The Tim Ferriss Show - Ep 29: What I Learned Losing a Million Dollars, with Author Brendan Moynihan

Episode Date: September 16, 2014

Brendan Moynihan is a Managing Director at Marketfield Asset Management ($20 billion of assets under management). Mr. Moynihan is also the Senior Advisor to the Editor-in-Chief of Bloomberg News, and an adjunct professor at Vanderbilt University, where he teaches both international finance and investment analysis. Previous to all of these posts, he spent more than 20 years on Wall Street as a trader and risk manager. He is the author of Next Time will Be Different: Why Economists Can't Predict Financial Panics and Crises (Infrared Press, 2013), the author of Financial Origami: How the Wall Street Model Broke (Bloomberg Press, 2011), and the co-author of What I Learned Losing A Million Dollars (Columbia University Press, 2013), which is about the losses and lessons of investor Jim Paul. He is currently writing a book on the "science" of risk management. ***If you enjoy the podcast, would you please consider leaving a short review on Apple Podcasts/iTunes? It takes less than 60 seconds, and it really makes a difference in helping to convince hard-to-get guests. I also love reading the reviews!For show notes and past guests, please visit tim.blog/podcast.Sign up for Tim’s email newsletter (“5-Bullet Friday”) at tim.blog/friday.For transcripts of episodes, go to tim.blog/transcripts.Interested in sponsoring the podcast? Visit tim.blog/sponsor and fill out the form.Discover Tim’s books: tim.blog/books.Follow Tim:Twitter: twitter.com/tferriss Instagram: instagram.com/timferrissFacebook: facebook.com/timferriss YouTube: youtube.com/timferrissPast guests on The Tim Ferriss Show include Jerry Seinfeld, Hugh Jackman, Dr. Jane Goodall, LeBron James, Kevin Hart, Doris Kearns Goodwin, Jamie Foxx, Matthew McConaughey, Esther Perel, Elizabeth Gilbert, Terry Crews, Sia, Yuval Noah Harari, Malcolm Gladwell, Madeleine Albright, Cheryl Strayed, Jim Collins, Mary Karr, Maria Popova, Sam Harris, Michael Phelps, Bob Iger, Edward Norton, Arnold Schwarzenegger, Neil Strauss, Ken Burns, Maria Sharapova, Marc Andreessen, Neil Gaiman, Neil de Grasse Tyson, Jocko Willink, Daniel Ek, Kelly Slater, Dr. Peter Attia, Seth Godin, Howard Marks, Dr. Brené Brown, Eric Schmidt, Michael Lewis, Joe Gebbia, Michael Pollan, Dr. Jordan Peterson, Vince Vaughn, Brian Koppelman, Ramit Sethi, Dax Shepard, Tony Robbins, Jim Dethmer, Dan Harris, Ray Dalio, Naval Ravikant, Vitalik Buterin, Elizabeth Lesser, Amanda Palmer, Katie Haun, Sir Richard Branson, Chuck Palahniuk, Arianna Huffington, Reid Hoffman, Bill Burr, Whitney Cummings, Rick Rubin, Dr. Vivek Murthy, Darren Aronofsky, and many more.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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the number one, drinkag1.com slash Tim. Last time, drinkag1.com slash Tim. Check it out. Welcome to another edition of the Tim Ferriss Show, ladies and gentlemen. I would like to start this very special episode with two things. First, a quote. And that is, quote, Be who you are and say what you feel, because those who mind don't matter, and those who matter don't mind. End quote. From none other than Dr. Seuss. Love that quote.

Second, just a little bit of trivia. Since the co-author of What I Learned Losing a Million Dollars is our guest today, I thought I would look at the number one million, the denomination one million. It's a big deal in the US and a lot of Western culture, but perhaps you didn't know that the number 10,000 is a very big deal in, for instance, Japan. And when they say, banzai, banzai, when they throw their arms up in the air, that is ban or like ichiban, ban, 10,000 years, zai, banzai, 10,000 years, 10,000 years. So there you have it, a quote and a random piece of trivium that you can play with. This episode, we have Brendan Moynihan with us. Brendan Moynihan is

a managing director at Marketfield Asset Management, which has $20 billion or so of assets under management. He's also the senior advisor to the editor-in-chief of Bloomberg News. He's an adjunct professor at Vanderbilt University, where he teaches both international finance and investment analysis. And previous to all of that, he spent more than 20 years on Wall Street as a trader and risk manager. He's written a whole slew of books, mostly on finance and investing. But the one that I want to highlight today is What I Learned Losing a Million Dollars. And as you'll hear in the interview, this is one of the few books in existence that

has been praised by Nassim Taleb, who is author of The Black Swan, or is author of The Black Swan, among others. And it was labeled by him one of the rare non-Charlatanic books in finance. What does that mean? Well, I chased down this book when it wasn't in print and read it and it had a huge impact on me. So much so that it is one of the few books in the Tim Ferriss Book Club. It is the few books in the Tim Ferriss Book Club. It is the newest book in the Tim Ferriss Book Club. And there are a million and one ways to make money. And as a result, there are a million and one ways to publish books about varying methods of success, making money, and so on. As it turns out, it's perhaps a much smarter approach to look at the few ways in which people consistently lose money, consistently make big trading mistakes, investment mistakes, business mistakes that cost them money. And in this case, the other co-author, Jim Paul, had a really dramatic story of losing

more than a million dollars that you can then define rules for yourself that allow you to be a better investor, a better business person, and in general, succeed better in life. Pretty fascinating stuff. So Brendan is our guest today. I hope you enjoy it. As always, this podcast is supported by you guys. If you like these podcasts, both the short in-between episodes, the longer interviews, please take a look at the Tim Ferriss Book Club. Just go to 4hourworkweek.com, all spelled out, 4hourworkweek.com forward slash books. You'll find about a half a dozen books that have had a huge impact on my life, including this book, What I Learned

Losing a Million Dollars. And if you click on those, it'll take you through to Amazon. And that keeps this podcast going because it does take a lot of time and some capital to put together. So without further ado, I introduce you to Brendan Moynihan. Enjoy. At this altitude, I can run flat out for a half mile before my hands start shaking. Can I ask you a personal question? Now would have seemed the perfect time. What if I did the opposite? I'm a cybernetic organism, living tissue over metal endoskeleton.

The Tim Ferriss Show. Welcome everyone to another episode of the Tim Ferriss Show. And I'm very excited to have Brendan Moynihan with us today. Brendan, how are you? I'm doing well. And yourself? Doing extremely well, and I am thrilled to be chatting with you because, of course, I was introduced to your work first through what I learned, L million dollars. And I remember being introduced to it by NN Taleb or Nassim Taleb, who wrote, of course, Anti-Fragile, then before that, The Black Swan, and then Fooled by Randomness. And one of the lines that stuck out in his most recent book about what I learned

losing a million dollars was that it was one of the rare non-Charlatanic, if that's the correct pronunciation, books in finance. And I was hoping before we jump into all sorts of other questions that I'd like to ask, why do you think he said that? Why do you think he used that particular adjective? I don't know. I had never met him when he put the title of my book in The Black Swan. And at that time, he said it was the best non-Charlatanic finance book he'd ever read. And it was actually that mention that caused a little bit of a stir with email for me to reprint the book. So I reprinted the book based on what happened in The Black Swan. And then a few years later, he was at an interview with a dozen or so journalists at Bloomberg News.

