The Wolf Of All Streets - How Human Behavior Drives Markets | Jim O'Shaughnessy

Episode Date: September 22, 2022

Jim O'Shaughnessy is one of my favorite recurring guests. He is a renowned investor, the founder and chief investment officer of O'Shaughnessy Asset Management and the host of the Infinite Loop podcast. Jim shares his wisdom about financial markets, the key to which is human behavior. Listen to learn about how markets work, how to study them, and what to study to better understand the psychology behind them. Jim O'Shaughnessy https://twitter.com/jposhaughnessy ►► Get 20% off on your ticket to W3BX. Use my code: WOLF20. Register here: http://web3expo.live/  ►►Sponsored by Bullish. Sign up here https://thewolfofallstreets.info/bullish/youtube  Have you ever had your exchange go completely offline during days of high volatility? Of course you have. We've all been through it. Those days are no longer with Bullish. Bullish is a new breed of digital asset exchange that empowers users to trade with deep and predictable liquidity across highly variable market conditions. They also have incredible automated market-making and industry-leading security. I can't get enough of this platform and it's fully regulated. JOIN THE FREE WOLF DEN NEWSLETTER ►► https://www.getrevue.co/profile/TheWolfDen  GET UP TO A $8,000 BONUS IN USDT AND TRADE ALL SPOT PAIRS ON BITGET FOR ZERO FEES! ►► https://thewolfofallstreets.info/bitget   TRADE ON THE WORLD’S BEST DEX, BULLISH: ►► https://thewolfofallstreets.info/bullish/youtube  Follow Scott Melker: Twitter: https://twitter.com/scottmelker  Facebook: https://www.facebook.com/wolfofallstreets   Web: https://www.thewolfofallstreets.io  Spotify: https://spoti.fi/30N5FDe  Apple podcast: https://apple.co/3FASB2c  #Bitcoin #Crypto #Trading The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. This video was created for entertainment. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this video constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.

With the endless bad news and fake news coming from the mainstream media, coming from pundits, the government, regulators, the Fed, it's almost impossible to detach signal from noise. Well, Jim O'Shaughnessy is a legendary Wall Street investor who's been doing it for decades with a great amount of success. We talk about why markets change, but humans never do, and why humans react to all of this bad and fake news constantly in the same manner, regardless of the decade, regardless of the market cycle. There's a conversation you cannot miss. You wrote a very famous book called What Works on Wall Street. And I think right now you could argue that the answer is nothing. What is going on right now?

It seems like there's no place to hide. Yeah. You know, it's really interesting. I teased my friend, Nick Maggiuli, who wrote a book called Just Keep Buying. And I had him on the podcast. And I'm like, Nick, what I really need for you to do, just write this down, man. You have to do a histogram for the number of times people make fun of you and your title, just keep buying during the bear market. Because when that histogram hits a high, you, my friend, might have one of the best indicators in the world that a bottom is in place.

Throw it on the trading view and call it a day. Yeah, exactly. So, you know, these are all temporal problems, I think. You know, I was thinking about it over the weekend and I get all these news services sent to me and I was thinking, why? Why do I do this? You know, I don't give a shit what happened in the market today. Often I don't even look. And so we get these mismatches because we're human and we run human OS and we can't escape it. And that means me and it means you too. We're not the exception. Everyone likes to think they're the exception to that rule, but we're not.

And so, you know, I kind of went down like what to read, you know, today. And it was all the five things you need to know before the market opens. The, you know, what happened yesterday? Noise, noise happened yesterday. And so if you're able to, and before we started recording, you said something very smart, in my opinion. And you were joking about the crypto winter. And I went, oh, yeah, right, of course. And I went, well, courage. And you went, ah, doesn't bother me at all.

Talk to me in five years. Now, there, my friend, Scott, is the right attitude. Because yeah, it's not working on Wall Street right now, as far as equities and stuff like that goes. But it is working kind of on the other side, right? You saw all of the stocks that were priced to magic, get taken down, like with no mercy, anywhere between 75% and 90%. And one of the things that I always say, which I can't – well, I can believe it's controversial, but narrative follows price, not the other way around. And what happens is we get all these people who are pounding on narratives and pounding on narratives,

