We Study Billionaires - The Investor’s Podcast Network - TIP 024 : How to Be an Outlier - Malcolm Gladwell's book (Investing Podcast)

Starting point is 00:00:00 This is episode 24 of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is the Investors Podcast. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish, and Stig Broderson. All right, here we go, Stig.

Starting point is 00:00:29 So this is episode 24 of The Investors Podcast, and I'm your host, Preston Pish, and I'm accompanied by my co-host, Stig Broterson, out in Denmark. And today we've got another episode for you. And this one was a book that Stig and I had read. And where we got the source for this book was we saw a recommendation from Charlie Munger. And for anybody who doesn't know who Charlie Munger is, he's the vice chairman of Berkshire Hathaway. And he's Warren Buffett's basically number two man in the organization. and the two of them have run Berkshire Hathaway for just decades. So whenever Charlie says something, and for anybody who knows Charlie Munger, they know he's extremely bright, just an extraordinarily bright person.

Starting point is 00:01:09 And so one of his book recommendations back in 2009, he was at this Westcoe annual meeting. Westco is a company out in the Pittsburgh area, but he made this recommendation to read Malcolm Gladwell's book Outliers, and he made that announcement to the attendees of the meeting. And the book is all about the story of success. And in this book, Gladwell tries to figure out, why do some people like Bill Gates get to the point that he's at? How does he get there?

Starting point is 00:01:38 What were the elements that led to his success? And so Gladwell kind of does an outline of different people like Bill Gates and the Beatles and just a bunch of different people and how they ended up where they're at today. And so what we're going to do is we're going to break down the book for you. We're just going to go through and just kind of give you a cliff notes version of what we captured out of the book. And this book was broken into two different sections. So Gladwell starts off with part one, which I think was four chapters, and that was opportunity. And then in the second half of the book, he labeled that legacy. And so we'll talk about the subordinate pieces that fit into those two parts of the book.

Starting point is 00:02:18 So the book starts off, and it was pretty interesting. And it starts off with this idea of the Matthew effect. And the Matthew effect actually comes from the Bible, the chapters of Matthew. And the quote that he pulled out of there is, for everyone that shall be given and have, he shall have abundance. But for him who have not shall be taken away, even that which he has. And that quote right there is how he kind of starts off one of the chapters here at the very beginning in this opportunity section. And so he then jumps to hockey in Canada, which was kind of, of an odd start to the book, but it was a very fascinating start. And he talks about how there's

Starting point is 00:02:59 enormous outliers for these children playing hockey up in Canada. I personally have a connection to this because my sister lives up in Canada. She lives in Calgary. And she married a Canadian and moved up there. And I had heard about this before reading the book. But I think for anybody who's not intimately familiar with Canada and how hockey works up there, you might find that, you might find this very fascinating. So I'm going to have Stig kind of describe the overall story of this hockey up in Canada and how it relates to outliers. Yeah, because it seems like one of the the advances that some hog players have is when they're born. And Gladwell did was he was looking at all the birthdays of the most successful hogger players. And what he found was that

Starting point is 00:03:46 40% had birthday in January, February, March. So that's the first three months. And if you compare that to the last three months. It was only 10% of them that had birthday there. So that was something that really surprised made. So the thing that I found really interesting with this hockey example up in Canada is the critical variable is the

Starting point is 00:04:07 31st of December. Because after the 31st of December and you go into the new year, the first of January, that's the cutoff date that they have for these kids as they're playing. So if you're eight years old and you were born on one January, you have an enormous

Starting point is 00:04:23 disadvantage over a kid who was born one day earlier on the 31st of December. And the advantage is that you're going to be bigger, you're going to be stronger, you're going to be, as you're competing with that kid who's basically a year behind you, okay, because the kid who would have been born a day before, he's in a completely different lig. And so what he talks about is because this kid is born at the beginning of the year and he's in that other league, he has the ability to get bigger and then he has access to better coaches because maybe he was performing better and it has this compounding impact. And so what was really interesting in the book is that Gladwell talks about how that compounding impact, people would think, ah, by the time they're 12 or 14, that's going to go away.

Starting point is 00:05:11 But Gladwell shows in the book through statistics that it doesn't go away and that by the time they're 18 years old, this separation and this outlier factor still applies because it had this compounding impact over time. Stig, I saw you had something you want to add. Yeah, and it was really interesting Preston. They were talking about the compounding effect because that's really something that's important here. Because these kids, they go back perhaps to the local club and then they get elected for the A team next time. And then they have, as Preston saying, better coaches, the teammates. And so it's really a compounding effects. It's just keep going on. And these guys, they're getting better and better, actually regardless of the birthday. But it is the birthday

Starting point is 00:05:59 that initially sets the standard for them to be able to have all these privileges. You know, it's funny. I talked to my sister offline about this. And she says, yeah, Preston, it's crazy. The people up here, they literally timed their kids' births so that they can have one of those advantageous birthdays if they have a boy for the hockey season. Really? Yes. Absolutely. That's what she said. So, you know, for