And I happened to be a consultant there at the time. And they invited me to sit in on a lunch and he recognized my name when I was introduced just because he had put it in his book. So I never really queried him about, I mean, I was thankful that he did it because he's not known for handing out compliments. So I was just happy to have had it and I wasn't going to jinx it. But we had a very interesting discussion while we were in that room. And it turns out that he's read a lot of the same things that I've read. And so it was sort of a dialogue between him and me while the reporters were kind of taking notes, which is very interesting. So I don't know why he did that. But I think that it's because it was an opposite

tact in that there's so many books out there on how I made a million dollars in the stock market last year before breakfast. And in the million dollar book that I wrote, I even go back to try to find out how old is this. And there's a book from like 1881, I think, by James Briskin called The Beef Bonanza, How to Get Rich on the Plains. I mean it wasn't the stock market. I guess it was a livestock market. But people have been forever like, I'm going to tell you my secrets of how I got rich. I don't understand that. So I titled this book What I Learned Losing a Million Dollars with my co-author.

Again, Jim lost the money, not me. I want to be clear about that. But why would somebody reveal their secrets to making it? Why don't we examine what goes wrong? And then if somebody's willing to bare their soul about that and share the mistakes, then as a parable, it might have more resonance with people about what not to do rather than what to do. And I think there's a, I'll get into it later,

but I think there's a real premise for why it's essential to know the downside rather than all the different ways to make it on the outside. Well, I think that we should, of course, explore that. And I think that it's funny when you pointed out the, you know, the getting rich on the planes with the beef bananas, because I can imagine for every given market, there's probably an equivalent book. I'd imagine if you go back to Venice or if you go to the... There's probably one for the tulip mania. Right, the tulip mania. I was just going to bring up the tulip man the... There's probably one for the tulip mania. Right, the tulip mania. I was just going to bring up the tulip mania.

There's probably some type of handbook that people were selling at the time. And what does that indicate as a problem or deficiency with those guides? What makes them charlatans in some cases? Not in all cases, but in some cases. What do you think the problems are? I mean, yeah.

Well, Taleb put the label on there, so I don't necessarily want to speak to what his viewer perspective was on that. But from what I understand, it's that people are holding themselves out as experts with some sort of specialized knowledge or insight that, as a high priest class, only they can impart to other people. And there were people who made livelihoods throughout history by being hucksters or tricksters or charlatans. And I think that from my understanding of reading Taleb's work that he thinks that there's a large cottage industry in the financial services industry that does that. They forecast what the market's going to do or what the economy's going to do. They tell people what they should do with their money, what they reveal inside secrets.

And I think that he said, you know, if you try to do those or you try to follow those, you might get lucky for a while, but you have to understand that was luck. It was not some special secret formula that you had or got from this person to bring you to that state. Right. But yeah, no, I think you're right. It happens in every industry. And I think, you know, I've found investing fascinating for so long. When I say investing, it was generally for most people listening to this, that would mean publicly traded equities, for instance, stocks.

And I remember the very first stock I ever bought. I don't know if I've ever publicly talked about this. This is my story, of course, not yours. And I want to talk about your background in a second. But the very first stock I bought was Pixar. And I was 15 or 16 years old. And it was... Probably the early 90s? Yeah, it was 95, perhaps 96, I want to say, somewhere in that range, roughly. And I was thoroughly convinced the stock would do well. And it ended up doing well, but I didn't have the emotional control to hold it. So I sold way

too early. And what's funny about it is I then went and tried to develop very sophisticated approaches while going to undergrad at Princeton and beyond, very sophisticated approaches to investing. And I've come full circle to where what made me believe in Pixar is what, in some cases, enables me to pick startups that I believe in. And it's just funny how I tried to copy these models that seem to me very sophisticated. And there are some sophisticated models, of course, but there's such a survivorship bias in finance where you have 100 people, perhaps, who roll the dice. And there are people who don't just roll the dice, but the 100 people who roll the dice, and you have the few who survive are the people you hear about, which is

also true of, say, startup icons who end up on the covers of magazines after risking it all. And it's a skewed data set. It's a really skewed data set, but I don't want to digress too far. And you can say the same thing about the S&P 500, which everybody believes is a stock index we've had since 1928, but it's not true. It was created in 1957 on March 4th, and before that it was a 90-stock index. And 10 years ago, 40% of the stocks that are in it now were not even in it.

If you go back 20 years, like 80% of the stocks that are in it now weren't in it. So I mean, even the gauge by which people are measuring, one, how the market performs, and then how managers perform against that is like an elastic measuring tool. It's a rubber band. It's not a fixed set. Right, exactly. And I think that what's also very common, and then I want to come back and give some background on you for people who may not be familiar with your background and credentials,

but it's very common in the financial markets or any type of investing. I see this a lot in startups where someone will, just as a haphazard scattershot approach, invest in say a hundred companies. And they happen to hit the Google of that decade. And then they paint the bullseye after the arrow has hit. And they attribute that to skill as opposed to luck. And then what's so ironic about that in Silicon Valley, at least, is that they then get a reputation, assuming they can use PR and messaging well enough, for being a good investor, and they start to see better deals, which then becomes this self-perpetuating cycle until the hubris leads to something like massive overspending for a period of four or five years, and then they crater. But they create another fund, and then it's back to square one, which I think also happens quite a bit in hedge funds. But for those people who aren't familiar with your background, perhaps you could just tell

us a little bit about your history and what led you up to what I learned losing a million dollars, but also up to the current day. Well, it's not an elaborate background. I was raised in Alabama, and I had the good fortune to one day in my senior year have Jim Rogers, who had started the Montessoros day in my senior year have Jim Rogers, who had started the Montessoros Fund. He's from Demopolis, Alabama. I was from Birmingham.

