During their recent episode, Taylor and Carlisle were joined by Justin Carbonneau, Jack Forehand, and Matt Zeigler. They discussed:
- How to Stick With Your Investing Strategy When It Gets Hard
- The One Habit That Separates Great Investors From Everyone Else
- Why Character Beats IQ in Investing Every Time
- Why Writing Down Your Thoughts Makes You a Smarter Investor
- Why You Should Think Like a Business Owner — Not a Trader
- The Secret to Adapting Without Losing Your Edge
- Your Portfolio Isn’t Your Life — Here’s What Actually Matters
- How Ancient Navigators Explain the Stock Market
You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:
Breaker
Overcast
RadioPublic
Stitcher
TRANSCRIPT
Tobias: And we’re live. This is Tobias Carlisle. Joined as always by my cohost, Jake Taylor. We’re doing Value: After Hours special edition with the guys from Excess Returns. We’ve got Justin Carbonneau, Jack Forehand, Matt Ziegler. Welcome, gents.
Jack: Thanks for having us.
Jake: Whole house today. Good to see you, boys.
Justin: Nice to see you.
Matt: Excited to be here. This is going to be a good time.
Tobias: Let’s start with Justin. Tell us a little bit about Excess Returns, and then we’ve got some thoughts from your guests over the years.
Justin: Yeah. So, Excess Returns is a podcast that the three of us are all part of, Jack, Matt and myself. I think we started, I don’t know, maybe five years ago, something like that. Actually, Toby, you had a big– I’ve shared this story before, but you had a big influence in Value: After Hours. Had a big influence in actually us starting Excess Returns.
The podcast is content. It’s a long tail game, and we’ve just stayed on it and we’ve done it over the years. A few years ago, we came up with this idea of asking all of our guests’ a standard closing question. And now, we actually have two standard closing questions. But one of the closing questions we wanted to ask, and we ask all of our first time guests, is “What’s the one lesson you would teach your average investor?”
So, it’s like trying to really capture, like what is the one thing that they would teach someone– Not an expert on investing. Your average investor that watches us on YouTube or whatever. And so, over the years, we’ve accumulated hundreds of these responses. It ranges everywhere from portfolio management, investing type of stuff, to behavioral finance, to lessons about life and just a very wide range of great responses.
And so, that gave us the idea to start the process of, I guess, aggregating these, thinking about these and then thinking about a book that we hopefully will write in the future. We have some ideas. We have a proposal around it. And so, that’s what we thought we might do with you, guys, today, that might be fun and is the three of us, we each went through and picked some of the ones that stood out most to us, and then we thought we would just share that lesson who it’s from and then we can riff on it if we want to do that.
Tobias: Awesome. I’m excited to hear it. Do you want to take it away with the first one?
Justin: Sure. You want me to– Yeah. Yeah. Yeah. They sound so basic and obvious. That’s probably what makes them good, because they’re going to be true today, tomorrow or whatever, five years from now. So, the first one that I picked was from Ben Carlson. Ben’s been on the podcast a few times. People might know him from Animal Spirits. He’s at Ritholtz Wealth Management. Those guys are producing tons of content.
How to Stick With Your Investing Strategy When It Gets Hard
Anyway, so, Ben’s lesson was a good strategy you can stick with is better than a great one you can’t. And then, he went on to say, and I’m paraphrasing here, “There’s probably no perfect way to save and invest. You just have to pick a strategy and stick with it come hell or high water. The good strategy you can stick with is vastly superior to a great strategy you can’t stick with. If you find a strategy that works for you, don’t worry, everyone else is doing it.”
Jake: Toby, how’s that going so far?
Justin: [laughs]
Tobias: Well, I like the idea. I think it’s a great idea. It hasn’t worked for me, but [Jake chuckles] I like it.
Jake: I’ve seen what you do for other people than I want. [chuckles]
Jack: This does apply to value investing a lot though, because– I’m a huge fan of value investing too. But it’s not the right strategy for a lot of people because of the volatility of it. I put a lot of clients early in my career in these focused value strategies, and the number of people that can stick with those is not huge. So, it relates to the whole value investing thing.
Tobias: Do you think it’s a value versus momentum? There are people who just want to see that their stocks have been going up. They don’t want to buy them if they haven’t been going up. They want them while they’re going up. When they stop coming up, they don’t want them anymore. And there’s nothing wrong with that. That’s a strategy that it’s got some pretty good quantitative backing.
I’m contrarian. I want to bargain. But some people want the stocks going up. Is that the main distinction, do you think?
Justin: I think it might have to do with maybe how– When you’re looking at finding a strategy– People obviously go– The first place they probably go is performance. And so, yeah, if you’re looking at trailing like returns over last year and you’re looking at the top stuff, that’s going to be the momentum stuff no matter what part of the market the momentum is coming from, that’s going to be the best performing stuff.
But maybe the key there is, is if you have a strategy that has, let’s say over the past year, even three years, a 20% annualized return versus a strategy that has a 12% annualized return, but the 20% annualized return has a crazy standard deviation of 30% a year, that’s not a strategy that most people can stick with. My big takeaway is, sometimes you’re better off with just finding a strategy that fits with your risk tolerance than trying to chase the best performing one. By the way, I was thinking about past examples, and you, guys, remember the CGM Focus fund with, I think it was Ken Heebner?
Tobias: Yeah. Yeah.
Justin: That was the best performing fund from 2000 to maybe end of 2007 or something like that. But the annualized return might have been something like, I don’t know– Don’t quote me on this, but something like 16% or 17% per year in what was effectively almost the lost decade for stocks, but yet the volatility of that was so significant that no investors could really hang in there, and everyone was piling in after the periods of good performance.
Tobias: The average investor lost money in it. The average investor lost 11% a year.
Jake: 13 positive and negative 10 for the average investor.
Justin: Oh, wow. Yeah.
Tobias: Which is not something that he can control. It’s not something that the manager can control. Like, you get what you get. But it’s one of the things that– I’ve heard Cliff Asness refer to value as streaky. So, it seems to like it works in short bursts right when you think it’s not going to work, and then everybody piles in and stops working. It’s been my experience anyway.
[laughter]Tobias: Must be due for some working, because it hasn’t worked for a while, 10 years something like that.
Jake: It was counting.
Tobias: Do you want to try the next one?
Justin: Sure. Jack, you want to go?
The One Habit That Separates Great Investors From Everyone Else
Jack: Yeah, sure. This is actually the one we– We did a draft chapter of the book, because if we don’t start doing something, we’re just never going to do this thing, so we put this up on our Substack. But the one we did was Michael Mauboussin and the idea of base rates. So, just put simply, it’s just the idea of looking at the past and seeing what happened under similar circumstances. He would call it the outside view. It’s the opposite of what most people do, because most people analyze the situation. They’ll look at all the details now and they’ll say, “All right, here’s my conclusion as to what might happen.”
