possibilities because it's an uncomfortable spot. It's like the Voltaire quote, uncertainty is uncomfortable, but certainty is absurd.

It's just how can you be certain? I'm not certain about almost anything, and yet I've had huge trading positions. I have a very strong opinion, and I keep poking at it until it tells me I'm wrong, but it doesn't stop me from having the position and growing it as I get more conviction. Everyone I talked to on the show is chasing the same thing, an edge, and more and more the edge comes down to your information, not just having it, but being able to trust it when the stakes are highest. AI is doing more of the information gathering for you every day,

and most tools are very good at sounding right. The summary reads clean, but can you trace it back to the, the filing, the transcript, the specific passage that drove the answer, or are you just trusting the confidence of the output? For investors, that's not a minor concern. A missed filing, a misweight of source, a context that got lost somewhere in the retrieval chain. Those aren't edge cases.

They're how decisions go wrong. Alpha Sense is the AI market intelligence platform built specifically for this. They own the content. Over 500 million curated documents from broker research and expert transcripts to filings and earning calls and they own the retrieval layer on top of it. So every answer links back to an exact verifiable source because the answer is only as good as what's underneath it. And with Alpha Sense, you know exactly what that is.

The edge goes to whoever could trust their information and prove it. See it for yourself. Start your free trial at Alpha-sense.com slash how I invest. That's alpha-sense.com how I invest. It's a pet peeve of mind when I hear people say science has proved. this. Science has not proven anything. Science has disproven the null. And the only certainty we could know is that as of today, this is the best working theory. And the lack of humility that sometimes even in the scientific community is a bit baffling. Amen. I think you have hit it

exactly on the spot. All we try to do is poke at why something's not right. And all we can say is that this is the best answer we have so far. I say it in the same thing in investing. Every opinion you have, every thing that you think is right is on loan, it's provisional, always subject to being changed by the next marginal piece of information. That can be exhausting. A lot of people say that's an exhausting way of living through life that you're always monitoring and on watch. That's what the best investors, they're always on watch. They're always looking at what's coming around the corner that's going to disprove their thesis. It's funny, everybody wants to be, well, what's most important is how you learn, being the fastest

to learn. Sometimes it's more important to be the fastest to let go. Let go of an old theory, You said, I have it. It's on loan. If I get it marginal information, how quick are you willing to let go of that or how much do you need to hold on to it and be right? I don't want to be right. I want to be correct. Previously, I had Cliff Asson, a CIO of AQR. And I talked about the concept of holding through a market crash. How do you hold? Unwittingly, I didn't realize how much more difficult was than it even seemed because what he would do through a market crash is every day he would wake up and would try to figure out what parts of his model. What could he not? be seeing. And people would come in and pitch him, this is maybe what you're not seeing. This is maybe why this time is different. This is why this trade's not working. And he would say, no, no, no. So it was the absence of knowledge that he was holding. It wasn't that he knew that he was right. He hadn't yet found that he was wrong. And being able to hold through these heroic trades, especially in liquid markets like AQR, to me, is just such an underrated skill. I was actually

with Cliff yesterday. I'm watching the World Cup. And yeah, he's got some, he's built an incredible business. He's a great entrepreneur. He's a great investor. And there's another way of saying that using a different phrase, I guess, which is that people think that when you make decisions, if there's people who are listeners and they're really technically savvy and they understand being Bayesian and thinking where you update your opinions, you're always poking at the opposite of your hypothesis to see if it pops up. It's the same thing advice I give to young people when they're starting careers, it's just as important to figure out what you don't want to do. It's not always going for certainty.

A lot of times it's, what is it that I don't want to do? What do I not want to focus on? What am I not good at? Who do I not want to work with? That's a perfectly okay way of going about figuring out what you want to do is to find and explore, especially when you're young. So I think you have to be incredibly open. That's all signal, right?

I mean, you should want feedback loops and you should be always poking, always. I'm thinking a lot about this concept of playing to win versus playing not to lose. And so few people actually play to win. And the way to actually play to win is constantly take calculated risks and try to improve the model itself versus trying to be right again. Oh, this is a 300th time you've done the same trade. You've gotten the 10% return over and over. That's playing not to lose. And I think so few organizations actually play to win versus play not to lose.

It might take that. It's a very nice way of describing. what I describe in my book, maybe slightly more complex. Could have used your health when I was writing it. But what I say in the book around decision making is, when you're not sure of something, what do you do? Well, when you go experiment, you make bets that you can recover from. So in your example, you're not going to spend all of your capital on a new marketing strategy.

But if it's not that expensive, you bet. And what you're not trying to do, you don't care about the outcome. What you care about is learning, right? Normally, when you make decisions, you optimize for the outcome. But when you're uncertain about something, you're optimizing for learning. As you learn, you become more confident. And then at some point, as you learn and you're like, wait, I have better day than anybody else that this new marketing is going to be great.

Now you bet much more, right? Because you've resolved the uncertainty. You've realized I got feedback loops. People are liking this. I'm going to start putting a lot more. That sounds a lot like a minimally viable product or AB test. Like you probe, you get feedback, and you start to pile into something. And I consider that to be a form of learning, updating, that gives you the confidence,

maybe before anybody else, to then go bigger. That function of switching the mindset to initially when you're going after uncertainty, you're trying to learn, not optimize. As you learn, you begin to be able to invest much bigger because you've resolved it. And now you're back into the risk world, only you're the only, you're the only, you're the one with the odds. You're the only one with the advantage because you figured it out first. Sergey Brin used to say that at Google, the number one criteria, whether a project was successful or not was whether the organization learned. They were just focused on how does Google as an

entity get better versus does a specific project, does a specific product, because they understood what they were building. They weren't building product number 79. They were building Google Inc. And if Google Inc. could get better, if employees could get better, downstream of that would be better products. And he was able to make that tradeoff and they institutionalize that across the entire company. There are four parts if you're successful at that. One is what I call sensing. So is somebody at the organization coming up with a new idea? So someone has the idea.

