We Study Billionaires - The Investor’s Podcast Network - TIP 053 : Thinking, Fast and Slow | Quantitative Easing (Business Podcast)

Starting point is 00:00:00 We study billionaires, and this is episode 53 of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is the Investors Podcasts. 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 Sting Broderson. Hey, how's everybody doing out there?

Starting point is 00:00:30 This is Preston Pish, and I'm your host. for The Investors podcast. And as usual, I'm accompanied by my co-host, Stig Bertersson, out in Denmark. So how's everybody doing out there? We're pretty excited to be back with you. And we have an interesting conversation. We'll have at the beginning, just talking about the current market conditions. And then we'll be talking to you about a book that we recently read.

Starting point is 00:00:50 It's called Thinking Fast and Slow by Daniel Conman. That book was recommended to us by Dr. Wesley Gray in a previous episode. So we'll be getting to that here shortly. So before we go there, Stig and I wanted to open up. up each one of our shows here with the current market conditions. And so Stig wanted to start off the conversation by just discussing what's happening over in Europe right now, just kind of how that has maybe bigger implications in the way that we see the market moving in the coming future. So as some of you probably remember, we actually talked about ECB and quantitative easing before.

Starting point is 00:01:25 And earlier this year, ECB agreed that they should use quantitative easing and buy our their own bonds for 60 billion euros. That's quite a lot, my day. It's not quite as much quantitative easing as you saw in the U.S. during the financial crisis, but still, it's getting up there. What was the present, like 80 or 85 or something a month? I don't know what the exact number was per month, but I do know that the U.S. had significantly more quantitative easing. And I think the U.S., their quantitative easing, that last round, that really big round, which I think a lot of people don't realize how big that last round of QE was. That ran over, I want to say it was a year and a half.

Starting point is 00:02:05 So it was a huge, absolutely huge amount of quantitative easing. And one thing is like how much they're buying back. Another thing is the duration. And as Preston was saying, we were talking about what's a year, year and a half. Actually, we were starting earlier this year. So I think we probably did quantity easing for something like half a year. and this program is set out to end by September 2016. Now, what Drath has been saying last week is that this could go beyond that program.

Starting point is 00:02:36 Now, he doesn't specify that. As you probably know, also in this state from hearing Yellen talks, everything that you're saying if you're chairman of the Fed or ECB, it's kind of a twist. You can't be too direct, but you're signaling to the market. And what he's saying is that we can go beyond that. We can go beyond your current quantitative easing program to grow more, to grow our economy. He is both speaking about whether or not to buy more than 60 billion euros each month,

Starting point is 00:03:07 or he's also saying that you could extend the duration in that program. So what I think is interesting about this comment, and just so you guys know, the ECB came out and said this at the first week of September is whenever they were discussing this. And I think that this is a really profound discussion and something that a lot of people need to be thinking about, especially a lot of bears. If the central banks continue to expand quantitative easing, what implications will that have? And I think that that's something I don't think a lot of people can really wrap their head around. I mean, my initial thought is that it'll cause equity markets to go up.

Starting point is 00:03:48 But at the same time, you're in a different position now than whenever that was really a useful tool back in the start of 2009 through clear up through 2014 whenever the U.S. was doing it. I think this is really interesting because there are so many aspects in this. And we just saw last week when Everdrahi was out saying that he might expand the program market soar here in Europe. So, I mean, this is something at least in the short run that people pay a lot of attention. I completely agree with Preston. How this would turn out in the long run, I have really, really no clue. One thing is that they're cutting the growth forecast from 1.5 to 1.4. That might not seem a lot, but we're really talking about a huge economic region that is not doing well.

Starting point is 00:04:34 Another thing is inflation. Fflation is also something that we discussed before here on this podcast. And right now in the Eurozone, the inflation rate is right now at 0.2%. So we basically have no inflation. That's also a reason my QE might be a good idea, at least, from the perspective of the Central Bank. You know, as long as your deflationary numbers over in Europe are as bad as what they are, I just don't know how they could turn off QE from now till I don't even know how they could really set a date at this point. So this whole QE thing is such an interesting discussion when you look at the implications of what's happening.