Starting point is 00:06:25 like the hardcore hockey parents up there that are trying to get their kids to be great hockey players, they actually time their births up there. Now, what was really interesting at this point is Gladwell took that example of the hockey players and how they had this advantage and he applied it to

Starting point is 00:06:41 academia. And he said, and he gave this example, he showed, through statistics with test scores, standardized test scores, that kids that are earlier in their age group, here in America, you typically start school around like the August time frame. And as far as the birthday goes, it's typically the cutoff for the birthdays around like maybe called October. And so, or maybe a month earlier, maybe September. And so he said that these kids that were earlier and had more development early on, say

Starting point is 00:07:12 you were like a September, October, November baby versus. born at the end of the school year, call it May or June or something like that, those kids that were earlier on had higher test scores. And I think the percent was maybe 10, 14 percent. Stig, do you remember what the number was? But it was quite significant. Yeah, it was significant. And so he showed that early on that that was the percent that they scored better on their test.

Starting point is 00:07:37 But then he continued it to like high school and into college and the number persisted. And so I found that absolutely fascinating. and just really kind of interesting that something that just as basic as your birth date could have an impact on you becoming an outlier and maybe whatever that you're doing. So go ahead, stick. Yeah, and I just have a funny story here because I was actually, I read this book like in January, so I just had the exams for my students. And I think I gave away like six or seven days.

Starting point is 00:08:07 And the first students I met just after reading this section, I just asked him. So Thomas, when's your birthday? he was like, well, you know, January 13. I mean, it's completely unscientific, but it was just a good story. That's one day after my birthday. All right. So, okay, we're going to go to the next section here. So that was the first thing that he talked about in the book.

Starting point is 00:08:31 So then he goes into the next point, which I really like this probably the most out of the entire book, was the point that he was making here. And he's talking about hard work. And what he talks about is this idea of. this 10,000 hour rule. And just for anybody who's trying to wonder, how long would it take for me to do something for 10,000 hours? And so he says that if you do something for 20 hours a week, for 10 years, that's 10,000 hours. So for people that maybe are working a 40 hour a week job, whatever that task might be, if you do that for five years, you've pretty much hit your 10,000 hour mark. And he says that whenever you hit, and this came from, I think,

Starting point is 00:09:13 I think he got this from a guy named Anders Erickson, who's a Swede, and he did some extensive research on this, this 10,000 hour rule. But in the book, he talks about how if you, once you hit this 10,000 hour mark, you basically become an expert in whatever it is that you're doing. So whenever I first started flying, I don't know if people out there know, but I used to be a pilot, a military pilot. And whenever I went through flight school, you know, it takes a long time to get a lot of flight hours. it takes a very long time. My total flight time is probably like a little over 1,100 hours. That's all the more flight time I have. So I'm definitely not an expert.

Starting point is 00:09:50 I'm about 10% of this 10,000 hour rule. But I remember distinctly my flight instructor, whenever I was first trying to learn how to fly, he had 20,000 hours in a helicopter. And it was just amazing how much experience this guy has. When you figure out how much time that is, that's almost like the guy took off and he flew for two years straight. So he was a phenomenal pilot.

Starting point is 00:10:13 I could get into one emergency situation we had where he handled it like a pro and turned and swooped the helicopter around. We came flying down and just skid it across this runway with sparks flying off the skids on the bottom. It was amazing. But because he was so experienced, he was able to control the helicopter in just an amazing way because he had all this. He broke the 10,000 hour rule by double. And so it's just, it was a really interesting point that he throws out this. number. And then he gives examples of different people that have hit this 10,000 hour mark. So one of the examples he throws out there, the first one, was the Beatles. He talks about how

Starting point is 00:10:51 the Beatles moved to Germany early on from 1960 to 1964. And they played over 1,200 times. They played 1,200 gigs between that time frame. And so he says they hit the 10,000 hour mark before they went back to the UK and became the enormous success that they became. And so just for people to kind of understand. That's four nights a week for five years straight playing a band gig. And for anyone that plays in a band, they know that that's pretty intense amount

Starting point is 00:11:21 of playing. So, Stig, I'm going to let you go ahead and take the next one pertaining to this 10,000 hour rule. Yeah, and that was Bill Gates. I was really psyched when Gladwell introduces Bill Gates, because I thought, well, then, now I'm going to hear, like, the story

Starting point is 00:11:37 of Microsoft, because I only know, like, fractions of the with Microsoft, but what was actually interesting was that Gladwell ended his story almost before it begun, because he was talking about the very early years of Bill Gates. He was saying that the whole reason that Microsoft was ever able to occur was that Bill Gates had some huge advantages that very, very few other people had at this time. So he had the access to programming. And I don't know if you can compare this to the access to flying an aircraft.