Then there's communication. They have to be able to communicate and feel comfortable communicating back in to the organization. And there's no fear for saying, I have an idea. It's different. We haven't done it before. And then the organization itself has to update as an organization collectively. And then the organization has to be willing to act and make a change. So it's like four pieces to it. And all of that is about creating an organization that functions adaptively, which you just described. Google does that. It's all four of those pieces together.

I've really been thinking about this philosophically, just going down this rabbit hole on this playing to win versus playing not to lose. And one of my theories is that it's not actually losing money that people are concerned about. You make 10 million profits. You put in $100,000 into this project. I don't think people are worried about that. I think people are worried about betting their ego and their ego being wrong. I think you're right. I talk a lot inside any organization that I've built this concept of strong opinions weekly held. Part of the reason I want to have a name for it is to separate the decision from the ego, right? Someone has asked me, I'm confused, strong opinion, weekly held, that's an oxymoron. What does that even

mean? No, no. The strong opinion is I've thought about lots of possible solutions to this problem. This is the best one I could see right now. I've looked at the facts. I've tried to look at it clearly, not biased. This is what I think is the best path. But I hold it weekly. It's got to get tested in reality. When reality comes, am I holding on to the idea because I came up with it and it's my ego, or am I holding on to the process, meaning that I want everybody in my organization to attach their ego to being adaptive? If you force people to attach their ego to being adaptive, it requires them to want to change their mind if the evidence changes. Otherwise, they're failing to be adaptive. So there's almost a switcheroo going on there where you make the production

function adaptability and not about being right. It's all provisional. We have a strategy. It's Eventually, it won't work. Eventually, it'll be arved out. Something will change. The regime will shift. If it didn't work that, why? Why didn't Coke just sit with Coke? What happened to Diet Coke and Coke vanilla and zero Coke? And I mean, they've tried a lot of things. Why did they follow into like snacks? I can think of lots examples, you know, historically of ego getting in the way of people not only innovating, but not wanting to cannibalize their own business. And then you just wind up having someone else cannibalize it because you were afraid you attached your ego to your business. You attached your ego to your business. instead of what is it that we're here to do, not am I right or not? I have a real problem with that around my companies I build. I just want people that are high aque, and that means there is no ego on a process to get to the right answer more often than not, have an ego. On the actual, what the right answer is, reality gives you that answer. You're in a possession of an opinion.

Reality is in possession of the answer. How did you solve that on Magnitar? Is this primarily a hiring problem, or can you get people to lower? their ego in pursuit of excellence. I do think there is something to the sort of natural selection process. We would have very extensive. I'm not going to say here that we're perfect. We hit 100 percent on hiring. But I do think there's a lot of people selecting similar type of people. You'll hear people talk about hiring people with certain backgrounds. The original partners, me, Ross and Dave, we're all athletes. I do think as an athlete, there's something a bit unique

about this, which is right. When you go play a sport, you don't get to have one style and you win against every opponent, right? It doesn't work like that. You will have to adjust depending on your opponent. And so you have to be adaptive. You can train all you want and prepare, but when you get into a situation, it's not always as it was planned. So I think people who have that willingness to say, I don't have the right answer, I want to get the right answer. I also think that over time you get better at interviewing for it and you can start to sort of test whether people, how do you make decisions? For example, one of the questions I ask a lot is, would you rather be right for the wrong reason or wrong for the right reason? If I started a hedge fund

and it was just, I had one huge trade, I made a lot of money. That would be very unsatisfying to me. I want to build a business. I don't want to build something. The money comes after building a great business. I don't want to have a great trade and walk home. I didn't leave that. There was no legacy to that. So do you get people like that or are you getting people who are, they want to come in, begin capital? They want to make a lot of money and maybe leave. They don't want to get involved with the rest of the firm. They want more. How do they want to be incentivized?

So we created a culture. A lot of the people at the most senior level were not compensated only on what they did, but on the firm as a whole. They carried that same sort of like we're all winning. It's all a team. We created a very non-silowed firm because we specifically didn't know where the opportunity was going to be. If you're constantly looking for some kind of uncertainty,

I go back to one of the first big trades we had going into uncertainty was when energy, when a hydraulic fracking and horizontal drilling came about, that was a lot of coordination between the energy group and the fixed income group. And if I had had either group sitting going, well, I'll work on it, but it's my trade. Nobody would even attempt that with me around. It would not have been a good answer. I had very low tolerance for that. It was, is it right or is it wrong? Is it good for our clients? We're not going to sit before the games even started and figure out if we win who gets the attribution. Like, that's not the culture that I'm building. And cultures could be extremely self-reinforcing after a time.

So it's easy from employee 100 to employee 101. But how did you start that culture from the very beginning? That worked a little like the culture at the beginning of Citadel. And the answer, part of it is the benefit of like, it was small. I mean, it was a small trading floor. We were all sitting right there. I mean, me, Dave Ross at Maggatar, I mean, go back to Citadel. I mean, Ken, me, James Jay, Dave Munning.