Starting point is 00:05:13 I recently read an article last week and it was really quite mind-blowing. The article related back to Japan and the quantitative easing that they're doing over there. You've seen their stock market go wild for the last, what's it been? About a year, two years that their stock market has done really well over in Japan. And it's because they've been doing quantitative easing. They learned the trick from the U.S. back when we started doing that in 2009. their stock market over in Japan has gone wild, but the article talked about,

Starting point is 00:05:45 well, how long is their ability to conduct quantitative easing? And this is where it got really interesting because there's people out there saying that in like nine months to a year from now, Japan is going to run into some serious issues where their ability to conduct quantitative easing is pretty much going to disappear

Starting point is 00:06:03 because they're actually buying back their debt faster than they can actually issue it. So the government issues debt, and they're issuing the debt at zero percent. It's literally no yield on this debt at all. Government is then buying that debt back off of the market to put more cash flow into their system. The amount of money that they need to pump into their system for quantitative easing through the purchasing of debt is actually becoming so big and so large that it's actually exceeding their ability to issue the debt at the same rate. And that to me is totally nuts. That is totally insane.

Starting point is 00:06:40 And for me, I'm thinking, well, what implications is that going to have to the world economy in a year from now? And especially when you look at their stock market, it has a close similarity to the enormous growth that you saw in the China market. You're seeing something very similar in the Japanese market. I mean, heck, I think it was it was this week or last week. You saw the Japanese market go up 7% in a day. I do want to say one thing because it might seem like Preston and I are very worried. I am. I am worried. We are worried. But also, please remember that Preston and I, we are huge economics geeks.

Starting point is 00:07:23 I'm sorry that I'm dragging you down here with you, but we really love this stuff. And we really really dig up on this and studying this even more. And this is just a lot of fun for us as well as it's just very interesting and concerning. But if you are investing for the long run, if you are buying a business at a great price and you know that these products will be bought and consumed by the population decades from now, don't be too concerned. Don't pay too much attention to this. There are some fundamental things, but a lot of it is nice too. I love that point. I absolutely love that point because you know who's out there buying right now is Warren Buffett. He's out there buying. I mean, there's no disputing that. I want to say in the last month, he's conducted at least $36 billion. dollars worth of acquisitions. He completely ignores the macro piece of this. He completely ignores it. Now, there's other billionaires out there. All they do is the macro piece of it. And that's how they've made their money like a Ray Dalio. You know, you can do this Buffett approach. You can say,

Starting point is 00:08:23 you know what, it might go down 50%. The market might go down 50%. But if I'm holding a great business and I'm holding it for the long haul and it's paying me a dividend, in the end, it's not really going to much matter if I continue to invest my cash flow month over a month. And that is definitely an approach that we recommend. It is an approach that obviously worked very well for Warren Buffett and many other value investors. We definitely still recommend the Warren Buffett approach to investing. But at the same time, we are cautioning folks. We think the market is at a high level. We think that there's going to be a downturn. Does that mean that you should stop investing completely? absolutely not. You've got to invest based off of your personality and which approach empathizes

Starting point is 00:09:08 with your personality the most. In a mastermind reading that you'll have a chance to listen to two episodes from now, we will actually go into death with Warren Buffett's two last purchases. Something else would be an interesting discussion. I think Hari is at Monish Pabreis shareholder meeting. I think maybe this weekend or it's right around now. So I think Kari's going to have gone to that shareholder meeting, and he can discuss that as well to see what Monash Pauperi is talking about these days. So it should be an interesting discussion here in two episodes from now. Let's go ahead and hop on over to the book. The name of the book was Thinking Fast and Slow, and this is by Daniel Kahneman.

Starting point is 00:09:46 And this book was recommended by Wesley Gray. And I think if you go back and you listen to the interview with Wes, particularly the second part interview with Wes, he had some amazing conversations about, this psychology piece and basically breaking apart the quality of a business and basically the value piece or the price of the business and talking about how price is absolutely controlled by psychological factors, whereas quality is not. And I think that that was a fantastic part of that interview. I really enjoyed the points that he made. And I think that a lot of those points stem out of this type of book, thinking fast and slow that Daniel Kahneman talks about. So this book was very long.