So, if I’m looking at say a growth company that’s growing 25% a year, I might look at what’s going on at the company and its prospects and everything like that, and say, “What are the odds that growth can continue at 25% for the next decade,” or something like that. If I’m doing it, if I’m using base rates, what I might say is, “Let’s look at every company in the past that grew earnings at 25% a year. How many of them were able to sustain that rate over the next decade?” And the answer to that would be, not that many.
And so, I don’t think it’s one of those things where it has to be the only thing you do, but I think it’s a thing where a lot of people don’t use it at all. So, a lot of people say, “Here’s my inside view.” They don’t even look at the base rates to say, “Does this make any sense based on history?” So, that was one of mine.
Tobias: Do you think that the hyperscalers, or Mag-7 or whatever we’re calling them now have broken that model?
Jack: Yeah, to some degree, absolutely. But that goes back to what I was saying. Definitely, if you looked at the growth rates, they were able to sustain at their size. If you had looked at base rates before, you would have said, “No, they can’t do that.” But I think that gets back to the whole idea of marrying the two things together, which is, I’m not qualified. I’m a value guy. I thought there was no chance they were going to sustain any of that, whether I did the inside view, the outside view or any other view. But there were people who looked at those businesses and said like, “Something is different about these businesses,” and they may be able to sustain these growth rates for longer. And so, I think it’s an issue of marrying them both.
I think when people look at Mauboussin’s stuff, sometimes they think like just use the base rates. You can’t just use the base rates, because the world changes. Things are different sometimes, but I think it at least can inform what you’re doing.
Tobias: What do you think, JT? You know that base rate stuff better than I do. What notable breaches in it have there been?
Jake: Well, certainly, the size of the companies. If you had looked at 2015, and you look backwards at base rates, and the starting revenue size of the business and then can they sustain that clip of a CAGR, you are definitely betting against the base rate if you– And yet, they did it. There’s good reasons for it. Brian Arthur’s returns to scale, those network effect type of businesses, they might be a different breed, which is to say that from a Bayesian reference class mentality, you didn’t have the right reference class by just assuming that whatever, like an oil and gas company from 1980, which would be in the dataset, which is creating the base rate, was maybe an apples to oranges comparison by the time you got to Google in 2015. So, you just need to be mindful of how you’re applying them.
But I agree what Jack said that no one really looks all that hard at those for the most part and so they end up– Instead what ends up happening often, is that you remember very loud data points about something like Amazon. I should have bought Amazon way back when, but it’s defied all kinds of different base rates over the years.
Of course, you almost have to have something that defies the base rate in a big way for it to turn into a huge outcome. And so, it’s easy to remember those that you didn’t do, but maybe there’s 1,000 other ones that look very similar from the same reference class that were zeros and therefore, it actually wasn’t that good of a bet. So, anyway, it’s just Jack had it right.
Tobias: It’s still a good approach. I wrote it in this new book that I have coming out, Soldier of Fortune coming out in a few weeks. I had this line in there that said– [chuckles] We remember events by this spectacle, so everybody’s afraid of getting eaten by a shark, but you forget the stuff that’s much more likely to kill you, which is just overeating a little bit every meal, ultimately that catches up to you. That’s more dangerous than shark attacks, clearly.
Matt: You’re making me hungry. Come on, let’s get a sandwich.
Justin: I look at a lot of 13F filings for advisors and funds. It’s these large cap tech stocks that are at the top of everyone’s list. And so, they’ve defied the base rates, and everyone and their brother has been buying them. So, as investors in the last 10 years, it’s worked for the most part and so there’s this maybe bias to your point like you’re not saying seeing all the stuff that doesn’t work, because in most people’s portfolios is a lot of the stuff that worked. And so, you get tricked a little bit maybe.
Tobias: Matt, you want to give us your first one?
Why You Should Think Like a Business Owner — Not a Trader
Matt: I am gladly going to give you that. First, I have to ask you though, Toby, for a piece of advice. So, Soldier of Fortune, we’ve got some Art of War. There’s all these angles you’re working in this new book.
Tobias: Yeah.
Matt: Jack was trying to convince me that the Kamasutra of Excess Returns was a good idea. [Jake laughs] I was like, “I think you’re getting the long lesson here.”
[laughter]Tobias: [crosstalk] I think someone’s already written The Joys of Compounding. So, the Kamasutra and Excess Returns sound good.
Matt: All right. Jack, I think your vote’s going to carry on this one.
Jack: Okay, we’ll go with it. Anyway, it was funny though, because– Toby, you’re going to come on the podcast soon to talk about the book. When I saw that, I’m like, “There’s no way I could do this topic justice.” I know nothing about Sun Tzu. I know nothing about any of this. So, Matt and [unintelligible 00:12:40] are going to do the interview, because they’ve thought deeply about this stuff and they’ll be much better at it.
Tobias: Awesome.
Matt: Well, speaking of things we haven’t thought deeply about, I’m going to share a quote now. I’m going with Chris Davis, and I love this concept of, “When you own something, you should think about it like you own a business.” I want to qualify this and just shoutout the buttons that we have on Jake Taylor’s sweater. So, if you’re not looking at this, [chuckles] you should screenshot and zoom in the buttons on this. Despite the bathrobe neck cut, those buttons look chunky, and I like this sweater even more.
Jake: Got one button done. That’s all you’re getting.
Matt: That’s all we get. So, this Chris Davis idea of, “You own a business,” what I love about this one, I think the most is because especially in advising families on their money and businesses, business owners, families who own businesses on their money, is they don’t think about it like something they’re going to trade or flip. There’s this awareness of not just what it means to be a shareholder, but what it also means to be a stakeholder in something you own. And that might mean you take this really long-term view and you really appreciate the values of the company, or it might just mean something lives in your IRA for three or four or five years.
But that mindset shift to, like, what’s the whole community around this, how am I aligned with the investment I have? If we know that we’re all our own worst enemy at the end of the day, why not be reminded that you’re owning a piece of a business and that you should be looking for alignment on lots of levels, not just the right valuation entry point, whatever else.
Jake: I think that’s really underrated, and that it’d be quite easy for me to be disconnected from the world and just shrink into my own little world. But the fact that you’re learning about businesses, it forces you to be actively engaged a little bit more. And so, I can’t help it now when I go into a restaurant. I think about like, I wonder how many customers they need to get per hour to get to break even here when I’m looking around.
Matt: What’s the table churn? What’s turnover look like? Yeah, I think about this all the time too. I think it’s really valuable to train yourself to think that way, because a lot of people go through the world– The ultimate trader mindset is everything is just a piece of paper. And the bastardization in the other direction is the worst of the worst ESG fund, where it’s like, “Oh, we only think about a–” No, you don’t. You don’t actually think about alignment.