We were the first four partners there. I think I was employee six or seven. I mean, we sat right next to each other. Everything was there being discussed all out in the open. Was there a luck aspect to that where you just found these six really motivated people? And then you're like, wow, like everybody has these factors now. Let's look for more. I mean, Ken was the one who found all of us.

And I laugh a little. Look, when I got to Citadel, it was early 94. Ken had been up and running for two or three years. He was out of his dorm room. But he never, prior to that, he hadn't had no experience. I came in. I had been six months in investment banking. James Yeh had a Ph.D. in string theory.

and Dave Bunning was a football player at Harvard. The collective group of us had, I don't know, count the number of months experience. But Ken did a good job of, well, what is it about these people? What is the character? I would like to think that what he saw was people who think a certain way. It didn't matter. High-a-Q people, it's about how they think, not what they know. And I think that's a really big distinction.

What you know is going to get commoditize, I mean, especially now. I mean, knowledge is getting commoditized. we're going to implant IQs at some point. That's why my book is called the adaptability quotient. The most important trait coming up, in my opinion, is going to be adaptability. But when I look back at my history of investing for me and when I look around the people that we had at a cultural level, Ken is incredibly adaptable. I mean, he's incredibly high IQ, but he's incredibly adaptable. And all of those people there were really no ego.

We couldn't have an ego. I mean, we didn't know anything. I mean, it was like we literally didn't know anything. It was hard to have an ego at that point. And so I think when we started Magdatar, that group of us, and I remember the early days at Citadel, there was a sticker that we had in all the little pot areas. And the sticker said hubris kills. And it was literally handed out to everybody. And I think the same thing at Magdatar, whether me, Ross, Dave, or all the senior team of people, by the time you're like that, you're interviewing for it, there was a lot of one degree of separation.

I'm going to say. So in the early days of Magnetar, the first 40, 50 people were either people that had left Citadel. I never recruited from Citadel. That was on purpose. I've good relationship with Ken. But there were a large number of ex-Citadel people that originally joined Magnetar. So I knew a lot of the people. I had already known. They'd either worked under me at Citadel or otherwise. Of the first 50 people, there might have been 40 people that had come from some. fabric. I already saw what excellence looks like culturally, and it was easier with Magnitar than Citadel. You were basically creating this culture of excellence. One of the things about Ken, I think, is highly underrated is his ability to recruit and assess talent. And he talks about it. He goes on interviews and he says, the only competitive advantage for Citadel in the long

term is talent. Even Renaissance technology, people think about the greatest quant trader of all time. They think their secret algorithm or their model is the thing that actually is alpha, but it's not. It's hiring the PhDs that create the model. Their model is constantly evolving. And talent is one of these things that's not very sexy. It's not very memeable. No one wants to go and tell their friend at a bar, hey, I just heard Ken Griffin like really invest in talent. They want to say, well, Ken Griffin double-shorted this game stop with the synthetic trade. But that's not actually the source of their alf. It's one of the reasons why talent is such an underpriced asset. Growing up, I thought managing money meant paying bills

and balancing a checkbook. But as you know, that is only a small piece of the financial puzzle. Managing your money takes more than just checking your bank account every once in a while, and great financial decisions come from having a complete picture and proactive management of your income, expenses, and investments. Take control of your finances with Monarch. It brings together all of your accounts, investments, saving goals, and spending into one place, making it much easier to understand where your money is going and whether you're actually on track to achieve your financial goals. Why, like most about Monarch is that doesn't just tell me what already happened. It helps me plan ahead. The AI system lets me ask questions about my finances in plain English.

and the AI weekly recap, highlight spending changes or upcoming expenses before they become surprises. It's like having a financial advisor in your pocket. Write your own money story with Monarch. Use code invest at Monarch.com to get your first year of Monarch core half off at just $50. That's 50% off your first year at Monarch.com with code invest. Growing up, I thought managing money meant paying bills and balancing a checkbook. But as you know, that is only a small piece of the financial puzzle.

Managing your money takes more than just checking your bank account every once in a while, and great financial decisions come from having a complete picture and proactive management of your income, expenses, and investments. Take control of your finances with Monarch. It brings together all of your accounts, investments, saving goals, and spending into one place, making it much easier to understand where your money is going and whether you're actually on track to achieve your financial goals. Why, like most about Monarch is that doesn't just tell me what already happened.

It helps me plan ahead. The AI system lets me ask questions about my finances in plain English. and the AI weekly recap highlights spending changes or upcoming expenses before they become surprises. It's like having a financial advisor in your pocket. Write your own money story with Monarch. Use code invest at Monarch.com to get your first year of Monarch core half off at just $50. That's 50% off your first year at Monarch.com with code invest. Growing up, I thought managing money meant paying bills and balancing a checkbook.