Starting point is 00:10:30 A lot of chapters in this book. I thought that there were some fantastic points in this book, but at the same time, I thought that it was total overkill and it was way too long for the amount of information that was in it. I would recommend the book influence 10 times over this book, just because I like the format of influence a lot better. And I thought that it was just a lot easier to read. Like, this got really technical when he would just drone on about the same point for, I mean, pages. and pages.

Starting point is 00:10:58 That was the part of the book I didn't really care for. And to be honest with you, I don't even know if I would recommend it just because, for me, it was really long and it took up a lot of my time. I was almost not going to take this book. Now, first I want to tell you the reason why. I always been a big fan of Kahneman and he's something I've been started at several time. So I was just all over it whenever I heard that he was published a new book.

Starting point is 00:11:20 So that was actually the reason why. But I saw that this book was over 20 hours. I measure all the book lengths in hours, but what would you say pressed in 20 hours of the book is like 700 pages, 8,000 pages or something? It's a big book. I guess we look at it from a time standpoint because our time is so limited to get through things. And that's where I got a little frustrated with the book is because it just went on and on. Other than that, and I think it's important for people to understand the context here. So Daniel Connaman, he's a Nobel Prize winner in economics.

Starting point is 00:11:53 I mean, extremely gifted. The content that he's talking about and the proof that he provides to back it up is unprecedented. So I don't want to take away from that. I just want to prepare people that if you would read this, it's going to take a long time. And it's a little repetitive. So just kind of beware of that. So let's go ahead and hop into the discussion of the actual points in the book, which we're going to summarize for you here. This book for me was kind of important in the fact that I am a very intuitive person.

Starting point is 00:12:22 Whenever I took a personality test, I think Stig and I were talking about the personality test that we took away, maybe six months ago or something. One of the strongest characteristics of my personality is that I'm very intuitive. And this book shattered a lot of that intuition that I had because he talks about in the book, he starts off talking about two systems. And he calls it the fast thinking and the slow thinking. And what he really breaks this down to is that your intuition, and your sensing capability is that fast thinking, that thinking that happens immediately. So as you're in a situation,

Starting point is 00:12:59 you meet somebody for the first time, your fast thinking will develop an opinion of that person immediately. You can't even control it. It just immediately happens, the matter how hard you try, that occurs. But what he says in the book, and he provides substantial evidence for is that a lot of the times your fast thinking

Starting point is 00:13:19 puts you in a position where you are being set up, up for a failure because you don't do any type of analysis behind that fast thing and you just immediately react to it. And it's kind of interesting because this really does go back to the Chaldini book where he was talking about influence where your mind develops these shortcuts. I saw a lot of parallels in that book influence and this book thinking fast and slow where your mind has developed these shortcuts and because you're not exercising that slow thinking and really kind of doing the leg work and the muscle work behind trying to validate whether something's true or false, people typically just take that shortcut and they use their lazy, immediate intuition to just go with

Starting point is 00:13:58 whatever they feel like it is because they already know the answer. And I think that that's a very powerful idea. 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. conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists, investors, and builders from all over the world, many of them operating on the front lines of history. This is where you hear

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Starting point is 00:17:56 sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show. I think the neat thing about the way the economy is writing is that he has kind of a fun fact,

Starting point is 00:18:21 funny story for ease of his points. One of them I found really, really frustrating and concerning, but also very interesting, was that he talks about how system one makes systematic mistakes. And he's saying that the more sleep deprived we are,

Starting point is 00:18:36 the more tired we are. If we're hungry, we tend to think more with system one than system two. And clearly, that makes a lot of sense because if you're thinking with system two, you have to use a lot of energy. And if there's one thing you don't have, if you don't have enough sleep, if you're hungry, well, clearly, that's energy. He was saying that him or was his colleagues, they were looking at judges and the way they were looking at paroles in Israel.