He came and spoke to our senior class, I think, out of his fealty toward the state. And I was at the University of Alabama, so he came and spoke. And after class, I went up and collared him and said, okay, you know, you're a poor boy from Alabama and got to New York. How do I do it? So he said, well, I'm in town tonight if you want to go to dinner. So I went and had dinner with Jim Rogers when I was still a senior in college. I mean, I was already sort of determined that this is the industry I was going to get into, but I thought I got to take advantage of this guy being on the premises to talk to him. So, you know, I learned a little bit from him and

struck up a bit of a dialogue. And way back then when there were wood-burning computers and there was no World Wide Web, I wrote to him and he wrote to me or I called him and he called me. And that kind of got me started. I interned when I was in college at a regional investment bank. And then I went to work for them for the first year after school. That was in Nashville, but I wanted to get to Chicago or New York and I decided on Chicago for the futures market. So I went to Chicago. I spent four years there. I learned from a pretty smart guy there who'd been around for a long time and kind of continued my real world education rather than going to graduate school. And I got married, had my first son and wound up working for a guy

named Jim Paul for the last year that I was in Chicago. And I had gotten recruited back to Nashville and it was at that lunch with Jim on my last day of working for him. I was in the Futures Research Department at Dean Litter, and the last day of my employ with him, he took me to lunch, and he told me the story about, or part of the story about how I'd lost the money. And, you know, he said, somebody said I should write a book about it. And I said, well, you know what? I can do it. I can take your flowery story and marry it with my dry theory. And that was May 31st, 1990. So that was sowing the seeds to do the book.

Now you have an incredible, just as a side note, memory for dates. Has that always been the case? And I think you may have mentioned this before, but do you just have a particularly acute memory for facts and figures and things of that type? Yeah, I'm not so good with names, but for some reason the 10 digits aren't as much of a challenge

in their combination. So I don't know. I mean, there's some dates I can remember certain things or certain things struck me as important, and so I remember them. There are other things that go in one ear and out the other. You had that meeting with Jim and proposed that you could make this book a reality,

and how did the book then get written? What did that look like? Because it was a lunch. So it was an hour, right? I mean, he just told me kind of the highlights. And so, you know, somebody said I should write a book. I said, Well, I can do that. I said, If you will tell the story to someone who hasn't heard it before, so that you will be animated and, you know, full of inflection and just tape record it, send me the tapes, and then I will transcribe it, and I will match it in with my theory. And I told him what my theory was, and I'd worked for him, so he was a little bit familiar with what my approach was.

So that was May 31st, and then the beginning of November, he calls me and says, you know, I can't do it. I tried. I can't talk to anybody. So I'm going to mail you a plane ticket, and you're going to fly up here and stay with me for a weekend, and I'm going to tell you the story. I'm like, all right, great. So the weekend before Thanksgiving in 1990, on a Friday, I flew up to Chicago. I picked up the airport.

I went to the house. I got there, I don't know, 5, 6 o'clock or something. And his wife said, gentlemen, I lived this once. I'm not going to live through it again. I'm going to my sister's. I will see you on Sunday. And she left. So then Jim like turns on a Kentucky basketball game or something. And I don't really follow sports. So that was kind of like, okay, I'm going to burn two hours here, like, you know, doing nothing. I don't really care about this, but so Jim watches the basketball game and I'm like, okay, great. You know, I'm like, okay, I'm ready to get started.

He goes, oh, let's watch a movie. So he puts in this movie called Pretty Woman. Well, I don't really watch movies. So I'm like, I'd never seen this thing. I didn't know what it was all about. So I sit there for like another, I don't know how long that was, two hours of my life I was never going to get back. So we get to the end of the thing, and Jim is 50 years old at this time.

I turn and look, and the guy is sobbing. He has seen the movie before, okay, and he's sobbing at the final scene of this thing where the guy shows up. Richard Gere. It's supposedly like he's riding a horse and carrying flowers and coming to get this girl or something. I'm almost like, you've got to be kidding me. So anyway, I'm like, okay, can we get started in the morning?

So we got started in the morning. I had the tape recorder, had all the tapes, had extra batteries, ready to go go this is a little dictaphone you know it's like the size of a you know business card a little bit larger whatever and jim goes to the pantry and pours himself a screwdriver this is eight o'clock in the morning like well i know jim had sort of mentioned like when we went to lunch that day he was like oh i think i'll have a drink i'm like okay it's lunch time and they're going back to work so you know, Jim had a screwdriver then and then Jim continued to drink screwdrivers and just talked into the tape recorder. Well, I asked a few questions here and there, but he basically was just doing a brain dump and I was just going to transcribe it all later. So I don't know, maybe three in the afternoon, I kind of

give him and say, okay, well, I'll have a beer. So I go to the refrigerator and I have a beer. And I don't know, after about like an hour and a half of drinking beer and he's drinking, I don't know what by then, I'm feeling a little like woozed. I'm like, you know what? You've been at this for eight hours. You probably need a little rest. You've been talking and drinking for eight hours.

And I probably need to put my head down. This is not, you know, drinking beer in the middle of the afternoon. It's not something I really do. So I went. There was a guest room. So I go to the guest room. About a half hour later, he comes in and hangs of the afternoon. It's not something I really do. So I went. There was a guest room. So I go to the guest room. About a half hour later, he comes in, hangs on the door, and he goes,

Brendan, Brendan, we're in big trouble. We're supposed to meet Pat for dinner in 30 minutes, and we've got to leave right now if we're going to make it. No, no, no. No, you may be in big trouble, but I'm not in big trouble. I'm not going anywhere until this room stops spinning, and it's not going to be any time soon. So you go have dinner with Pat if you want, but I'm not going anywhere until this room stops spinning, and it's not going to be any time soon.

So you go have dinner with Pat if you want, but I'm not leaving. So that was it for the night. We got eight hours that day, and then we did probably another nine hours the next day. I wound up with 17 hours worth of tape that I took back with me, all little micro cassettes. And then I spent Thanksgiving day when I wasn't at the turkey dinner in the office, which was closed using the secretary's headphones and dictaphone machine where you put the tapes in and then you use foot pedals and you fast forward and rewind. And I started transcribing this thing. And then I started spending weekends transcribing it. And I'd never typed before in my life, so I basically used the Columbus method,

hunt, seek, and land, to type this thing out. My God, that sounds like a really long process. It was. And it was on a Univax system. Again, there were wood-burning computers. There were no desktop computers at this place. We're talking about 1990. I'm sure they existed somewhere,

but they didn't exist at this place. We're talking about, you know, 1990. I'm sure they existed somewhere, but they didn't exist at this place. So then, you know, I took my stuff and started tapping it out on the weekends. And then I started doing nights where I'd work all day, go home, have dinner, put the kids to bed, go back down to the office, work on the computer, add into it. And it took the better part. I mean, between the research and the writing and the back and forth and figuring out how I was going to organize it, it took me the better part of three years, four years to really kind of get it all into shape. And I don't know if you're going to be bored with the details of, I mean, that was the writing side of it. The production

side was a little interesting as well. So, because we did it differently. Well, let's talk about it. Yeah. Tell me about it. As a side note, maybe you can answer this at the same time. That is a major undertaking, of course, taking three, four years to do that. I'd be curious also just to hear, and you don't have to do it right now, but perhaps somewhere in your answer, what was the drive to do it? Why did you want to do this book? Well, I think I've learned since then, because I've written several since, that just sometimes it's like something gets into your head and you got to get it out. I mean, I don't know if it's, you know, I'm not an artist by any stretch. My mom was, I did a bit when I was younger,