But as you know, that is only a small piece of the financial puzzle. Managing your money takes more than just checking your bank. bank account every once in a while. And great financial decisions come from having a complete picture and proactive management of your income, expenses, and investments. Take control of your finances with Monarch. It brings together all of your accounts, investments, saving goals, and spending into one place, making it much easier to understand where your money is going and whether you're actually on track to achieve your financial goals. Why, like most about Monarch is that doesn't just tell me what already happened. It helps me plan ahead. The AI system lets me ask questions about my finances

in plain English, and the AI weekly recap, highlight spending changes or upcoming expenses before they become surprises. It's like having a financial advisor in your pocket. Write your own money story with Monarch. Use code invest at Monarch.com to get your first year of Monarch core half off at just $50. That's 50% off your first year at Monarch.com with code invest. Totally agree with you. And with respect to Canada, there was a recent article in New York article, and I think I was

quoted in the article saying this, which is, of course, ultimately the trades are the source of the returns, but he's not building trades. He's building a business that produces with the right people, the cutting edge opportunities, with the right portfolios made out of the right trades. It's just, he's thinking about scale and that back to that zooming out and abstraction levels. And it always starts with the people. And I'm not sure he would say he picks 100% of the right time. We had a pretty unbelievable group in the early days, but if you talk to Dave and James, just as the same as you talk to Ken, and you go back to those days, there was no, I said, no ego because there was none to be had. I mean, none of us were pursuing, oh, we're here, Ken, here's our expertise. We can deploy it.

We didn't have any expertise. But isn't that part of like the beauty of it is that it's a, it matters when I think, it matters how you think, not what you think. In a moment now where knowledge is downloadable, like how you answer. questions. How do you resolve things? How do you solve problems? How do you go to the cutting edge where things are uncertain and go resolve that? In essence, my book effectively is, hey, AI is going to outperform you in math and coding. But there's a lot of things in life that are not convergent problems where you can test itself whether it's accurate. It can go test whether the model works or the math works. But when you go into divergent problems, which is how life works, that's where humans are

still the best. How do you figure out and resolve the answers to those problems? That goes to how people think. And one of the reasons I wrote the book is, ideally, if you take Ken or you take a lot of people that worked with me, other serial entrepreneurs I know, my hope is that what I did in the book is hand people a guidebook. But this book is what goes on inside the head of those people. This is actually how they go about making decisions, in my opinion. Earlier on talked about being intense and pushing people. There's a famous Johnny I. Steve Jobs dialogue where Johnny Ive comes to Steve Jobs and says, I just think the team's tired and I can't push them. And Steve Jobs tells him how disappointed he is that he didn't realize how vain he was, how vain Johnny Ive and how much he cared about what his employees thought of him.

This was like this big learning lesson that so many people don't push their employees, not because they're good people or their good managers because they're afraid of their employees not liking them. One of the things that I'm working on personally is how do I get the most out of my employees and how do I push people to be their very best even when they may not like me? What advice would you have for me? If you go back historically and you talk to people certainly at Maggatar when we grew big, I think there's been times where I've gotten that wrong or people would sit and go, I was too tough. Do you give me an example? Back in the day when I was on trading desks and you're doing, you have one of the biggest

risk card portfolios in the world, I mean, individual. billion-dollar-plus positions. I always have had this sense of urgency. It's a long process. Mergers take six, nine months. But you have this question of when is there a marginal piece of information who's going to get it that says either the deal is going to go through or not? And I'm not talking about information you're not supposed to get. I'm just talking about building a mosaic and then getting something that you're like, oh, no. So I always had this very intense urgency. And so I would constantly be on the desk talking to people like, did you talk to the C. CEO about the deal, yes, well, this new piece of information came out. Call him again. Well, I spoke to him

yesterday. You want me to call him again? Yes, I want to know if that changed something. So I would poke people like that. And there was one time where there was utility merger. And utility mergers did have a habit of breaking a lot because of the impact on consumers and price increases. And there was a very, very smart investor who's gone on to build a very large hedge fund. And he was the one sort of primary on the deal. And I remember sitting in one, one of our weekly meetings, and we were talking about all the deals, and we were going through it. And he was describing something. And we were like looking at the deal, looking at the spread, and a couple of us who had been around, he was newer, very smart.

And we were talking about it. And he was sort of describing stuff. And it was almost like we were like, there's something missing. Like something's not right. Something's not adding up. And eventually he wound up saying something. And literally two or three of us that had been around a long time are like, deal's going to break. Like, are you serious?

Someone said that? Okay, this deal's going to break. It was just something somebody said that was just like, what does that mean from all the experience that we had had? And one of the things that I did at that moment was I, of course, it was a lesson. He was younger or whatever. But I think that he was too slow in communicating the information back. We wound up getting out of the deal. The deal did break.

But what I did early on sometimes on the trading desk is when I was angry, not, I wouldn't yell at the person, but I call it like, I don't want to be It's not about you. I'm not going to attack you, but I'm going to attack the ideas and the importance of sensing a problem and then communicating it quickly and getting that loop going. We were in a big group meeting and I was unhappy with the pace of how we had a big position. It's going to take us a while to get out. The sooner we know that, the better. And I think you'll learn later on that you're probably better off like having that discussion with the person outside by themselves instead of in front of everybody. I mean, he learned a lesson, and we all learned more in that little process. It wasn't what I said, I think, in that example, it was probably could have had pulled him

out sideways separately and just said, let's go through this for a second. This is what I want you to learn from it. I think when you're on the trading floor, there's just this feeling like every second matters and there is no, like, I can't, I don't have time to do it really softly. I just have to get this out and like immediately go right now and trade it. So like there's no, I we just wasted 45 minutes. Like, I really could have used this. I don't know if the deal is breaking tomorrow or in a week. I think that some of that,

there are probably times where I felt when I was younger, this maybe excessive sense of urgency and transparency, no matter where we were and what we were doing. And I think part of that is because I'm very tough on myself. I mean, everybody who, if you ever ask people, I'm very tough on myself. And when you're younger, it's like shrapnel. It just kind of falls around you.