Starting point is 00:12:11 for instance. But very few people at that time had access to computers because it was very, very expensive. And just, you know, Preston, I would probably imagine that it's pretty expensive to have access to an aircraft and you can just, you know, fly whenever you want. Oh, yeah, very. Thousands of dollars an hour. Yeah. But Bill Gates, he was very fortunate. And I think Gladwell, he introduces like nine or ten different reasons while Bill Gates was so lucky. And, you know, Just to give you a few, for instance, when he was born, that was extremely important. Like, he was born at an age where he had the chance before he went into college, before he started business, where he could put in a lot of hours to learn how to program.

Starting point is 00:12:57 So, I mean, that was one thing. He was born where there actually were computers, and he wasn't that old that he had, you know, a wife and kids and a job when computers came out. Preston, I'll see you have something. Yeah, so the thing that was really, interesting about the Bill Gates piece is this was at a transitionary time in computing where you used to have to use punch cards. So if you wrote a computer program, you'd have to make these punch cards. And I'm of a younger generation. So I didn't have to deal with punch cards ever whenever I was

Starting point is 00:13:26 learning how to program. But whenever you had to use punch cards, my understanding is that you'd build the deck and then you'd have to wait to have access to some type of computer that could then run the program and tell you whether it had bugs or it worked. And so that time in between like making sure that your your punch cards were complete to gaining that access to the computer, there was an enormous amount of delay that you had to wait around for that to happen. But Bill Gates, at the age of 13, he was one of the only kids, you know, on the planet that had access to a computer that wasn't based on punch cards. He actually could run a program on the actual operating system of the computer. And he was able to troubleshoot his programs.

Starting point is 00:14:09 And if something was wrong, he could just go back. amend the code and then run it again virtually on the computer. So he wasn't dealing with these punch cards. And he was doing this at an age that no one else had this kind of access through his school computer. So he was able to garner up this 10,000 hours at a young age, which I think is very instrumental as well, because if you're doing something at that young age, you're just going to have such a greater understanding of it, self-discovery and some other stuff that we'll talk about later in the book. But he was able to accumulate this 10,000 hours really. fast and at a very young age

Starting point is 00:14:42 and it just put him on a completely different path than anybody else out there. Yeah, and there were many reasons why Bill Gates was so fortunate. And he actually said that to Gladwell, when writing this book, that he was probably

Starting point is 00:14:58 one in 50 kids on the planet that had these opportunities. So Bill Gates knows that he was somewhat lucky. And the other thing as well, for instance, at the University of Washington, He lived very close. He actually lived in walking distance.

Starting point is 00:15:14 And so while the rest of the country didn't have the option to learn how to program, he actually could have put in, as president was saying, like endless hours. And that meant that he had put in 10,000 hours before you saw the whole boom with computers. So when everyone else was learning how to program, you know, Bill Gates was already starting Microsoft. And he had 10,000 hours, perhaps one of 50 kids. in the world that had the privilege at that time. So another thing that I wanted to point out was that Gladwell, he's not saying that Bill Gates

Starting point is 00:15:51 was just lucky. He's saying, I do acknowledge that Bill Gates was, it is a fantastic person, he is extremely hardworking. And he acknowledged that, for instance, Beal was extremely hardworking and very talented. But they could not have had the same success if they haven't been, say, lucky or had the opportunities that very few other people had. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every

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Starting point is 00:20:15 That's Shopify. com slash WSB. All right. Back to the show. And that's really the premise of the book, folks. So if you look at the fact that the opportunity, was presented, which was Bill Gates having this computer, then Bill Gates actually having the initiative and the drive to put the 10,000 hours into the computer and to learn his initiative

Starting point is 00:20:40 and his desire and his drive was what truly separated and made him the outlier. Then, I mean, you're not even talking about his drive whenever he started Microsoft and going toe to toe with all the different competitors and blah, blah, blah, blah, blah. But the fact of the matter, it was a great story to kind of outline that point. So, Let's go ahead and talk about the next one, which I really like, too, because this was kind of fun to see somebody debunk this finally. And what we're talking about is the IQ test. So when you look at somebody like Einstein, he has an IQ and on record of around 150, somewhere around in that point. And so what Gladwell does in the book is he talks about this gentleman named Chris Langan.

Starting point is 00:21:22 And Chris Langan's IQ is 195. And so when you see somebody with such an enormous IQ, you would think, well, that person just has to be successful. They have to be, you know, way out in front of everybody else in a performance and a success standpoint because they're so smart. But what's really neat is Gladwell goes in and he goes back to this study. I think the study happened, what, back in the 1920s or 30s? Do you remember what the name was? Yeah, this seems about right. But there was this study done in the U.S.