and then the price goes down 70%. And guess what happens? A new narrative emerges. And we just have this incredibly deep need to feel like we can explain what has gone on and why. And for the most part, often we can't. And it's just like in the course of normal human events, as one of our more famous documents read. So I think that the side of what works on Wall Street that is don't own these stocks because they will shit the bed and you will lose a lot of money is working. Some of our stuff is working, like high shareholder yield is getting hit a lot less hard than some of the other stuff. Our growth stuff isn't doing really well. And a little bit of life in micro and small cap value, micro cap, which uses both growth and value. But yeah, I think it's a temporal problem

and it's really hard to train yourself away from it. And when you can't, you're seeing noise and thinking it's signal. I've been commenting on that exact phenomenon constantly. I think it's so much more amplified, obviously, in the bear market. But I show up every day and I write a newsletter and I show up every day and I go on YouTube and I analyze the news.

And at the end, I say, and by the way, you can disregard all of that because by tomorrow, we'll have a completely different story and none of it will matter. And you obviously put it more eloquently than that. But when you watch the Fed and our legislators and all of them talk about these things, it seems like they're just so far behind the curve and they're just making it up as they go. And maybe, I mean, it really feels like it doesn't even matter what the numbers are. It matters what they say the numbers are or what the expectation of the numbers are and what happens after that and how they said it, right? I mean, the tone and the dumbest, it's, I can't keep up anymore.

None of it means anything. Well, you know, that's a much better attitude, in my opinion, to have than to hang on every word or phrase. Again, back to our human OS, we are suckers for a good story. And if you think about it, it makes a lot of sense. You know, if you look at human evolution, we, you know, and the scope of what we've achieved as human beings for much of that time, we were in tribes, hunter gatherers. And, you know, one of the things that you needed and which the ability to read displaced was facial recognition. You do a scan of the brain, a highly literate person, that little space where good facial recognition used to reside, gone. And in illiterate people, it remains. Well, why did we need that? Well, because when somebody was walking through the bushes, you needed to recognize their face immediately or decide whether you're going to kill them or whether you're going to run away.

So that kind of stuff still plays, but we love stories because they are literally in our DNA and they are the preferred method of explaining. And I understand that. It makes sense. I used to, when I gave a lot of speeches on this, I used to have a speech that was, why I tell stories that tell you not to listen to stories. You really had to put it in that framing. As for the government, as for the Fed, listen, the Fed tried something it really had never tried before. It kept real interest rates basically at zero for a long time. And, you know, economic theory, increase in the velocity of money in the system happens, you get inflation, right? This is pretty not, it's not very controversial. You'll often see people saying, yeah, but they did that back during the great financial crisis,

we didn't get any inflation. Well, there's a pretty good reason for that. And that is that that was ledgered books. That money wasn't like getting into circulation. None of that money was getting spent at Starbucks. It was all, oh, look, a bankrupt. Oh, wait a minute. All of the banks on Wall Street are bankrupt. You know what we're going to do? We're going to just change the accounting system there by sticking some dough in there. Voila, they're no longer bankrupt. You know what we're going to do? We're going to just change the accounting system there by sticking some dough in there. Voila! They're no longer bankrupt. But that money never got into our hands, right? And so when it does, you get the push on spending and it happened. So I think, you know, I think that right now with the various raises, you know, that will be helpful. And it's kind of bullish, from the way I look at the longer term, in that it's like an indicator, at least to me, that the Fed is not batshit crazy, and that they're willing to push the rates up.

I lived through the whole Paul Volcker period. I'm 62. So when I got my first house in 1982 at the age of 22, couldn't get financing because it was like 18%, I think, from the bank. And my wife and I felt so lucky to get a note from the seller at 15 percent interest rates. And and like so. But Volcker's medicine, which was bitter, caused a horrible recession. Worked. So what's better than listening to the Wolf of All Streets podcast? Listening and watching the Wolf of All Streets podcast live. Well, they say what happens in Vegas stays in Vegas, but this time that's not the case

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Use code WOLF20 to get 20% off your ticket. WOLF20 for 20% off your ticket. Guys, let's hang out in Vegas, October 10th through 13th. Yeah, obviously some things were different and some things were the same in that situation. But what's amazing about those 15% interest rates, I remember my parents talking about their 15% mortgage, was that you also taught your children to just put their money in the bank because they could earn 10% on a savings account. Exactly right. At least there was a way to earn yield for your everyday person back when that was happening.

So it's some sort of counteracting effect. I mean, I remember you can't teach your kids anymore to save in a bank account in the same way. They're losing money every day. You know, that is such an important point. And, you know, it seems to me like everyone's talking about the mood of the country and everyone's pissed off. And like, I like to root for things, not against them. I think, you know.