And then as you get older, you're like, wait a minute. I don't need to be overly sensitive. I have to communicate. I'm not afraid to tell people and give people feedback. I mean, probably everybody would tell you I'm not afraid of that. The manner and how you do that. And the reason why that lesson matters a lot is if my point to him was, here's how you have to give me information.

If you're too difficult on the person for how they did it, they're just not going to share anything with you in the future. So you've got to be really careful around that as an example probably of how I learned over time. Said another way, your intuition on the urgency of the trade was right, but your intuition on the urgency of the communication of feedback. How much of creating a culture of excellence is hiring versus developing,

if I gave you 100 points? I'm going to say it's fairly split, but maybe a little more toward hiring. To be honest, I alluded to my parents being psychoanalysts. And one of the good pieces of advice they gave me early on that I believe, other people might disagree with me, is your character is your character,

but you can change your behavior. And so it just becomes really important And I can teach people AQ. I mean, it's where I wrote the book. And I can't teach IQ and EQ, but I haven't found that the best investors are all the highest IQ people. Helps if you have high IQ. But I always say IQ and EQ helps inside a frame. But AQ says, am I even asking the right question?

Am I in the right arena at all? If you have an IQ, you sometimes are the most convinced best at convincing yourself that you're right when the world's changed. So it can be a detriment. It was a little like that ad, the example I gave earlier. Like I was convinced that I had, I was doing it right, but I wasn't seeing the field for the right way. There's a part of that, which is you really want to find people with the right character. And look, you can interview, you can do lots of things. You can have an extensive process.

Sometimes you find out the character wasn't what you thought it was. And I think there's no room in any organization for people's character that is not right. And so I don't think I can teach that. You might then say, okay, so is the rest about training? And I think it's split. And that is, I can teach you knowledge and you can get experience. But you have to come in with this sort of like what we talked earlier, like not ego, a willingness to learn, a willingness to be wrong. There's sort of a certain clay of a person that not just their character, but their character is evidenced in their behavior that they've done well in school.

They're probably confident. But they don't come in assuming they know everything, right? because it's a bad cliche, but it's true, which is if someone comes in and they're a nice person, good character, but they come in and their cup is already full, I have the answers. There's no room for them to be taught anything. And in an organization, especially around investing, the feedback loops have to be very, very fast. Ken used to say, like a very fat pipe. Like you have to be able to communicate very quickly and be like, okay, got it, got it.

We gave that example just a second ago of like, it's got to happen pretty quickly sometimes. To the extent that you're with someone and you have to like massage other attributes, to eventually get to the learning, that gets very difficult. So I would say it's somewhat more about what they're like, but then there's a lot of room afterward with the right clay. Like, even if somebody doesn't know anything about what they're going to be doing, if they have the right character and some of the right attributes and openness, I think it's very possible to learn the rest.

Can you teach drive? I think drive comes from within. I mean, this is a little bit of the psychoanalyst parented me. I don't think drive comes externally. And if it does come externally, like it can come externally, like I have to appease my parents. Eventually, it backfires. Matters why you have it. I'm the son of social analyst.

I've seen one for quite a long time. A lot of drive comes from your early years, and you have to come to grips and try to understand with what drives you. Incentives are important for behavior. And I may differ with a lot of people around this. I do believe incentives are important. And I've been well compensated, but I never did anything because it was the money. My drive was just a drive to want to ultimately win.

It didn't matter whether I was right or wrong. I think that was innate from my childhood. I don't love the idea that somehow this external incentive is going to give you the right kind of drive. That stuff decays over time or then you make money like, people like me and other people, why are we still around? Or you mentioned Cliff earlier. Like, why are people around it? They have money because that's not what's driving them.

It's the result of what the drive creates and capability, but it's not why they did it. I don't think Musk is driven by, he's driven my money only so that he can capitalize his next thing that he wants to do. So it's a nice result to have. It's a metric. So I view drive as something that I prefer to find out, and I do when I interview people, every time, I want to go back to the beginning. Go back to your family.

back to your childhood. I mean, I'm not, aren't you psychically? I just, I want to understand what motivates. How did they become the people they are? I want to know the origin story. I always ask that. What are you looking for from their childhood? I'm wanting to understand how much of perspective they had on their own child going through it. And so there's a lot of people that either they've had trauma. I mean, all of us have had trauma. Even my kids, I love them. I've got four sons, but invariably, I've inflicted some of it. You think you're not. when you get older and then you just do no matter what.

But there's something about that abstraction, like, are they aware of it? In their childhood, and even if it happened later, I've reflected on it. Like, I want people who reflect on things. Why? Because it means that they're looking at it from a different angle and remember what I said. They're able to go their higher level thing. So, exactly. So in my book AQ, which is adaptability quotient, it's a decision-making process.