but I guess you get something in your head and, you know, artists have to kind of get it out. So each of the subsequent books that I did kind of follow the same pattern where it's like, I have this observation, I have something to say about it. I've got to figure out the best way to say it. And then I want to create a physical product out of it and then, you know, try to sell it. I mean, it's like, you know, we're trying to make a fortune off of Jim's misfortune and, you know, we didn't necessarily, but it's not a bad business card. You know, we, we, we hand it out and, you know, it works. So, but in the course of doing the book, I found out that, you know, the author really doesn't get that much money unless you're like, you know, a really big hitter

and you get an advance and it's a great book and blah, blah, blah. I mean, there are a lot of middlemen in between from the publisher to the bookstore to whatever, who get, I mean, to the person who gets paid to do the indexing on the book. They were getting as much as I was or something. I'm like, really? I mean, I wrote the book. So I decided that we're going to self-publish it. I wrote a letter with a five-page synopsis of the book and a full copy of the manuscript

and a self-addressed stamped envelope and sent it out to about 30 people of name in the industry, including Warren Buffett, who wrote back and said, sorry, Mr. Moynihan, too many requests, too little time, Warren Buffett. But I got his autograph. Nothing else. So we collected quite a few people. Ned Davis runs Ned Davis Research out of Florida, and Ned put his name on the back cover. Bob Prechter, you know, from the futures industry,

did Leo Malamed, chairman emeritus of the Chicago Mercantile Exchange. Ken Fisher, out in your neck of the woods, put a blurb on the back cover of the book. So we wound up with a pretty good list of, you know, eight or ten people of some name who were willing to read the book and put a blurb on it. And then we just got really lucky. I sent out maybe 20 or 30 made-up press releases. I didn't even know what a press release was, but I created one or looked at one and just made the same thing.

So I sent them off to some of the news organizations, and Mark Holbert at Forbes magazine picked up on it. And the day we self-published the book, October 5th, 1994, it made a byline on the cover of Forbes magazine above Jack Welch's head that says, biggest mistakes investors make, are you guilty? And bang, we were done. We broke even in three months and then we just had books to give away

and we sold to German rights and then we were just kind of off to the races. Germany's huge. Germany's a big market. And were you selling it at that point? I'm just trying to put a finger on the date. 1-800-something book. Oh, CEO read?

P.O. Box 198038, Nashville, Tennessee. People were sending in checks. I'd go down there every day, get the checks, go home, box up books, mail them out. I mean, it was insane. And then Jim would give speeches in the futures industry and, you know, he'd take a box of books and he'd like sell them one by one. And I mean, it was, it was not our job. We were just, you know, we were just, but we got all the money, you know what I mean? It's like, we weren't taking it. It wasn't like there was a cut,

but it was, it was a hobby. You know, I don't play golf or tennis. So it's like, this is what I do with my time. And what did, what did Jim look like? I'm trying to identify when you're, when he's sitting there having those screwdrivers, what, this is what I do with my time. And what did Jim look like? I'm trying to identify. When he's sitting there having those screwdrivers, what is he wearing? What does he look like? Jim was 6'1", 6'2", probably 170, 175 pounds, lean, angular, may have been blonde and started to go a little bit gray, fair complexion, and a gravel voice from yelling in the lumber pit

for 10, 15 years or something. His voice sounded like gravel in the bottom of an empty coffee can. That's what it sounded like. Yeah, I felt like you did a good impersonation, at least based on my reading of the stories. That's the voice that I'm now going to have in my head when I reread it. What were some of the lessons that he learned or that you heard from him, stories and so on, that you weren't able to include in the book? Are there any other favorite Jim stories that just didn't make it into the narrative?

The stories were interesting. My view is that what I presented as the three mistakes that investors and traders make was an overarching perspective from what goes on between your ears that can screw up anybody's specific methodology for how they go about trying to make money. So I didn't think that, I mean, I thought I captured it and then I buttressed it when I looked up the word psychology in the dictionary and I found out there's a three-part definition that matches exactly the three parts that I just went through. So I'm like, okay, the light bulb went on over my head and I just, I went full board to get that all worked in. I don't know that Jim really revealed anything to me that wasn't in there. I'll recount one thing that he said to me after I got on the

manuscript and he read it. He goes, okay, I know how you got all the story about me and on this, but how do you know about all this lost stuff and what goes on in your head? And I thought, Jim, I told him, I said, you're so vain. You think that like you're the only person who's lost money, okay? I mean, I've lost money, okay? If I lost $15,000 on a trade or over a series of trades or whatever, it's not the same as much as you lost, but you know what? It's the same thing. I mean, you're not the only person who's done this.

Okay, okay, I get it. I understand. So I don't know that Jim was ever able to incorporate what I was saying into his approaches because every once in a while over the course of the three and a half years I was writing the book, he'd call and he'd say, I did it again. I was up, I was up, and then I lost $20,000. I'm like, okay, well, Jim, I have a book for you to read. It's in manuscript form right now, but I'll be happy to send it to you.

It might help you with that problem because you're obviously not getting know? So I don't know that Jim ever really incorporated it into his psyche. And he may have been unable to, I don't know. But he had some hilarious stories. And, you know, some of them were recounted in the book, some could not be recounted, you know. Right. And for family programming. Well, yeah. And, you know, because the names have to be changed to protect the innocent and all the rest. So, no, I think one of the funniest stories that I've ever heard came out of his mouth, and it was after he lost the money. So he's on the board of governors at the Mercantile Exchange.

He's like an executive committee. They're like six people making the decisions for the exchange. And he drops $1.6 million out of the the 1.2 million that he has in 75 days. So they come in, liquidate the position, throw him off the board and clear out his office. So he's like, oops. So he goes downstairs to the same restaurant that he took me to have lunch in all those years later. And he's like, you know, what am I going to do? And he says, well, you know, the only way to make good on this is I've got about a million dollars worth of life insurance. And the only way to do that is for me to have a few drinks down here at the bar.

Everybody knows I drink too much anyway. Then I'll take the Porsche, get out on the interstate out here, and heading home, I'll crank it up to about 100, and I'll aim the car at one of those concrete posts that holds up overhead bridges. Oh, my God. up overhead bridges. So he goes downstairs and he has his drinks and he gets in the car and he gets out on the interstate and looks in the rearview mirror and sees the blue lights flashing.

So he pulls over and the cop comes up to the window and says, license and registration, Mr. Paul. Does he have any idea how fast you were going? 85, 95. He goes, try 18 miles an hour. Get out of the car. So he was stuck in first gear.

He was a road hazard. That's why he got pulled over. He's in a car that looks like it's going fast when it's sitting still, and he's driving at 18 miles an hour in first gear. So he said it probably saved his life. And for what it's worth, I got a book out of it as well. But that quickly passed from his perspective. He's like, okay, I got saved by a guardian angel or something. I'm never going to do that again. And then he went about trying to piece his life

back together after that. But that was one of the funniest things I've heard from him. And let me add another $15,000 of transmission damage to the amount of money I need to recoup. Yeah, yeah. On the three points that you mentioned, perhaps you could just give a brief mention of those three points. And in general, I'd be curious to hear what you think makes a good investor. Okay. Well, the three points, and again, I kind of backed into it because I had the three things that I was doing wrong. I mean, I sort of thought I had it kind of sorted out.