But look, man, I don't. They got rubbed. And I don't blame them for being pissed off. You're absolutely right. We could buy a CD at 10% interest. One of the best trades I ever made, I made for my dad. I lived in Minnesota at the time. And I had scoured all of the Minnesota municipals that were non-callable and tied to revenue.

And they were 30-year bonds trading between 13% and 15%. And I was wildly bullish on the stock market at the time. But when I went to my dad, I'm like, Dad, there's no way the market will be able to beat this on an after-tax basis. So we often forget that sometimes we just got lucky, man. And I started my career in the equity market at the beginning of one of the longest bull markets in history. The decline in interest rates happened for most of my adult life. And so you tend to look at these little short periods of time that, like to a quant, is meaningless, right? You want to see the most variety of markets and everything. But you're absolutely right on the issue that especially savers, like not everyone should be fully invested in the stock market.

If they have a personality type that is very conservative and gets freaked out easily and things like that, they probably should have more of their money and kind of fixed income, bank accounts, et cetera. And right now, as you said, like only a chump would do that. You describe an environment that really birthed the idea of the 60-40 portfolio, right? I mean, you should have 40% of your money in bonds. Seemingly, 60-40 is dead now. Maybe you don't agree, but it feels to me like 60-40 is dead. That leaves you asking the question, what should people be doing with their money now? Yeah, well, I'll give the same answer that I

always give. And that is, if you have a long term perspective, you should have the percentage of your portfolio that you can can live with right in stocks, and you should be delighted that they're marked down. Some stocks, as we just said a moment ago, now I wouldn't recommend those stocks if they're still really expensive, but a lot of stocks just had the shit kicked out of them. And so it's really funny. It's like, if we have a dog and we buy 12 cans of dog food every week, and it normally costs us 10 bucks, and we go to the market and we see it's costing five now we don't run home and return the 10 we have or 12 we have we buy as much as we can because it's a discount so uh my friend dan mcmurtry uh i just had him on the podcast and he put it really well he said you

know if stocks were physical things they would trade very much differently than they do as ideas. And I thought that was really right on because, as Peter Lynch is famous for having said, your average American will research the hell out of which fridge they're going to buy, but they'll put half their net worth in something they heard on a podcast or from one of their friends. But, you know, the way we're designed, again, HumanOS, we're designed to be pretty shitty investors. And because fear kicks in. And listen, man, fear overrides all of your executive function up here. And like, when you're afraid, you will do things that you can't, you couldn't even conceive of when you were not afraid or feeling threatened. And this is why I advocate people keep journals.

This is why I advocate that they really try to like, be honest with themselves about what they can and can't do. And that's really hard. So actually, you know, that's, you know, it's kind of like, I was thinking to myself one time when I was having a chat like this, and I said that, and I was just kind of later, I was like, I got to stop giving advice that people can't actually implement. You know what I mean? Because it's easy for us all. And, you know, they listen to me and they, well, yeah, Jim said to do this, but then when the shit hits the fan, so does all their resolve. And Jim's also not there to tell them what to do. And I think that's the problem is people

take the advice on the front end, but there's nobody to give them the advice on the back end of exit. Really easy to buy something that somebody tells you about, really hard to know when to sell it if you missed their tweet, right? But what you described, the human condition, it's so true. You think about all the times that you've given someone brilliant relationship advice that you would never have been able to take yourself when you were in a bad relationship, right? But it really does say that you need to just step back and become an extremely passive investor likely to be successful. I'll never forget Mark Yusko told me that the most successful investment accounts in the world were people who had died's Fidelity accounts, right? So never closed the account, they died. And I got to give it a time out here.

Okay. This is really fascinating to me because it is an example of stories that seem intuitively true to us. It's hard to stake them in the heart. I myself was at the center of this very question because I put up a tweet several years ago after listening to a colleague who no longer works for me tell me that exact story. He told me Fidelity did a research and their best accounts were people who had died.

And I trusted my colleagues, so I didn't usually do what I would normally do and go look it up and find the study. I just put a tweet up about it. Guess what? Fidelity never did that study. Wow, a wives' tale. Yeah. Brutal. And it is.