Starting point is 00:19:00 And he was saying that overall they would give parole to 35% of the applicants. Now, what he was also saying is that right after the dinner break, that rate was 65%. And right before the dinner break, it was close to zero. What does that mean? Now, what he's saying is that the standard way of thinking, if you were a judge, that is not to grant the parole. So he was saying that because people are happy and pleased when they came back for the dinner break, that was probably why they were more willing to grant those parole.

Starting point is 00:19:34 I found that frustrating, again, concerning? Is that really how the system works? Yeah, I think that it's absolutely true. And we'll give more examples later on because he gets into a thing called anchoring, which I think is a really important idea to understand. But going back to the system one and system two, the fast thinking and the slow thinking, so that that's an idea, I think, that it's really important that your system one is trying to always make something normal and normalize the information,

Starting point is 00:20:00 where you have to always tap into your system two, which is your system. slow thinking in order to validate, is this really normal? So using maybe a stock market example, when we see the stock market go down by a thousand points in one day, your system one is saying, yeah, well, the stock market goes up and down. That's normal information. Then when you go into your system too, and you're saying, okay, well, let's do some hard math and some hard understanding. How many times has the stock market gone down a thousand points in one day? Okay, well, it's only happened three or four times. I don't know what the actual number is, but I would argue it's probably you can count it on your hand. And so now it doesn't seem like it's so normal of a circumstance.

Starting point is 00:20:41 What caused that to happen? And that's where you really got to have an understanding of what's happening between your fast and your slow thing and how there might be implications for that. While we're on this subject, we're going to veer off of the book for just a second because this is a really important discussion. And I wanted to talk about this in the first part, but we did not. So on that day where the stock market was down a thousand points, I think this happened, what, two, three weeks ago, Stig, where we had the market on a Monday morning, it went down a thousand points at the open.

Starting point is 00:21:11 That is totally nuts and that's crazy. But I think the deeper discussion here is this ETF point of view that Carl Icon had brought up, what was it, a month before this happened. Everyone out there was saying Carl Icon's crazy. The guy doesn't know what he's talking about. He doesn't understand how ETFs work. Well, in fact, Carl Icon did understand how ETFs work because one of the most amazing parts of this swing, this thousand point swing on that day, was the fact that some ETFs lost track of their fundamental and their underlying assets by more than 20%. There were some ETFs that were down 26% that morning at the open and the fundamental assets that they actually represented were only down 6%.

Starting point is 00:21:56 this is a major concern. And this is something that we should have talked about at the start of the show. So I'm glad that we're bringing up right now because this is something that I think people really need to understand is that there's a potential bottleneck when there's an enormous amount of volume of trade in an ETF. And this is something that I think a lot of people did not understand. There's only one person that brought this up and it was Carl Icon. And he was absolutely right. And I am very, very impressed with his ability to see. this ahead of it happening and to talk about it and to really stick his neck out there.

Starting point is 00:22:31 And so just so people understand what's happening here, you have an ETF, which tracks underlying assets. But whenever you put in a market order, there might be an enormous amount of people sitting in that ETF veil that maybe want to get out of that position. Well, if that happens when the market is closed, particularly when the market is closed and you're putting in market orders to sell, those might get exercised at a very, quick pace and this deviation, this 20% deviation occurred in a very short window of time. You know, it re-corrected itself in the same day.

Starting point is 00:23:06 But I think the learning point here for folks is I would tell you, don't be scared of an ETF in that happening to you. What you need to be scared of is if the market is closed and you put in a market order to exercise the following morning at whatever the market price is, you could potentially set yourself up for a very devastating event. So point is this. I would recommend selecting that position while the market is open. If you do absolutely want to do a market order, which I don't know why anyone would

Starting point is 00:23:39 really want to do that. But if you do want to put in a market order, I think you need to make sure that the market is open because the chances of a disparity of millions of people all trying to conduct that trade in the millisecond that you put the order on while the market is Open is pretty much non-existent. I don't think that there's a risk there. But if you put it on after hours, I think there's a concern. And I think this is a really important thing for people to understand if you're an

Starting point is 00:24:02 ETF buyer or seller. If you're holding the ETF for the long term, it won't ever matter. But if you're trying to conduct a buyer or a sell, this is something that you absolutely need to think about and fully understand if you ever get involved in it. All right. So let's go ahead and continue on with the book. So we'll go into the second main point that we have for Thinking Fast. and slow.

Starting point is 00:24:24 So just really quick to give people an audio of the book, there are five main parts of this book and the first one is called the two systems. The second one is called heuristic and biases. And three, four, five that's where confidence, choices and two shelves. Basically we're giving you the highlights of these five points. Let's turn their attention to the stock market. I think the, probably the simplest thing to discuss first, that is the whole concept of anchoring. And I know I tend to anchor a lot of my stock picks. I just simply can't help it.

Starting point is 00:25:00 So if I bought Coca-Cola at $40, then that is the average price. Now, my rational brain would think that Coca-Cola doesn't know about it at $40, the rest of the world doesn't know I bought it at $40, and they probably don't care. But in my head, that's probably somewhat of the average price. So everything about that, that's gain, everything below that, that's lost. And it's really easy to be looking at the price instead of the intrinsic value. So I think before we dig more into it, I know you have a great point about this, too, Preston. I think people just really think about that whenever they're adjusting the stock price of the current stock picks. Okay, so let me demonstrate this idea that Stig's talking about with anchoring.

Starting point is 00:25:46 And I'm going to ask the audience a question here. was Gandhi 130 years old whenever he died? So think about your response. Most people would probably say no, I'm guessing. Now my next question is, well, how old was he? Okay, so now you're going to come up with a figure and you're going to say it to yourself right now, whatever that figure might be.

Starting point is 00:26:08 Now, let me change the tables. Let's say that I did not ask you any of those questions and let's say that I opened up with this question. Did Gandhi die at age 40? Well, if you said, I don't know or I don't think so, well, what age did he die at? Now, what would have been your response? Now, you can see that depending on how your brain was thinking through that question as I asked that, it's really important to understand the anchoring piece.

Starting point is 00:26:35 Most people, when they were asked this question of the 130, they then stepped down his age immediately thinking that he was obviously older whenever he died. So he might have been 90 years old or something like that, close to the 100-year mark, because I anchored the question with a very high number. Now, whenever I would do the exact opposite, where I'd anchor the question with a really low number, people then had a guess that was more plausible towards the lower direction. And he took statistics on this,

Starting point is 00:27:03 and it was just an amazing example of the power of anchoring and how you're influenced by the suggestion. It's sort of the same thing as, but if you're looking at a new piece of clothes, and you can see that it's used to, be 100 bucks, but now it's on sale for 70 bucks. Yeah. That is your anchor.

Starting point is 00:27:24 I think that's how a lot of these high-end brands operate is they put out these ridiculous prices. I mean, women's purses, for example, it's just totally crazy. You can go into some of these stores and it's $3,000 for a purse. I mean, that's nuts. But at the same time, you are basically anchoring the customer that everything in the store is that expensive. people see that as tremendous value.

Starting point is 00:27:49 Yeah, and speaking of angering, because I promise that we would revert back to stock investing, that we all like to think that we make great stock picks. And if I buy a stock at $10, then I might be more inclined to sell it at $12 than to sell it at $8. Because then I can just tell myself, or I can tell my friends, yes, I made a profit in that stock. Whereas you tend to hold stocks longer if you have made a loss because then you really haven't lost money on that.

Starting point is 00:28:20 And I think that's something everyone is influenced about. We put our stock picks in small boxes and we want each box to be a success. So that's why we hold on to to lose us for a long time. Think about your home. If you had to sell your home, how inclined would you be to sell that home for a less nominal value than you bought it for? you might not be thinking about interest rate or inflation, anything else. You're thinking about what did I pay for it and how much I'm selling it for. There's just so much bias in how you make decisions.

Starting point is 00:28:53 I found that was really, really interesting. And we've talked about this in the past where people are drastically influenced about what they could lose versus what they could gain. And I know that we've talked about that discussion before. And it's a very profound idea where most people are, if they gain something or they're They come across the windfall of $100. They're so much more likely to treat that money differently and just kind of at ease like they deserved it. Whereas if they lose $100, there's this idea of loss aversion and they act completely differently in that direction.

Starting point is 00:29:27 So that gets right to the heart of what Stig's talking about with stocks that go down. People will not sell that. They're going to hold on because they cannot really accept the idea of losing. Let's go ahead and talk about this next idea, and I really like this idea, and I think that this is an important one to discuss, and that is this idea of overconfidence. I think the whole section about overconfidence was probably one of the most interesting sections. And, well, first of all, I think Kahneman is really good at breaking people's egos. For someone like I just think it's really hilarious to read, and he has this very humorous approach to a lot of things. So one of the thing he's saying is, you're really not that special. You know that? You might think you're unique, but basically you aren't. You might be thinking that other people are not unique at all, but they're probably more unique than you think. Well, first of all, I think it was also meant to provoke, but I also think it's really interesting that the more you know about yourself, the more biased in a way you can also be. At least that was somehow I took, especially,

Starting point is 00:30:37 when it's about yourself. I think he got most of that from Nassim Taleb. Yeah. You could see that he's a pretty big fan of the Black Swan and Nassim Taleb's work as well. So maybe that, maybe you read a little bit too much Nassim Taleb when he was saying that. What I found was really interesting is how he's saying that you can't beat the stock market. He almost, in my opinion, had an arrogant approach to why you can't do that. And in my opinion, I feel like he didn't do enough.

Starting point is 00:31:07 He was... He just didn't do his homework. He was always... Yeah, the irony of the statement and his talking about this in the confidence section. He's confident that you can't beat the stock market, but yet what is his expertise in actually understanding the valuation of equities and fixed income? Probably not that extreme. So I find the discussion in the book to be very ironic and very representative of what he's

Starting point is 00:31:31 trying to teach people. And he was having all these weird examples. So he was saying that the more people... people trade, the more confident they are that they have information, and as I can prove people that trade a lot don't beat the market. I think that's probably the worst hypothesis you can set up for well or not you can beat the stock market. I mean, it just doesn't make any sense to frame a question that way. 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

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Starting point is 00:35:11 slash income. This is a paid advertisement. All right. Back to the show. Well, it was an interesting discussion. So I think he had some really good points on this, but at the same time, I think that it was a little skewed. So his main point is that when you're dealing with small numbers, when you're taking a sample of something, you've got to realize that the confidence level of that small sample is not nearly as good or representative of the actual total body of evidence. So he had a person who did well in the stock market for seven years in a row. He would be quick to say, well, that does not prove that that person's an expert. And I would agree with that because that's a small sample set.

Starting point is 00:35:48 It's only seven years. He would probably go on to even say a person like Warren Buffett that's been doing this for decades still is a small sample set. And I think that's where you start to get into maybe an understanding of the range. Just because there's only 40, let's say you're taking 40 years of examples, that's a small number. I think a lot of people would say that only four samples of a data set is a small sample. But what you're not accounting for is that it's deeper than 40 years. How many months is that?

Starting point is 00:36:21 How many weeks is that? So then you can get a much larger and bigger number for the sample sample. whenever you're looking at that. So I think it's important to understand the fractal piece to what your data set is. But I think that he does have a good point. And I think that it's good that people question what's the size of your sample set and what probability does that produce and what's that offset. So I think it's a good discussion.

Starting point is 00:36:44 But I think that, yeah, he's stepping in the territories there that are somewhat questionable. And I think that you actually do have to give some kudos and some credit to people that are able to do certain things and not just whitewash it as saying, oh, yeah, well, there's not enough statistical evidence to prove that. And basically, first, nothing, this comes down to system one and system two again. I think it's simply too complex to understand why Warren Buffett is speaking the market for someone like Kahneman. And don't get me wrong because Kahneman is extremely intelligent.

Starting point is 00:37:12 He's a professor and he's got the Nobel Prize. But he's researching so many different areas. And the stock market is really just one of them, value investing in that sense is just one of them in stock market category. and in that category called Value Investing, Warren Buffett is one person. So it's just so easy for you as an academic to say, that's probably a small sample size and not really understanding what this is all about. And just one thing I have to say about this,

Starting point is 00:37:42 and I found this to be a huge problem generally for all the books that we're reading. Very often we actually hear people saying that why you can't beat the stock market, is that every time they compare to mutual funds. And they keep saying mutual funds proves that you can beat the stock market. I actually wanted to give a shout-up to a blog poster, wrote about mutual funds, saying why inherently there's a problem speaking about mutual funds and proving why they can beat the market. I kind of think that's kind of the academic arrogance saying,

Starting point is 00:38:15 as you can see, mutual funds can't be the market. Ron Buffett, that's just a small sample size. It's just a touch of overconfidence. which is exactly the title of this chapter that we're discussing. So I love the fact that the irony of the examples might be overconfidence themselves. And I think that that's something that we'll leave up to the person reading. And if you guys get out there and read this book, you can make your own decision on that. Stig and I might be biased and overconfident ourselves.

Starting point is 00:38:43 The next point is choices. So Stig, go ahead and give a quick summary that you got for choices. So basically, when we talk about choices, we want to make the right decision. An example. If we're talking about probabilities, we have a really hard time estimating what is the probability. So, for instance, you would buy insurance. Now, I'm not saying that you shouldn't buy insurance, but there is a lot of different insurance that you shouldn't buy.

Starting point is 00:39:10 If you can afford the cost, if a damage should occur, then you probably shouldn't buy that insurance because it's really priced in in that insurance. But what you're paying for is basically not insurance, at least according to economy. What you're paying for is not to worry. So the last part of the book that he talks about is the two selves. In this section here, he's talking about your remembering self versus your experiencing self.

Starting point is 00:39:36 And the example and the heuristic that he gets into is really this idea of one event could really ruin or spoil the entire event for a person. So example that's provided is this idea of taking a 30-day vacation. Let's say that the first 29 days of the vacation go really well. You really enjoy yourself. And then on the very last day, you have this horrible experience. That one experience totally overwhelms the whole 30-day experience where all you remember is really that bad event. And that's the thing that leaves that stain on your mind.

Starting point is 00:40:08 And that's the thing that you recall whenever thinking about that or referencing that in the future. So this is a really profound idea. I think that it has tremendous use and value for a person that's trying to think about this and maybe see how maybe that's impacted their own life in the past. One very interesting point that he brought up here in the last section is whether or not money can buy happiness. I think this is a discussion that you go just here over and over and over again. I always love discussions. It's always a lot of fun.

Starting point is 00:40:39 It turns out of that he made some research on this in the States. apparently if you have $75,000 in a household a year, and that's even in a high-cost neighborhood, then you're happy. At least that is how much happiness money can buy. Well, supposedly up to that point, if you have less money, you are everything else legal, less happy. But when you have at least $75,000, it's a ton of different factors that determine whether or not you're happy and not money. Oh my. And I really want to move on to the next section, but I've got a comment. I'm sorry. I really think that this whole money buys happiness thing, it really has nothing to do with the dollar figure. I think it has to do with, are you happy with the value you're adding to the

Starting point is 00:41:24 world? And I think that's really what it comes down to, folks. If you're very satisfied with what you're doing on a day-to-day basis, it typically has nothing to do with the money. It has everything to do with what that thing is that makes you unique and whether you get to exercise that on a daily basis by adding value to other people's lives. And I think whenever you look at it from that context, I think the money thing is just a totally worthless discussion. Then just the final point about happiness. And I just have to say that because I live in Denmark. Denmark is the happiest place on earth, apparently. I think that's so much fun. And I don't want to bore you with like all the reasons why and why not.

Starting point is 00:42:09 How did they measure that? Did they have a happiness meter that they put on people over there to determine how happy they were? You actually ask them. It's actually really hard. And there's also some of the critique because there's a lot of Danish research on this too. Happiness, you can't really translate that in Danish. It doesn't mean exactly the same as it does in English. So that's also why people are saying there's a lot of bias and so on.