It all starts, there's three phases, metacognition, simulation, and experimentation. What is metacognition? It's the ability to step out and you are now in the frame, right? You are part of this system. So if you can't separate yourself from the system, you don't think you have any biases. The ability as a child to sit and go, I experience this, but I also saw it and was able to look at it objectively is the beginning of, you know, what I call adaptive optics. Like, if everything you see is through your lens and you don't know your lens, everything's distorted. it. We talked earlier about, I've seen something back to the organization. How do I know that your lens is reasonable? Do you know it's distortion? In other words, you can have all the sensing and signal come back into the organization. But if everybody's got all these optical problems, you don't know, is that reality you're saying or is it some distortion? So I like people, I'm not saying that I have perfect optics. I just have had an entire lifetime with my parents seeing a therapist to at least ask the question. And sometimes, you

you have a blind spot, of course. But I want people who ask, who understand there's the world as it is, and there's more a perception of the world. And that first occurs and it's most impactful. Tell me about your childhood and what you thought about your childhood and how you think about the childhood. I think that ability to zoom out is incredibly important. If they haven't done that, then they're willing to hide, not hide on purpose, but hold something back. And that itself is a blind spot. One of the patterns I've seen and some of the most effective people, we talked about half of it, trauma and childhood. But the second one is actually you have to resolve that trauma at some point because then it becomes, what got you there won't get you to the next level. It ends up sabotaging your relationships, your career and all these things. And it creates this paradox, which is, what do you do with your kids? Do you traumatize them and then give them therapy? How do you solve that paradox? Oh, my God.

Have you solved it? That's such a good, deep question. I do think that there is that friction, which I'll call trauma, look, there's real trauma. I didn't have real trauma. Trauma is a loaded term. It's a loaded term. I mean, some people have had horrible childhoods. When I hear about it or I learn about it, it makes me hurt.

I didn't have trauma like I've seen other people had. But everybody has trauma, right? And I've spent decades trying to understand why did I become the way I am, what was I? I think, for example, my dad had a very difficult childhood. And it was a very disrupted family. And I think part of what we talked about earlier, my zooming out ability was that I saw my dad and I was very aware of him and his childhood. And so in some ways, I got to be a child, but in some ways I tried to not get in trouble as a manner of taking care of him. There's a caretaking aspect.

Yes. And coming to grips with what did that mean for me? How does that change how I interact with people now? And it definitely does, and I notice it. So now going back to your question, like, well, what do you do with your kids? Well, the first natural thing is I don't want to cause trauma to my kids. Why do I want to cut? But friction that I had in my childhood was part of what made me, I was so system-oriented, right?

Like a lot of people, your guess, like didn't have to do much for school. School was a system. I figured out of the game the system. And so everything was a model, a model, I systematize it. And when you were born into, oh, I saw that. The negative of that, and I tell this to people sometimes, unfortunately, if any of my friends are going to listen to this, is sometimes I'm in the moment and sometimes I'm not in the moment. I'm above it. And like, I'll be at a dinner with friends. And sometimes I'm right there and I'm enjoying it. And sometimes it's like I'm looking down at the dinner. And I don't like that. But it's very hard to stop the framing because you have this fiduciary duty to investors and you're in a constant state of observing and framing. Right. And so my point being that if I got that, that partly from trauma. What do I do with my kids? Do they, and my, I think the answer is, is that this is the irony, irony where I was coming to, which is, no matter what you want to do,

they're going to suffer some. There is friction there. So it doesn't even matter if you sit out and go, well, maybe I'll just smooth it out for them. I don't want them to have the same thing. Good luck. There's just trauma, no matter what you do in any level. You were talking about an example earlier, and I gave you a work example, but let me give you a one quick home example. and that was that I had a son, my third son, and he had said to me and my wife, he was going into high school, he's going to take accelerated Spanish. And I was proud and I called my parents and I'm like, yeah, Nick is going to take this accelerated Spanish.

I find out later because I overhear him talking to my wife that he's not taking accelerated Spanish and that he had heard me talking to my parents and even at the time knew that I was not telling the truth because he, it turns out even at the time, knew he wasn't taking it. In the past, when I was younger, pre-therapy, I would have been really upset. I would have been like, how could you listen to me say something? It was wrong, whatever. I didn't. I stopped.

I paused. And a couple days later, I was driving him back from a sports practice. And I said to him, you know, Nick, I want you to know that I know you're not taking accelerated Spanish. And that you heard me talking to my parents. But I'm not mad at you. you about that. I'm mad at myself. I'm mad at myself because I've obviously done something that made you uncomfortable telling me. And this isn't about you. This is about me. So I want to talk to you about that. How can I fix you being comfortable talking to me? So he had trauma, but that's an

example where, well, what was it that he felt uncomfortable talking to me? He told my wife. So I don't want a relationship like that with him. It doesn't mean I'm not going to be demanding or want him to succeed. But I have to have a relationship for anything. to blossom from that. So I guess my answer was, I tried, I'm going to make all these changes, I'm going to do it better. It's not that easy to do that. You asked me what I thought. I'll give him my two cents. I think heavy localized trauma is a solution. So I have my first kid expecting in October. And I'm thinking about how do I take him to third world countries so that he could have eight weeks of a difficult experience so that he could internalize that for the rest of

his life. I'm definitely going to take them into investment banking, which I think is like two years of like martial military service. I think sports is a great one because you can't shield them from wins and losses. I know in the U.S. now you have participation trophies and all these things, but real sports where there's winners or losers, I think that's a good way to localize the trauma. I also think there's a greater question, which is, should you be optimizing on excellence or do you just optimize on your kids being happy? And not. not having trauma. That dichotomy is something that I've had a lot of dialogue with my kids about. Because when they were younger, I would maybe very open, transparent, we traveled all of the

world. And we'd ask, my oldest son especially would say, like, well, at one point I said to him, what do you want? What do you want to be? Whatever. And he said, I want to be happy. And I literally, like, I didn't say anything. I went back to my life. What do we say to that? Like, how are we going to, what are you going to say no? And I don't know. I forget how we got. it, but at some point later, a year later or something, he's like, I want to be happy. But obviously, like, that doesn't mean, like, do nothing, sit around and be happy just like goofing around. Like, you have to have a family. You have to make money. So it was like turning into a constrained optimization at some point pretty quickly. This is the advice I've given my kids.