Starting point is 00:21:51 where this psychologist found a collection of kids across the U.S. at a young age that had very high IQs. And what he did is he tracked these kids to see how many of them are going to become ultra successful in the United States. And what he found after they became adults and he tracked them for, I mean, this was over decades that this study took place, he found that there was no major outlying factor of these kids that had super high IQs. And so it made Gladwell really kind of start digging into this. this and studying this more. And so what he did is he talks about how there's pretty much like a barrier. And once you get past this barrier, let's call it an IQ of 120. You have to have an IQ of somewhere, you know, around that point where once you get over it, it's like a hurdle. Once you get

Starting point is 00:22:37 over it, you're clear. You're in the clear. And then there's other factors that apply after that IQ hurdle is reached. And so one of the factors that he talks about that I really like this was he talks about a test that he had that was called creative intelligence. And so what he talks about is this school that he went to and they got somebody that had a really high IQ score versus somebody that had a high enough, if you will, IQ score. And they gave both of these guys this creative intelligence test. And the creative intelligence test is called the brick and blanket test. And what they do is they tell the kids, they say, hey, here's a sheet of paper and here's a pencil. And what I want you to do is I want you to write as many uses that you can think of for a brick and a blanket.

Starting point is 00:23:28 And so they gave it to the kid with a really ultra high IQ and then they gave it to the kid who had a high enough IQ. And what they found were the difference that these kids were writing for the uses of a brick and a blanket were just tremendously different. So the kid with a really high IQ, he had very logical uses for each of those items. So like the brick, he said, you could build a building with a brick. You could, you know, make a floor with a brick. You could pave a street with a brick and so on and so forth. But then the kid who had a high enough IQ, he had things down there like you could throw a brick through a store window and vandalize the store. You could, and he just came up with these, like, ridiculous ideas for the brick.

Starting point is 00:24:13 But they, but he also had some normal ones in there, like you could build a building. And so what they're saying is that this creative test identifies other areas of creativity within the person. And he talks about some of the most successful people in the world don't necessarily have the highest IQ, but they're very balanced in their intelligence. So they have creative intelligence. They have critical thinking intelligence. They have this intelligence where they can solve these random problems that you see on an IQ test. And so the IQ test is just a sliver of the. overall person and the balance of the person's skill sets.

Starting point is 00:24:52 And so, and Gladwell talks about in the book, he goes to different Ivy League schools because people that do well on the SAT are typically the ones that go to the best Ivy League schools. And so he basically shows how you got, when you look at the overall CEOs in America and the people that are ultra successful from that, you know, using that as a measurement of success, he sees that the schools are really kind of spread across and there's no really like Ivy league advantage when you look at it from a number standpoint. And the reason he throws this out there is because he ties it back to this IQ test.

Starting point is 00:25:25 You don't have to necessarily score ultra high on your SAT test in order to become an ultra successful person because it's based on more factors than knowing some analogy on the test. And I totally agree with this. And I just, I really, it was nice to see somebody back all this up in facts and with statistics. All right. So really, that kind of completes the first half of the book, which was about, opportunity and he talks about these different factors like the 10,000 hour rule, the IQ test and just having an advantage with your birth date and things like that. And then he starts talking about

Starting point is 00:25:57 legacy. And what I really took away from this part, the second part of the book, which I didn't really care, to be quite honest with you, I didn't really care for the second part as much as I like the first part of the book. But he talks about how culture impacts people's ability to achieve in their ability to become an outlier. And so one of the cultures that he talks a lot about in the book is the Asian culture. So he talks about why are, and it was kind of interesting the way he brought up, he was why are Asians so good at math? And the way he approaches this problem was quite unique.

Starting point is 00:26:33 He goes back and he studies the culture, the Asian culture. And what he finds is that the Asian cultures is typically a rice-based agriculture setting where individuals go out and they work in the rice fields early on. You go back hundreds of years and most of the people worked in rice fields. And so then he starts trying to understand, well, what does that mean? So when he does that, he sees that whenever you compare a rice field compared to what you find here in United States or over in Europe, where most of the agriculture is wheat and corn, he finds that the labor involved in a rice field is 10 to 20 times more intensive labor than working in a corn or wheat field.

Starting point is 00:27:20 And he says that this culture has been ingrained in the Asian culture that hard work and working very long hours continuously day after day provides an enormous advantage over a culture where they're not accustomed to working those kind of hard hours. And so he is essentially connecting A to B by saying because of this culture of hard work and drive to perform, that's one of the main reasons why Asians typically tend to do a lot better in mathematics and education in general. So go ahead, Stig. Yeah, I think that the key word here is really persistency because he's talking about math not being a talent. Math is an ability, that's a skill that you can acquire. and he has a lot of great examples with this, but basically he also studies cultures, and he's asking students in different countries how long time they would spend on solving a math problem

Starting point is 00:28:18 and without getting any help. And it turns out that in some countries, for instance, like in Korea and Singapore and other of these rice-based agricultural countries, you know, kids are just more willing to put in the time and the effort to solve these problems. And that's why, at least according to Gladwell, that they have an advantageous in math. That's actually because they're persistent. And the reason for that is their legacy. So the next one that Gladwell talks about is this idea of how cultures potentially impacted airline crashes.