It is brutal. However, there is and are studies showing that people who are more passive in the way they handle their allocations and timing of investments do do extraordinarily well. people just kept repeating that story. And I think one of the things it's, it's like a meme, right? What memes don't have to be true to be able to go viral. Memes have to be appealing in a variety of ways. One of which is, yeah, that just seems so true to me. And, and so I love it as an example of, and I'm, I'm, I'm right in here to be blamed because I put that up as a tweet without checking first. But it just kind of, it really is very interesting. And the other thing about that story that is very compelling is it's dramatic. I mean, it has all the right parts, right? They died.

Their account's still open. It's killing it, right? And so everyone just automatically falls for it. But even though it's not true and Fidelity didn't do that study, it's still really interesting advice, right? Because it rings true. Yeah, the army of the dead outperforming us. It's like being in Game of Thrones or something, right? The White Walkers and their fidelity accounts Not only is winter coming, it's here It's going to stay forever But that is a very interesting point I don't know the exact metrics But it's astounding to see how much faster

Both fake news and bad news travel than real news and good news. It's something like nine times faster for fake news. Same phenomenon you're describing. Yeah. Well, so bad news, again, there's an evolutionary reason for that. We are trained to be hypervigilant for new novel threats. And back in the Paleolithic era, that was really a good way to be. Because, you know, if you saw Grog eat a berry from that tree and then Grog dropped dead you paid attention and and then like you might sit and watch other people go up and pick berries and if they all so died you realized i'm going to avoid the berries from that tree so it hasn't our brains haven't had other than cumulative cultural evolution which is a thing that actually can change us physically,

like the thing about reading and people who can't read. But mother nature, the normal evolution, is a slow moving thing. And so fear of novel danger, which is that is why bad news gets the eyeballs it gets, because we're still absolutely programmed to take note of that. In terms of optimism and in terms of optimistic news, have you ever noticed many times the bad news is very specific, right? Like whole family killed in home invasion. And, you know, and the person is sitting and reading that and they're like, they live on a street just like I live on. They lived in a house just like I live in. And so you feed this catastrophizing that goes on in a human's brain with a very specific thing. You know, saying that a billion people emerged from poverty over the last 10 years,

it's, oh, that's great. That's great. But a billion, you know, where and why? And God damn it, I haven't, you know, my paycheck didn't go up. And so optimistic news tends to be much broader, tends to be like things like the emerging from poverty, the drop in deaths from things like dysentery or diarrhea or all of these things that are incredibly good news for us as a species, right? But they're really hard to hook something on yourself.

And you said something earlier that I wanted to comment on. You said you give the person really great relationship advice that you wouldn't take yourself. Well, actually, that has been studied. And one of the tricks, if you can learn how to do it, it's really cool because it'll give you kind of a superpower about yourself. Tony DeMello has a great line that goes something along the lines of, you know, if you want to know your own faults, just look at what bothers you and other people. And that's true. So we're really relatively highly calibrated in judging other humans and their potential and their weaknesses, their strengths. We suck at self understanding. look at yourself like your best friend or whatever that allows you to be much more open about things that need upgrading so to speak it's hard to do because you know of ego and because of you know the concept of self but it's it's a really interesting quirk i had another guest on

a few weeks ago and he's a young guy in the UK. He's very clever. He was talking about this idea for a personality test to really be accurate. You should take it, and then four of your best friends should take it, taking it for you. Anecdotally, that's actually what they suggest when testing, particularly adults for attention deficit disorders. I finally was diagnosed with ADHD for whatever that means in my 30s. Everybody I've ever known in my whole life knew I had ADHD from the time I could talk. And they said, you know, you should do this survey, but you should then have your wife do it. And her answers were much more clear-cut as to my behavior than I was.

So I think that that's extremely accurate. Going back to something you were talking about before, obviously, you talked about Volcker and buying your first house in the 80s. You've obviously seen a good 40 or 50 years of market cycles. Is there anything in the current environment that you think is different? We all know this time is different are the four most dangerous words in investing. Is anything different this time? Or is it just more of the same with people panicking and forgetting it's ever happened before and continuing on? What type of technologies, what type of innovations, what type of market structure we have now is very different than the market structure of the 1970s, for example. And I appreciate the 50 year, but I got to confide in you, I was not watching markets when I was 12. But I was around and 13 to 15. And even

I noticed the 1973 to 75 bear market because my parents were like, wigged out about it. So yeah, things change. Markets, market structures change. What doesn't change is us and our reaction to those things. A great example here would be RCA, the Radio Company of America. You forget how radical and revolutionary radio was in the 19-teens and 20s. It freaked people out. People were terrified. Oh, I'm going to get killed by radio waves and all of the hypervigilant behavior. But investors loved it, man. And they pushed RCA stock up to a price that it would never achieve again because they were so excited about this new technology. And so that type of behavior, that type of thing continues unabated.