And I said, you have to have a passion. I don't care what it's for. You don't have to go into my career. You know what? But life without passion is being the keeper of your own decisions. I ended my book at the very, very end. There's a poem at the beginning and a poem at the end. And the poem at the end, Invictus is sort of, I'm the captain of my fate. It is up to me. And so I can't put something there for you.

You have to decide. But a life without integrity, but also just passionless. So I always have said to the boys, you have to be the best you can be. I've never been number one in anything. I think it's really difficult to be number one in the world at anything. And what I've said to them, I've been very clear expressing to my,

we're getting to family now. But my utility curve is the following. I want to be a good father, a good husband, a good friend. I want to be successful at business. I want to be in physical shape. I want to have spiritual or mental. So when I think about it like a trading, like the microstructure at any given moment, I might be too much on one, but I'm very aware of that.

But I want to be as best I can across the board. I could have been even better at work and richer. I would have sacrificed something that for me, I was unwilling to do it. I was personally not willing to do it. When you look at times, I was at Citadel, then I left, and I did Ironman triathlons. That was like an all-in thing. So I've tried to convey that to them as like you have to figure out your balance and decide what matters to you. You don't have to meet my utility curve, but it's not enough to have none.

It's not enough to have no passion. Kids are also, they observe behavior versus your words. So a lot of people think, well, this is what I'm going to tell my kids. It's not really how behavior and behavior change works. It's their perception. One of the greatest things you could give your kids is this understanding of self-actualization and the fact that there's ups and downs, but how rewarding it is to just pursue excellence for its own sake. It's being excellent at something.

It doesn't have to be even for money. One of the things that's really missing in the U.S., and, of course, U.S. has it more than almost any other country, but there's a lot of complacency. And this is where the immigrant culture really helps the U.S. is just people come in and they just want to beat their best self. And there's a lot of complacency in third, fourth, fifth generation Americans. I think just teaching your kids, pursuing excellence for its own sake, whether it is running a marathon or whether it's starting a business or whatever it is,

that itself is just so rewarding, even if there's a lot of hiccups along the way, and even though it could be challenging. I think that's well put. I think there's one of the thing that we didn't talk about that should have added. And that is that I think this is one of the most challenging times to be young. I grew up my formative years. I was born in the 60s, but I was a teenager in the 80s. No wars, no digital.

It was an incredible moment. I think great music. That's me personally. But I think now about the environment. And one of the things that I would be remiss if I didn't say is, and it's in my book, I talk a little bit, ironically, there's a pretty well-known sociologist, Pierre Bordeaux, And my mom actually wrote a great paper, and I was writing my book and she shared it with me about psychoanalysis and what this guy had written. But here's what the basic gist is.

When I was younger, the ecosystem, the environment was your parents, your teachers. It could be your religious organization, your local street, the neighborhood. That is drastically changed. What Pierre Bordeaux talks about is habitus. It's the environment in which, so now part of the education and growing up your kids are getting is digital. We just didn't have it before. So social media has created part of the environment in which, if you allow your kids to have access, in which they are raised, not by you, but by something else. And I think that what we did in the world, in the U.S. and otherwise, a lot of that was an active omission.

People just started using it. There was no containment of it. A lot of it was driven by engagement. Well, engagement in social media meant the extreme opinions were more engaged. And therefore, we polarized people by giving these really wide opinions. That's why we at Northwestern created the Littowitz Center for Enlightened Disagreement, which is if you actually do the analysis, people think the other sides like this. But they're really not as far apart. Like 3%.

Right. 3% from each side are actually crazy and people think it's like 70%? Exactly. the now what's happening you know remember like algorithms there highlighted the extremes i call this the double whammy what's happening now a i now you go you get an answer what does it give you the mean it gives you the best expected answer out of the distribution so wait a minute emotionally you're getting me charged up by going to the tails cognitive be you're giving me the mean it's also optimizing on your satisfaction not on the truth that yet so you're

You know, the psychopathic... I wrote it into my clod that it's to basically seek truth and not seek my personal happiness. Yeah, to reprogramming. Yeah, you're programming in. You want a steel man. Make the best version of the opposite argument for me, which, by the way, is exactly what you're supposed to do. Because what is my book argue? My book argue is you have these two tools.

You could use them to augment or atrophy. How do you augment? Give me things I didn't think about. How would I expand the set of possibilities? as opposed to going, just give me the answer. Tell me what you think the answer is. That just narrowed the set to one, right? Even back with Google, even if you only went one page deep, you took the information,

human information, and you had to synthesize it. AI now synthesizes it and generates, we're now in the post-human only narrative, right? There's going to be way more written material that was not generated by humans now going forward. So back to what are we doing in the environment that the kids are growing up in? I feel like we just went through this 20-year experiment at social media that relates to how kids are raised. Two of my kids were digitally native. Two were not.

There's a difference in them, right? Two didn't grow up with a flip-flones digital on, and two of them grew up with whatever the flavor of the day was on social media. Recognizing the system that you're parenting in matters because there's the part that you can control. And then there's the part that do you want your kids to use social media by active commission? Here's how you should use it. Here's how I would like to see it used. or maybe depending on the age, prevent them or do what I'm not, or do you want them to just use it how they do? And how is social media good?