And then I wrote the book and then I realized, okay, this is really about a light treatise on the psychology of mistakes that we made. What does psychology really mean? If I can work this into the book. So if you look up at the dictionary, it says, what are the mental processes, behavioral characteristics, and emotions of an individual or a group. So basically the mental processes are that people internalize what should be an external loss. Like if you lose your keys, you don't go through the five stages of internal loss, which is denial, anger, bargaining, depression.

You lost your keys. It's no big deal. Right, right? You lost your keys. It's no big deal. Right, right. When you lose money, people tend to internalize that, and they tend to equate self-worth with net worth, and then they start going through this mental process. So being able to identify and capture that lets you know, okay, this is one of the mistakes that you could be making. You have now internalized something that should be external.

Don't be doing this. This is a bad thing, okay? I'm trying to abbreviate all this. Of course. Yeah, of course. So the other one is the behavioral characteristics of, again, the individual or group. And I think that people mistake the venue in which they participate in an activity with the type of activity they're engaged in. In other words, I think there are five types of market participants. I think there are investors, speculators, traders, bettors, people who bet, and gamblers. And depending on which one of those five you are is a function of

how you're behaving in the environment. So there are people who can professionally gamble in Las Vegas and they have a system or whatever. So they're not really gambling. They've got some sort of system and methodology. And I don't really, I don't do that kind of stuff, but I've read enough about it to where there are people who do this. And oh, by the way, Edward Thorpe, an academic, wrote a book called Beat the Dealer, made so much money that the Las Vegas Resorts and Hotel Association changed the rules of the game. So he went out and wrote a book called Beat the Dealer and sold 5 million copies. And I'm like, what is up with this? This is like, you know, the beef bonanza again, right? They changed the rules so that you can't use this system,

but 5 million people bought his book. I'm like raising my hand. I've got a book over here. I mean, I'll just sell a million. I don't need 5 million. Just come buy a million of it. Just to touch on those labels that you mentioned, because I found one of the many eye-opening aspects of the book,

because I think you got into at least a handful of those in the book, but how would you, in brief, distinguish those various classes, those five classes of market participants? So investing, according to Adam Smith, is parting with capital, with the expectation of return in the form of interest, rent, or dividends. Each of those three things are paid on a periodic basis, right? Quarterly, monthly, semi-annually, whatever. You intend to be parted with that capital for an extended period of time. Traders are market makers in my mind. They buy the bid

and sell at the offer. It's all they do. They go home flat and they are very short time frame oriented. Very different from the investor. Speculators buy and sell, go long or go short, not waiting for that dividend interest or rent. They are in for the short term looking for the price differential, the price change. So their timeframe is again, different from the longer timeframe of the investor. Betters are interested in being right. You and I can have, there's not really a very politically correct term for this or updated term for this, but there's a thing called a gentleman's bet, right? There's no money involved. This is bragging rights. Like trading places. I think this happens. We even bet a dollar, but they took the dollar off the table. It'd be

purely a gentleman's bet, right? To where you get bragging rights. I was right, you were wrong. And your chest puffs up and you get to make fun of the guy and whatever, right? Or pinky bets, right? You have a pinky bet. There's no money change, right? They confuse the profit motive with the profit motive. P-R-O-P-H-E-T, P-R-O-F-I-T, right? They want to be right. It's not about the money. And in gamblers, that is a disease. There is something wrong there. It is a betting gone amok. Money is just a ticket to enter. They're there for the adrenaline rush. And I don't pretend to be an authority on what that is, but it's the other end of the spectrum. But it is one of the categories.

But you can gamble in the securities markets, in the commodities markets, in the currency markets, whatever. You don't have to be in a gambling casino to be gambling if you exhibit the behaviors. And then I go through what the behaviors are so people can start to recognize and acknowledge what they're up against. And then the last piece is, you know, what are the emotions of a group or individual? the behaviors are so people can start to recognize and acknowledge what they're up against. And then the last piece is, you know, what are the emotions of a group or individual?

And again, I'm not talking about being a psychologist or being trained in any of that, but I don't have to be trained in that to know that if your emotions have become involved, what you've done is you have personalized something. You have now made this a matter of pride or embarrassment or shame or something. Emotions are neither good nor bad. They simply are. They just exist. We experience them. It doesn't matter. Making decisions based on emotions is bad and can be problematic. So in my research and reading, I just found this book from 1905 called The Crowd by a Frenchman, Gustave Le Bon. And he talks about the crowd being the single entity that best exhibits emotional decision-making.

So I thought, well, if I can go through this and make this part of the construct to explain to people, if you're exhibiting these kinds of decisions or these kinds of processes, which is when a crowd forms, a psychological crowd forms and what they do, then you'll be catching yourself and identifying that misbehavior and trying not to be making emotional decisions. So that's the sort of reader digest version of one of the three things,

and then sort of like the beginning bullet points that fall down underneath each one. And the crowd sounds a lot like Mr. Market that Warren Buffett talks about, who comes into the office. Yeah, and Jim Grace, too. Exactly. has been effective for people or distinguished people who have been able to develop and actually act on the information in the book. Because like you pointed out, I mean, I'm endlessly fascinated by this, even with my own books, whether it's business or sports or the for our body, whatever it might be. There are some people who put the words into practice and there are others who fail to. And I'd love for you to comment on how or why the readers who are successful in doing that are successful. If you have any thoughts. I have spoken to a number of people, a lot of people have contacted me over the, over the years.

It's been a long stretch, but I think what I've found is because what I try to do is just say, well, okay, here are the, here are the problems, but then, all right, now what to do about it. And what I lay out in the back half of the book or the back two chapters of the book is, one, having a plan that is developed when you are not in the market. You cannot have a position on when you develop this thing. And whatever your methodology is, I mean, there's many ways to make money. There are participants. There are relatively few ways to lose it. I think I've just identified them, formed a checklist, put that on the top half of a sheet of paper. And on the bottom half of the sheet of paper, write out, because you have to have it objectified and down in black and white,

write down the if-then statements or scenarios under which you will pull the trigger to get in a position or get out of a position. So that it is now out of your hands. Now, can you violate that? Can you take the piece of paper and throw it away or tear it up or whatever? Absolutely. But until somebody goes, I think, and puts down a checklist and has something to look at and say, am I doing one of these three things or the little bullet points that fall under each one of those three? Am I succumbing to this? And with the pencil, start saying, okay. And then are you following the bullet points that you've now put at the bottom, which are the if-then scenarios under which you're going to act and pull the trigger on a position in the market. So I think the ones that have, you know, sort of gotten what

I was saying, they have written it down. The top half of the sheet of paper is basically, you know, you print it out, right? I mean, and then the bottom half, your plan might not change from one day to the next, but some people print it out every day. Some people just print out the bottom half and say, okay, I'm changing the plan to do this i'll check the checklist am i falling into these traps am i doing any of this stuff and again it's the propensity for humans to dilute themselves and you know kind of cheat on that exists and there's really not a lot you know i can do about that but in terms of translating 65 000 words into a single sheet of paper that you can then try to instill

it is the way that I found people used it. And I did the same thing. I mean, I have a stack of legal pads and I physically write the stuff out every day because then it's not being tapped out on the computer. I literally have to write it out in capital letters with a pen. So I know I'm doing what I'm supposed to be doing. And I do exactly the same thing, typically on a Post-it or an index card, something that's very physically limited in terms of real estate so that I can't have an unending, say, app full of to-do items.