You know, markets change minute by minute, second by second. Human nature barely budges millennia by millennia, arbitrage other humans, right? And to me, that's kind of the last sustainable edge because people conflate like, yes, markets are different, you know, railroads versus iPhones. They're not the same. No, of course they're not the same, but the ideas behind them are very similar. Railroads were considered one of the greatest technological innovation ever. And that's why there were so many railroad companies. Same with cars. At the turn of the 20th century, 1900, there were more than 200 car makers in the United

States. By the way, I didn't know this. I just found out some of them were building electric electric cars which i think is kind of cool so new markets tend to be very inefficient and that makes sense right it's like it's a new market you don't know what what metric you should use all that type of thing. And plus, it's, it's, it's grafted onto our enthusiasm. So the last time that, you know, I can think of, other than the great financial crisis, which was more real estate than stock market, the.com. I mean, literally, Scott, I was in, and of course, by the way, just to remind our listeners and watchers, I wrote a piece called The Internet Contrarian in 1999, April of 1999. And in that piece, I said, 85% of these companies are going to be zeros. They're gone. The 15% that aren't are going to go down 90%.

What did I do after writing that piece? I started an internet company. Duh! So I just, I point, I put that out there. You should have treated yourself like your best friend. Exactly. Exactly. But the point is, the pull was so strong for everyone.

And we really did believe, like, the things that people were talking about that were going to be available to us via computer. Like, you know, you won't ever have to buy a suit off the rack again. You know, you're they're going to put a camera on that computer and it'll take your measurements and they'll build it and send it to you. And, you know, so people actually really were embracing this stuff. And it's, by the way, it's not that the ideas were bad. Some of them were really, really good. It's just that we got way ahead of ourselves. We got way out over our skis. Yeah. I mean, people forget that there were ride sharing companies like Uber invented before iPhones were invented. So of course they didn't work. I mean, sometimes you're just too early with

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This industry-leading order depth means you can trade confidently at scale with clearly understood price impact. You should check them out immediately at bullish.com slash melker. Everything you just described, though, if I hadn't have asked you that specific question and you just kind of turned this on at this time, knowing that this is generally a Bitcoin and crypto podcast, you could have just been describing what's happening with Bitcoin and blockchain. Absolutely. You know, I won't say that it's an axiom of all new markets, but it's pretty close to being an axiom.

New markets are by their very nature, very inefficient and chaotic. And what's happening is we're trying to get our arms around, you know, this is a good idea. I wonder if we did this. I wonder if that would be better. And so what you're watching in real time now is these various, you know, breakoffs and looking for new applications, looking for better use cases, all that kind of stuff.

What we're just talking about describes markets in general. By the way, it describes a lot of society, right? What movies we like, what movies we don't like you know um we we tend to kind of move more like waves and the particle uh or or a wave you know light the first quantum thing that anyone gets into quantum physics is like wait a minute light is both a wave and a particle how can that be so well uh it depends on the way it's manifesting in the the experiment but the point is when we bring it up to our level macro level that's that's part that's what you're signing up for when you are a pioneer and what most people forget is that a lot of pioneers get arrows in

their back it's so true uh it really is true. But then how, you know, when you're so deeply down the rabbit hole of a new technology and you have this deep belief, how do you, going back to what you're talking about before, how do you separate the signal from the noise and figure out what's real and what's not and what's going to make it? You know, you talk about the dot-com bubble. It's obviously compared very often to what's happening in blockchain. But we did get the best companies in the world out of that dot-com bubble. It's just that 99% of them died. So how do you figure out what's real, the signal versus the noise, when you're trying to embrace or invest in a brand new market like this? Yeah. So I would find that something that I love in terms of helping make investment choices are base rates. And like I would, I would, I would begin, you know, I think there's probably enough data now if you shorten your base rate time to, you know, you can't look at rolling 10 years, but if you start looking at base rates, which you're going to start you know, you can't look at rolling 10 years. But if you start looking at base rates,

which you're going to start to see, I think, I haven't done this, so I, you know, with a grain of salt, please. But if you start looking at, you know, here's coin A, coin B, here's Ethereum, here's, you know, all of the ecosystem, right? And you start looking, okay, maximum drawdown, what is that for each of these?

How often do they beat, you know, the others? How often are they positive? You know, how often are they negative? Are the negatives like massive or are they shallow? And what you'll see as a technology matures, that those will start really getting much crisper, the look of the batting average or base rate on that underlying system. And then adoption, obviously, right? So BTC is still here because it was the most widely adopted of the various coins and the other ones, you know, at a hard time, it had a great head start. If I were doing it, and again, we have to do a disclaimer here, I probably shouldn't even be talking about Bitcoin or

crypto because I simply do not have any deep domain knowledge in it. I can tell you about what I would do as a human investor thinking about it. And so I will. Those things would definitely be among them. I would also on the newer, I would kind of treat it more like we treat speculative venture or seed investments and understand that you have, that requires a completely different approach, right? You're basically, you see asymmetric returns in terms of, you know, you put money into 12 of them, two of them are going to be responsible for all of your profits.

The other 10 might just go to zero. And you've got to acknowledge that before you start doing it. And then it's literally, the other thing I would use is momentum. Momentum works in stocks. I tested all the way back to the 1920s using the CRISP data, which is the Center for Research and Security Prices at the University of Chicago. Momentum really works well. And it's the indicator that economists hate the most because it implies that prices have memories. And then if you really want to blow your hair

back uh get mandelbrot's uh miss the misbehavior of markets where he talks about markets are really chaotic normal not bayesian normal um and but momentum he studied i think cotton prices and he had them on a daily basis back to like the 1700s because that was what the South was all about. So they recorded the price that cotton sold for every day. And somebody smart thought, those might be useful records. And anyway, momentum. If you wanted to win in the cotton market, all you did was go long when the momentum was going well, short it when the momentum was doing poorly. So that would be more of a trading

strategy. We're not traders. So we do use momentum, though, for longer-term momentum for our growth side. So I guess those would be some of the things that I would consider offering as ideas for people trying to make sense of these markets. Going back to Fidelity and a report that they actually did write, because I read it in this case, not a fake report, as we said before, they said the exact same thing you just did. It was called Bitcoin First. And it basically said, Bitcoin is what it is and everything else. There's nothing wrong with it, but it's a speculative venture capital investment and should be treated as such. So I think that that's a pretty now pronounced way to view this market. Makes a lot of sense. Yeah. I don't read much outside research.

I don't really care what anyone else thinks about the market because yeah, we have models and we follow, it's not to be dismissive of what they're saying. It's simply, you know, they could say, you know, sell, this is horrible. And we're just going to keep following our model. So I didn't get in the habit of it, but yeah, I mean, that, that sounds right to me. Yeah, makes perfect sense. Yeah. So what are the models saying now about markets, considering that everyone seems to think that we're in the Great Reset, we're going to zero, incoming Great Depression, we're all going to die, everything's on fire? Okay, the second of the last one is true. Which one was that?

That was, yeah, that was we are all going to die. Well, that one is inevitable. Yeah, that one's inevitable. The other ones, honestly, I don't know. It's like we don't time markets because, look, I'm just like everyone else. I wanted desperately to find a timing model that worked. And I never could find one. There are some that do okay. Like some of the moving average models work pretty well over long periods of time. The problem with that, though, is that they also have a very high false positive or negative, whichever way you're looking. And so what you got to do is think about

it. It looks like, oh, yeah, I could have done. I could have withstood that, right? The whipsawing? No, you can't. I mean, honestly, you know, we live in real time. We live in the here and now. And unless you can unstick yourself from the present and make past president and future you're now you are going to react when buy sell buy sell you're going to just like be a basket case so if you know if you had where where i would advocate somebody investigating that, I haven't looked at it in a long time, but would be some sort of permanent capital that was being managed, I don't know, for a family foundation or for a pension plan or whatever. If you could get permanent capital that couldn't be removed for 10 or more years, you could probably implement one of these moving average strategies fairly successfully. But the only thing is that, again, my memory is rusty,

and I haven't looked at them in a while. But I do recall that one of the primary benefits of it is they reduce volatility rather significantly and to me that's a human i mean that's an emotional that's a nice to have um it's not necessarily gonna it's a mismatch with permanent capital right because by its nature permanent capital care about volatility. Yeah. I find moving average strategies interesting, but it's sort of, as you said, we all know that you're eventually going to revert to the mean. You just don't know how far you're going to go from it. And if you're going to actually stick to the strategy when you get really far from the mean and it's swung hard in the opposite direction. One of my other

favorite psychological phenomenons that's somewhat similar is that every time you talk to someone especially new about their portfolio, they always compare where they're at versus the all-time high and not versus where they started, right? I started with a hundred grand. I have 500 grand, but there was a time that I was worth $5 million. Therefore, I'm down $4.5 five million dollars and not up four hundred thousand right yeah and so it it's crazy and and again it's like when young people ask me for advice on like what they should learn about and stuff for investing uh i i say study human biology evolution evolutionary psychology and and and human foibles because at the end of the day, even if we're programming the models that are rapidly selling and buying high-speed trading, we're still programming them, right? And we're also programming the AI that's programming them.

So you're always going to find, unless we reach that state where we finally understand what qualia is and can define it, we're not going to get to Terminator AI because that seems to be, at least to my amateur eye, the ability to define qualia lets us get closer to defining consciousness, which, by the way, we have not done. You can't even define what a recession is, my man. I always think of that video snippet of Clinton when he was in the whole fiasco with Monica Lewinsky, and he's giving testimony under oath. And what a master, man. Because they ask him a question and his reply is, well, that would be a contingent on what the meaning of the word is, is.

I gave him a hat tip for that one. Yeah, for sure. He's good. But yeah, I mean, it really is true. And you can't even agree on the definition of something. You can't have a reasonable debate surrounding it. And true no more than in economics. Absolutely. It's absolutely been brutal watching the pundits try to figure out what's happening.

It's hard enough to watch the Fed and to watch the process. It's way harder to watch people attempt to interpret it. Yeah. I tell you, I don't watch any TV news. I haven't watched TV news in 10 years. I don't read opinions. Here's why the Fed is doing what it's doing. Most of it's just pure bullshit. But they got to fill the space man because you got 24 hours of air time and you know it's the incessant uh grab for your attention that's why you get these more and more dire forecasts right remember we're talking about why we are hyper vigilant for bad things right? For new ways that could be harmful to us. And so you just like,

even just watching clips of like, financial news, it's brutal. I mean, if I can't imagine what somebody who's just like, all they want to do is like, save for their retirement, or for their kids homes. And then they get caught into this cycle of watching financial news, I'd freak out if I didn't have – if that wasn't what my domain knowledge, where it was. It's not even real news. No, of course not. Opinions.

It's opinions. Basically, it's opinions stated as fact. And you see that more and more because follow the money. Follow the money. Who's going to get the clicks? Who's going to get the eyeballs? How much higher is the ad rate for those types of stories? unfortunately it it it works right it's a little dopamine machine that just keeps hitting hitting hitting hitting it's like if you ever really want to see how diabolical people can be wander into a casino i'm like look around look around everything in a casino at least in las vegas everything in a casino, at least in Las Vegas, everything in a casino is optimized to take advantage of every one of your human weaknesses. And they put the slots that pay the most where? Right next to the entrance. Because the lucky person who thinks that they're going to beat the house goes in and puts the dollar in

or whatever shakes it and oh i won oh whereas you know that unfortunately that is not the way it works and like if you just remind it yourself hey man uh losses did not pay for the Bellagio and that beautiful water show. And, you know, that's part of the indexing message, right? It's like, be the house. And, you know, boring, really, really boring. But, you know, if you want to have fun and entertainment, take 5% or 10% and go nuts. Buy crypto, buy NFTs, buy things that you're interested in. But don't delude yourself.

Say it's like an entertainment expense. And you know what? I'm fine with that. People should be able to have some fun. And the biggest problem that it engenders, in my opinion, is that there is always, again, because of the way statistics work, there's always going to be 10% who like to do really, really well with their speculative account. And then they convince themselves that they are the next George Soros and start putting all their money and then, you know, margin call city and they're broke. Yeah, well, we've experienced

everything you just described and more in the crypto markets and all markets as of late. So absolutely. Well, listen, I think it's very important that people be able to detach signal from noise, but hopefully they will watch this and won't view it as noise because, Jim, you are one of my favorite guests always, and it's such a pleasure to have you. Thank you so much for taking the time to chat once again.

Thanks for having me, Scott. Great to see you. Let's go.