I saw your bank stock and who they’re lending to. Let’s read the whole filing. But somewhere in the middle is a really healthy thing. It makes it fun to talk about, because you can go to a restaurant and be, “Yeah, how many of these high tops are they turning over? I don’t think the volume’s right here.”
Jake: Yeah, this might not work as a concept.
Jack: Do you, guys, feel like there’s less and less of this going on in markets these days? It seems obvious to me that it probably is, but I just want to ask the question anyway.
Matt: Wait, I want to check the Cauchy odds on if people are doing this less. Let’s find out.
Jack: [chuckles] Can we do live Cauchy odds on here? That’d be great. But anyway, yeah, it seems to me like less and less people I know that own businesses necessarily have any idea what the business actually does and/or maybe just looking at it as something that’s going to go up.
Jake: Sorry, you were breaking up there. I didn’t–
Tobias: [laughs] That was [unintelligible 00:15:45] when I asked him. I didn’t mean to name him.
Jake: Toby, Toby, [crosstalk] criticized by category.
Jack: Oh, that’s right. [crosstalk]
Tobias: Sorry, sorry. He should have just said, “That’s not how I do it. I look at the line. Number go up.”
Jake: Yeah.
Tobias: There’s nothing [crosstalk] works.
Jack: Did you see afterwards he did the thing where his wife filmed him like slow rolling in his Ferrari or something like to show how much money he had or something like that? So, if we fall apart here, we’ll do that in a 1982 Honda Civic as value investors, because that would be our flex, I guess.
Tobias: I’ll be a [crosstalk]
Matt: Purple Samurai Suzuki. That’s what you’re doing– Yeah.
Tobias: Have you read The Davis Dynasty, Matt?
Matt: I have. I have.
Tobias: Yeah. I really enjoyed that book. I thought that was excellent.
Matt: It gives you a lot more appreciation for– Again, just there’s a life and an identity around building these portfolios and thinking through this stuff. That’s part of the joy of investing. That’s why it’s fun. That’s why it’s fun to read you, Toby, highlighting the investor letters and even the hostile stuff. We were like, “This is sports. This is life. This is theater.” And it’s engaging and it’s business building. And that’s worth being engaged with and aligned with across our portfolios.
Tobias: I love the strategy element of it. I love it when there are two competitors who take totally different strategies. It’s not clear from the outset who’s going to win, and ultimately somebody does and then they decided– It was more important that we build long range subs and short-range subs. I don’t know if you guys ever read The Gulag Archipelago. That’s one of the things they talk about there. That’s a really dark book. But one of the ideas is that they’re talking about different strategies in a cold war type scenario. If they build the short-range subs or the long-range subs, and if they’re one guy’s right, then he’s a hero. And the other guy’s wrong and he’s completely forgotten about–
Matt: This is the same as every middle school class election for president too. It’s just the more places you can see that and I would equate middle school to The Gulag in my own personal experience. [Tobias laughs] But yeah, it’s worth studying these lessons and thinking on these levels.
Jake: To go back to Jack’s question about amount of work being done perhaps in market participants, I do have some concerns about– If too many people are focused on trying to win zero sum games rather than play positive sum games, I don’t think that’s good for your civilization. So, all this gambling instinct that’s really being tapped into and made incredibly convenient, I’m not a big fan of that. I don’t think we should be celebrating it either.
Matt: There’s fewer and fewer between the people who are actually pushing that. I don’t know, are you up on the Jonathan Haidt stuff and what he’s been doing like Freya India. There’s a lot of great pro-social stuff coming from earlier generations that I don’t think we’ve seen yet. So, seeing like Gen Z, Gen Alpha and below now saying, “We don’t want to be on apps, we’re looking for pro social community engagement,” it’s like the first wave of very reassuring– The kids might–
Jake: Rebound from just screen zombies and gambling.
Matt: Yeah. Freya India, she’s hosting some giant delete event or something. It’s a global event. It’s like, pick one app on your phone that we’re going to talk about why and we’re all going to delete it. [Tobias laughs] Not like they’re picking on a company, but like you pick the app you want to delete. Not telling you what to delete, but just giving people a platform to express this. And that is a big swing in the pro social direction. Borrow a term from our friend Ben Hunt on this stuff. Instead of the prisoner’s dilemma zero something looking for those stag hunts, we were going, “What’s the best way to move the community forward altogether as opposed to in a competitive environment?”
Tobias: I love it. Justin, you want to hit us with your next one?
The Secret to Adapting Without Losing Your Edge
Justin: Yeah. So, the next one that I pulled was from actually a guy out near you, Toby, Steve Romick from FPA. He’s like a value quality guy, but his big mess–
Jake: Handsome [crosstalk] isn’t he, Toby? He’s good looking.
Tobias: [chuckles]
Justin: Good looking guy. Guitar player, I think. He was just like, “Be flexible, don’t be dogmatic and don’t just assume that your point of view is always the right one. Always be looking for reasons why it might not be.” It just reminded me, Toby, relating to the book and Buffett and Apple and his pivot into that, that was one example as I was thinking about this that obviously is the very top one that comes to mind just because that was such a great trade, and obviously Buffett came out of his non-tech investment stance. That’s something I think you talk about in the book.
But then, I was thinking of David Einhorn and moving away from– This was his thing, like, trying to get a return not of capital, but return on capital or maybe I have it looking for dividends and things like that. Instead of trying to wait for the market to recognize the fundamentals as a value investor, he wanted to be paid while he was waiting. So, those are just some things I was thinking about that jumped out at me that I was like, “Okay, this Romick quote is something that I think is really important.”
Jake: What’s the difference between stubborn and disciplined?
Justin: That’s a good question. I think–
Tobias: Disciplined is right, stubborn is wrong.
Jake: Yeah. [Justin laughs] Disciplined is when it works and stubborn is when it doesn’t work.
Matt: You’re supposed to ask your spouse that question, right?
Jake: Yeah.
Justin: There’s still guys out there that are using– They use price to book in their valuation, and there’s people that have argued for a whole host of reasons why that might not be the best anymore or might not be that useful because of intangibles. And so, I think maybe everyone’s different when presented with different points of evidence. It’s tough when you’re building–
Although O’Shaughnessy, I think even though it’s not O’Shaughnessy anymore, like, Jim had talked about times where they would modify– They had a set strategy with set criteria, but then if the evidence presented that there was a better way to do it, they would integrate that change into their factors into their criteria. But it’s a good question, Jake. I don’t know.
Tobias: The problem is separating out cyclical and secular. That’s hard, because price to book has been a good– It has generated alpha for a long period of time, but looks like it may be waning. But then, also then you have other factors like the size factor. Small has outperformed large since the beginning of the data, but there’s definitely been a big cyclical upswing of large over small since 2015. That’s 10 years. That’s a long time.