I feel like checklists are so undervalued, particularly when people feel that the decisions are simple enough to hold in their working memory. Because the first thing, of course, that happens, like you said, you can't really formulate a plan when you have a position. And if you have an emotional response to a position, that working memory is going to be rendered useless. Right. There's a reason my telephone numbers are seven digits long, right? I mean, there is a capacity that the brain cannot take in. And this is actually going to be one of the sections of the book that I've already written, the book that I'm working on right now, which is basically concept formation.

So if you in your mind's eye, if I put up three vertical lines just on a piece of paper, one inch long, you can just glance at that and tell me there are three. You don't need to count them, right? Now, a five-year-old would have to count them because the five-year-old has not yet figured out how to grasp that much content at a glance and spit out what the answer is. But if I put 15 of those lines up there right next to each other, you would have to count them. Now, I could do a little shortcut, and I could do four of the lines vertical and then one diagonal through it, right? And you're old enough to know that means five.

And I could put three of those and you'd say, bang, 15. Or I could put the number one, five. And putting the digits one and five next to each other is condensing a lot of perceptual data into a smaller mental unit that you can grasp immediately. That's what your post-it note is doing with the list, in my mind, and that's what my one-pager is doing, in my mind, is that the bullet points are taking this mass of data that I have formed in my head, what am I going to do,

what am I not going to do, and I'm boiling it down so that I can, at a glance, more readily apprehend it and put it to work. Definitely. There's a very good writer, also a very good doctor, named Atul Gawande. I don't know if you've ever heard his name, but he's written for the New Yorker and wrote a book called The Checklist Manifesto. And it talked about how just incredibly profound the changes can be when a simple checklist is employed, for instance, for bacterial line infections or preventing bacterial line infections in hospitals. And of course, every doctor, every nurse feels like they don't need that type of assistance but very simple mistakes with extreme consequences are made all the time in hospitals because people

are rushed there are extenuating circumstances the unpredictable or the unexpected happens and that's when the obvious becomes not so obvious, or it gets lost in the noise. And I would imagine that pilots are perfect examples of why they are maybe forced to do that. I don't know that much about it, but I mean, there's a reason why they're called a black checklist, right? Right. That's exactly right. And also effectively forcing the checklist to be used, because in the case of airlines, for instance, a lot of crashes, when you review the black box tapes, are caused by a reticence on the part of the co-pilot, who's oftentimes lower in the hierarchy than the actual primary pilot, of speaking up when he notices or she notices various problems or skipping of the checklist. And you could certainly see how that dynamic would play out if you have, let's say, a spouse who's nervous about a position or an employer who somehow entered into the psychological dynamic. I want to come back to your current work and what you're working on. But before we get there, which investors have most

impressed you or impress you, whether that's the Jim Rogers types or others? I'd just be curious to hear which investors have most impressed you over time. Well, again, my history is largely from the trading environment. I traded bonds, currencies, and commodities for 25 years and have only recently, in the last couple of years, kind of moved into the equities markets as part of my profession. And this is probably a shameless plug or whatever, but I work for the two smartest guys I've ever met in my life. So I feel very comfortable and happy there. In terms of the other investors, I do think that in my early years, I do think I learned a lot from speaking with Jim Rogers. He said to me one time, he said, he said short soybeans and you'll learn more in one week than you will at two

years at a business school. Just by holding that position, regardless of the market. I did. I was, and by the end of the week I was dead. I did it for five days and I lost $450, but it was like the longest position I'd ever held. But you know what? I learned a lot. I was probably 24 years old and I really began to, and I was on my own. I wasn't employed. I was doing my own. I wasn't employed.

I was doing my own thing. I was trying to make money doing that. And I learned more in that, you know, doing that. I did learn a lot from, again, these are going to be floor traders, a guy named Tom Baldwin in the bond pit in Chicago. I learned a lot from reading about and interviews with these people. Bruce Kovner, he was featured in Market Wizards. And so, you know, again, my, my bet was featured in Market Wizards. And so, again,

my bet was really more on the speculator side, right? I wasn't an investor in that capacity or looking at equities that way. So I think that my perspective and approach are probably a little bit different from what most people, maybe in the securities industry, kind of grew up and cut their teeth on. What impresses you about a good trader? What in your mind makes a good trader? Just out of curiosity, because I've never participated in the markets that way, but I've seen, for instance, bootleg copies of The Trader, which is about Paul Trader Jones. And it can appear very sexy. It's very exciting. I'm sure a lot of people get swept into it that way. But what makes a good trader in your mind? Well, I mean, I think actively being able to take a loss. You might be in a position

and it's against you and you have a stop further down in the market to get you out if it gets down there. But the ability to just turn and just say, you know what, it's not acting right. I'm not going to mess with this. I'm not going to hope for it to go back up to kind of back to break even. I'm just going to go ahead and get out and be able to take that loss and just walk away from it and not relive it, not rehash it, not mull over it, not complain about it. And it's difficult because I think that what happens is, and I point this out in the book that the million dollar book that we've been talking about, that because we lose points for wrong answers on tests in school, when we lose money, we must think

that we were wrong. And we really don't like to be wrong. No matter what it is we're talking about, none of us likes to be wrong. So the ability to distinguish that and differentiate that and keep that money loss as an external thing rather than internalizing or personal speculate, and I mean that with a capital S, running the business, what future demand is going to be, where supply is going to come from, a very dispassionate view of the decision-making process, and to some extent, a healthy disrespect for money. Money is just a way of keeping score. It to become, you know, the be all end all that. I mean, I've seen that get people into trouble.