Starting point is 00:42:32 It's a lot of fun. I do want to say one thing, though. Denmark is the country in the world where we eat. eat most antidepressive medicine. I'm not saying this is the reason I'm being the heaviest people on earth, but I just want to throw that in. Oh, my goodness. So I think that this is a really fun point to end this book on, because as people are

Starting point is 00:42:52 listening to that conversation, and it generates this idea of, well, how are they measuring that? How are they comparing that to another country? And it really gets into what metrics are you using in order to develop the information that you're producing in order to develop your opinions and your ideas of what you think the truth is. Or I think that it's really interesting that you brought some of that stuff up because I'm sure it's making people think through, well, what are the metrics? How is that being measured? How is it being compared to another country with other people administering the happiness test, if you will?

Starting point is 00:43:26 And I think it's really important to think through that stuff. And it really gets it to the heart of a lot of the discussion with the way that this book is teaching people how to think to break out your fast and your slow. thinking and how you conduct that analysis. Did you just take that on face value with your intuition at the start and say, yeah, you know what? I agree with Stig. I believe them. Or did your system two take over and really start doing some hardcore processing and trying to understand, hey, that's a bunch of bunk. So it's an interesting discussion. It's a very interesting book. I think it's a very long book. I would recommend the book influence by Robert Chaldini over this book because I think it has a lot of the same points. And it's a lot of the same point. And it's

Starting point is 00:44:06 a lot shorter and concise, and I think that it was a little bit better writing. In my opinion, just my personal opinion. Stig, would you agree? Did you like Influence Better? Yeah. No, it was a good book, though. I really liked it. I think it had some really good points, and I think it had a lot of things that relate

Starting point is 00:44:20 back to investing, which I think is important as well. All right. So if you guys enjoyed this discussion or you want to really learn more about the book thinking fast and slow, but you don't want to take the 20 hours to read it, go to our website, the investorspodcast.com, and you can sign up on our email list, two times a month, we send out emails, and in the emails, we attach our executive summaries that we write for all the books that we read. So you can read this book. Our executive summaries five pages long. You can save a tremendous amount of time by reading these summaries, and it costs nothing to sign

Starting point is 00:44:49 up on our list. We don't send any advertisements or spam, so just know that whenever you sign up. And if you guys don't like being on the list, there's a big unsubscribe button at the bottom, so you can get off the list very easily. Something else that we want to highlight is we worked out a deal with Amazon Audibles, and I know we mentioned this in the last episode, we are strongly recommending that people go to that link, click on that link, because you get a free book that you can download if you go through our link on our website and you sign up for audibles. That's how Stig and I read all of our books. We read it through audibles because we really don't have a lot of time to sit down and dedicate to just reading a book that we're holding. We're in the car

Starting point is 00:45:26 driving or we're in the airport flying around or you're doing dishes at night or whatever the case might be, you can just turn on your smartphone and listen to audibles, and we highly recommend that people do that to continue their educational journey. If you use our link, it's completely free. If you don't like the service after you listen to the first book that you got for free, go ahead and cancel it. You don't have to get any more books. It's the best deal going, folks. Go to our website, click on the link, get the free book. And if it's a long one like this, they're often very expensive. The thing I like about Amazon that I don't think that you get with any of these other audiobook companies, is that you buy credits. So the credits are usually around like $15.

Starting point is 00:46:04 So if you're buying a large book like Thinking Fast and Slow that costs $40, you're actually buying it for $15 because you're buying credits on audibles. Amazon definitely has the best deal through audibles. So I'm just throwing that out there. And I know I'm selling this hard, but I'm selling it hard because it's adding a tremendous value to the person that would actually exercise this. Yeah, just one more thing I'd like to add is that if you don't use your credit that month, you can just roll it over to the next month. So it's not like you have to read a book every month. And if you happen to find a cheaper book, because sometimes books are cheaper, then I think it's $15. You can just buy that and save your credit. So it's all we have for

Starting point is 00:46:42 you guys this week and we'll see you guys next week. Thanks for listening to The Investors Podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www.com.com. Submit your questions or request a guest appearance. 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.

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We Study Billionaires - The Investor’s Podcast Network - TIP 053 : Thinking, Fast and Slow | Quantitative Easing (Business Podcast)

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