At some point, you got to start, is there really a size factor? Do smaller stocks really outperform larger stocks? I think they do. I think there’s still evidence there that they do. But there’s some point where there’s no positive gain over a hundred years of data, you got to start wondering.
Jack: It’s interesting. On the price to book thing, we just had a guest arguing in favor of price to book recently. It was Matt Zenz. I think the argument in favor of price to book, is it’s maybe a more pure value. So, some of those other metrics pick up quality at the same time. And so, for people who want to use value and then put their own quality metrics together with value, they like the raw value of price to book and then they put it together with other stuff. So, that’s not necessarily what I believe. But if I was going to make the argument for price to book, I think that would be it.
Tobias: I think Cliff Asness made the point that it’s worked best over the last decade, because-
Jake: The least.
Tobias: -it’s the worst value factor. [laughs]
Jack And we all know– [crosstalk]
Jake: Least representing value.
Jack: -it’s going to start working.
Tobias: Yeah.
Jack: As soon as we stop using it, it’s going to go crazy and have– It’s multi decade run of the best performance of all time, that’s just the way it works.
Matt: So, we should declare it dead right now, right, so then we can all take counter credit for it?
Jack: Yeah. It probably would be good for all of our performance if we did.
Matt: There you go.
Jack: It’s over.
Tobias: Jack, you want to hit us with your second one?
Why Writing Down Your Thoughts Makes You a Smarter Investor
Jack: Yeah. So, my initial reaction we had this idea, was that I need to suck up to the host. That’s what I decided to do here. I actually think it’s a really good idea you had and it’s also a really good idea with what’s happened since you came on the podcast and you did this. Because you were one of our first guests. So, this has been years since you said this. But you talked about the idea of writing it down and writing everything down.
I think that the reason I wanted to bring that one up, is first of all, it’s a great idea. But when you came on and you said that, I was like, “All right, I’m going to start writing everything down.” I literally did not write one thing down after that. But now, I do all the time. And the reason I do is because of AI. I think AI makes that an even more powerful lesson, because now, I can write my thought process down all the time and I can have like that running thought process that I can see that I’ve had over time, but also, I can get feedback on it and I can get feedback on maybe where my blind spots are.
So, I just think not just in investing, in terms of business strategy, in terms of stuff we do with the podcast, I’m trying more and more to write my reasoning down for things I’m doing and keep it as part of a thread, because I think I have a better mechanism to analyze it now.
Tobias: Where do you write it down? Where do you record it?
Jack: I just write it into ChatGPT, or Claude or any of those places. So, I do the same thing you would have done on paper, but I’m just writing it in there and I’m trying to write stream of consciousness or what I’m thinking or anything like that. And then, I’ve just got this huge thing it can remember about what was I thinking. Because the big part about that lesson is what was I actually thinking the moment I made that decision. Because it’s impossible to go back and think what was I actually thinking the moment I made that decision.
I think when you put it in AI, AI is going to remind you of what you were thinking the moment you made that decision. As I build up accumulate that over time, so I actually am following your lesson now.
Tobias: Well, JT’s got a product that does that too, The Journalytic Engine. You want to pitch it, JT? Give us some of the data.
Jake: Jack just pitched it for the most part.
[laughter]Jake: It’s investment specific. Recording of your thoughts, feelings, decisions, run checklists, record pre-conviction or conditional pre-commitment contracts, like, “If this happens, then I will do this.” Yeah, it basically tried to operationalize all of the behavioral best practices and put it into a software.
Jack: That’s really cool.
Tobias: You should check it out, dudes.
Jake: That’s good. And even more things coming down the pipe.
Tobias: You want to hit us with yours, Matt.
Your Portfolio Isn’t Your Life — Here’s What Actually Matters
Matt: I’ll hit you with mine. I want to thank you again personally for booking this call, so that I could make sure the contractors came to my house, [Tobias laughs] so we can enjoy it. Give them time.
Jack: We haven’t really heard it.
Matt: The wall vibrating in front of me says, any minute now it could get real. All right. My second one is I went with Mike Green. I know what you’re thinking. Matt, you and Mike Green have so much in common. You both consulted Peter Thiel. You’ve both been at the center of many a Twitter drama. You fought academics tooth and nail. I want to say we do actually have a lot in common, because we have very similar tastes in the sourcing of our spouses.
We both married women from the same armpit town in northeastern Pennsylvania. I’d like to think about this as a– It’s a quality plus value factor, because you want a really high-quality thing with a really frugal value set. There’s one thing both being from northeastern Pennsylvania and selecting a spouse from northeastern Pennsylvania has taught me, life is so much better when you have really high quality with a low value set. In the sense of like, we don’t need extravagance. We don’t need super fancy things. We can go to Napa and have a really nice dinner, then we can come home and go to our neighborhood bar.
Mike Green and I definitely have that in common. So, shoutout to Mike if he sees this, and his lovely wife. So, he said, “Your portfolio is secondary to your life,” which I just love the reprioritization of this stuff. In my financial planning practice, everything is about– This is straight out of asset liability and corporate finance. What’s the calendar of events that’s going on? What’s the cash flow, the money in, money out, and then what’s the balance sheet look like for where those cash flows or liabilities have accumulated? And then how do we map that stuff all the way back to that calendar at the front end?
When you start to think about your portfolio of what’s on your balance sheet as it is secondary to all other things in your life, it really helps with decision making. It really helps go, “You know what? I could put more money into whatever you’re buying this week.” Or, we could get the house recited. Because spoiler, the insurance company, they found out it’s as best deciding. They don’t want to renew the policy. Going to get that done before the annual premium’s done and get that reinstated.
But the idea here is like, you have to have this priority stack for what you own, and that your portfolio is secondary to your life. And to hear somebody as smart as Mike be able to step back and say that, it’s super obvious to Justin’s original point. It’s a very basic aphorism here. But it goes so far to be able to remind yourself of what that priority stack looks like all the time.
Tobias: It might be also just not focusing on the financial stuff all the time helps you do a little bit better, because it’s– I think Taleb makes the point that if you check minute by minute, you’re like 50% up, 50% down. Probably that’s true day by day as well. But then, if your lens is month or quarter or year to year, then you’re probably positive like much more often, so it makes you feel like you can stick with the strategy rather than getting lost in the noise.
Jake: If you know that loss aversion, it’s 2x down feeling relative for each 1x up, so you’re guaranteed misery by checking too often if it’s a coin flip.