Starting point is 00:28:52 So I'm going to have Stig introduce this one and just kind of talk through it. Yeah. I think this was a really interesting thing because he were talking about what we call power distance. and just really short power distance, that is how we work with authorities. So for instance, you have a country like Denmark. I think Denmark was atop of the list or bottom of the list if you want, if you want. Because the power distance in Denmark where I'm from is really, really low. So everybody sees themselves as equal.

Starting point is 00:29:23 So if you have a boss, you're more or less even though your boss is still your boss, but you feel like you can talk to your boss as he's an equal. Now, this is very different, for instance, in South Korea. In Korea, you can actually speak up to four different forms. So you can be very polite. You can be extremely polite when you're talking to superiors. And this actually turned out that this was a huge problem in a city in the cockpit, and especially in situations where, for instance, you're about to crash.

Starting point is 00:29:55 So, for instance, in Denmark, not really to emphasize that too much on that. But if you have a copilot in Denmark, he would just say to the captain, you know, dude, what's going on? We're crashing. You're making all these mistakes, more or less. But in South Korea, it's really, really hard because you have to, you know, be extremely polite. And you cannot, you know, tell it directly to the captain. You have to give him hints about, you know, the plane is about to crash. And that was actually one of the main reasons why you saw so many crash in South Korea.

Starting point is 00:30:26 And the president is laughing for some reason right now. So I need to hear what he has to say. Well, no, you're exactly right. I mean, flying around with a fellow American in a helicopter, you know, it's like if you're making a mistake, it's like, hey, man, look up, dude, what's going wrong? What are you doing? Your explanation was like spot on. It's like, hey, look at your 12 o'clock. You're flying in the wrong direction or whatever.

Starting point is 00:30:49 And it's so true. It's real casual. It's like, if you're making a mistake, it's, you know, even though I might outrank the person I'm flying with or vice versa, you feel comfortable. just stating what's going wrong where in another culture, it's definitely different, especially in South Korea. I lived in South Korea for two years. In fact, I flew in South Korea for two years. And I'll tell you, I was trying to learn the language in what you're talking about is the different forms. I would, you know, be taught a certain way to say something from maybe a younger generation. And then I would be around somebody who was of, you know, a much older generation. And I would

Starting point is 00:31:23 say that phrase. And they would be just very frustrated and look at me, very annoyed because I was saying it very casual or it wasn't in a formal tense. And so little things like that, I mean, it is a very formal country in the way that they approach their elders. And so that has advantages and it has disadvantages depending on how it's approached and how it's actually utilized for pilots flying in a commercial airline as they're going on an approach with an instrument landing and the clouds are really low. And they gave this example in the book. When you have people in the back that can't just say, hey, we're going to crash if you don't pull out of this and do a go-around, that's an issue. And he talks about how the retraining has occurred and how

Starting point is 00:32:08 they've brought this up to their culture and how they've had to adapt and realize that people in the back and their co-pilots and assistants need to be in a position where they feel comfortable and that they can address these problems so that they don't kill hundreds of people on board in aircraft. Go ahead, Steve. Yeah. And actually, one thing that the Korean Airlines Because today Korean Airlines is a great company. They don't have any crashes or hardly any crashes. But one thing that was extremely important for them to do to avoid that was that the language now is English.

Starting point is 00:32:41 It's not Korean anymore. So people are forced to, I mean, even though that you can speak like polite English, we don't have four different forms in English. Luckily, otherwise I would never learn the language, I guess. but the pilots now in between have to speak to children English and that's really different from when you have to be extremely polite and only give hints to the captain what's about to happen

Starting point is 00:33:07 so that was just something that I found really interesting and actually what Gladwell was doing was that he was looking back at plane crashes and he had been listening to the recordings of these plane crashes and you can actually see for instance in the Korean culture and the color Colombian culture where they have this wide power distance that, you know, just before a crash, probably contrary to what happened if they had a crisis in, you know, Preston's aircraft or in the American military, but they were talking about, I think Glasgow said, hurt feelings.

Starting point is 00:33:40 Like, oh, why did he talk to me like that? Is he now mad at me? Because when push comes to shove, people just tend to fall back on the cultural legacy. Yeah. Yeah, it's happening and people aren't even thinking about it. That's the thing, especially in like a cockpit setting. And, you know, I think even with them practicing it, I think I think it's still be difficult growing up in that kind of culture and being able to quickly adapt to that. And just so people know, the aviation community is all English. So if you make a radio call, if you're flying in South Korea and you make a radio call, it's all in English. Everything's in English across the entire world whenever you're flying, just as an FYI. So I think we're going to skip the last point here. And we're just going to kind of

Starting point is 00:34:21 conclude this and just talk about the so what and that's the big point so we're talking about all these really kind of neat and interesting ideas that we pulled out of this book but so what okay and that's the that's the part we need to answer for you so i think the first thing when you talk about the so what is that if you want to be an outlier you want to become an outlier in whatever field that you're doing it takes hard work um i think that was the first thing i took away if this 10,000 hour rule and i think what we'll do in the show notes is we'll provide a link to some of the studies that we saw from Anders Erickson, we'll put that in the show notes. So if you want to read more about this 10,000 hour rule, you can.

