Morgan Housel was on the Invest Like the Best podcast with Patrick O’Shaughnessy. O’Shaughnessy’s podcast has fast become one of my favorites. Much like EconTalk, Jocko Podcast, Masters in Business, TAL, and Recode it comes out once a week and the episodes are consistently good (and sometimes great).
When I first listened to this episode I wanted to experiment. I enjoyed it, but I was biased. The episode was fresh, Housel was kind enough to mention this blog, and I like his writing. Like tree roots that trip up hikers, a potential for bias was here; recency, reciprocity, and liking.
I sat on the episode. If I wanted to come back to it, I could. If it was good, I would. I did, here are my notes. As always, initial quotes are from the subject, Housel.
1/ The right signals. “For stock pickers or asset allocators, a lot of the due diligence and research is done in a spreadsheet. It’s, ‘let’s crunch these numbers,’… In venture capital there’s often no revenue, sometimes there’s not even a product and you move away from the analytical side to the fuzzy world of “I believe in this guy, he’s really passionate.”
Each domain has a different signal. Stocks have ratios. Venture capital has feelings. The first important step is paying attention to the right things.
Laurence Gonzalez writes in Deep Survival (a great book BTW) about heading to a beautiful Hawaiian beach to go surfing. The sky was blue, the sand was warm, the waves looked good. Gonzalez was looking forward to it after his flight.
There was a guard on the beach. Gonzalez asked about the surf:
“‘Well,’ he (the guard) said, as if considering it for the first time, looking out to sea, rubbing his goatee. He was a redhead, thin and freckled, his face lined with experience. He came down from the tower and studied the sea. Before answering he seemed to think of something and asked my name. I told him. He grabbed my hand in a surfer’s handshake and said, ‘Mike Crowder.’ I waited. He turned back to the seas and continued to stare at it with a space-out look, and I started to wonder if he was stoned. Hawaiian weed is supposed to be bitchin’.
‘Okay,’ he said at last, as if he’d decided something. It was only then that I realized he’d been reading the waves, the lineup, the break.”
He told Gonzalez it was too dangerous. Gonzalez never would have known. The weatherman wouldn’t have known. There was data in the waves, the lineup, the break, but you had to read those. The lifeguard could.
2/ Find good filters. About blogs Housel says, “There’s so much material out there that you need a filter and some curation. You need a trusted list of people who are going to point to other sources. People like Tadas Viskanta at Abnormal Returns.”
You can’t consume everything. That treadmills won’t stop so we have to filter the good stuff. It’s one of the ways to use Twitter well.
In that post we looked at four ways to use Twitter well and it’s worth noting that #2 (create a filter) and #3 (bust your biases) are opposite sides of the same coin. There was a lot of talk after the 2016 United States presidential election about people who were surprised at the outcome. Part of the post-election prognostication was about these bubbles we create.
3/ Go for a walk. “I walk a lot. Just by myself, no headphones, nothing, just a forty minute walk. That’s when I think the best and figure things out…When I sit down it’s like my brain shuts off. It’s like I only think when I walk.”
‘Walking’ is my oldest tag in Evernote, germinating from Daily Rituals by Mason Currey. Here’s two favorite sections:
“Promptly at 2:00, Dickens left his desk for a vigorous three-hour walk through the countryside or the streets of London, continuing to think of his story and, as he described it, ‘searching for some pictures I wanted to build upon.’ Returning home, his brother-in-law remembered, ‘he looked the personification of energy, which seemed to ooze from every pore as from some hidden reservoir.'”
“After a midday dinner, Beethoven embarked on a long, vigorous walk, which would occupy much of the rest of the afternoon. He always carried a pencil and a couple of sheets of music paper in his pocket, to record chance musical thoughts.”
3/ The MOST IMPORTANT (personal finance) THING. “I think it comes down to a handful of things; school, house, and car. For most people those are the three big things…If you can tackle those three things all the other things we talk about in personal finance – cutting out the latte, bringing your lunch to work – don’t matter at all.”
When I bought a racing bike the salesperson tried to sell me something a little lighter (but more expensive). I didn’t even consider it because the weight of the bike wasn’t that important. What was important was that I ride many (many!) miles. That’s the MIT.
Sometimes we get distracted by marginal things when we should focus on the MIT. Cal Newport calls Deep Work the MIT. Anson Dorrance had 2000+ emails before he ever checked because ‘checking email’ wasn’t a MIT. John Boyd‘s first lesson to fighter pilots taught the MIT. Warren Buffett took the advice of Ted Williams who said the MIT was to “wait for the right pitch.”
MITs are simple, but not easy.
4/ X-MBA. O’Shaughnessy said, “It seems like college’s value is mostly about – because you can learn just about anything on your own – signaling and network.” Housel agrees, and notes that when you’re young, signalling is about all you have. “As a twenty-two year old you’re showing your employer, ‘I did this for four years. I followed the rules. I checked the boxes.’ That’s the only thing you have on your resume, so people say ‘it’s just the signaling,’ but that’s extremely important for both the employers and for you as a student.”
In the first post about the XMBA, we guessed that five things were important to DIY schooling.
- Opportunity cost.
- Financial cost.
- Self-directed learning.
- Experience and/or signalling.
Housel and O’Shaughnessy were in agreement with the first two, that school is expensive in time and money. “Almost everything I learned in college you can go read and do it for ten cents at the library,” O’Shaughnessy says. Housel suggests going to a community college for the first two years.
It’s in the last three where the ballast swings. Most 18 year olds need a framework. They need a color by numbers outline. College does this part well.
5/ Stakeholders. “The only way it can work at Valve or Zappos is if you get completely compulsive and obsessive about hiring the right people.”
Housel’s point here that those companies can work a certain way because they hire a certain way. This applies to anyone you allow in your life. Wesley Gray pointed out that if you get the right investors, you can organize things a certain way. Louis C.K. said he made his new show the way he did so he didn’t have to have stakeholders.
6/ “A perfect storm!!!” “The biggest events only happen because of a crazy confluence – a perfect storm of events – that come together to cause the Great Depression. A lot of this stuff is not foreseeable before it happens. When you read old newspapers that becomes clear.”
Housel says that he hates the term “perfect storm,” but it’s an apt metaphor. It’s true too for things that go right.
Knight had to be cut from baseball, try out for track, and then go to Oregon. He couldn’t be an elite runner, only good enough. He had to have graduated, sell the idea of a shoe import business to Bill Bowerman, and then go find shoes. Knight had to work during the day as an accountant, at night on the shoe business, and not burn out.
These are the things that had to go right BEFORE dealing with finance, competitors, and creating the orange boxes we identify as Nikes. Starting a company like Nike is like making 100 free throws in a row, outside, during a snowstorm.
Thanks for reading, I’m @mikedariano on Twitter.