Matt: And then, you can turn that around and put that mental energy into other capitals around your life too. Because now, if it’s not just I’m living or dying by if I made money or lost money on the brokerage login on my phone, now I can start thinking of what’s the positive thing that I did today, what’s something I actually enjoyed that I put in the bank with my spouse, or my children, or my dogs or my family, my community. And understanding that those time investments, those attention investments are as important, if not way, way more important because of the loss aversion and all the behavioral biases. They’re way, way more important than the financial ones when it comes down to health, happiness and well-being.
Tobias: It’s great stuff.
Jack: One of the cool things about this question, I think, is it brings the most advanced investors back down to basic principles. And so, Justin and I just did a podcast earlier today. We were talking about something in depth about macro, and the lesson was just stay invested at the end. And so, I think it’s cool. Same thing with Mike here. Mike talked on that episode, we were probably talking about passive investing and all these detailed things, but then it came down to just understand your portfolio in the context of your life. I think that’s a cool thing about this question is it brings everybody down to maybe more of a basic level.
Justin: I wonder though too if like– And I love this point, Matt, but I also wonder if given how well stocks have done for the most part over the last 15 years, if this is easier– If we go through a period where we’re in some prolonged bear market, a bad recession– And the guy we had on earlier was talking– I thought he said 30% of all Americans now have over $500,000 in their investment accounts. And it’s doubled over the last, I think, 24 months or something like that, as the market has– something like that.
But because we’re talking about how much investors have in the stock market today relative to maybe 30 or 40 years ago with 401(k)s and everything like that, because we were talking about the Mike Green thing too. But I wonder if like this idea of– Because portfolios are elevated and the market’s done so well that– I think it’s a great way to think of it. It’s just everyone’s done so well, so they can think of it this way. You know what I mean? They can think of their portfolio being secondary. But I don’t know, it’s just interesting to think about.
Matt: Arguing for a new wealth effect, where all of a sudden instead of only the wealthiest of wealthy people care when their accounts go down. Like, everybody’s made all this money on 3x monster ETFs, it’s going to just be the worst? Oh, boy.
Justin: It could be. Hopefully not, but–
Matt: There’s your bearish YouTube cover take right there. [crosstalk] [laughter]
Tobias: So, somehow the chat is back and it’s fine. I’m so glad that it is. Shame we couldn’t get it back last week, but it’s good that it’s back. I got to give a quick shoutout, because it’s been a little while.
Santo Domingo, Dominican Republic. What’s up? Gothenburg, Sweden. Toronto. Tomball, Texas. How are you, Tyler? Tampa, Florida. Bendigo. Dubai. Kennesaw, Georgia. Madeira, Portugal. Screwston, Texas. Charleston. Cromwell, New Zealand. This is a good spread. Mac’s in Valparaiso. Barthelona. Thanks for the spelling. I appreciate that. Toronto. Temecula. Lausanne, Switzerland. Jupiter, Florida. Östermalm, Sweden. Dead Cat Gully, New South Wales. Me too. Ballynamullan, Ireland. [chuckles] Les Whynin in Howyagoin, Australia. The Wizard of Waterloo. And London.
I think we’ve got all the financial centers that are awake right now, so we’ll take it. Lorraine Ohio. Last one. JT, top of the hour. It’s 11:04, it’s four minutes past the hour market. Here come the veggies.
How Ancient Navigators Explain the Stock Market
Jake: All right. Well, I heard David Krakauer, who I’m a big fan of– He was talking about this term hyperobjects and Polynesian navigation on a recent podcast. And so, in no time, I find myself down this rabbit hole and very fascinating. So, today, I wanted to give you, guys, a brief guide tour of that rabbit hole, so bring you down here with me.
So, across the Pacific Ocean lies a story that’s so audacious, it almost sounds like it’s a myth. So, picture it. It’s like a double hulled canoe about 60 feet long, and it’s carved from wood and it’s strapped together with rope. It’s throwing off this thin wake into a vast, totally indifferent ocean. No compass, no sextant, no GPS. Just a man, the stars and the pulse of the swells beneath him in the ocean. How can someone, this guy, sail across the Pacific Ocean, no technology and hit a speck of land after weeks at sea? And not like close enough and directionally correct, but right on the money. And that sounds like fantasy to me, until it wasn’t.
So, yeah, just to back up a little bit, like in a bit of what was probably likely racism, Western historians, they doubted whether ancient Polynesians had intentionally explored the Pacific and settled places. They basically were saying that they drifted. They claimed that these migrations were just accidents, basically brown people drifting in a boat until they hit the next piece of land.
But in 1976, a man named Mau Piailug, I believe it said, I mean, I’m probably getting that horribly wrong, I apologize. But he’s from this tiny Micronesian island of Satawal, and he wanted to prove otherwise to these historians. So, he guided his canoe from Hawaii to Tahiti, which is 2,500 miles in 31 days without a single modern tool. And how did he do that? That’s the mystery of this whole thing. It wasn’t luck. A drift doesn’t deliver you on schedule. There’s too much randomness. And it was not repeatable to be able to just drift your way from Hawaii to Tahiti. It wasn’t magic.
The Satawal boys, like this guy, were trained for years as kids. They lie in their canoes with their eyes closed and they feel the swells, and they’re taught to memorize the star paths they decode like birds and ranges the birds have as far as where land is. And this knowledge is culturally imprinted and shared with them in songs and phrases that every Satawal boy learns. So, it’s like this muscle memory. It’s not a mysticism. It wasn’t a single North Star. He wasn’t just be able to go off of one particular North Star. As soon as it’s cloudy, that’s out, right? So, any single method that depends one lone metric is not going to work.
And then, the instruments that he was actually using was his nervous system. Like he was a living filter that fused all this very low fidelity input into a high-fidelity course that he was setting. Let’s back up to this whole idea of hyperobjects. I hadn’t heard this term before and I think you, guys, might find it interesting. But the Pacific is not easily observable in one go. That’s what makes it a hyperobject. That term came from the psychologist Timothy Morton. It describes phenomena that are so vast, so distributed, so smeared across time that you can only meet them in little fragments. You never get to see the entire ocean, you’re just sampling the signals of it.
Long period, swell, that was a memory from a distant storm, or a bird’s arc that indicates the distance to land or a cloud under glow that signals where a reef is. Each one is this little partial pattern that you can pick up on. There’s a relation amongst them that’s really important, and it serves as a map. So, Mau was quite comfortable with this hyperobject of the Pacific Ocean, because he was continually updating his feel for it. So, it’s like Bayesian updating, like we were talking about, with base rates. And of course, he had many voyages and he was able to hone this, which is a really important part of being able to trust your intuition.
So, we all operate inside of hyperobjects, whether we know it or not. Like, the stock market is a hyperobject. You can’t wrap your mind completely around all of it. All these businesses, the economy, climate, culture, all these things are hyperobjects that we’re just sampling, like we never observe them fully directly. And so, we’re only touching local effects. Almost like you’re touching a part of an elephant and then trying to describe it. You can never really master a hyperobject, because there’s never about perfect information. There is no perfect map of these things and it’s always changing. They’re too big, and they’re too viscous and molten to use Morton’s terms.