Starting point is 00:34:58 But it all comes down to hard work and putting in the hours and staying dedicated and persistent to whatever it is that you're trying to accomplish. That's first and foremost. That's the so what I got out. The second thing is it talks about how, I guess, what are the advantages and disadvantages that I have and the opportunities that I have at my feet today? So if you're a person and you're trying to play hockey and you were born in the that's probably one of your disadvantages.

Starting point is 00:35:24 If you were born in January, that could be your advantage. And for each person, it's different. But I would tell you there are advantages in your life right now that you can capture. You just got to figure out what they are because no one's going to come along and tell you what they are. You've got to know inherently what are those advantages. You know, when I look at Stig and I's podcast and our YouTube channel and our different things like that, I think we have an advantage because we got into this. at a critical point whenever it started to become popular.

Starting point is 00:35:55 When you look 20 years from now, it's going to be very hard for a young kid to start a YouTube channel and talk about investing and compete with somebody that's had, you know, 20 years' worth of views. I think that's an advantage we have. And I'm just throwing that out there to not, you know, boast about it. I'm throwing it out there to talk about how I would take away the principles in this book for your own life is ask yourself that hard question. What are the things that are right at your feet today that are.

Starting point is 00:36:21 big opportunities for you and how can you capitalize on them? And then how can you funnel your hard work into that opportunity? Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up and customers now expect proof of security just to do business. That's why VANTA is a game changer. Vanta automates your compliance process and brings compliance, risk, and customer trust together on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Riter spend 82% less time on audits with Vantta.

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Starting point is 00:39:29 Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund's prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. Yeah. I think that's a great point. And I'm really happy you said the whole thing about 10,000 hours because when I start listening to the book, you know, one thing that just struck my mind was that sometimes the world is just unfair, but that should never be an excuse. And, you know, I would just hate if you read this book and you're

Starting point is 00:40:11 saying, well, I'm born in December, you know, I'm probably not going to be successful. That's probably why I don't get good grades. That's probably why I don't get picked for the A team in hockey or soccer, whatever it is. But you know, that's not the reason why. That's probably not because, I mean, the reason is probably that you don't work hard enough. And I know it seems like harsh of me to say so, but it comes down to you. And yes, it is true that you can have great opportunities and you can come from a wealthy family. And, you know, there's, there's a lot of things there, but at least in my opinion, it comes down to putting in the time and the effort than no one else would do. So I think that is the most important thing to take away

Starting point is 00:40:55 from this book. Yeah, as you look at those opportunities and disadvantages, be careful what you look for because you're going to find it. So if you're looking for disadvantages, you're going to find disadvantages. If you're looking for all the advantages you have, you're going to find the advantages. So be careful what you choose to look for, because you are. going to find it. So that's the last thing I guess I'll say. Okay, so this is the point in the show where we're going to transition into one of the questions from our audience. And this week, it comes from Michael Brown. So here's this question. Hey, President Stig. This is Mike Brown from California. I love your show for my 45-minute drive to school. What I was wondering is,

Starting point is 00:41:29 what would you guys recommend for a college student who doesn't have any income coming in, but has money saved? Also, would you recommend investing a small amount of money because time is on our side for the young generation. So thank you and I love you guys your show. All right, Mike. One of the pitfalls that I think a lot of college students get into is they start listening to shows like this and they hear about the proactive way to make money, which is investing and to earn more. But the part of the equation that a lot of students forget is that if they can just minimize their debts and try to control that as much as possible, that's a form of investing. my opinion, because you're preventing yourself from having these huge debts and liabilities

Starting point is 00:42:16 that you have to pay off later on. So I would tell you to actually focus more on your spending and cutting that back as much as possible. I mean, you've got to keep it within means. You've got to be realistic. Don't, you know, go crazy. But I think if you focus on that first until you do have a stream of revenue that you can invest, that's probably going to be the smarter thing that you can do. So I would focus more on, hey, is there any scholarships I can apply for? How can I get assisted funding for my college? Those kind of things, I think, are probably the smartest decision that college students can make. And the other thing, the other important thing that you can do is compound your knowledge, continue to study what to do whenever the

Starting point is 00:42:59 opportunity does present itself that you will have income to invest. But I think investing a couple hundred dollars here and there. That's probably going to be more of a distraction from the stuff that you really need to be focusing on. So, yeah, Michael, I really like this question, and I get this question a lot, I have to say, and I really love this question because that really means that my students are thinking about what they were doing with their life. I would say, when I'm asked, as you are, should I invest, even though I don't have any income coming in, but I have like a little capital. I would say that you should. And this is not to contradict what Preston is saying about also using that sometimes investing can be a distraction. But I think that

Starting point is 00:43:44 investing is really, I mean, if you put in your own money, it's a really good way of learning. So you learn a lot when you invest for your own money. So let me just give you an example. Say that you have like $500. Now that might not seem like a whole lot of money to a lot of people, but if that is the capital that you have, then it's a lot of money. So that means that when you start picking stocks, you will have to be really, really sure that you're picking the right stocks. So the whole process you're going into in terms of understanding stocks, understanding, how to do the whole research. I mean, it really doesn't matter whether or not that's $500 or $10,000 because the process is the same. And the thing that Preston said about compounding knowledge,

Starting point is 00:44:30 I think that's probably the most important thing. And if you are like some of my students, you might be saying, well, I'm already studying eight hours a day. Why should I put in more time in accumulating my knowledge? Isn't it enough that I study eight hours a day? Perhaps I'm even studying business and I'm getting smarter. So why should I study even more? Now, this might just be my personal rant

Starting point is 00:44:58 or perhaps it's just me who can't read the labor from inside the box. But I think that the problem with the education system, and especially for college, it has two flaws. First of all, it's focused on exams. And when something is focused on exams, it's actually not always focused on business. The other thing is that it's focused on you being an employee. So you have business courses where you learn to go to exams, and you have business courses where you learn to be an employee. If you truly are an investor, you need to learn how to be in the driver's seat.

Starting point is 00:45:35 You need to think as an owner. And I think that is knowledge that's really hard to get in college, to be honest. I think that's the books that you're reading on your own. That is the mentor that you are seeking. That is the knowledge that you acquire for yourself. So Michael, I'm really, really sorry I just went out of this tangent here, but it's really a question I'm very passionate about and I get a lot and I really enjoy and Preston. I see you have something. Stig, that is a fantastic point. And I think that, you know,

Starting point is 00:46:08 Monash Pabri has a quote talking about, I'm a better investor because I'm a business owner and I'm a better business owner because I'm an investor and it's exactly what you're talking about. You've got to think like an owner to be a fantastic investor. One of the things that I wanted to highlight about the maybe the difference in our opinion with Stig, I totally agree. with what Stig's saying is that you should get involved in the market, even if you have a couple hundred dollars with the respect that you do it with not using up a lot of your time. Okay, you do it so that you have some experience in it. But my concern, I think, is this, is that I think a lot of people that might have a couple hundred dollars, they would invest tens of hundreds of hours

Starting point is 00:46:46 in the stock market early on whenever they could have been using that time to apply for a scholarship that would have put $1,000 or $5,000 in their pocket. So I guess that's kind of where I think that I totally agree with Stig. You should be doing a little bit of it, but you need to be mindful of the time that you're putting into things that are going to put dollars into your pocket. So you spend two hours applying for a scholarship. You make $5,000. I think that's a better investment of your time, just my personal opinion.

Starting point is 00:47:15 Yeah. And Michael, I wouldn't worry at all about accumulating capital because when you're accumulating your knowledge, you know, accumulating capital is really just a byproduct of that. Yeah. And I think that that's something that a lot of college students, perhaps that's the part they're missing because they're thinking, I want to be wealthy, I want to be an ex-born Buffet, so I need to earn a lot of money. No, I think, say that you look at the other way around, you need to be really smart. And when you're smart, it's really easy to make a lot of money. Yeah, that is so true. You know, the people think that they have to have something tangible in

Starting point is 00:47:51 their hand. But if you can accumulate and amass knowledge and you can organize that knowledge in a manner that is useful, that's the important part. The dollars will automatically, they'll have to, it's almost like they have to start

Starting point is 00:48:06 materializing out of that intangible form into a tangible form for you. I know that sounds kind of weird, but the importance of compounding your knowledge and then making it applicable and applying it is the key point. So there's one other thing that I wanted to talk about and it doesn't have to do with this question. It has to do

Starting point is 00:48:24 with kind of something that we're talking about a lot on the forum with this de-leveraging situation. So I'm getting a lot of questions right now, a lot of questions with people saying, hey, I know the market's overvalued. I'm concerned. What do I do with my money? Do I sell some of the stocks that I currently have? Because you and Stig are always saying to not sell, to continue to hold if you've got a good business. And that is true. Now, let me talk about when it might be a good time to sell. You've got to make the decision for yourself whether you're comfortable or not comfortable. I think that's first and foremost. Are you comfortable in the current situation? Can you sleep well at night? If you can't, then you probably shouldn't be in the market. Okay, that's first and foremost.

Starting point is 00:49:05 If you want to get out of a particular stock that you're in, I think one of the most important factors is how much capital gains have I amassed in that particular pick. And when you look at Warren Buffett, so for the last year, Warren Buffett's been doing, nothing but amassing cash. He hasn't really been buying anything. He's just been taking all of his cash flow and it's been sitting in cash on his balance sheet. And he's doing that because he thinks that the market is overvalued. When you look at his balance sheet, he's basically taken his $18 billion of cash flow for the last year and it's gone straight onto his balance sheet. And the reason he's doing that is because like Stig and I have said on our forum and other places, we think that the market's becoming overvalued. What he's not doing is he's not selling a lot of

Starting point is 00:49:46 the picks that he had previously had. Now, here's the difference between maybe you and Warren Buffett, why he's continuing to hold. His capital gains are enormous. Okay, when you look at Coca-Cola, he bought Coca-Cola back in the 1980s. When was it? Stig, maybe like 86 or something like that? Yeah, it's a long time ago.