That wasn't the exact question we're asking. I've seen that get people into trouble. And I think some of the best traders I've seen, like the money is not, you know, what it's about. It's not what they're doing. They're not flashy. They're not going out and, you know, buying crazy things. Well, I've heard maybe you can confirm or deny this, but I've heard from a number of people that there are, it may not be hedge fund managers specifically, but traders

who are playing with huge positions, who at numerous points in their careers, when they reach a height of anxiety, when they're having panic attacks and are unable to sleep and so on, that their rule is to liquidate all of their positions and start from scratch, which would seem to sort of reinforce the keeping track perspective of capital in this particular case. I think I may have read that in a book called More Money Than God about a number of the sort of titans of the hedge fund industry. But that's something that I've struggled with, quite frankly, because oddly enough, in the highly speculative startup market

where I've been very fortunate to be involved with, whether it's Twitter, Facebook, Uber, Evernote, a lot of these companies, it's binary. Once I make a decision... Yeah, you're in a liquid situation. Exactly. For the most part, you're in a liquid situation. So I have to do all my due diligence, my homework, cross my fingers and place a bet. And then I'm not asked by Mr. Market every morning, do you want to buy? Do you want to sell? Do you want to buy? Do you want to sell? Right. And you're an investor. And you're an investor of the longest timeframe that Adam Smith was talking about when he scripted that out. Because the idea of you waiting for a dividend, whether that comes from going public or whatever, is a really long time. But no, you're right. And

I think that it is. I mean, you're an investor. And a lot of what I've been talking about, a lot of what the book is about in the specifics of the parable is speculators. But even investors in the liquid securities markets do have the ability to decide, I do not want to be in the steel market anymore. I wasn't in the steel business today. I don't want to be in there by Thursday, and I'm going to get out. So it's a contrast. And I've heard anecdotally about people liquidating all the way down to zero, but really I've heard and I've experienced myself just liquidating down to the sleep level. So here's a great analogy. There's a guy who I worked with at the investment bank in Nashville. He's long since dead now, but he was around when the firm

started in 1927. So he went through the crash and the depression working for that firm and was still there in the mid 1980s when I got there, May 13th, 1985. He said, Brendan, there are only two positions in the market and it's not long and short. And I kind of looked at him. He said, it's too little and too much. So when it's working for you, when the position's going your way, you don't have enough on. And when it's going against you, you've got too much on. So, well, I liquidate down to a sleep level.

Yeah, I've done that a number of times. I've gotten completely out when I'm just like, it's not going, something's wrong, I don't understand what's happening here, the volatility is too much or whatever. And I've heard this one as well. I mean, these are little, you know, cliches that come from the street, but you know, it's better to be a coward and live to fight another day

than to die on the battlefield. And Jim was killing himself on the battlefield by losing that much money in that short period of time. And so, you know, but that's it. A trader will take the lump and just say, okay, so I lost the money, but I have to stay liquid so I can come back and try this again if I think I have any skill at doing this. I can't make this a matter of being right or wrong and risk all the capital just because there's room to risk it. and losing a million dollars, which helped me tremendously was looking at my internal state,

my internal rules, the beliefs, behaviors, emotions, as forensically as possible, as objectively as possible to set rules in advance that would serve me so that I wouldn't misbehave and make sort of capricious impulse decisions that would be extremely harmful. And one of the things that sparked, in my mind at least, was trying to diagnose those various aspects of your psychology so that you could identify the type of investing that you are best suited to. And in my case, I realized that, and this happened after reading Loewenstein's The Making of an American Capitalist about Warren Buffett, where there's a story in that book that roughly,

and I'm paraphrasing this, and I might have sort of exaggerated it in my own mind, but Warren Buffett used to come home and then walk up to his office and continue reading annual reports. And at one point, his son had fallen down the stairs and was like sprawled out on the staircase with some type of injury. And he came home, kind of looked at his son oddly, stepped over him and walked up to his office and then came down a few minutes later and asked him if he was okay. And that to me just seemed perfectly appropriate for him because he's so, he is the Tiger Woods of emotional detachment from his investments. and it just struck me that perhaps just like being able to jump from the foul line and slam dunk a basketball that there are people who have these predispositions to be able to do things like that and i think that you can certainly develop a lot of those skill sets but for me i realized that playing in a binary game namely startups in this case and there are exceptions and you can

sell or buy on the secondary and they're fancy things you can do. But in very simple terms, preventing myself from looking at charts was a very, very good idea. It really opened my eyes when reading about, obviously, the parables and the stories related to Jim and then your analysis and dissection of sort of theoretically and practically how you put that into the real world. What are your favorite other books on investing? If you had to pick, say, one to three books, if you're like, all right, if you're only going to read one book, two book or three books on investing besides this one that I'm looking at right in front of me, what would you say? That's got to be number one on the list. Got to be number one. So what would the others be? And they don't necessarily have to be books

that would be described as on investing. Right. Well, I mean, I think that, I mean, I think two books kind of fashioned and got me interested in this at a very early age. The first book I read on the markets was a book called The Money Game by the pen name Adam Smith. His name is George Goodman. It was probably written in 1967. It just happened to be on my parents' bookcase a long time ago. And I was probably 15 or 16 years old when I read that. And then I went to college and I was studying finance. I was sort of already in the industry and kind of getting going. And I came across another book called Once in Galconda. It's about the boy who went to the 1950s.

Oh, absolutely. I've seen this book. Actually, a friend sent it to me as a gift. Just in terms of the cycles of the markets and the economy, it has a broad scope. And so some of these things have happened before in similar ways. They're not all identical. But to try to get some history and perspective that way.

And I've already mentioned the other one, which is The Crowd by Le Bon. I think that it's a fascinating book for, he looks at how groups of people can get caught up in these mass manias and panics. But what I observed was that those same traits can be exhibited and manifested in an individual in a decision-making process in an environment of uncertainty, whether you're in an office with people around you or whether you're sitting – I work in an office by myself in a home office, so there's no one around, but looking at screens and being inundated with information and news or whatever, that an individual can exhibit those same traits and characteristics that make a group of people lose their individual sense of self-preservation.

And, for example, after your team loses a sports event, you go out with a whole bunch of people and you set the town on fire, right? And you're like, really? I mean, you would never do that on your own, but in the group it happens. And so they take actions that are obviously contrary to their individual interests, but they do it because they are swept up in this mania or panic. And I think an individual can do that particularly with decisions about money, particularly about in liquid markets where you're getting constant feedback. Like you said, you wake up in the morning and you're not getting a check from Mr. Market on what those prices are. I don't mean a check. I mean checking the price or getting a reading on what those prices are.

Whereas I'm getting thousands of price changes a day by looking at screens and it's easy for somebody to follow that. I think that that book does a really good job of providing the macro view of what a micro can affect an individual. And I want to be, of course, cognizant of your time. But before we wrap up, I would love to hear you elaborate on what you're currently working on, whether that's the new book or other subject matter, because I know we talked a bit before we recorded about the subject matter,

and I found it extremely fascinating. Okay. Well, so I'm working on two. One I've had to indefinitely shelve just because I'm too busy with primary work and things. But I'm writing a book on grammar. I'm assuming you do not want to hear about that. The other one, yeah. Right?

The other one. So I'm writing a book. The working title is Fooled by Similarity, the Art of Risk or the Art of Risk Management. And it's a look at how thousands of years ago you know societies whether they were tribes or plans or whatever they looked out for each other said if you know one guy's crop failed or got eaten by animals whatever they all would take the numerator the denominator and divide the loss and keep that family alive so that nothing bad would happen to them right so it was a pretty easy pooling of risk that took place. And as time marched on, you get into around the 1600s, 1660s, basically, you got the early stages of understanding the

science and the math of probability. And this came about because of a different kind of risk. And the most risk prior to that was all seen as downside. If something bad happens, that's risk. It's going to go down, right? But when they started doing this with games of chance, you now had a man-made environment where something good could happen or something bad could happen. And so the development of probability in that was an exercise in math.

And it was purely predictive. It is purely predictive. I don't have to take a deck of 52 cards and go through all the different combinations and permutations to find out that there are 2,598,980 different five-card poker hands, right? The math will tell me what it is, and it will tell me what the likelihood is of getting any one of those hands or going into the future. A numerator and a denominator, Fine. Fast forward 140 years.

In the 1880s, you start getting the development of statistics, which I think got fooled by the similarity of there being a numerator and a denominator. And they started saying, well, you know, something happened in the past. There seemed to be like X number of fires in the city about every year. And so they start taking data from the past, numerator and denominator, examined outcome versus possible outcomes, and said, well, you well, it's happened that many times in the past. Therefore, it's a probability that will happen in the future. And that's where I think the problem breaks down is that with probability, you've got class probability.

You have a uniquely defined set of population of possible outcomes and they form a class. With statistics, you have cases. And the word case is French and actually is the root for the word chance in English. So these are all chances. And actually, that's a funny story, but I'll just sidebar that in finance, particularly in investment business in the 50s, it became very scientific with Markowitz and the paper that he wrote and modern portfolio theory and so on. In the 40s, as they very scientific with Markowitz and the paper that he wrote in Modern Portfolio Theory and so on.

In the 40s, as they were trying to kind of go through this stuff, two guys were doing work on modern stochastic analysis, and they couldn't figure out whether they wanted to call it a chance variable or a random variable. The word random popped in because of random Brownian motion with Einstein in 1905, and everybody was trying to, you know, it makes finance and economics sound scientific if you start using words from the physical sciences. So they were trying to settle on, should we use chance variable or random variable? You know how they settled it? How'd they do that?

They flipped the coin. That's very appropriate. So they wound up with, you know, random variable. My point is that in the social sciences, you have case probability. You do not have class probability. I don't understand why baseball players have a single batting average. Shouldn't they have one for every pitcher that they face? Shouldn't they have a daytime one and a nighttime one? What are the odds of me getting struck by lightning?

Somebody can tell me, but I would say, well, using statistics, the odds are none because so far I've never gotten hit by lightning. Therefore, there's 100% chance that I will not get hit by lightning. So there is some confusion. It's like the turkey in the black swan. He gets fed every day. That's right. That's right. Before Thanksgiving, exactly.

That's right. That's right. Unless he's the White House turkey. Yeah, because he gets pardoned. So I think that people are fooled by the similarities between but similarity is not sameness it is not the same thing to do statistical analysis and then try to fast forward that in the future and say probabilistically this is going to happen so I have rings of examples and I won't load the book with I'll just do enough to kind of get the point across where here's a market

phenomenon that has worked a hundred percent in the. It's happened X number of times, and 100% of the time, it has been profitable the next week, okay? But then, if you fast-forward that through time, you see it break down, and it stops working. And now there's a whole new population that it's dealing with. That is not a deck of cards. That is not a roulette wheel, where probability, class probability exists. You're dealing with case probability, and these things are indeterminate.

You do not have the prescribed possible universe of outcomes, and I think people, again, get a false sense of security by putting the math to it because there's a numerator and denominator like there is in probability, and they think that they actually have quote-unquote odds in their favor, as though they could repeat that thing, that experiment, a hundred times in a laboratory. They can't.

They can't. You can't replicate that social science phenomenon in a lab the way you can with the cars or the roulette wheel or whatever. There's no chance. Which is also an issue in mass media where you see journalism, or say journalists, not all, but many, who misinterpret, say, observational scientific data and conflate it with experimental data where you can actually isolate variables and look at

cause and effect, but they take correlation and turn it into causal data. And it creates mass hysteria, which then gets put into Wikipedia because it's cited from Magazine X and it can become a huge disaster for public perception that can lead to things like dietary habits over the last several decades, which contradict, or I should say, are contradicted by a lot of the supporting data. So yeah, this is all extremely fascinating and I think extremely actionable when people are able to digest it in the right format, in the right context. And like you said, I think stories and examples are extremely helpful in those cases. To shift gears, I have two more questions for you.

Do you read fiction? Do you read any fiction? No. You do not? The last piece of fiction I read was Atlas Shrugged, and I finished it on October 18, 1987. Okay. That's a perfect day job. The day before the stock market crash

because I came back from my honeymoon the day the stock market crashed and I got fired from my job. Wow. Because the guy thought it was the end of the world so he fired us all and closed the business. Oh, man. I came home and I said,

honey, I'm home. And I mean, I'm really home. I ain't going anywhere. I got nowhere to go. Why don't you read fiction? Why haven't you read fiction after that point? I'm just curious. I'm not saying you should or you shouldn't.

Yeah, I just like facts and figures, I guess. I don't know. I mean, I don't care about stories. I guess I watched Pretty Woman with Jim. So do you not watch movies either? No, I don't have a TV. I know I went to movies with my kids when they were young. I went to go to family and it was like a Disney movie, like The Lion King or something, which, I mean, I don't think that was intended for me.

No, that makes perfect sense. Last question, if you were to rewind the clock, or if you were able to give your 18-year-old self or 20-year-old self, one piece of advice, what would it be? I would say wait a little bit later to make most of the major life decisions. I think I was probably a little too young when I made a number of them. So probably just wait, just get a little bit more maturity before pulling the trigger. So my father died when I was in college. There wasn't really anybody like saying, oh, you might want to hold off on that a little bit. You might want to think about doing this. I was just basically out of my own kind of doing whatever I thought was the right thing to do. And I was probably a little bit too young and immature for making some of the decisions I made. What types of decisions?

Oh, I think most of the major life decisions. I think in terms of moving city, how long do you stay at a job, when you get married, when you have kids, when you buy a house. I mean, I think some of those could have gone on a little bit longer, and I was probably a little bit quick to pull the trigger. Got it. Well, let's wrap this up here, and perhaps sometime we can have a part two. But this has been great fun.

So thank you very much for taking the time. Thanks for having me. All right. Take care. Talk to you soon. Thanks, Tim. Bye. Thanks.

Bye-bye. If you want more of The Tim Ferriss Show, you can subscribe to the podcast on iTunes or go to 4hourblog.com, F-O-U-R-H-O-U-R-B-L-O-G.com, where you'll find an award-winning blog, tons of audio and video interview stories with people like Warren Buffett and Mike Shinoda from Linkin Park, the books, plus much, much more. Follow Tim on Twitter. It's twitter.com slash tferris. That's T-F-E-R-R-I-S-S.

Or on Facebook at facebook.com slash timferris. Until next time, thanks for listening.