So, it’s really about building flexible schema that weigh these multiple signals and then updating those without ego, which goes back to that base rates. So, I think the best investors really treat businesses like hyperobjects. They’re reading about their culture, the incentive structures, switching costs for the customers or raving customers, supplier dynamics, regulatory tides. All these things are little touch points on a hyperobject that you can’t ever really fully map your mind around, what does it mean to be the whole company.
Just like these navigators learned from their ancestors, they would actually call it like sailing with the ancestors. That was their term for how they knew this stuff. We have our ancestors as well. Buffett’s patience and Munger’s lattice work or Fisher’s focus on quality. We’re all navigating by some of these inherited stars as well. And so, the goal really is to try to be in flow with the hyperobject, and not fight it and not think that you can completely map it out. I think true mastery really comes from being able to take this analysis, and realize that intuition and analysis are not– They’re not at opposites.
When you can blend them into a single framework, I think that’s where you get the best investors. They just have this intuition. It’s from deep pattern matching, picking up on little signals. This is where Buffett’s apperceptive mass that he’s talked about before, like, one little thing that he learns like causes a bigger picture to click into place and you understand it.
I think there’s some interesting crossovers between the very best investors are navigating things that are these hyperobjects that you can’t understand all of it, but they have just enough intuition to understand how to work with it in a way that’s successful for them. They’re able to get from the financial equivalent of Hawaii to Tahiti by using that intuition. So, I thought it was an interesting correlation there.
Tobias: That’s incredible.
Matt: I think I want to go back and watch Moana again from a whole new set of eyes. That’s wild. Is there a modern application or is there– I feel like I’ve seen this term thrown around in the wake of AI and all the other stuff going on. Where did hyperobjects come from in your awareness to look that up?
Jake: That was David Krakauer on an interview, and he was talking actually about– He was describing a lot of actually his interaction and what Cormac McCarthy was like as a person. This was a topic that came up. And so, then like I said, I went down the rabbit hole.
Matt: Today, in Serendipity, I have my John McPhee, Survival of the Bark Canoe, which have you ever read that?
Jake: No. I do like John McPhee though.
Matt: If you’ve never read that one, it should be the most boring book he ever wrote and it’s like the best book. But I’m pretty sure we have– Oh, it’s almost there. I have Cormac McCarthy is right next to it. So, they’re sitting on top of each other right over here today. Casual vacation reading.
Tobias: I’m a big Cormac McCarthy fan, and I just read this the other day that he didn’t start writing until he was 40 and he bought an old typewriter. And then, when he blew up when he was 70 or something– He was quite old before he got famous and successful. He sold his old battered typewriter that he’d written these things on for $100,000, and then he just went back and bought a cheap version of the same thing that he’d just sold for 100 grand, which I love.
Matt: This is the plug. If you don’t follow Aaron Gwyn on Twitter. Do you guys know Aaron at all?
Tobias: That’s probably where I stole it from. [crosstalk]
Matt: Yeah. He’s adjacent to everything. But Aaron is one of the preeminent Cormac McCarthy scholars. So, if you’re into that stuff, I get all my Cormac news. [crosstalk] Yeah, it’s from it.
Tobias: There we go.
Matt: Super fans.
Jake: Well, David got to spend a lot of time with him as they were both at the Santa Fe Institute forever. And so, I’m sure that was a pretty special– One thing he said that Cormac like he’d literally have time. He just have nothing to do. He’s never overwhelmed, busy or anything. It was just like, “I’m just going to go eat an ice cream at Baskin Robbins.” Like, that was what he did every day. [laughs]
Matt: The stuff that came out with the woman that he had the long-term relationship with and the whole–
Jake: That was interesting.
Matt: Yeah. But there was lots of stuff like that inside of there. It’s just such a regular dude and you’re going. And somehow in the middle of this, you’re conceptualizing the most awful characters and the most, I don’t know, that’s some wild stuff.
Tobias: “Split him to the thrapple.” That was one of the lines from one of his books, the judge– I think hits him with an axe and splits him to the thrapple.
Matt: Yeah. The judge does it.
Tobias: Had to go and look up thrapple.
Matt: So, worth looking up though. Come on, take that to your kids karate classes.
Tobias: Justin, you want to hit us with your– Is it back to you?
Justin: I think so. I was just going to ask though, Jack, can you sail with the stars?
Jack: Yeah, I’ve got like a GPS and a compass and I still cannot hit the point [Tobias laughs] that I’m trying to hit. So, I haven’t that much commentary on that, because I am basically the opposite of that.
Justin: Well, that’s probably because you had a few beers when you’re out there.
[laughter]Jack: It’s possible.
Why Character Beats IQ in Investing Every Time
Justin: All right. So, the last one was by Pim van Vliet. He’s a Robeco guy over in Europe, a big quant guy. And his thing was character is more important than IQ. And so, he said when it comes to long term investment success, character is more important than IQ. Character meaning sticking to your philosophy, not giving up at the wrong moment. There’s a big gap between the investor and investment returns that’s purely due to adverse market and adverse style of timing of investors.
It reminds me of that famous Buffett quote that, “It’s not the guy with 160 IQ that outperforms the guy with 130 IQ. It comes down to temperament and your ability to stay disciplined and stay unemotional.” I think that’s an important characteristic of good investors and I think that’s something that a lot of investors can try to learn from.
Tobias: Yeah, I couldn’t agree more. I think he means temperament rather than character there. I think that’s what he’s referring to, even if it’s character.
Justin: Yeah. That’s true. Mm-hmm. But I think the three of mine– I was thinking about it and I think they’re all in this behavioral finance discipline, decision making, good investor behavior. That’s so much of what can lead to good outcomes, I think. I think a lot of that gets missed.
[crosstalk]Jack: It is. I put all the hundred lessons into ChatGPT at one point just to say. It was basically like that. They’re all rooted in behavioral psychology. Not all of them, but the vast majority of them are in some way or another.
Tobias: Jack, you want to hit us with your last one?
Jack: Yeah, I went in the trading world this time. So, we had Jack Schwager on the podcast and we did a lightning round at the end where we asked him the greatest lesson from each of the various traders, Steve Cohen, whoever he’s talked to. His lesson from Paul Tudor Jones was view every position as if you put it on today. I think that’s really good– If you carry that to a broader level, because obviously I’m not trading, I think you can start at individual stocks and you can work your way all the way up to an asset allocation with that, which is we always just because we have it, we think it’s the thing we should have. But if we take a step back and say, “If I was doing it over today, would I still have these same things? Would I still have the same asset allocation? These same stocks, whatever it is, these same ETFs.” I think that’s a great way to look at things.