Connect to somebody you didn't know before. Organize a meeting of people and cooperation you couldn't do before. Those all expand the set. But if I turn around and sit and say, instead of a date, swipe light, swipe right, right. Instead of going out with you, I'll go on a trip and then you thumbs up. We've got this, instead of connection, I gave you attention, the models. It gave me back, supposed to give me back connectivity.

But it gives me, we have more loneliness, gives a very thin version if it's used to atrophy. It gives power if it's used to augment. AI is the same thing. My book is saying, here's how you use it to augment. You've got to do some work, but it's an incredibly powerful tool if you do that. We've had one of the most remarkable careers in finance from Citadel to starting your own firm with Magnetar, growing it to $20 billion to now running one of the top single family offices. If you could go back right before you joined Citadel and give yourself one timeless piece of advice, what would that be?

And I know this runs almost counter to the trading side, which is just that is to realize how young you are and that there's time. I think I did maybe growing up in my childhood and trying to appease and a lot of people who go into the best firms, you know, Citadel was incredible at the time. You're straight age, you do everything right. And there's this fear like, I don't want to get something wrong. I don't want to get something wrong. and Ken was never like that. He didn't stop anybody from making mistakes. It was more in me.

And I would say to myself, like, measure this over a long period of time. I was not efficient. I was very much sort of everything was perfectionist. And I think as you get older, you realize you would have even better if you could work the same amount. But where do you work, right? I almost just wanted to cover everything because I didn't want, I didn't know what was important or not. I feel like I would have said to myself, absorb a little more about optimization and not so worried about every little thing.

Some things, I call them shallow failures. Some things just don't matter. And spending time on that is actually a waste relative to this other thing that you should be spending time on. I wasn't that efficient with my time. I worked a lot trying to do certain things that at the end of the day didn't matter. And then the other thing that I think that was a really important lesson for me was that being fairly academic. and then going in and being in risk art and being in market neutral strategies, it is very easy to sit and say, I don't care what happens in the macro world.

How do people who are macro traders do it? I don't know. I mean, how many bets do you get to make a year? Like, I don't think I could do that or you only get a certain number of bets a year. I was always into this. Let's have thousands and thousands of bet. You know, sharp ratio is edge times a square root of N. It was the long, short equity business I built, etc.

It was that model. And it takes something like a 2008, and I realize now just zoom out, when regime changes occur, all that safety you feel in that model that this is how things work doesn't matter. So it doesn't matter if you can predict whether that macro world's going belly up or not. But it has to be in your decision tree with some probability. You don't get to assign at zero. And so the way I phrase it now is I have a reverence now. I lived through the seven rate increases in 94, the LTCM and Russian crisis in 98, 2000, 2003, no, and I will say this. All those things, the first 100, I think was nine plus a year or so, 108, maybe it was, I think it was nine years, three months.

So let's say 11, 110 months. I lost money in five and through all those crises. And so when I got out and I did my Airman's and I was thinking about Magnetar and we went a slightly different direction. focused on uncertainty. But it was pretty easy at that point to go, well, I did pretty well during all those environments. All the models had worked. And then you get to 08 and you're like,

sometimes they don't work actually. And that was that perspective. I just didn't have it. I now look back at myself and go, you were indignant. You were like, I'm right. I got all the details. I've got all the math, fresh math major at MIT. And I figured this out.

And it's like, no, no, you haven't figured it out. I would just want to say, like, have more respect for the market is what tells you you're right or wrong. You don't get to live within a world that it's a boat in the sea and no matter what size the wave is, you're fine. No, that's not how the world works. It goes back to what we've talked about throughout the entire interview, which is have a beginner's mind, no matter how successful

and how much validation you get from the market, you have to always go back to this beginner's mind. You said it really well earlier. Everything you think you know is provisional. It's all opinions, all the way down. It might be an informed one. It might be working for a while, but it's on loan. It's always on loan.

And instead of that being a problem, uncertainty is amazing. Everybody hates it. But uncertainty is possibility. Uncertainty is knowledge. I mean, go back to my nerdy self, like the father of information theory, Claude Shannon, would say, if you come to me and I say what you already know, it's of zero nutritional value. You can't possibly learn from it.

If I say stuff that's completely orthogonal to what you think, we may disagree, but it has the most potential energy to convert into something you might update with, right? If you sit around and go, I can't be updated, I got it, I can't, there's no way to improve in any way. So I just keep thinking about that mental image that when you say to your AI, steel man, tell me the opposite, it's the most possible you can learn. If all it is a cyclophant, there's, you can feel better, but it's like eating bad food. There's no good thing going. in you. It's just going to make you sick later because some point it's going to come back and hurt you. I think that it was true in the math of information theory. And it's true in the world right now.

It's just we go into this tribal, vertical social media. We try to find people who tell us we're great and we're, et cetera. And at the end of the day, like that long term is a massive negative. If you come in every day to learn and have a better model for the world, especially one that's changing this quickly, I consider that to be, that's my excitement. Like, what did I snap? Like the matrix. I just got uploaded a new model. for that. I get super psyched. I get really excited for that. I like this. This has been an absolute masterclass. Thanks so much for jumping on. Thank you. Thank you so much for having me. I really enjoyed it. If you enjoy this conversation, want to hear more conversations with many of the world's leading

investors. Subscribe below.