Starting point is 00:50:05 It was a while ago. It was decades ago. Okay. His capital gains on that from the initial purchase price that he had, I think, are over 10 times what he paid. Okay. So if he'd take that money out right now because we're in a market bubble and he'd sell that stock, he would take an enormous hit, call it 40% right off the top of the value that Coca-Cola is sitting on his, what would it be his equity line because it's unrealized gains. He would take an enormous hit on that and it would almost be the same hit that he would take if the market crash, call it 50%.

Starting point is 00:50:39 That's why he's not selling Coca-Cola. People need to understand that. So when you look at your own personal portfolio, let's say you bought some stock last week and you hadn't amassed any type of capital gains. And now you know that the stock market's overvalued. Do you continue holding it? Well, if you're uncomfortable, I would tell you it might not be a bad thing to sell it if you're uncomfortable. And you don't know or you're a little concerned about the direction things are going to go in the future. Because you don't have any capital gains.

Starting point is 00:51:09 You don't have to pay any tax to sell it. You got like a $5 or $10 fee to sell out of it. So I wanted to talk about that. I wanted to get this out there so that people understand first and foremost, are you comfortable? If you are, then continue holding it. If you're not and you feel like you're in a bubble situation and you might lose a lot of the value that you originally invested. Look at the capital gains. We have a calculator on Buffett's books.

Starting point is 00:51:31 It's called a cell calculator. We'll provide the link to that in the show notes so that you can go and you can mathematically figure this out where you account for capital gains. What did I purchase it at? you know, what do I think my next return is going to be of the asset I transferred into? So just a little bit of discussion there to talk about this situation that we're currently in and to give you a little bit of guidance. So I just wanted to put that out there. Stick, did you have anything you wanted to add? No. Not much. Okay.

Starting point is 00:52:00 Yeah, well, now that you say, talk about Preston, you know, I get this question a lot too. And, you know, I think perhaps the selling decision is even more tricky than when you're buying. You know, just, you know, to fulfill this closure, I'm probably not going to sell that much at the moment. And you might be like listening to this and like years and years from now. But if you are listening to the podcast, you know, right now, I'm not like a seller in the market right now, but I am starting to accumulate cash. and the reason why I am is that if we see a correction in the market, you know, cash is truly king. And because if you see a crash, well, you might think that you can sell out your stocks

Starting point is 00:52:45 and buy the cheaper stocks, but guess what? Your current stock is worth a lot less. So that's just a way to slowly transition into a new area where when the market is perhaps overvalued. And people don't realize this. Market crash is really a call on cash is what it is. So like right now, you look at the current situation. For every one real dollar, there might be six or seven fake dollars.

Starting point is 00:53:13 And what I mean by fake dollars is it's credit. It's money that was created through an agreement between, let's call it Stig and I, say, hey, Stig, I'm going to give you $10 next week if you send me an email tonight. Okay, so we just created credit because there's an agreement that I'm going to give him $10. That $10 isn't real until I actually pay it. So you got all these agreements and all this credit in the economy, and it's far exceeding the actual number of real dollars that can actually pay these agreements. That's the situation we're in today. And whenever there's a call on a lot of these agreements, what happens is it's kind of like this compounding occurrence where everyone starts calling their claims and they want their dollars.

Starting point is 00:53:59 And so there's a demand for dollars. So whenever you're in an environment where, you know, there's a lot of credit in the system and you're getting ready to transition into an environment where dollars are sought after, you want to be that guy holding the dollar so that you have the availability to go and buy those assets whenever they're undervalued. So long conversation. I know we drug this out really long, but there are some things that we wanted to talk about just based on the current market conditions here in February of 2015.

Starting point is 00:54:29 So if you're listening in the future, that's whenever we recorded this. All right, guys. So that's all we have for you this week. We really appreciate everyone coming on the show. We'll be sending Michael a free-signed copy of our book, the Warren Buffett Accounting book. And make sure you sign up on our mailing list because for everybody that's on our mailing list, we type up an executive summary of every book that we read.

Starting point is 00:54:48 So for this Malcolm Gladwell book, we're typing up an executive summary and we're sending that out to everybody on our email list. So you can basically read the book in about five pages and kind of get a lot of the main nuggets that we found very interesting in the book and that are useful for you. So great having you guys in our audience. Thank you so much for listening and we'll see you next week. Thanks for listening to The Investors Podcast. To listen to more shows or access to the tools discussed on the show,

Starting point is 00:55:15 be sure to visit www.w.w.com. Submit your questions or request a guest appearance to the Investors podcast by going to www. www.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted by the TIP Network and must have written approval before a commercial application.

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