Obviously, in the real world, there’s taxes and transaction costs. I can’t just change my portfolio to whatever it would be. But I thought that was an interesting lesson that carries down from the lessons of a great trader to something anyone can apply.
Jake: Obviously hasn’t put any money in private equity.
Jack: That is true. Yeah.
Tobias: It’s a little bit like–
Jack: The bubble no one can sell that right?
Jake: Hard to get out of.
Jack: That was one of my better titles we used on YouTube– [crosstalk]
Tobias: The bubble that no one could sell?
Jack: The bubble no one could sell. We used it for Dan Rasmussen, because he was talking about private equity. That was one of our better performing episodes ever, because that title resonated with people.
Jake: That was a great episode. I really enjoyed that one.
Jack: I said I wasn’t going to use the talk about titles and thumbnails, Matt, and I got to what–
Matt: That’s okay. That was an awesome bars on that title. Absolute bars, Jack.
Justin: By the way, a little inside baseball. Schwager. We’re big outline guys for the podcast. Jack does a lot of prep and we send all of our guests an outline. It just works for us. If not for everyone, it works for us. [chuckles] We didn’t get your outline. We actually sent the outline.
Tobias: That’s right.
Jake: That is Right.
[laughter]Justin: But with Schwager, remember Jack, we were like, “We’ll send you.” And he’s like, “No, I absolutely don’t want.”
Jack: Yeah, he refused it.
Justin: He refused it.
Jack: Only guest ever who’s ever refused the outline. He was like, he just wants these to be free flowing conversations. And so, I said like, “We’ve got this ready, we’re going to send it over to you.” And he’s like, “No, I don’t want it.” It actually ended up being a great interview, so he was probably right.
Jake: I think the pros don’t. They don’t need notes right there. They’ve already got it.
Jack: Yeah. It’s interesting. We’ve had a really big mix of that. We’ve had really, really well-known people who were really, really happy to have the outline, and we’ve had people who just don’t want it. I think it depends on what topic you’re talking about. Like, the stuff were talking about with Schwager was probably very good without an outline. If we’re digging into some macro concept, it’s probably better that we have some structure we’re working off of. We always offer it if someone wants it, but it probably depends on the episode whether it’s better or not.
Matt: The Schwager brand is that curiosity too. It’s like, we read the books, because we know the curiosity he brings to the table. So, it’s not like he’s going to show up with his CNBC bullet points.
Justin: Right.
Matt: And if he did, that would be weird if he was citing stuff. Instead, you want Schwager in a flannel shirt halfway through a cup of coffee, just being like, “I haven’t thought about that book in 18 years. Why are you asking me that?” And then, you see where it goes and it’s magical, because it’ll go anywhere.
Jack: We asked him in the live interview, why did you not want the outline? He was basically saying like, when he did his books, he didn’t need it either. He wanted to sit down with these people and just ask what was coming to his mind. He didn’t want a structured outline of what was going on.
Tobias: How long has he been doing that for those books?
Jack: Long time. I don’t know.
Justin: Market Wizards was published in 1989.
Matt: Okay. I was going to say early 1990s, but 1989. There you go.
Jack: He’s got a new book coming out too, next year.
Matt: What have you been doing with your life, gentlemen?
Jake: Yeah. [chuckles]
Tobias: I was a child when that book came out. I like the point that he makes though that we should talk about a little bit. It’s similar to that one that we were talking about earlier, when is it discipline and when is it being stubborn. I think that there’s a good argument for– I’m a big process guy. I like having a lot of process around what I do and make decisions, because some days I wake up and I feel very positive and I want to be fully invested in very aggressive things. And then, other days, I wake up feeling the other way and I want to be underinvested in defensive stuff.
Jake: Got a case [crosstalk] Mondays?
Tobias: Yeah. So, I think I wouldn’t want to be making decisions every day on the portfolio based on how I feel. I want a little bit more process around that.
Jack: This is a good thing about being a quant, by the way, is the quant can ask the question itself. Would I own the stock, if I were to make the decision today? Because it can look at the fundamentals that use to select a stock, and it can use the fundamentals now. And then, if you want, it can also score it based on tax considerations, how long have I held it, what’s my gain and stuff like that, which is what I do. I just take the decision away from myself with that.
Jake: Let me play devil’s advocate here and say, imagine a future where AI is quite even further advanced than now. More and more things are in that model. It’s probably going to do a better job of optimizing that than we’re capable of. So, what does that leave as the last bastion for humans to have some differentiated, better view? Is it intuition and things that can’t be very easily modeled and maybe not even explained in words?
You have some deeper pattern recognition within a business that might not even be able to– You can’t even really put into words, but there’s something special there that the AI would just– It’s not in the model for the AI. I don’t know, does that defy process? Your best version of your process as a human maybe pales in comparison to the AI’s best process, so what do you have left?
Matt: I’m crowbarring only, because this is basically the last one that I have is this exact point. So, Guy Spier, who needs no introduction to this crowd at least. But so, Guy Spier said, “Be kind to yourself and forgive your mistakes.” And inside of that, this idea of there is no such thing as a sustainable practice that doesn’t involve making mistakes. And so, if all you do is beat yourself up, you will never build any sustainable practice. That’s hard.
I still have to learn that lesson on a regular basis to remind myself of this, don’t just beat yourself up. But to the point that you were just making on this, Jake, is like, you have to keep on doing this thing and then use feel taste, intuition, all the things that AI can’t do for you, because those are the only perceptions that are actually going to tell you if you’re still onto a track on something that’s productive.
And then, you have to measure it outside of yourself too. You can’t just look on feedback and be horribly stubborn. I can go buy scratchy lottos every single day of the week and have a big pile of losers. And my wife could look at me and say like, “This is not a good investment in our future.” I don’t actually do that, but just making examples.
Tobias: She says, “This is not working.” And you said, “But in back test, this worked really well.”
Jack: Yeah.
Matt: I price these to the book value—Yeah, this is not– [crosstalk]
Jake: And the AI would tell you that it’s still a good idea even if–
Matt: Right. So, it’s like that taste and that feel and then mapping it back out across your community, or the people around you or the things that you’re doing it for. Because if you hone in on both of those things, you do something that feels cool to you and then you have even one other friend.
I imagine Toby, as this went to you, you were like, “I have one friend, Jake Taylor.” And maybe Jake Taylor thinks this is a good idea, and that’s how this spreads. You need one person to validation. I found Jack and Justin here. They’re willing to put up with my shenanigans. But that’s enough to keep me on the stubborn train in this community. There’s winning upside to identifying this stuff.
Tobias: What are your experiences with AI so far? Are you guys’ pro using it in your work? Are you skeptical or what are you for?
Matt: I am AI. I’m not even here right now.
[laughter]Matt: What’s her name? Yeah, studios are mad.
Jack: I’m not pro in investing, but I’ve been pro and pretty much everything else. I haven’t found a way to use LLMs to create better stock picks or anything like that, but pretty much everything else I’m doing is getting better because of that. Just its ability to review everything and the topic that I won’t bring up that we were bringing up earlier that, it’s helped us a lot with. [Tobias laughs] I think there’s going to be as we look forward.
And to Jake’s point, it can’t do everything. I was thinking when Jake made that point about growth investing, because that’s something quant is terrible at and that’s something where a human being, like that pattern matching and looking at what’s worked in the past, is way, way better, and AI may never be able to do like what a human can on the growth investing side.
But in just general life, yeah, I think there’s going to be a separation between people who learn how to use this and learn how to optimize what they’re doing with this and the people that don’t. I think five years from now, it’s going to make a huge, huge difference, because if you know how to use it right, it’s just so powerful.
Justin: Well, it seems to me too on the investment process side, if everyone starts to go that way, the edge won’t be there, because the AI will be producing possibly the same output for a lot of people. And so, that’s not where outperformance is going to come from in terms of stock selection and things like that. We’ve had Doug Clinton on from Intelligent Indices.
Jack: Deepwater.
Justin: He’s at Deepwater. But he has created an ETF– His strategy that he’s running in an ETF is I believe a completely 100% generated like AI driven consensus where he’s fed the models like– Buffett and the strategies of great investors and then using a consensus system across three or four of them to construct the portfolio. But I don’t know anyone else that’s doing it that extent completely. But maybe in the future, people will be doing that more.
Tobias: You can tune it up to whatever strategy you like. That’s why I don’t think that it’s not going to eliminate competition, because there are still going to be momentum investors, there will still be Buffett types, there will still be very growthy early stages.
Justin: Yeah, you’ll still have your–
Matt: And they still have to buy and sell to each other. [crosstalk] It has to happen.
Tobias: You’ve just got your Copilot there, that’s helping you out a little bit.
Matt: So, I think specifically to the Copilot point the way I use AI a lot every single day. I think you don’t want it to replace you on the immediate level that you’re operating on, but you want a step function and above you and below you at all point with points with your AI. What I mean by that is, if I’m thinking about hyperobjects and now, thank you, I’m in the rabbit hole, so you just ruined part of my day and or weekend, because I thought I knew what that word meant and now, yeah, it’s over.
So, with hyperobjects, I’m now going to go to perplexity or whatever and say, “If I’m interested in hyperobjects, what else should I be aware of or interested in? And let me pattern match above my current level of awareness for those things.” But then, inevitably, just like you did for your eloquent 10 minutes of talking about your passion for this thing, I’m going to turn around and go, “Okay, once I’ve gathered a bunch of these notes and I’ve started to formulate what I think about this or how I’m trying to process how I feel about it, now help me edit that, help me summarize things, help me put stuff together, so I can have an articulate reflection on it. So, I don’t show up at the bar, why the Eagles game is on and tap the guy in the shoulder, he’s like, ‘So, what are you into lately?’ And I’m like, ‘hyperobjects.’” I don’t want to get stabbed and I also want to have a fun conversation.
So, I want that just below level idea of like, “How do I frame this up in a way that’s articulate, that’s interesting?” And I think AI, both as an editor on a step function below and as an explorer on a step function above, is I have never used a tool that can do that. Cocaine is a hell of a drug, as the great poet philosopher once said. That’s how I feel about AI.
Jake: I like that framing, Matt. I think that’s really smart way to– [crosstalk]
Matt: Good, good. I just came up with that and I need to write it down now. [laughs]
Jake: Have the AI workshop out a little bit, but it’ll be good.
Matt: Can you send me a transcript, guys? Can I get a transcript?
Tobias: Yeah, there will be one.
Jake: I’ve had pretty good luck so far with building special custom GPTs of my own desire. Really what I’m trying to do is, I found a lot of the conversations, if you’re trying to do deep chatting with it, it starts to lose the thread faster than I want. And then, now I’m like, “This is just not getting as helpful.” So, I’ve been much more like, can I create an instruction set that I know will produce a consistently decent outcome, and then I feed it the input and then I get the output that I want right away. So, there’s not a lot of back and forth.
So, for instance, I built one that is trained on all of Mauboussin’s white papers on base rates.
So, now, I can plug almost anything into that and it will try to like reference match from the tables, the base rate of what is being proposed in the content that I give it and try to find the closest match and then give me 25th and 75th percentile, like, how reasonable is this? Is this a stretch case? Is it like super long odds never happened in the history of the universe? So, it’s quite good for little specialty things like that. I’ve had a lot of luck so far.
Justin: Can we borrow that for our chapter [laughs] on base rates?
Jake: Sure.
Justin: Thanks, Jake. Appreciate that. [laughs] We need to access that.
Tobias: Gents, we’re coming up on time. Tell us a little bit about how we can follow along with what you, guys, are doing or get in contact.
Justin: Yeah. So, you can follow us on YouTube at Excess Returns. That’s the name of the channel. We’re obviously on all the audio platforms as well. In addition to the podcast, we all have real jobs. I work with Perth Tolle at Life and Liberty Indexes, and we run the Freedom 100 emerging market index, which is the index that sits inside an ETF. They want to learn more about that, they can tool around on that.
Jack, what do you got going on?
Jack: Yeah, the only thing I would mention is excessreturnspod.substack.com is the new Substack we just started. It’s got the Mauboussin chapter there. We’re basically going to do this book in public. So, what ends up in the book may not be what’s up there now, but we figured the best way to do it is just put stuff out there in the world. It’ll hold us accountable and people will give us feedback. So, it’s up on that Substack.
Matt: Sunpointe Investments with an E, because we’re fancy. That’s the RIA. That’s the planning and investing work. All the stuff that were talking about on this, just helping people line up for themselves, that’s the real job, as Justin would put it. And my mom would probably put it that way too. So, we’ll do that.
And then, all the personal stuff’s cultishcreative.com and the panoptica.ai, the pop up, this joint collaboration with Epsilon Theory for people who are into the ways that these narratives show up in the space and using all sorts of cool AI tools to track them. I cannot wait. That’s like end of this month we’ll get that up in public too, which is cannot wait to talk more about that.
Tobias: Yeah, that looks interesting.
Matt: It’s really cool.
Tobias: JT, you want to plug Journalytic folks?
Jake: Good enough. We already did it today.
Matt: Plug it.
Tobias: Justin, Jack, Matt, thanks so much for joining us today. Excess Returns is a podcast. You, guys, did a great job. Folks, we’ll see you next week, same Bat time, same Bat channel. And with any luck, the chat will be back on working.
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:
