Author: MIKE

Phil Rosenthal (@PhilRosenthal) was on Brian Koppelman’s (@BrianKoppelman) podcast, The Moment. The pair talk about Everybody Loves Raymond, work at a deli, and food (lots of food).

Koppelman’s interviews have been here before. He had a great double interview with Seth Godin and he’s been interviewed twice by James Altucher, #98 and #59. Here’s the menu for this meal, and remember, the episode is worth listening to on it’s own.

– Dayenu.

– Idiots and honesty.

– You’ll work at a deli, and you’ll like it!

– About writing.

– Phil’s new show.

Dayenu

Dayenu means, “it would have been enough,” and is a Jewish song sung at Passover. Rosenthal stresses that anything in show business would have been enough, and he’s felt this a long time. “You’re a writer, you write alone in a room,” he tells Koppelman, “you’re hoping that the one person at the studio who reads it might like it enough to pass it forward.” Then all you want is a pilot. “What’s better than that?” Rosenthal asks.

Koppelman says, you seem pretty happy and Rosenthal says, what’s not to be happy about? “If all your dreams come true, shouldn’t it make you nicer?”

Rosenthal echoes Wayne Dyer’s thoughts on an attitude of gratitude. Why not be grateful? If you can read this, hear birds, and feel the warm sun, what else do you need?

Dyer was inspired by ancient eastern philosophy, but the Romans figured it out too. Stoic philosopher Seneca wrote:

“When a shipwreck was reported and he heard that all his possessions had sunk, our founder Zeno said, ‘Fortune bids me be a less encumbered philosopher.’”

Rosenthal knows this and more. He quotes Bill Murray:

“I always want to say to people who want to be rich and famous: ‘try being rich first’. See if that doesn’t cover most of it. There’s not much downside to being rich, other than paying taxes and having your relatives ask you for money. But when you become famous, you end up with a 24-hour job.”

But Rosenthal doesn’t mind the job. He also recognizes that money isn’t everything. Tom Shadyac sold nearly everything he owned, and only then became happy. T. Harv Eker thought that if he had a successful business, his life would be better. It wasn’t.

“It would have been enough,” has been proved true in ancient and modern times. From Roman Stoics and ancient Jews to Wayne Dyer and Phil Rosenthal – appreciate what you have. But we often don’t. Why?

We don’t think enough is enough because we aren’t disposed to. Our genes want more because more means multiplying. “We must learn why our genes benefit from building people who have trouble finding happiness yet remain confident that it is within reach, writes Terry Burnham in Mean Genes. “Allowing us to rest on our laurels would be a genetic mistake.” We are biologically programmed to say “it’s not enough.”

Our ancestors were people who craved more than others. They survived because of this. Modern times mean modified rules, and we can divert our genetic desires like a train track switch. We can sing dayenu.

Idiots and honesty.

Before sharing Rosenthal’s ideas on honesty, let me introduce layers. When I was making lunch for my daughter one day, I went to put her sandwich in a zip top bag. It had a slider rather than the traditional pinch and seal. The slider was broken, and the bag was unusable.

Later that week I was shopping for luggage and the salesperson showed me a bag with “ski boot closure.” What’s wrong with a zipper, I asked. Nothing, she said, but this has been used by skiers for a long time. But not on luggage, I thought.

This is the idea of layers.

The more layers there are between something and its natural state the worse it is. The more people involved in a business deal, the more it will cost. The more steps in an exercise program, the harder it will be to do. It’s true for plastic bags, carry-on luggage, and it’s true for the truth.

Ray Dalio writes about this. His investment aims are to find truths:

“Principles are concepts that can be applied over and over again in similar circumstances as distinct from narrow answers to specific questions. Every game has principles that successful players master to achieve winning results. So does life. Principles are ways of successfully dealing with the laws of nature or the laws of life.”

Principles are optimal ways to handle truth. Layers obstruct truths.

Layers don’t need to be shrouded. Each piece of glass is in a window is transparent, but not perfectly. Each piece of glass increases the distortions. In life we need to figure out when people have added too many layers. Figure out when people aren’t being honest (the natural state).

“You do have to recognize when someone is out to get you,” Rosenthal says. He recalls a story about Tom Hanks, who was in a meeting and about to get a bad deal. “Gentlemen,” Hanks said, “you can not take advantage of my good nature.”

When you see idiots in life, you have to call them on it says Rosenthal. Naval Ravikant said much the same thing. When there is the truth and the lie, there are two stories to remember. For Ravikant this keeps him from being in the moment, his best state.

Rosenthal thinks that Avatar was successful, in part, because the Na’vi teach the protagonist to say, “I see you.”

Amanda Palmer had this experience as a street perfomer. In her TED talk, she says:

“So I had the most profound encounters with people, especially lonely people who looked like they hadn’t talked to anyone in weeks, and we would get this beautiful moment of prolonged eye contact being allowed in a city street, and we would sort of fall in love a little bit. And my eyes would say — “Thank you.I see you.” And their eyes would say — “Nobody ever sees me. Thank you.””

Palmer ends her talk with this:

“My music career has been spent trying to encounter people on the Internet the way I could on the box (where she stood as a street performer). So blogging and tweeting not just about my tour dates and my new video but about our work and our art and our fears and our hangovers, our mistakes, and we see each other. And I think when we really see each other, we want to help each other.”

This includes seeing yourself. Rosenthal says he can’t finish the play he’s working on now. “I don’t know how truthful I can be without hurting people and I have to be truthful.” Rosenthal’s honesty exists where he has to be true to the art but also love others. Remove layers and aim for the truth. 

The need to work at a Deli.

Rosenthal says that NYC in the 1980’s wasn’t a great place to be. Even worse if you didn’t have a good job. Both were true for him. He got fired from museum for falling asleep on a 300-year-old bed. His next job was in a deli. One day he showed up for work, but the owner had closed for good.

It didn’t matter (dayenu, remember?). Rosenthal loved his life. “How lucky I am,” he says, “where I’m free to pursue happiness.” A lot of this comes from our point of view. Rosenthal didn’t look down on opportunities to have small roles. It meant he was in show business! In Flash Boys, Michael Lewis writes about what Irish immigrant Ronan Ryan thought about school:

“I couldn’t believe it,” says Ronan. “The kids had their own cars at sixteen! Kids would complain they had to ride on a school bus. I’d say, ‘This fucking thing actually takes you to school! And it’s free! I used to walk three miles.’”

A lot of high achievers frame things to their advantage. Evan Goldberg said writing block is just a term for a bad week, not a persmanent stoppage. Richard Thaler created his entire career on the idea that the way people frame something changes how they see it. Jason Zweig wrote that after people poured out half of a full glass of water, 31% describe it as “half full.” Do the opposite, fill an empty glass halfway, and 88% will now say it’s half full. Two different ways to end at the same place but different answers. The same was true for Ryan, two different ways to become a sixteen-year-old getting to school. So too for Rosenthal. By some standards he was failing, but not by his.  He had the chance to make it in show business, and that was enough. And, he also took the chance.

“You have to get rid of the ‘but I can’t’ and be willing to take the job at the deli that you lose,” Koppelman says. You have to be happy to be an extra in a movie. You have to appreciate those moments. And, you have to learn from them.

“Working at the deli was a lesson in show running,” Rosenthal says, “I was responsible for everything.” His boss never showed up, so he did the work. Decades later those skills were valuable when it was time to make the show Everyone Loves Raymond.

Scott Adams used years of bureaucratic debauchery as inspiration for Dilbert. Mark Cuban slept on a couch so he could funnel his extra time and resources into his business. 

Writing

Here we’ll take a break to jump to another podcast and back in time. While Koppelman and Rosenthal do talk about writing, there’s an even better one. In April, 2013, Rosenthal was on J.R. Havlan’s Writer’s Bloc podcast. There, Rosenthal shared 4 steps to becoming a successful writer.

1. Learn the basics. “I tell everyone to take a writing class,” Rosenthal says, “you can’t learn how to be funny but you can learn the structure.”  Scott Adams says there are six elements to a good joke. Seth Rogen and Evan Goldberg said they watched tons of movies to learn what makes a good one. You have to figure out the basic things in whatever craft you pursue.

2. Be patient. Besides the deli and museum, Rosenthal says, “I worked on a number of terrible shows for years.” Chris Hadfield trekked, swam, flew, sat, and worked all over the world for a chance to be an astronaut. Hadfield says that when people saw him playing guitar on the space station or speaking in Russian, they asked if he learned those things while there. Ha, Hadfield chuckles, he’s been doing those things for decades. 

3. You have to be you and you have to be new. Rosenthal recalls a conversation he had early on with Ray Romano when they were working on the show. “He (Romano) asked me, ‘Does there have to be a story every week. Can’t we just sit in the diner and make jokes?’ That’s perfectly fine for the show that’s doing that right now,” Rosenthal says, but not for them. He goes on to say that he couldn’t write Seinfeld if he wanted. It’s a good thing he didn’t. Any Seinfeld clone would fail. It’s why Penn Jillette says that if you hate supermarket music you should make supermarket music.

4. Learn something new. “Take a writing or directing class,” Rosenthal says, “you want to come at the problem from every angle.” Like Tren Griffin suggests mental models for business, Rosenthal suggests them for writing. The more filters, ideas, angles, domains, and formulas you can apply, the better your answer will be.

“I’ll have what Phil’s Having.”

Rosenthal describes his new show as, “I’m just like Anthony Bourdain if he was afraid of everything.”

It seems like there are two reason Rosenthal is making the new show. First, it’s a chance for him to connect. “Being on camera is just a way to connect,” Rosenthal says. “You hear my voice in Raymond,” but it’s filtered. Rosenthal and Koppelman comment that this thinking may be behind what made Larry David create Curb Your Enthusiasm.

Second, the new show serves a higher purpose. “I think this is the most important thing I’ve ever done,” Rosenthal says, “when you eat food you’re literally taking in another culture.” When Rosenthal exported Everybody Love Raymond to Russia, he saw that people aren’t that different.

One culture has a meddling – but well-intentioned mother – guess what, so does another. While Rosenthal travels around the world, he tells Koppelman that you don’t have to be worldly to do this. “You can even travel in your own town,” Rosenthal says. You can be a flaneur, which is popular in Paris this fall.

“Flânerie is still so important to the identity of Paris that Hermès has chosen it as its inspirational theme this year. The design house has created a pop-up museum celebrating the practice, on the Left Bank of the Seine at the port of Solférino.”

–

Thanks for reading, I’m @mikedariano on Twitter.

Wow, you made it to the end of the post. A solid 2200 words. That’s like 9 pages in a book (and forever online). If you found a few things valuable, you can donate $2 or join to get extra content

Seth Rogen (@SethRogen) and Evan Goldberg (@EvanDGoldberg) joined Tim Ferriss to talk about their narrative arcs. If you listen closely though, you’ll hear more. Between the discussions of old TV shows (Freaks and Geeks, Kids in the Hall) and amid the haze (marijuana smoke), but well before the end (what books they give as gifts) – there is a success blueprint. Rogen and Goldberg’s Hollywood ascent is a proxy that anyone in any area can follow.

They outline six steps:

1. Start small.
2. Be you.
3. Have a process.
4. Persist.
5. Double down when the opportunity arises.
6. Define your own success.

1. Start small.

Goldberg and Rogen grew up in Vancouver, and met at the Jewish Community Center where they took karate class. This was not a typical karate class. “We beat the living shit out of each other,” they tell Ferriss. They stopped when someone fractured a hip.

Moving from one hobby to another, the pair started to pay more attention to movies, in part because they were all around. “You would see movie sets everywhere,” Rogen says about living in Vancouver, “we loved movies.”

They liked Clerks and Bottle Rocket, said Rogen, ” because they had this do it yourself feel.” They started to watch more movies, taking advantage of a local video rental store’s 7 movies for 7 days program.

Of the 7; 2 were good and 5 were bad. They watched and noticed the differences between good movies and bad ones. Goldberg and Rogen started small.

Sam Shank started Hotels Tonight with only a handful of properties. Rick Ross started selling crack on the street before he was a kingpin. Maria Popova began Brain Pickings with an email to seven people. Dick Yuengling carried kegs well before he was the CEO.

For Rogen and Goldberg, starting small had two advantages. First, they realized what they wanted was attainable. They saw Clerks and thought, hey, we can do that.  Stephen Dubner noted that small problems are good problems because they are easier to solve. If you try to solve something complex, other problems will be entangled. Rogen and Goldberg love the Fast and Furious movies, but as teenagers they couldn’t make them. Clerks though, that was possible.

Second, starting small forces focus on the fundamentals. There’s less speculation about what matters and why. When Rogen and Goldberg wrote Superbad, it was super bad. “Superbad was awful at first,” Rogen says. Of course it was, they wrote it when they were 13 years old.

Things will be bad as you get your sea legs.  Austin Kleon said, “there’s a big gap when you’re starting out between what you love and what you’re producing.” But it’s where everyone begins. Small projects like Superbad, have easier fixes in the same way a small house has less problems than larger one.

As you start small you’ll also be less tempted to be anyone but you.

2. Be you.

As Rogen and Goldberg built skills, they started to do more things. Rogen won an amateur comedy contest, but he knew this wasn’t his strength. “I was like a B+ standup comedian,” he says, “that was just something I was aware of.” Rogen noticed that other people were much better, so he drifted away from standup.

“What we’re best at,” said Rogen, “is writing,”

Brett Steenbarger helps traders figure this out. “Figure out who you are when you are at your best,” he advises. Tren Griffin said that Charlie Munger figured this out too. “One of the great contrasts in life,” says Giffin, “is between people who know a moat when they see it and people who know how build one out of nothing.” Builders are people like Bill Gates and Mark Zuckerberg. Finders are people like Charlie Munger.

Rich Roll had to figure out that he had “an addictive personality,” and his life would be a magnification of his choices – good or bad. Stanley McChrystal figured this out in regards to how and when he ate. Know thyself is valuable advice.

It’s also differentiating. You are your competitive advantage. Neil Gaiman says it like this:

“There are lots of artists in the world, but there’s only one you. And the only person who has your point of view, is you. If you decide not to make things, all you’ve done is deprive the world of all the stuff that only you could have brought to it.”

You are your competitve advantage, said Arthur Samberg.  What Peter Thiel writes about in Zero to One applies here too. You will fail if you try to be the second coming of Bill Gates, Tim Ferriss, or LeBron James. You can only be you.

When Goldberg and Rogen started out they understood this. They didn’t try to duplicate Kids in the Hall. They made something unique.

But uniqueness is not spontaneous. It comes from other things, and grows best if you have a good process.

3. Have a process.

Goldberg and Rogen have a very distinct way to get ideas – survival of the fittest. And the only ideas that survive are creative ones. 

Survival of the fittest.

“We have tons of ideas,” says Goldberg. A current Word file is ten pages. He and Rogen take a if it’s interesting, write it down approach. And the ideas aren’t divine. I was surprised at the simplicity of the list they shared with Ferriss; “husband who holds back wife, wife who enhances husband’s positive qualities, house warming party.” For two funny people, that seems remarkably normal. But in the same way you and a chef may use the same ingredients, the final dishes are quite different.  

As they write things down, Rogen says, “some ideas will stick in your head.” He continued, “Then it’s like a darwinist process, if an idea is around a year later it’s good.” (Tweet this)

Stephen King said much the same thing:

“I never write ideas down. Because all you do when you write ideas down is kind of immortalize something that should go away. If they’re bad ideas, they go away on their own. If you can’t remember it, it was a terrible idea.”

A.J. Jacobs has a similar process. His books like; Drop Dead Healthy, The Know-It-All, and The Year of Living Biblically all came from ideas he put on a master list that wouldn’t die.  

You don’t need to write things down to have darwinist ideas. The process Goldberg and Rogen are using for their newest project – Preacher – they learned from Sam Catlin. Goldberg says “we used to write down ideas, but he (Catlin) taught us not to write down ideas for a month and just shoot them around, lots of talking talking talking.”

The talking follows King’s perspective that ideas aren’t “immortalized.” Ideas can’t accumulate like keepsakes in your aunt’s attic. There needs to be an evolution and we’ll turn to Brett Steenbarger’s two steps for creativity. If you want to be creative, Steenbarger noted, you need to analyze and synthesize.

Analyze

“A lot of our movies are genre based,” Rogen says, “so something we do is watch tons of movies in that genre.” “Like when Craig Robinson went out on the rope,” Goldberg said, “that was based on Mist.”

From 7 for 7 at the local video rental store to “tons of movies,” Goldberg and Rogen have analyzed a lot. This stage transfers to anything. When people here say to read, this is what they mean.

Naval Ravikant said we should read widely. Chris Sacca says everyone successful he knows reads a lot. Jim Kwik said, “the intelligent person learns from their own experience but the wise person learns from the experience of other people.” Howard Marks said that the best way to avoid mistakes is to read widely. Tren Griffin explained how Charlie Munger does this (and Griffin too).

Figure out your domain, and analyze something.

Synthesize

This is where ideas are brought together. Goldberg and Rogen take their ten pages of ideas, and bring together something greater than the sum of the parts. Synthesize also goes by serendipity, and we need to be open to it. Maria Popova said that we shouldn’t confuse “search and research.” Search is looking for something specific, a movie showtime, Q2 earnings. Research is being open to other multiple answers, to serendipity. Sanjay Bakshi found that he stumbled upon more serendipitous things when he switched to e-books. The search feature, he told Shane Parrish, means that he can find ideas that hadn’t come to mind.

Wiggle and fiddle. Search and seek. Create a process and get comfortable because you may be doing it for a long time.

4. Persist.

By the time you notice someone, they have been working at their craft for a long time. It took ten years to get Superbad made. It took so long that Rogen grew out of the role he had written for himself. Pineapple Express was the same story, it was a movie no one wanted to buy.

But Goldberg and Rogen persisted, even through writer’s block. 

The blockage is all how you frame it. “Writer’s block is a term people give for bad weeks,” Goldberg says. “It’s when they lose inspiration,” Rogen adds. Anne Lamott writes that it’s not so much a block as a chasm, “the word block suggests that you are constipated or stuck, when the truth is that you’re empty.”

Writer’s block was less of a problem for Goldberg and Rogen because they had each other. “There’s moments where one of us has to pick up the weight,” Goldberg says. They may be partners, but the work isn’t always even. Having someone to work with helps a lot.

“A lot of companies,” says Peter Thiel, “aren’t solo efforts of a god-like person that does everything.” Jay Jay French persisted to find the right bandmates. Nicholas Megalis said, “find a group of people who are like minded, who can help you achieve certain goals. Everything is a team effort.”

But it will never be perfect.

“No matter what job you have,” says Goldberg, “it’s work and work in some ways sucks.” Austin Kleon said “every job is a job.”

Persisting is like warming up water on the stove. Little by little heat is added to the pot until it boils.

5. Double down when the opportunity arises.

“Once the floodgates were opened, we just shoved everything in there,” said Rogen.

Rogen and Goldberg worked on Knocked Up, Superbad, and Pineapple Express all in a single year. They worked 16 hour days. Goldberg drank all the coffee he could get his hands on, and then snuck off to the bathroom to take twenty minute naps.

This is how Charlie Munger and Warren Buffett invest. They prepare themselves for opportunities and then dive into them. 

There’s not much more to it than that. When the time is right, jump in and hold on tight. As the ride soars, make sure you succeed on your own scores.

6. Define your own success.

When Ferriss asks Goldberg who he thinks is successful, he says his cousin David is. “He just made up his mind in a simple and beautiful way.” Success is tricky.

Naval Ravikant said, “we all want to be successful people but we also want to be happy people and those run in diametrical opposite directions.” Tyler Cowen added that we don’t need to be happy per se, being driven, eating well, and having a stable home life is good too. T. Harv Eker thought that if he only had a successful business, then he would feel like a success. It wasn’t true, Eker still languished while his business flourished.

Success is up to you to define. The key is to define it clearly. In the same way that Nick Murray said you can’t chase financial plans and financial gains, your terms of success can’t be mutually exclusive. Goldberg noticed this too. “We’ll never be number one and if we are, we won’t be cool anymore.” The goal is to find things that go together.

That’s not an easy question to answer, and it’s entirely up to you. The good news is that there are low hanging fruit. Nearly everyone agrees on two things. 

1. It’s not about the [money](https://thewaiterspad.com/big-ideas/its-not-about-the-money-honey/).
2. It is about being healthy. Goldberg tells a story about smoking pot with Snoop Dogg and Snoop asks him if he goes for walks. “What?” Goldberg says “no, I don’t really go for walks.” Snoop is disappointed, “you should go for walks,” he says.

Goldberg was disappointed that Snoop was disappointed in him, so he started going for walks. And he loves them. Walking is great. So is Mason Currey’s book Daily Rituals, which he writes about many creatives who walk. This passage is about Soren Kierkegaard:

“The Danish philosopher’s day was dominated by two pursuits: writing and walking. Typically, he wrote in the morning, set off on a long walk through Copenhagen at noon, and then returned to his writing for the rest of the day and into the evening. The walks were where he had his best ideas, and sometimes he would be in such a hurry to get them down that, returning home, he would write standing up before his desk, still wearing his hat and gripping his walking stick or umbrella.

When Ferriss asks for advice they would give to their younger selves Goldberg says “to lose weight.”

---

You and I won’t be the next Goldberg or Rogen, and that’s good. Even if you’re reading this and you want to be in Hollywood, you can’t be exactly like them. We can only follow a path that others have taken.

1. Start small.
2. Be you.
3. Have a process.
4. Persist.
5. Double down with you get a good chance.
6. Succeed on your own terms.

That’s what it takes to make it anywhere.

–

Thanks for reading, I’m @mikedariano.

Wow, you made it to the end of the post. A solid 2300 words. That’s like 9 pages in a book (and forever online). If you found a few things valuable, you can donate $2 or join to get extra content

Brett Steenbarger (@Steenbab) joined Andrew Swanscott (@BetterSysTrader) on the Better Systems Trader podcast to talk about what successful traders do. Even though the conversation focused on trading, a lot of the big ideas are interdisciplinary. There are three things that makes traders successful, says Steenbarger:

– How to act during the good, bad, and ugly.

– To have unique ideas.

– To leverage your strengths.

How can you and I apply this? Let’s see.

Prepare yourself for the good, bad, and ugly moments of life.

Steenbarger says that there are three situations traders should prepare for; drawdowns, success, and personal problems.

1. During a drawdown (bad). Traders should be careful that they don’t become more risk averse and change their thought processes, Steenbarger warns. The problem is, our bodies prepare for bad things and we aren’t aware of it. In The Hour Between Dog and Wolf, Dr. John Coates writes about what happens physiologically when traders take a position:

“Consequently Scott and Logan’s bodies, largely unbeknownst to them, have also prepared for the event. Their metabolism speeds up, ready to break down existing energy stores in the liver, muscle and fat cells should the situation demand it. Breathing accelerates, drawing in more oxygen, and their hearts rates speed up. Cells of the immune system take up position, like firefighters, at vulnerable points of their bodies, such as the skin, and stand ready to deal with injury and infection.”

Hormones are released. Dominos are set to topple depending on what happens.

This all happens naturally, fast, and unbeknownst to us. Steenbarger helps traders figure out how to recognize when this happens, and act correctly. Tadas Viskanta suggested to Jason Osborne we create circuit breakers. If something bad happens, stop. Avoid knee jerk reactions.

We don’t need to be traders to to experience this. The biology is the same for everyone. Maybe your boss calls you into the office. You miss a sale. Your kids drive you crazy.

Osborne said he saw this in his personal life. His newborn daughter had a difficult time sleeping, and would wake up every night. When the witching hour came, he and his wife would try to get her back to sleep – all while being less than cordial to each other. But things changes when the Osborne’s created a plan. If their daugher gets up (before midnight/after a bottle/etc.) then they would (feed her/rock her/change her diaper). 

Bad situations will trigger certain hormonal response. This was great for the jungle, less so for the modern world. Our job is to be aware of when this happens, what’s happening to us, and to plan a series of steps for those situations. The best answer for a drawdown, is pre-drawn plans.

2. During success (good). In these cases, traders should leverage their strengths. “I help traders become more consistent in applying their strengths so they can extend their profitability,” Steenbarger says.

Tyler Cowen said that he found out his strengths early. Cowen has the ability to drink from the firehose of information, as well as to take time to think about things. He’s built these skills because he straddled the decades of slow learning and fast connections.

When Mark Cuban looks to invest in a company, he looks for something he specifically can help. He has the money to help anything, but he’s really good at helping certain things.

Chris Sacca told Tim Ferriss, “I only get involved in deals where I can personally make an impact.” Tom Rath said that if you can find an area you have a natural talent, you’ll succeed that much faster.

The consistent theme – and what Steenbarger tries to do – is to hone in on the things you do well and do them more.

 

3. During external distractions (ugly). Traders need a work/life balance says Steenbarger. “The biggest lesson I’ve learned, is to have something more important in your life than trading,” he says. If your self worth is tied to your profit and loss fluctuations, then you’re going to blow up.

Your personal life won’t be perfect. Stress from divorce, financial trouble, or lack of sleep can seep in, and Steenbarger teaches traders how to handle it. Brian Koppelman said that marrying the right person was the best decision he ever made. Chris Hadfield wrote that he could never have been an astronaut without his wife. Brett McKay and Rich Roll both run their businesses with their wives.

Find the best people to have in your life. Be ready for some personal chaos, and try to shield your work from it.

Surviving the good, bad, and ugly are all reactionary. If you want to really succeed you need to act, not react. For that you’ll need unique ideas.

Have unique ideas.

“You don’t find generic super-successful traders.” – Brett Steenbarger

Steenbarger notes that “me too” businesses don’t succeed. He echoes what Peter Thiels writes in Zero to One.

Thiel filters people by asking, “what important truth do very few people agree with you on,” and “what valuable company is nobody building?” These questions filter out people who want to iterate. Thiel craves new ideas. Ironically, Thiel iterates the famous Tolstoy line:

“All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape the competition.”

When Lewis Howes wanted to be in the Olympics he chose handball. Was it because Howes is a great handball player? No. Was it because his great uncle Lou was a mentor? No. Was it because Howes went to a prep school that featured the “Olympic Sports?” No (Howes played football). 

It was because the competition for handball was low. It was a place he could, escape the competition. Howes recalls showing up to play for the first time.

“So I show up, I say hey guys, I’m Lewis Howes from Ohio. I’ve never played handball but my goal is to make the US national team and go to the Olympics. They all laughed their asses off. I was the only American there.”

But Howes persisted, and made the national team. He examined the landscape of sports and saw that his unique idea was to pick up a sport with limited competition.

Steenbarger says “the successful traders are playing a different game, one where they are able to leverage a unique perspective.” Howes took his experience playing college football, with a desire to learn and grown, in a less competitive environment. 

When the Golden State Warriors won the 2015 NBA Championship they were applauded for their switching defense. This style of play where any defender can guard any offensive player was critical to their success. Teams that couldn’t switch like the Warriors, were limited to a certain style of defense. The Warriors were not. They had a unique idea (and one that is now being copied by other teams).

Peter Thiel – have a unique business idea.
Lewis Howes – have a unique sport to play.
Warriors – have a unique strategy.

This is all great, but it’s all theoretical if we don’t actually be unique. Ideas are one thing, acting on them is another. Steenbarger proposes two ways to be unique; be adaptable and creative.

Be adaptable.

A big problem, Steenbarger says, is that traders find an edge and don’t change. This is a bad idea. Traders need to think more like entrepreneurs, he says. “An entrepreneur knows that marketplaces are dynamic.” If you run a frozen yogurt store and people don’t come, you need to change. If you run a trading fund, and profits don’t come, you also need to change. Some traders can’t take this perspective Steenbarger says. But adapting is wonderful.

Mark Cuban invests in life entertainment. In the world of DVR, selfies, and people paying to do things, what’s better than  live entertainment?

Maria Popova calls adaptability the “uncomfortable luxury of changing your mind.”

Jason Fried recounts Jeff Bezos as saying, “people who were right a lot of the time were people who often changed their minds. He (Bezos) doesn’t think consistency of thought is a particularly positive trait. It’s perfectly healthy — encouraged, even — to have an idea tomorrow that contradicted your idea today.”

Charlie Munger says a year in which you do not change your mind on some big idea that is important to you is a wasted year.

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People don’t think like this, says Steenbarger. They find an edge and stay with it because, “people are averse to effort and there is a certain hope they can get rich quick.” Ramit Sethi noted that people are “cognitive misers.” We like the easy road.

There is no easy road. There’s no hike where you just arrive at the scenic bluff. There is no wave where you get in the barrel and be done. You have to change.

But change for the sake of change isn’t what we want. We want something new and good. For that we’ll need to be creative.

Be creative.

“Creativity,” Steenbarger says, “is a habit.” Now, wait a moment. Brushing my teeth is a habit. Driving to work is a habit. How can creativity be a habit?

You have to look at things from the micro and macro levels, says Steenbarger. If you take time to analyze the small things and take time to synthesize them, you’ll start to make new connections. People who are creative find good problems with unique answers.

Sometimes this means having a mentor or collaborator. Certain people are better off talking about their ideas, says Steenbarger. Seth Rogen and Evan Goldberg explained their writing process this way: “talking, talking, talking.” 

When Rogen and Goldberg teamed up with Sam Catlin to write Preacher all they did was talk. At first this was odd for Rogen and Goldberg, but they followed Catlin’s lead. This is how we did it on Breaking Bad he told them.

For other people, creativity will come from introspection. “It’s why so many of our insights will come at seemingly random times,” says Steenbarger, “like when we’re taking a walk or taking a shower.”

Walking has long been a form of fostering creativity.

In, Daily Rituals, Mason Currey writes about the habits of many creatives and one consistent theme is the daily walk. For example, “Promptly at 2:00 (Charles) 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.’”  

Or about Soren Kierkegaard “Typically, he wrote in the morning, set off on a long walk through Copenhagen at noon, and then returned to his writing for the rest of the day and into the evening.  The walks were where he had his best ideas, and sometimes he would be in such a hurry to get them down that, returning home, he would write standing up before his desk, still wearing his hat and gripping his walking stick or umbrella.”

What you want, says Steenbarger, is to leave yourself open to moments of serendipity. Sanjay Bakshi said that he finds this on his Kindle. Paper books are nice, Bakshi says, but a Kindle lets him search, and sometimes those results have ideas he had forgotten.

A.J. Jacobs is the author of the books, Drop Dead Healthy and The Year of Living Biblically and says that a lot of his projects begin this way. “You’ve got to seize serendipity,” Jacobs says,  “a random thing that might seem small,  you’ve got to grab it and follow it for a while.”

When Adam Carolla showed up at a radio station one day looking for a job, he didn’t expect to meet anyone. This was before smartphones, so rather than looking down, scrolling up, or swiping right – he talked to people. He met a guy and they hit it off. It was Jimmy Kimmel.

If you want to be creative and have unique ideas you need to schedule the time for it. You should have unstructured free time, Steenbarger says, working-working-working won’t work. Ryan Holiday says he learned one of his best productivity tips from Robert Green. Swimming. “Why? Because it requires total isolation: no music, no phone, no possible interruptions. Just quiet, strenuous exercise.”

Leverage your strengths.

“You really want to study your strengths and reverse engineer your successes.” – Brett Steenbarger

For creativity, are you a talk-it-out person, or a be-alone person? Figure it out says Steenbarger, because you want to lean on your strengths.

Once you study your success and failures and develop unique ideas, you need to leverage your strengths. Steenbarger is a proponent of inherent strengths. “People trade the market through their personality,” Steenbarger says, and you want to capitalize on our strengths. Arthur Samberg said “your passion is your competitive advantage. Gary Vaynerchuk said this too.

Steenbarger’s strength was pattern recognition. He noticed that the faster the trading, the more pattern recognition mattered – and he was great at that.

Steenbarger says driving skills and trading skills are similar. “Make the rules as automatic for trading as they are with driving.” How?

1. Create a thesis.  When  Scott Adams wanted to get healthy he changed his diet. I can eat as much as I want, Adams reasoned, so long as it’s healthy. That was his thesis.

2. Implement your thesis and note what happens. A lot of time we make changes, but don’t note them. Shane Parrish writes about the value of decision journals. Other times it’s easier – like for Adams, who noticed that he had more energy and less weight.

3. Figure out the role of luck. In everything we do there is some component of luck. Michael Mauboussin said that luck is more important when skills converge. Winning the NBA championship requires some luck. Winning the YMCA championship requires more skill. The goal is to tease out when you were lucky, and when you were skilled.

4. Habitualize it. Once you figure out what you do well, double down on it. “There are many successful traders with different personalities,” Steenbarger says, “but the successful ones leverage their personality strengths in the market.”

It won’t be easy, (“people are averse to effort”) but it can be done.

“Figure out who you are when you are at your best,” Steenbarger says. That’s the person you should try to replicate. The results may even surprise you.

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Thanks for reading, I’m @mikedariano.

Wow, you made it to the end of the post. A solid 2400 words. That’s like 10 pages in a book (and forever online). If you found a few things valuable, and would like to say thanks, you can donate here.

Arthur Samberg joined Barry Ritholtz (@Ritholtz) on Bloomberg’s Masters in Business podcast. As always, these notes are only a sample of the actual interview. Here’s our table of contents.

• Passion as a competitive advantage.
• How to be smarter.
• Synergy and success.
• Big fish in a little pond.
• Advice on running a business.

Find your competitive advantage.

Competitive advantage is bounced around like a beach ball at some last-days-of-summer cookout. Fun to bat around, but hard to grasp. Samberg though gives one of the best perspectives for personal competitive advantage I’ve heard.

When Ritholtz asks how he transferred from being a rocket scientist to being a financial analysis, Samberg said, “you gotta follow your passion, your competitive advantage. I could solve the equations but I didn’t know what was going on.” That’s brilliant.

Follow your passion is usually bad advice. Cal Newport took his book title from the Steve Martin interview where he told Charlie Rose:

“Nobody ever takes note of [my advice], because it’s not the answer they wanted to hear,” Martin said. “What they want to hear is ‘Here’s how you get an agent, here’s how you write a script,’…but I always say, ‘Be so good they can’t ignore you.’”

People don’t usually have passion for practice. But doing the work is exactly what you need to do. It’s why Gary Vaynerchuk said that to succeed greatly it needs to be something you’re passionate about. You need to leverage the enjoyment in the late nights, early mornings, and weekends of work. You can’t dabble.

Samberg says that this passion is your competitive advantage. “You are what you are.”

It’s part of the value of knowing yourself. It’s how Gretchen Rubin started her book on habits. You can’t build good habits, Rubin rationed, if you don’t know what habits are good for you. “Knowing our tendency,” Rubin writes, “can help us frame habits in a compelling way.”

We can look at passion as a tool. If it’s something that spurs you on to work harder, then leverage that.

How to be smart, be around smart people.

Early in his career, Samberg migrated back to New York City. Not because it was great, but because his wife needed a job and he knew she could get one there. Samberg got a job at Columbia and started to carpool with Leon Cooperman.

“I learned more in the carpool than I did in school,” Samberg tells Ritholtz. We’ve seen this before. Seth Godin said school teach a lot of the wrong things. “There’s only two things we should be teaching in school, Godin says, “how to lead and how to solve interesting problems.”

I don’t know how right Godin is, but I know that you don’t have to learn in school. Read something interesting. Nearly every post here includes book links. Plus, reading will help you with something critical to Samberg’s success, synergy.

Synergy and success.

“My success in life is taking a decent expertise in technology and combining that with finance and trying to apply those two things to help companies aggregate capital and grow and create jobs.” – Arthur Samberg

Samberg is not the smartest engineer in the world. He is not a brilliant financier. But, when you put those two things together (like mayonnaise on a turkey sandwich) you get something much more than the sum of the parts.

Scott Adams wrote that this is exactly what has made him successful. From How to Fail at Almost Everything and Still Win Big:

“I’m a perfect example of the power of leveraging multiple mediocre skills. I’m a rich and famous cartoonist who doesn’t draw well. At social gatherings I’m usually not the funniest person in the room. My writing skills are good, not great. But what I have that most artists and cartoonists do not have is years of corporate business experience plus an MBA from Berkeley’s Haas School of Business.”

Dave McClure was on a similar path to Samberg. Instead of starting a hedge fund, he started a startup incubator. McClure said, “I had both the engineering and marketing side, and there weren’t that many people doing investing that had both disciplines.”

When we combine skills in a Venn diagram we shrink the pool of competitors. If you want to be a big fish, you probably need to swim in a little pond.

Big fish in a little pond.

Samberg tells Ritholtz that creating anything is easier when it’s smaller. “Change becomes more difficult,” Samberg says, “as a trend goes on and you become larger in size.”

Samberg’s perspective is an investing one. It’s easier for a hedge fund to allocate $10M dollars and earn 18% on that money than $500M. It’s the same reason Naval Ravikant said that Freakonomics isn’t as good as it once was. Tim Ferriss notes that many things in life follow the Sigmoid Curve. Rapid learning, growth, earnings, then things slow down.

Making a thousand dollars is easier than making a million. Writing one best-seller is easier than writing two.

If you want to succeed, be a big fish in a little pond. Michael Mauboussin explained how the numbers tell the story. The more people there are, the more skill there is and the more luck comes into play. It’s why Lewis Howes plays handball and why Peter Thiel tells people not to open the 23rd pizza place in town.

This is good business advice, but there is something else Samberg wants people to know.

Advice on running a business.

“It’s a challenge because there’s a lot of smart people out there. But figuring out who’s going to be easy to live with is very difficult.” – Arthur Samberg

It’s easier than ever – though not simple – to find the right people. In Here Comes Everybody, Clay Shirky noted that businesses traditionally stop growing in size because the drag of maintenance ate away at profits. Samberg says much the same thing, “anything that is successful creates an infrastructure around that activity.” And infrastructures have to be maintained.

Imagine you have a road people love to drive on. You charge them each time and they happily pay. Taking a cue (people spend with their feet) you build more road. And then more. Eventually though you had to stop because the old road needed maintenance. The more road, the more maintenance. That same drag is present in organizations.

People muddy the waters more than infrastructure. Asphalt is an inert substance with formulas for tracking how long it might last. People are not the same. When Phil Libin talked with Tim Ferriss, he noticed this at Evernote. There were people scaling issues. Three people were fine, ten was okay, one hundred and things broke down. To fix those things they had to add support to the business (Shirky’s drag, Samberg’s infrastructure).

In Shirky’s book he proposes that as technology progresses, we get better options with less drag. First phones, then fax, then email, now Slack. Each of these simplified communication. This also lets people form their own connections that in the past would have been too expensive. Imagine if I had to mail this blog out via the postal service each week. Yikes.

Samberg’s point is that if you have good people, you’ll have less drag. “I had a hot streak of hiring when I got started,” he tells Ritholtz. When Adam Davidson was on a Hollywood set he saw this. It wasn’t always the most skilled people that were hired. Sometimes it was someone less skilled, but nicer to work with.

Being nice matters.

Thanks for reading, I’m @mikedariano on Twitter.

Tim O’Reilly (@TimOReilly) joined Jason Calacanis (@Jason) on the TWIST podcast to talk about imitation, the new economy, and ecosystems. The conversation was entertaining and far ranging. Like a city with hidden gems tucked into alleys, this conversation had similar pockets. We won’t get to any of that. There were 3 major themes to this conversation and our table of contents looks like this:

– Imitation and Inspiration.

– New Jobs for a New Economy.

– Ecosystems.

Imitation and Inspiration.

Imitation should not be looked down on, especially when you begin something. In fact, imitation may be mandatory. Stephen King writes:

“Stylistic imitation is one thing, a perfectly honorable way to get started as a writer (and impossible to avoid, really; some sort of imitation marks each new stage of a writer’s development), but one cannot imitate a writer’s approach to a particular genre, no matter how simple what that writer is doing may seem. You can’t aim a book like a cruise missile, in other other words.”

King goes on to say that his own early writings went through phases depending on what he had been reading. Ben Mezrich said that he had an imitation incubation. Not until Mezrich wrote in his own voice, was he successful. Austin Kleon wrote, “the whole point in Steal Like an Artist is that you don’t shut yourself down to influence and try to be wholly original. You actually open up the gates and embrace influence.”

Imitation is like following a path through the woods. It’s how you get your hiking legs. The path is worn and doesn’t require knowing what poison ivy looks like or what a bear sounds like. As you progress, as you learn, and take deeper trips you can forge your own paths. That’s what Calacanis did.

“I copied everything you did coming up,” he tells O’Reilly. “You’re my inspiration for a lot of what I do.”

Of course we’ll branch off. Imitation will inspire us to do new things. Conferences were not new when O’Reilly began. What was new was the way he put things together that people didn’t understand. What do artificial intelligence, algorithms, and Uber have to do with each other? Well, says O’Reilly, that’s what we should figure out.

Thinking forward makes sense. Naval Ravikant said that great inventions are always unrecognized. Kevin Kelly said that things we’ll use in 25 years haven’t even been created yet.

How does this thinking apply to jobs?

New Jobs for a New Economy.

The idea for changing jobs has bubbled up a lot lately. Adam Davidson talked about The Hollywood Model. Taylor Pearson wrote about it in The End of Jobs. Naval Ravikant said he imagined people will someday wake up and swipe left or right for work. Tim O’Reilly has seen this in action. Employees want to work for two months and then vanish for a month, he tells Calacanis. Jason adds this is good because, “people who pick their down hours will be happier.”

This reminds me of the idea that David Heinemeier Hansson shares. Hansson – co founder of Basecamp – says that he always prefers projects that he’s motivated to do. That motivation will make the work that much better and it will (net net) be the better choice. This sort of shift is worth it said Scott Galloway, “millennials are the most talented generation I have ever worked with.”

The new employment landscape is a la carte style situation where employees choose when and how much to work and that their motivation and skills makes up for the time they don’t spend “in the office.”

But there’s more than that. “We have to dignify new kinds of things as work, because people do get self-esteem from work,” O’Reilly says. In the same way we view social media artists (Nicholas Megalis), we should view parents, teachers, and service workers.

If O’Reilly’s micro point is, this is how work will be different (swipe right). Then O’Reilly’s macro point is this; it needs to be fair for everyone. “It’s a good job if you can get it,” goes the axiom but not everyone can get it.

It’s good that people with technical skills are equipped for the new economy. What isn’t good is the situation that less skilled employees face. “People taking bigger and bigger shares of the (financial) pie and that worries me,” O’Reilly says.

In his post, Workers in a World of Continuous Partial Employment, O’Reilly notes that there needs to be a new system for work. Right now companies like, The Gap and McDonald’s, use algorithms to determine when employees are needed, when they aren’t, and when they get close to 29 hours. That mark is important, because it’s when additional benefits like health care kick in and makes workers more expensive.

But the “gig” economy isn’t a perfect solution. It’s great that Uber drivers can supplement their income, but the algorithm their work condition has flaws too. Those workers miss out on the security of workman’s comp and other labor laws. We have two extremes, but the best option O’Reilly suggests, is in the middle.

His solution is a third type of work structure with new rules, regulations, and safety nets. It sits on a stool of technology that already exists. Companies like The Gap and McDonald’s use third party billing software that tracks hours worked. Uber uses software that determines how long someone drives. Combine this data O’Reilly says, to create a picture of how much someone works.

This may sound like a lot of Silicon Valley rose colored lens ideas, and that’s what O’Reilly is working to clarify. “I want to help companies understand that this isn’t just a bunch of crazy companies in Silicon Valley that are doing things they don’t understand.”

It’s starting to seep in. Scott Galloway said that he sees companies like Uber and Instacart creating opportunities for other business to create last mile solutions. In the same way iPad apps can change retail workflows, these on-demand services can change retail offerings.

“Don’t look at Snapchat and see just the naked pictures,” Gary Vaynerchuk says. If you do that you’re missing out. Look at it and think, how can I do this better? “If you don’t like grocery store music,” said Penn Jillette, “then you should create grocery store music.”

There’s an advantage to find areas without competition. “My game is very simple,” says Gary Vaynerchuk, “Where is the attention while the rest of the market doesn’t think it’s there? Use it like crazy, figure it out.”

We’ve seen this idea under other names. Peter Thiel calls it Zero to One. Lewis Howes plays handball because of this. Barry Ritholtz listens for “Ughs.” Michael Mauboussin uses game theory.

O’Reilly’s point is that these new employment options are fresh soil. Something will grow here, and we should prepare for the weeds in addition to sowing the seeds.

He also notes this macro idea makes economic sense (rather than bleeding liberal hocus-pocus). He cites this Nick Hanauer talk on inequality, which is worth the 5 minutes to watch.

There’s also this talk on TED.

Maps of the future are important, O’Reilly says. They can tell us about where we want to go. He wants a place where workers are empowered with knowledge and a safety net. It’s a place where big companies leverage technology in their benefits the same way they apply it to their scheduling. It’s where people are more productive workers because they like when and how they work. It’s an ecosystem.

Ecosystems

“If you mess with the ecosystem, it will come back and bite you.” – Tim O’Reilly.

If the above sounds like a rant, that’s a fault in my notes, but in part because O’Reilly speaks passionately. (And in true imitation fashion, I’m excited too). He sees the employment landscape as a faulty ecosystem. This, is a problem.

At the heart of an ecosystem is complexity theory. When you tug on something it will affect something else. Garrett Hardin writes, “we can never do merely one thing.” In Antifragile Nassim Taleb writes;

“Complex systems are full of interdependencies – hard to detect – and nonlinear responses. ‘Nonlinear’ means that when you double the dose of, say, medication, or when you double the number of employees in a factory, you don’t get twice the initial effect, but rather a lot more or a lot less. Two weekends in Philadelphia are not twice as pleasant as a single one – I’ve tried.”

Even for coffee, 2 cups are fine but 70 will kill you.

The trouble with complexity theory, unlike say, evolutionary theory, is that it’s hard to figure out what matters. Alan Watts explains in The Parable of the Chinese farmer.

This opaqueness doesn’t mean we should dismiss it says Tren Griffin. Even though complexity theory isn’t predictive, it’s still informative.It helps to know what we know and know what we don’t know.

Taleb knows this, “man-made complex systems tend to develop cascades and runaway chains of reactions that decrease, even eliminate, predictability and cause outsized events.”  

If the current economic system behaves like an ecosystem, and if we’ve meddled too much, we can expect “outsized events.”

O’Reilly believes this because he lived it. An early catchphrase at his company was “create more value you take in.” From the start his business was authentic, with $500 and some used furniture. “We sold things to real customers,” O’Reilly says, “and that keeps you honest.” They grew in the ecosystem, not a greenhouse. When they had to adapt, they did.

“We launched our publishing business when we didn’t have enough consulting work,” O’Reilly says. It echoes what Dick Yuengling said about the beer company, only their problem was prohibition. What do you do when the government says you can’t sell what you’ve always sold? You turn lemons into lemonade, or in this case, ice-cream.

Constraints help in an ecosystem. They are little nudges left and right. Like a sprite on your shoulder, do this, don’t go there.

• Stanley McChrystal says that they want to train Army Rangers to “wiggle” within constraints.

• David Levien said the clipped train ride to work help him to write a better novel.
• Amanda Palmer wrote, “limitations can expand rather than shrink the creative flow.”
• Austin Kleon said, “people overestimate what they can get done with huge chunks of time.”
• Kevin Kelly said, “lack of money is often an asset because if forces you to be innovative.”

Constraints, limits, and “not enough” of something are fulcrums for ideas. They are healthy parts of an ecosystem.

They also teach you lessons. O’Reilly said that his company had to sell stock in AOL and Google because they needed the money. They were – in the words of Nassim Taleb – merely robust.

Robustness is one of three levels of fragility that exist in ecosystems.

• There’s fragile where chaos makes you weaker. A table is jostled, a cup falls and breaks. These instances die out of healthy ecosystems.
• There’s robust where chaos makes you neither weaker or stronger. A company sells stock that might be very valuable someday. O’Reilly had an asset, but one he shouldn’t have sold.
• There’s antifragile where chaos makes you stronger. Medusa has one head chopped off and two take her place. Warren Buffett buys low because of chaos. Plants adapt.

Ecosystems change and have to change naturally. They do this when the robust and antifragile survive. A fire burns, a volcano explodes, and tsunami crashes and nature is momentarily setback but ultimately stronger.

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Thanks for reading, I’m @MikeDariano on Twitter if you want to connect. You can also get in touch if you want to work together for book, podcast, or other research.

Tadas Viskanta (@AbnormalReturns) joined James Osborne (@BasonAsset ) on the Bason Asset Podcast to talk about his history with blogging, why he’s not a gatekeeper, and why he no longer researches cancer drugs. Plus Osborne shares a story about how your investment portfolio is  like a sleeping baby. Our table  of contents.

– The timing of Tadas Viskanta.

– A clear head in an unclear world.

– Outsmart your reptilian brain.

– Avoid confirmation bias.

– The best possible investment.

From Black Monday to Anonymous Blogging.

Viskanta tells Osborne that he’s been in the financial world a long time. “I remember the real Black Monday in 1987,” he says. Viskanta had different roles, from advisor, to investor, and a hedge fund. After the fund closed, Viskanta wanted to write about his experiences. He put together a book proposal and it was bought for a million dollars and turned into a movie with Matt Damon. Wait, wait, wait, that wasn’t Viskanta. That was Andy Weir.

What happened to Viskanta was nothing. Which is incredible to think about. Imagine if he had been 5, 10, 15 years later. What would someone pay for his story? But, says Viskanta, “this was all before hedge funds were a household name.”

Timing may not be everything in life, but it sometimes it plays a huge role. Trip Adler thought of Uber 3 years too early. Seth Godin got out of the stock market just in time.

With ideas for a book, but no book to put them in, Viskanta turned to blogging. This was blogging in 2005. This was when blogging was used in sentences with, “your parent’s basement.” Viskanta started writing anyways. The blog grew.

As it grew so did the industry. It’s much more “semi professional now,” Viskanta says, “but something is lost as well.” I think he was referring to institutional memory. Jason Zweig says that he sees the same thing. While blogs (and Twitter), may be a great way to get news, there’s greater odds for sensationalism. There’s clickbait. There’s a lack of accountability and tradition.

But, as Sanjay Bakshi told Shane Parrish, we should think in terms of tradeoffs. Bakshi compared the portability and search of a Kindle book to the paper and tangibility of a physical book. Think net net, Bakshi says, and you’ll see that one works better for you.

Net net, blogging is good. It’s a meritocracy (mostly) says Viskanta. People like Josh Brown (The Reformed Broker) and Ben Carlson (A Wealth of Common Sense) can reach wide audience because they have the skills to pay the bills.

Viskanta’s blog, Abnormal Returns, has been “forecast free since 2005” on purpose. We generally aren’t good at predictions, Viskanta says, plus he feels an obligation. “If you get someone into the market,” he says, “you need to get them out.”

Viskanta’s growth as a blogger has come from an ability to wisely figure things out. This comes from having a clear head in an unclear world.

Clear headed in an unclear world.

It is a noisy world we live in. Thanks to blogs and Twitter (remember, net net we like them) it can be hard to filter the right things and learn from them. Tyler Cowen said that he’s thankful he straddled the internet and pre-internet worlds. It gave him time to learn and think. Michael Mauboussin said that living somewhere without the financial cacophony may be part of what makes someone a better investor. Jason Zweig said Warren Buffett left New York because too many people were trying to whisper in his ear. But you can’t quiet everything.

“You can’t block out all the noise,” Viskanta says,  “you have to be much more of a conscious consumer.”  Viskanta finds “an amalgam of stuff.” This diversity of information, he says, helps him figure out what’s important and what isn’t. The problem is that no amount of filtering can outsmart our reptilian brain.

How to outsmart your reptilian brain.

Our brains are awesome. Think of everything your brain does, actually you can’t. There is too much information in the the preattentive parts of your brain that the conscious part can’t address it all even if it wanted. Your conscious brain is like a tall Starbucks drink. Your preattentive brain is like the vats of Pumpkin Spice mix in a Seattle warehouse.

But, we are not at a loss. Osborne wonders if we’re getting anywhere with all the reading, learning, sharing, and writing – or if people will always have knee-jerk reactions to swinging financial markets. Then he tells the parable of the sleeping baby.

When Osborne’s daughter was born, she didn’t sleep well. It was 40 minutes at a time, max. This meant that she would wake up in the middle of the night, start to cry, and Osborne and his wife would struggle to get her back to sleep – and remain cordial to each other. He told his story to a friend who said he should formulate a plan ahead of time.

Formulate a plan? Ahead of time? To deal with rocky situations? It sounds like Osborne could do that, being a financial advisor and all. Things immediately changed. “You need your system to be smarter than you,” says Osborne.

Nick Murray said this too, “the dominant determinant to long term financial outcomes is not investor performance, it’s investor behavior.”  It’s more about how you act rather than what stocks you pick. But how do we act in a logical way when our reptilian brain does so much without us even noticing? We have two options.

In their book Mean Genes, professors Terry Burnham and Jay Phelan write that we may not act logically when we eat too much food and save too little money, but for good reason. For thousands of years a large waist was a savings account. It made sense then, it makes less sense now.  

We can take this idea and apply it to situations (from bedtimes to bad markets) in two ways.

1. Create a substitute. Burnham and and Phelan write, “danger on a roller-coaster is a safe thrill. Warfare is conducted with soccer balls and hockey pucks. Cigarettes are replaced by nicotine patches.” We can feed our reptilian desires with modern substitutes. Or.
2. Pre-empt our urges. If we anticipate evolutionary logic, we can prepare a modern answer.  “Before we get into a situation,” Burnham and Phelan write, “where our passion are likely to lead us astray, we can take steps to alter those passions.” Osborne did this to calm the crying nights. 

When the market drops, and shows red what can we do?

Josh Brown wrote about “a little trick.” When the market plummets, he enters ridiculously low buy orders. He’s (probably) hijacking the neurologic risk train to arrive at the station of opportunity rather than fear. Osborne suggests we can pre-empt our urges by giving our trading password to our brother-in-law. That way we we won’t get caught up in the moment.

Solving this problem does lead us to another. Even if we create a switch that takes us down another track, how do we know that track is better? How do we avoid confirmation bias?

How to avoid confirmation bias.

“That’s the $64,000 questions,” Viskanta says. Confirmation bias is the tendency to seek information that fits within your existing system of beliefs. It’s seen in football fans who can watch the same gritty game and say their team was “tough” while the other team was “dirty.” It happens because our brains like to fit things rather than fix things. Our brains like to keep things easy. Which means avoiding confirmation bias will require work.

Viskanta says that he does this by reading a diversity of news, and;

• Expose yourself to things you are uncomfortable with. Find ideas or concepts that aren’t in line with your existing knowledge. They don’t need to be opposites, just different. I’ve seen that biology and psychology can do this.
• Look to original research. Viskanta says that rather than people who offer market commentary, find people who have original ideas and see what they are doing.

Both of these require a bit of effort, but our other confirmation bias busters do too.

• Tren Griffin talked about the mental models approach. Each model is like filter, the more you know the finer the filter. The more models the more filters.
• Sanjay Bakshi said he solves problems by starting with; “part of the reason…” This forces him to find other parts of the reason and get past biases.
• Jason Zweig said to “feed yourself as much disconfirmation as you can.” Follow smart people you don’t agree with.

The best investment – spending your time wisely.

“Figuring out the next big cancer drug is not a good use of my time,” Viskanta says. Now he looks for “slam dunk” opportunities. The big investors featured here all mention this; Mark Cuban, Chris Sacca, and Gary Vaynerchuk all say they focus on businesses where they personally can make a difference. Naval Ravikant said that his biggest mistakes were giving too much of his time to other people.  

Time is valuable, spend it wisely.

How to wisely spend your time.

What do you do then? Well, if you’ve been reading a long time you already knew, read. (Or reread).

Rereading is an underappreciated bit of advice. One great book will always be better than a few good ones. And be careful about the noise. Naval Ravikant said he read Stephen Dubner’s Freakonomics and liked it, but as they produced more material, the quality has started to dip.

Jason Zweig said he basically writes the same thing over and over. Why, because that’s all there is to know, a few key points. We can apply the same to our reading.

Osborne says he’s gotten to the point where he’s not sure if he should recommend books. It’s so personal he says, how does he know that a book will be as meaningful to someone else? 

He doesn’t and he can’t, but he should stills hare. Old wisdom rules the day; when the student is ready, the teacher appears. If you read a book, and it doesn’t make sense, forget it. Move on, get more suggestions. I share mine in a monthly email.

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Thanks for reading. I’m @MikeDariano on Twitter if you want to connect. If you liked this post and want to work together, please get in touch.

Sanjay Bakshi (@Sanjay__Bakshi) joined Shane Parrish (@FarnamStreet) on The Knowledge Project podcast to talk about reading, interdisciplinary thinking, and why to remove Yahoo finance from your bookmarks. This is one of the best interviews I’ve ever heard, I listened to it 6 times.

As always, these notes will be just a small sampling of what was discussed The topics we’ll get to include:

Read widely. –  How to become an interdisciplinary thinker. – The importance of environment (how to be more productive without moving to Bulgaria).  – Boiling frogs and mental models.

Read

The interview begins with Bakshi explaining to Parrish that he reads all his books on the Kindle. This is in contrast to Michael Mauboussin’s conversation with Parrish. Mauboussin said he prefers physical books in part because of how he remembers things.

Bakshi acknowledges this, but says there are tradeoffs. One of which is that your notes get backed up to the cloud. He says that the ability to search is highly valuable. Plus, you can enjoy serendipitous discoveries.

I thought I would try this. I opened Evernote and found two (forgotten) notes about serendipity.

In Manage Your Day to Day, Scott Belsky wrote about a camping trip. He’s out in the woods, totally unplugged. He writes that he was bored the first day. Then, “my brain suddenly reactivated.  My creativity and imagination reached a new velocity as soon as I unplugged.” He goes on to explain that by unplugging, he began to think in new ways and create serendipitous connections.

Another note was Maria Popova’s interview with Copyblogger, where she spoke about the difference between research and search:

“And I think that’s part of our challenge today, not just semantically but also practically – we tend to conflate “research” with search, which is always driven by looking for something you already know you’re interested in; but I think the richest “research” is driven by discovery, that intersection of curiosity and serendipity that lets you expand your intellectual and creative comfort zone beyond what you already knew you were looking for.”

By using digital books, with notes stored in the cloud, Bakshi is conducting research under Popova’s definition. This distinction is important. If we feed ourselves too much of the same thing, and only search, we are susceptible to confirmation bias. One way to combat this, said Jason Zweig, is to follow people on Twitter you don’t agree with. 

Bakshi says that “net net” he doesn’t feel a loss by choosing digital. This perspective has two important points.

First, Bakshi recognizes tradeoffs. He understands the complete picture, and it’s not bimodal. One form of books is not superior to the other. We’ll get to this in just a moment when Bakshi explains “Part of the Reason” thinking.

Second, it’s a tell. “Net net” is a tell that someone has been influenced by Benjamin Graham’s value investing (and that we should listen to them).

In Graham’s definition, net net is the liquidation value of a company after it pays all its debts. Graham explained this idea because he was able to find companies valued less than their net-net. How, Graham wondered, could a stock be worth less than their net net value?

That would be like Apple being worth less than their $203M cash on hand rather than their $657B market capitalization.

Please, just read.

No matter how you do it, with digital or physical books. No matter what you read, from Benjamin Graham to On The Origin of Species, read.

Naval Ravikant said we should read widely. Chris Sacca says everyone successful he knows reads a lot. Jim Kwik said, “the intelligent person learns from their own experience but the wise person learns from the experience of other people.” Howard Marks said that the best way to avoid mistakes is to read widely. Tren Griffin explained how Charlie Munger does this (and Griffin too).

While the access to books has never been greater, the task of reading has never been harder. Tyler Cowen says that today we try to drink from a firehose of information. Naval Ravikant said we are tempted by “dopamine snacks.” You need to read if you want to be an interdisciplinary thinker.  

Interdisciplinary thinking – or the question that will make you a better thinker.

“I always start with ‘part of the reason is this.’” – Sanjay Bakshi

What a powerful statement. “Part of the reason is this.” The beauty in this one sentence is that it nudges us to figure out what the other reasons are.

When you start to think this way, Bakshi explains, you start to avoid mistakes. Tren Griffin said similar things in his a16z interview, and it should be noted that both Griffin and Bakshi read, studied, and learned from Charlie Munger.

Why does thinking in this way help us?

It rules out the availability bias.

Remember the last car you bought? Once you started driving it around you probably began to see it everywhere. Or, remember in the 2014 ebola scare? Many people were afraid of infection, but paradoxically, didn’t get a flu shot. Six times as many people died from the flu in the United States than died from ebola worldwide.

This is the heart of the availability bias. When something is at the forefront of our thoughts, we assume it to be the correct answer. Sometimes this works. Sometimes it doesn’t, and usually that involves 2nd level consequences.

When asked if letting more students into Harvard was a good idea, Tyler Cowen thought through the 2nd (and 3rd) level answers. Ray Dalio writes about this in Principles. Howard Marks explained his 2nd level thinking to Barry Ritholtz. Second level (and beyond) thinking is to ask and “then what” or “part of the reason is this.”

Bakshi didn’t always think this way. When he was a student at the London School of Economics he learned that markets were efficient.

Then one day he read about someone in Omaha who said the markets weren’t efficient – and was making money because of it. Bakshi wrote to Warren Buffet and began to read more. This led to reading Charlie Munger and then Benjamin Graham.

Like a brother from another mother, Richard Thaler had the same experiences. Thaler too was learning about rational markets. Except, Thaler thought, they weren’t always rational. In Misbehaving Thaler writes, “although I had misgivings about some of the material presented in classes, I was never quite sure whether the problem was in the theory or in my flawed understanding of the subject matter.”

Thaler began to keep a list in his office, “dumb stuff people do.” Each time he found a bias or irrational market he added to the list. Then, much like Bakshi found Buffett, Thaler found someone to read, a psychologist named Daniel Kahneman.* With Kahneman, Thaler began to think that maybe his understanding wasn’t flawed. Maybe the markets were.

It took 10 years, Bakshi says, before he figured things out. Tyler Cowen said that he’s thankful to have straddled the internet and pre-internet worlds. It gave him time to learn without the temptation of the firehose of information or dopamine snacks.

I think this is part what makes Maria Popova’s Brain Pickings site so successful. A year after graduating from college, Popova’s work visa expired and she had to leave the United States. She returned to Bulgaria, where she didn’t have Amazon.com or high speed internet. Popova had to settle for whatever books were at her library. Those books were the classics. They included timeless wisdom. If you read her site now, you’ll see this. She references and is influenced by great ideas, which she originally saw without an internet connection in Bulgaria.

The importance of environment – create your own Bulgaria.

Okay, you’re ready to be a multidisciplinary thinker too? First, remove distractions.

1. Internal Distractions.

There’s a gravitas required for thinking long term. Bakshi tells Parrish, “you can’t think long term unless you are financially independent.” Financial independence doesn’t mean you don’t work, just that you don’t have to. It removes the internal distraction of employment. Tren Griffin says that this is why Charlie Munger aimed to be wealthy early in his life, so he had enough money to read what he wanted.

When Tim Ferriss asked Naval Ravikant who he thought was successful, Naval said it was their “old Polish trainer.” How can two people with net worths in the  millions of dollars say that “Viktor” is successful?

He’s successful, says Naval, in that he doesn’t need anything.  This is something the stoic philosophy teaches. Seneca writes:

“For how little have we lost, when the two finest things of all will accompany us wherever we go, universal nature, and our individual virtue.”

If we always live in the natural world and we can always choose how we feel, what more do we really need? 

We are already wealthy if we are alive and control our thoughts. Those two things are quite precious. Keep these things in mind and you’ll limit the internal distractions. But, we also aren’t all philosophers, and need to get things done. For that we need to limit the external distractions.

2. External Distractions.

What I want, says Bakshi, “is a room with no distractions and a big do not disturb sign outside.”

Bakshi says he’s removed the Yahoo Finance bookmark. It felt odd at first, but he’s glad he did it. Bakshi’s also gotten rid of his television.  Jason Zweig says the problem isn’t the information, but how it makes you feel. Dr. John Coates writes that losses to your portfolio, incite the release of cortisol. You react to a bear market like it was a real bear.

To make good decisions, says Bakshi, you need to distinguish between the signal and the noise. This is easier to do if you have less noise. (This is so obvious in hindsight.)

“If you want to make good decisions,” says Bakshi, “you have to rule out the things that don’t matter.”

Authors long ago figured this out. William Faulkner was once renting a house that lacked a lock on the room he was to write in. Knowing the importance of undisturbed work, Faulkner went ahead and removed the doorknob so as not to be disturbed. George R.R. Martin (author of Game of Thrones) writes on a computer with no internet connection. Christopher Nolan doesn’t use email.

Faulkner, Martin, Nolan have all eliminated external distractions (noise).

Bakshi’s gotten rid of his television and Yahoo data. He also removes data from statements. You get too much noise with quarterly results he says. Bakshi looks at things at 30, 15, 10, 5 year increments rather than quarterly.

Look at See’s Candy he tells Parrish. The company reports loses in 3 of 4 quarters, but it’s a great company. You’ll see that if you get rid of the quarterly noise.

Once you read widely and remove distractions, there’s one more thing that can help your thinking – funny names.

Why “boiling frog syndrome” is important even though it may not be true.

If you see something come up again and again, says Bakshi, it’s probably a new mental model. I’ve noticed that as I read more books about biology like; The Hour Between Dog and Wolf, Mean Genes, and Gut Feelings. 

Each book about biology builds another model to filter my thinking, but talking about “biology” or “testosterone and cortisol” doesn’t convey a summary.  The bear picture above does. It’s more visual and visceral.

Warren Buffett and Charlie Munger have many models explained Tren Griffin, and they give them funny names on purpose. It brings up an image that’s more than the sum of it’s parts. The boiling frog (much better than “legacy effect” right?) was important to the post about the end of jobs. It implied an urgency that people weren’t capturing and that was dangerous. The most famous of Buffett and Mungers expressions might be moats.

If you haven’t read Tren Griffin’s piece on moats, you should. Moats (competitive advantage – also a lackluster term) makes the additional point that you are defending something. It’s combatant. It’s defensive. This is what Buffett and Munger want people to think when they think about competitive advantage.

Let’s add one more. We’ll call it The Coupon Fallacy. Coupons typically look something like this:

Okay, so why not save something on cereal? The thing is though, lots of people use this coupon on cereal, but wouldn’t on something larger, like a new computer.

Study after study shows that people compare prices to save $100 on a new washing machine, but not on a new car. Even though the absolute savings is the same ($100) we see the fraction $100/$299 as more valuable $100/$35,000.

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Thanks for reading, I’m @MikeDariano if you’d like to connect on Twitter.

* I wonder how things would be different if Amos Tversky, Daniel Kahneman’s research partner, were still alive. Only the ardents cite Tversky and Kahneman, of which Thaler is one. 

Tren Griffin (@TrenGriffin) was interviewed on the a16z podcast to promote his new book: Charlie Munger; The Complete Investor. Griffin also writes the wonderful blog 25iq in addition to his role at Microsoft. As always, the podcast covered much more, but here are the points we’ll address.

– Remove the bad before you seize the good.

– Inversion.

– Mental models.

– 2 types of people, moat finders and moat builders.

– How to apply these ideas.

Remove the bad before you seize the good.

Sometimes, says Griffin, we get tripped up with prediction. Rather than choose something, it’s helpful to eliminate something first. “Knowing what you don’t know is really valuable too,” he says. If you don’t know what escargot is, you may want to avoid eating it at a restaurant. Similarly, if you don’t know how a business earns its money, you may want to avoid investing in that business.

This is the big idea of his book, Griffin says, be smart by not being dumb. One way to do this is to remove the bad before you seize the good.

Right now (Autumn, 2015) there are a lot of NFL suicide pools. A suicide pool is one where each week contestants pick the winner of one game. The catch is that no one  pick the same team twice. If you choose the Packers in week 1, you can’t pick them again later in the year. 

Most people approach the pool by ruling out some games before making a prediction. They’ll consider 4 or 5 games to be too close, and choose from the remaining options. They won’t make a prediction until they have avoided the worst options.

We can do this in our own lives. Griffin says Charlie Munger uses an approach like this. Munger will first think of an answer, then try to rule out why it doesn’t work. Munger will shine different logical mistakes on a situation to see any apply. Others have suggested this too.

• Jason Zweig says to follow contrarians on Twitter to derail your confirmation bias.
• Michael Lombardi says that they remove NFL players that don’t fit rather than choose ones that do.
• Chris Sacca has knockout questions that if an entrepreneur doesn’t get right, he doesn’t get funded.
• Mark Cuban sees hindsight bias in fans when they look at past trades.

If we can apply classic mistakes to potential situations we can start to make better decisions. 

Sometimes the mistakes are difficult to see and we need to look at the problem a new way. We need to invert.

Inversion

This is one of my favorite ideas from Charlie Munger, and Griffin explains it this way. “We can look forward and backward at a problem.” Giffin gives the examples from our lives. If you want to have a good spouse, be a good spouse. If you want to have good kids, be someone who deserves good kids. If you want to be happy, avoid what makes you miserable.

Inversion works in business too and it’s what revealed the answer In Michael Lewis’s book Flash Boys.

The problem in that in 2008  High Frequency Traders were outrunning orders to other exchanges and driving up prices. We don’t need to dive into the market nuances to explain this, let’s plan a party instead instead.

Imagine that you want to have a party for your parents 30th wedding anniversary. You go to buy flowers and pick some arrangements to be delivered that weekend. While there, you ask where you might rent some tables. The florist tells you that the store across town has what you need.

But while you’re there, Harry Franklin Thomas overhears this, races across town ahead of you and rents the very last tables. 

Soon you show up and Harry Franklin Thomas offers to rent his table to you. For a bit more than he paid, but you don’t know that. None the wiser you get the tables.

That was the problem, (simply put) of the stock market. Oh, and one more thing, no one knew it.

Until in 2008 a group of bankers discovered what was going on. They wondered, how can we outwit Harry Franklin Thomas? The secret wasn’t to drive across town faster than him. That was an arms race they couldn’t win.

No, the secret was a head start. If Harry Franklin Thomas heard your conversation with the florist, but delayed, he couldn’t outrun you. Once he hear the message it it would be too late because you had a head start across town.

The question wasn’t, “how do we get faster?” The question was inverted, “How do we make them slower?” Lewis writes:

“Allen wrote a program—this one took him a couple of days—that built delays into the orders Brad sent to exchanges that were faster to get to, so that they arrived at exactly the same time as they did at the exchanges that were slower to get to. “It was counterintuitive,” says Park. ‘Because everyone was telling us it was all about faster. We had to go faster. And we were slowing it down.’”

Inversion isn’t easy to figure out how to do. On the podcast Michael Copeland (@MVC) compares it to being “Spock like.” Griffin says that while that might be true for individuals, diverse teams can invert more easily. Diversity of interests, skills, opinions, and experiences all lead to something where the whole is greater than the sum of its parts. It’s why, Giffin says, that Silicon Valley is so interesting. 

Individuals aren’t out of luck though. Mental models can be the diversity of thought we need.

What is a mental model?

“A mental model,” says Griffin, “is a way of looking at the world.” It’s applying the ideas of mathematics, physics, psychology, biology, architecture, philosophy, or literature to a problem. But they don’t need to be complicated. “I only bet on two things,” Gary Vaynerchuk says, “do I personally believe in this or do I believe so much in the entrepreneur?” Vaynerchuk favors investments understands or entrepreneurs who have had success before. That’s his mental model.

It’s the multiple model approach a problem, says Giffin, that will lead to answers you otherwise wouldn’t find. But these answers are uncommon.

An early inspiration for Warren Buffett and Charlie Munger was Benjamin Graham’s book, The Intelligent Investor. In it Graham lays out a framework for value investing and notes that it’s hard to find great companies. “The most useful generalizations,” writes Graham, “are of the negative sort.”

Graham is saying that we should first “remove the bad before you seize the good.” This doesn’t seem all that helpful though. You need to find something and act on it. Maybe. As Barry Ritholtz likes to say, “don’t just do something, sit there.”

What Graham advocates, Munger applies, and Griffin summarizes is the need to wait until the moment is right. You don’t want to chase opportunities unless they are very good. Griffin says this happened in Harvard Square when Bill Gates and Paul Allen realized Gates had to drop out of school to start Microsoft. 

Okay, then how do we create a mental model?

How do you build a mental model?

Read. Read. Read. All of the successful people he’s met, says Griffin, “are inquiring and they read.”

We’ve heard this many times but successful people read a lot. If you want to get started reading there are two consistent strategies that hyper readers share.

1. Don’t be afraid to stop a book. “We’re brought up believing that books are sacred,” Naval Ravikant told Tim Ferriss. But sometimes you just need to stop reading them. Tyler Cowen suggests this too, noting that life’s too short to read something you don’t enjoy.
2. Read widely. Find a topic that interests you and dive into that. David Heinemeier Hansson has said that he will stop working on a project that doesn’t interest him in favor for another. Why? He figures that the productivity boost he’ll get from working on something he enjoys will pay off. In reading we can do the same thing.

The goal, says Giffin, is to create many positions from which you can understand a problem. You want to be able to recognize patterns as they arrive. One problem of education, he says, is the specialization and focus on formulas.

Formulas are good, but are only one of many models. In his book, Filters Against Folly, Hardin suggests we look at situations through three filters (models): numerate, literate, and ecolate. Hardin writes:

“In summary, the three filters operate through these particular questions: Literacy:what are the words? Numeracy:What are the numbers? Ecolacy: And then what? No one filter by itself is adequate for understanding the world and predicting the consequences of our actions. We must learn to use all three.”

Formulas are one part of the picture and like other models have weaknesses. Here are two:

1. You focus on the trees and forget about the forest.

Formulas can be too specific and lead to the wrong focus. When Michael Lombardi talked about a team being able to “play right or left handed,” this is what he was spoke to. The whole needs to be greater than the sum of the parts, as a forest is greater than the sum of the trees.

Formulas can also be too reductionist in nature. We can call see in multivitamins. Why doesn’t a perfect little capsule provide the nutrients we need? Why don’t we eat food like The Jetsons?

Michael Pollan writes that to study things we need to reduce them, but in actually eating them, we need to wait a moment.

So if you’re a nutritional scientist, you do the only thing you can do, given the tools at your disposal: break the thing down into its component parts and study those one by one, even if that means ignoring complex interactions and contexts, as well as the fact that the whole may be more than, or just different from, the sum of its parts. This is what we mean by reductionist science.

Scientific reductionism is an undeniably powerful tool, but it can mislead us too, especially when applied to something as complex as, on the one side, a food, and on the other, a human eater.

This the “multivitamin” or “Lollapalooza” effect. Good situations, says Griffin, are like the music festival, greater than the sum of their parts.

2. Models can have tail risks.

Tail risks are those extreme situations where something happens that we don’t expect. When Long Term Capital Management made their convergence bets, they ignored the tail risks. From When Genius Failed:

“But Black-Scholes (the formula the traders built their theory on) makes a very key assumption: that the volatility of a security is constant. To say that the value of an option to buy IBM depends on its volatility is meaningless unless you can agree on what its volatility is. Therefore, the professors treated the volatility of a security like an inherent, unchanging trait. You have blue eyes; IMB has a volatility of X.”

In a normal bell curve (non-dotted line) we can see that the tails thin out. That’s what LTCM thought they were investing in. Height follows a bell curve. Blood pressure follows a bell curve. The stock market follows a bell curve, kinda.

Bell curves work best over time and when things are random – but markets don’t perpetually satisfy those criteria. “Markets can remain irrational longer than you can remain solvent” (Keynes) and markets aren’t always random.

Markets have things like High Frequency Traders or activist investors or government intercessions. These things disrupt random models to create sticky situations for precarious predictions. LTCM got caught in one of those. Russian bonds declined in prices and hedge funds lost money. Those funds sold other holdings to limit their losses, which caused LTCM’s position in those holdings to decline in value. Other firms sold too, LTCM’s position worsened even more.

How then do we avoid all this? If formulas are one form of a mental model, but even it is fallible what do we do?

Read widely. If we know about formulas, that’s good. If we know about formulas and the history of the stock market that’s even better. If we know about formulas, the history of the stock market, and the biological foundations of greed that’s even better yet. 

Giffin says that Munger’s hero was Franklin and that he loves the independence to read widely. Part of this reading has brought about a humility. “The more you know,” says Griffin, “the more humble you should be.” That may be the most important model of all.

Two types of people: moat builders and moat finders

“One of the great contrasts in life,” says Giffin,  “is between people who know a moat when they see it and people who know how build one out of nothing.”

Munger and Buffett are the former, they know how to find a valuable moat. Bill Gates and Mark Zuckerberg are the latter, they know how to create one out of nothing.

The important part is to know which type of person you are. Gretchen Rubin tried to figure this out when she began her book about habits. Some she articulates include; are you an abstainer or moderator, a sprinter or marathoner, a starter or a finisher. If you know yourself, Rubin reasons, you’ll be your best self.

So, are you a moat builder or moat finder?

What is a moat?

A moat is a competitive advantage. It’s also interesting that Munger calls it a “moat” rather than “competitive advantage.” Sanjay Bakshi said that he thinks the reason is because quips like this call to mind more than the just technical definition. Bakshi says that Munger likes to have these names to explain things. We used “boiling frog syndrome” here to talk about the change in jobs.

Rather than explain something I don’t know, go to Griffin’s page to understand moats. We’ll look at just one kind of moat; brands.

Scott Galloway spoke about brands and identified five things that constitute a good brand;

1. Truly differentiated products and intellectual property. You can open another frozen yogurt store but, you can’t create a Google competitor.
2. Visionary capital. It costs them less to borrow.
3. Control of the end user (vertical integration). No one else messes things up in the last mile.
4. Vanity. People want to be seen with the product.
5. Maternal. These places are all great places to work.

Both Griffin and Galloway conclude that they think Nike is a good brand, in part because it does these things well. But brands are a squisher type of moat.

In a blind taste test people don’t prefer Coke to Pepsi, but their buying habits do. What gives? 

People have what Richard Thaler calls, “transaction utility.” They get enjoyment from being a type of buyer.  How often have you heard of someone “getting a deal”? That person liked the item and “getting a deal.” Both were parts of the transaction for them.

Seth Godin says that you can see the same thing with headphones. People like to be seen wearing a certain pair of headphones, in his example Beats. But that’s not all. When he talks to Brian Koppelman he notes that Koppelman doesn’t wear Beats. He wears Sennheiser. Godin proposes that people also like to think of themselves as the type of person who knows why to buy Sennheiser rather than Beats.

If you’re keeping score at home we have three aspects that can be part of a brand’s moat.

• The “I like a good deal” sort who find transaction utility.
• The “I like to be seen with this” sort. I’ve always suspected this is why Apple their headphones white.
• The “I like you to notice that I’m smart/cool/wealthy enough to differentiate” and choose this brand. Godin’s hypothesize about Koppelman’s headphones.

Brands, as a moat, are kind of squishy. People change, and this moat is built on people not changing. 

How to apply these ideas

Step 1: for the things you don’t, won’t, or can’t invest time in, make the chances of failure as minimal as possible. “If you can’t read the sections on moats (in his book),” says Griffin, you should just buy an index fund for your retirement.

Learning about moats is like an end-of-level boss that you need to defeat to move on. If you can’t get past level 1 (read and understand about moats) then you can’t go on to level 2.

Step 2: for the things you do care about, keep learning. Realize that knowledge isn’t perfect and everyone makes mistakes. Daniel Kahneman won the nobel prize for his work on ideas like the planning fallacy (that we underestimate the time needed and results from a project) yet he still fell for the planning fallacy. (See the Jason Zweig post for the full story).

Let’s finish then with the advice of Nassim Taleb, writing in Fooled by Randomness:

“My lesson from (George) Soros is to start every meeting at my boutique by convincing everyone that we are a bunch of idiots who know nothing and are mistake-prone, but happen to be endowed with the rare privilege of knowing it.

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Thanks for reading, I’m @MikeDariano if you’d like to connect on Twitter. If you like these posts and think this sort of synthesizing, thinking, or summarizing is a good fit for your business, get in touch. 

I also send out a monthly email with the books I’m reading.

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Updates: The first version of this article misspelled “Hasson” as “Hason”.

“Naval, that guy is intense.” – Salty Old Polish Trainer

Naval Ravikant (@Naval) joined Tim Ferriss (@TFerriss) for a conversation about all kinds of things. As always, there were a lot of great parts to this interview. Here’s what we’ll cover.

– You’re software (programming, but no coding required).

– The future of work.

– Advice for startup founders.

– Books.

– Errors of commission and omission.

– The game of life.

You’re software

“We all want to be successful people, but we also want to be happy people, and those run in diametrically opposite directions.” – Naval Ravikant

Much of the conversations is about how to be happy. It’s difficult to chase both happiness and success says Naval. It’s analogous to to what Nick Murray said about plans and gains. Your financial goals need to be one or the other. You can’t have a plan and chase gains. The two are mutually exclusive. Naval makes the same point for success and happiness.

Naval sounds happy because he’s developed his happiness. It’s a choice you make and skill you develop, he tells Ferriss. Like writing code or hitting a ball, you can be happier if you build up that skill.

And it’s normal to not be constantly happy. “Every great thing that’s accomplished,” says Naval,  “started with something highly negative.” Tyler Cowen said he doesn’t want happiness per se. He wants good food to eat, challenges to overcome, and a stable home life. 

In the book Mean Genes, Drs. Terry Burnham and Jay Phelan write that we’ve evolved from people who didn’t hunt happiness. They couldn’t.

“We’ve been built in such a way that the satisfaction game cannot be won by accomplishing goals nor lost by any setback. Allowing us to rest on our laurels or weep over spilt milk would be a genetic mistake. Our genes don’t care about our past achievements, only about continually positioning our emotional rabbits just far enough ahead to keep us panting and working to accomplish their goals….Success, not indolence (laziness), makes people happy.”

Knowing that happiness is elusive helps Naval. He’s focused on something else, presence in the moment. This idea was inspired by his love of physics.

Naval says that he grew up idolizing Richard Feynman. Ferriss adds that Feynman’s books are wonderful. So are his interviews:

The influence physics had on Naval was that things need to equate. You can’t flub physics. Naval set out to make his life more consistent, more like physics.

He tells Ferriss that one way he does that is not lying to people. He calls honesty a “core foundational value.” If you lie, Naval goes on to explain, you have multiple stories to track. Each one of those stories pulls you from the present moment, which is where he aims to be.

None of this programming was immediate, nor did Naval know how or what to program. It all came from reading, which we’ll get to in a moment.

Jobs

Naval has always scratched his own itch when it comes to work. He’s founded the companies AngelList and Epinions. Each grew from a need he saw in the market. He started Venture Hacks because there wasn’t a lot of information on signing venture capital deals. He tells Ferriss those deals were like a  “black box” and it was one of the biggest moments of your life.

AngelList gew from the same seed. He wanted to create a better place for founders to get funding. He saw a lack of good employees so a job board came next. 

Naval guesses that work will continue to evolve. “On a long enough time scale,” he says, “almost everyone on this planet will work for themselves.” He imagines that we’ll wake up to alerts about what jobs are available that day and pick for ourselves.

Adam Davidson saw this at work in Hollywood. “Here are hundreds of people,” Davidson told Russ Roberts, “that snap into action on day one but when the lights go down they are scattered to the winds.”

Taylor Pearson argues that this process has started, but that it’s hard to see. Unlike Hollywood, where your paycheck is correlated to your skills and relationships, many people don’t get the right feedback or act correctly when they do. People tend to view things in simple contexts, I get paid, therefore I do good work. Rather they should look at things through a complicated or complex lens. This perspective would lead someone to ask, “why do I get paid?”

In his book, Thou Shall Prosper, Daniel Lapin suggests think about our employers as clients.

“The company that writes your paycheck every two weeks is not your employer; they are your customer. Adopt this mind-set and everything changes. You are free from the daily grind—free to grow your business and serve your customers, your fellow man.”

In this future of work be ready to be scored. “You’ll be ranked and graded on this work,” Naval tells Ferriss. In his book Average is Over, Tyler Cowen writes that we should expect to have “Yelp style rankings.” But, being nice still matters. Cowen writes that while empathy may not be measured, it will still matter. When Adam Davidson walked around a Hollywood set, he noted that “not being a jerk,” was important. 

This change is coming, says Naval, because of the information economy. If the industrial revolution was a chance for people to team up, then the informational revolution allows the firm to shrink.

In his book, Here Comes Everybody, Clay Shirky writes about the shrinking firm:

“Most of the barriers to group action have collapsed, and without those barriers we are free to explore new ways of gathering together and getting things done.”

Before we could connect, Shirky writes, it was hard for firms to grow larger. Each additional employee created a small drag on the company, and they could only be profitable to a point. Wikipedia for example (founded by Jimmy Wales) could never run as a traditional business with managers who delegate the work. The drag exceeds the profitability. But it does succeed now because the connection costs are so small.

It’s not that firms, governments, and organizations won’t exist, they always will. It’s that it’s easier than ever to create new groups. Take freelancing. When Matt Barrie hired his first freelancer, the guy lived in his town and had to hand deliver the software. Now you can find people anywhere.

Turn on some Dylan. Logon to your computer. It’s time to start a startup.

Advice for startup founders

Naval has founded and invested in many successful startups, and tells Ferriss that he looks for three things in startup founders.

1. Intelligence. Talk to people, Naval says, “ask them how deeply they have thought about his idea.” Jason Calacanis says he wants people who “Know the stuff cold. There’s  level of deep, deep obsessive knowledge you need to have of all your competitors. Of all the nuances of their products. Of the history.”
2. Energy. “In the long run,” says Naval, “the people who succeed are those that persevere.” Trip Adler, founder of Scribd, says “the main reason companies fail is because they give up.” Jay Jay French had eleven versions of Twisted Sister before one worked. Ben Mezrich had 190 rejections before his work was accepted.
3. Integrity. Naval is always on the lookout for situations where a founder may treat him better than others. This is a warning signal. “Integrity is what you do despite the money,” he tells Ferriss. The best way to create integrity is through long term relationships.

Startups are different than traditional investing says Naval, “you get paid for being right when everyone else thinks it’s wrong.” It’s why Peter Thiel asks this:

Good new companies look strange Naval says. Think of Netscape. When the browser was released, no one thought there was money in browser. So too for companies like Microsoft (there’s no money in software) and Apple (there’s no money in hardware and software). Now people say the same things for Uber.

This is where things get interesting. With Apple, Microsoft, and Netscape we look backwards, construct theories, and extrapolate. Do those theories hold for Uber?

Scott Galloway makes that case that it does. Uber he says, has created something new (looks strange), a last mile solution. Galloway says that companies like Amazon have spent a lot of money on the last mile, but Uber can do this for anyone.

Take Amazon Prime, with 2 day shipping. There’s nothing I need on Amazon (except the occasional last-minute gift) in 2 days. That said, I always choose 2 day shipping. While I can’t see a use for other delivery options, that doesn’t mean I won’t in the future. As Steve Jobs said, “people don’t know what they want until you show it to them.”

Ditto for a company like Instacart, a “last mile solution” for groceries.

One of Instacart’s investors is Sequoia Capital, and Naval points this out because they also invested in the Dot Com carwreck, Webvan. Why would Sequoia invest in the same thing? Simply, times change. (Cue Dylan again.)

Naval credits Sequoia for having this mindset. They evaluate each opportunity on its own merits he says. They don’t let past judgement errors like sunk costs, survivorship bias, or availability bias cloud their thinking.

They also recognize that timing matters.

Mark Cuban and Seth Godin both cashed out before the dot com crash and admit they got lucky. Trip Adler says that at Y-Combinator he was told his idea for a ride sharing app wouldn’t work. It was 3 years before Uber.

Luck matters. “I’ve thrown a lot of darts and I don’t necessarily take credit,” says Naval, “a lot of it was luck.” Jason Zweig said, “Anybody who has done reasonably well in any field and who doesn’t credit luck first and foremost is kidding themselves.”

Luck, chance, randomness, noise – whatever we call it, we need to call it something. Like a recipe includes ingredients, our success or failures include reasons. Luck is one of them.

Rather than blame bad luck, we can figure out how much of a role it played and make adjustments. Michael Mauboussin says that we can see how much luck and skill matter by asking if you could fail on purpose.

For example, could a business fail on purpose? Yes. Have a bad product, treat your customers poorly, and charge high prices. That business would fail. 

What about a stock portfolio? Could you create a portfolio that failed?

Now that’s a bit more difficult, says Mauboussin. One year ago (September 2014), ⅓ of financial analysts had “Sell” ratings for Clorox (CLX) and Campbell Soup (CPB). If you wanted to sabotage a portfolio that seems like a good place to start. But you’d only sabotage your success, because those stock soared. Those stucks are up 26% and 18%.

On a spectrum we can say that business success is more dependent on skill than stock picking success. A spectrum works best because we don’t want to overfit our model to the data. There are some data that don’t apply, the problem is that we don’t know which.

Zach Lowe reports that NBA teams have been wearing activity monitors at practice for years (good thing you aren’t in a FitBit competition with them). “The monitors track the power behind a player’s accelerations and decelerations (i.e., cuts), the force-based impact of jumping and landing, and other data points.”

Teams use these data to anticipate injuries and rest players. But not just the numbers. It’s a combination of the data and feedback from players about how they feel.

Be careful about excessive data says Naval, “any formula with a set of guidelines is probably going to be wrong.” Naval looks at intelligence, energy, and integrity as the big things to get right. He follows in the footsteps of Potter Stewart, I’ll know it when I see it.

Reading

Naval loves to read. Rather than dig through all the book links, check out the podcast notes at FourHourWorkWeek.com. The real takeaway is this; we can adopt Naval’s style of reading.

Fit books into your life, don’t fit your life into books.

Naval told Ferriss that he felt a craving for “dopamine snack,” like tweets and blog posts. Why not use that to our advantage?

“Blogs are an underappreciated resource,” Naval says. Think of blog posts as chapters in a book. He recommends Melting Asphalt, which is great. Shane Parrish’s Farnam Street is wonderful. Maria Popova’s Brain Pickings is fantastic. Ditto for the Scott Adams’ blog.

Also, don’t think you need to read something and immediately and completely understand it.

Naval says he’s never had a lightbulb moment of understanding. Rather it’s through decades of reading that he’s built skills. He praises books like Meditations in the interview, but he had to read it over and over again to apply it to his life.

We can flip this and read books like they were social media. Hop around books says Naval. Read one paragraph as if it’s a tweet. Feel no obligation to finish.

Education

We have to read – and read widely – to learn. Naval says that the important things have taken him years to learn, And don’t expect to learn this in school.

“We spend too much time memorizing the capital of Rwanda or Alabama,” Naval tells Ferriss. Instead we should think about new things to learn. Here are some of Naval’s suggestions, and other people who have thought so too.

• Diet and health. Brad Feld, Scott Adams, and Dave Asprey all talked about the importance of experimentation when it comes to your health.
• Happiness. Gretchen Rubin wrote two books about it. Dan Harris found it in meditation. Chris Hadfield created win-win situations.
• Healthy relationships. Austin Kleon and Nicholas Megalis talked about being around good people. Simon Rich said he wanted to be the dumbest person in the room and to feel like he was barely keeping up.
• Persuasion. Read Influence by Robert Cialdini. Ferriss, Ramit Sethi, James Altucher and many more recommended this book.

Commission, omission.

Naval says that he regrets his errors of commission more than his errors or omission. This is a valuable thinking tool.

For Naval, the biggest mistakes are doing things he shouldn’t – like advisory roles. Usually these mean more work than expected, and he feels stretched. Other times they require almost nothing, and he’s left to worry about what is happening. “Guard your time,” he tells Tim, that’s the most valuable resource you have.

Naval does this by removing things that lead to those errors. “Habits are everything,” he says, and so if we can change our habits, we can change everything.

A good place to start with habits is to know thyself. When Gretchen Rubin began her book, Better Than Before, she realized that certain habits, like shoes, fit better. Rubin noted that it was important to know yourself. If you like to exercise alone, she writes, don’t try to build a habit in a group fitness class.

Rich Roll’s life changed when he developed a self understanding. Roll’s life had always been filled with something encompassing. During college is was swim team. During his early career it was alcohol and drugs. Then it was food. Eventually he found running, and things changed. Once Roll channeled his addictive energy into something healthy, his life got better.

We can take the lessons of Naval, Rubin, and Roll and apply them to our own lives. Take moderation and abstinence. What do you favor? Naval favors abstaining from advisory rolls, knowing that he can’t be comfortable doing a little. Rubin abstains from chocolate. Roll from alcohol.

Abstainers give up something (drink, sugars, Candy Crush) because none is better than some. Moderators can take the single rectangle of Hershey’s chocolate or “just one chip,” and not want more (no word on if moderators can watch only one episode of House of Cards). If you want to build a habit, figure out which of those you are.

You can’t win an infinite game

Naval’s entire conversation with Ferriss is very philosophical and covers a lot of ground, but it all comes down to not needing to win or lose. When he talks about the importance of being in the moment, it’s akin to an athlete in the zone. That person doesn’t notice the temperature. They don’t hear the fans. They are just in the game. It’s not about the score, it’s about them doing their best in the moment.

The Polish trainer Naval and Ferriss share is like this. Naval says that he’s successful because he doesn’t need to win or lose. He’s good just playing the game.

In Finite and Infinite Games, James Carse writes:

“There are at least two kinds of games. One could be called finite, the other infinite. A finite game is played for the purpose of winning, an infinite game for the purpose of continuing the play.

Which game do you play?

–

Thanks for reading, I’m @MikeDariano. If you liked these notes and want to connect about a project, get in touch.

Jason Zweig (@JasonZweigWSJ) joined Barry Ritholtz (@Ritholtz) on Bloomberg’s Masters in Business series. Zweig is on the show to talk about his new book, The Devil’s Financial Dictionary, but the conversation covers much more. As always, the actual interview was very good and deserves a listen. We’ll cover just these points.

– Luck.

– Grandmothers > Twitter.

– Why Zweig writes the same thing over and over again.

– Psychology & Neurology.

– Why to move the stock app off your homescreen. 

– You stink at predictions.

– Kahneman (!!).

– What to read.

Luck

“Anybody,” says Zweig, “who has done reasonably well in any field and who doesn’t credit luck first and foremost is kidding themselves.”

Well, that’s a little harsh right?

It’s not like Zach Lowe at ESPN wrote that the NBA Champion Golden State Warriors got a little lucky.

Or Kevin Kelly who edited Wired magazine said he was lucky.

Or Michael Mauboussin looks at luck like a baker does sugar – a basic ingredient.

Really smart people give some credit to luck.

Zweig tells Ritholtz the story of how he got to edit and add commentary to Benjamin Graham’s The Intelligent Investor. Zweig was at a party and saw an editor from Harper Collins across the room.  He knew the two hadn’t spoken in a few years, so we went over. He didn’t ask for anything, it was just a hello-how-ya-doing. Then a few weeks later she was in a meaning and suggested that he edit and update the Graham book.

There are also unlucky moments in our lives and we should acknowledge them too. Michael Mauboussin talked to Ritholtz about how to untangle luck and skill. He pointed out that luck can be good or bad and when it becomes more important.

As a field becomes more competitive, Mauboussin says, skill converges and luck becomes more important. Take anything like the stock market, professional baseball, or the restaurant business. In each of those instances skill gets you further when less people are skillful. If you were to draw a bell curve of baseball player skill, Mauboussin says, it would be more narrow now than in the 1940’s.

Does your Grandmother know more than your Twitter feed?

Zweig and Ritholtz talk about social media, and both are fans. Ritholtz even went as far as Periscoping a moment of their conversation.

Social media is good, says Zweig, because it makes information more accessible. The pair suggest two ways to use it. 

1. Follow the smartest people in areas that interest you. Ritholtz says that he’s amazed when he meets people that don’t use Twitter. How can you not use it, he wonders. At the very least follow smart people in a field you care about.
2. Follow people who have different opinions than yourself. “Feed yourself as much disconfirmation as you can,” Zweig says. You want to be exposed to the counterpoint to your thought because it will  strengthen your opinions. Plus, Ritholtz and Zweig agree, it helps combat confirmation bias.

But, it also has some drawbacks.

Tyler Cowen says that he’s glad he had time to learn before Twitter. Information now is like a firehose Cowen says. This suits him well, but doesn’t leave a lot of time to think. His advice is to consume but to think as well.

Zweig worries that the new media lacks the institutional memory of places like the New York Times or Wall Street Journal. Take House of Cards as an example, Zweig says. Do newspapers let their journalists act that way. Never, you’d be immediately fired. Do people know this? Maybe not.

Zweig is hopeful. He tells Ritholtz that someday someone will figure out how to create a new news organization that’s as forward looking as Twitter, but with the memory of WSJ. 

Which reminds me, you should call your grandmother. She probably has more wisdom than your feed.

Zweig says that his early influences in finances were people who had lived through the great depression. Phil Carey, Sir John Templeton, and Bill Murray were all investors that Zweig looked to because of their experiences. In the same way that newspapers had institutional memory, those investors had experiential memories.

You and I can access this via people like Zweig and Ritholtz, but also from grandma. (Really, she’d love to hear from you.)

Why Zweig writes the same thing over and over.

“My job,” Zweig says, “is to write the exact same thing 50-100 times a year in such a way that my editors and my readers will never think I’m repeating myself.”

Wait, Zweig doesn’t give stock picks for next year? He doesn’t speculate about the next hot stock? Why?

There’s really only a few dozen things (6-30 they say in the interview) that the average investor needs to know. Beyond that and you start to do more harm than good.

The best advice, Zweig says, is to keep people from harming themselves. “The dominate determinate to long term financial outcomes,” said Nick Murray,  “is not investor performance, it’s investor behavior.”

In the Intelligent Investor, Benjamin Graham writes: “it is probably too much to expect that the urge to speculate will ever disappear, or that the exploitation of that urge can never be abolished.”

How then do people like Zweig, Ritholtz, Graham and Murray have readers?

It’s not easy, says Zweig. There’s only three ways:

1. Lie to people who want to be lied to, and you’ll get rich.
2. Tell the truth to those who want the truth, and you’ll make a living.
3. Tell the truth to those who want to be lied to, and you’ll make very little.

Zweig – to his incredible credit – has succeed with number two. Ritholtz too as well as some of the other people on this site; Michael Mauboussin, James Altucher, Howard Marks.

Psychology (mind), neurology (brain).

“The central question that has obsessed me for the past 20 years: why do smart people become stupid when money comes into the room?” – Jason Zweig

Zweig makes a good distinction between psychology and neurology and it’s worth pointing out here. The psychological component is what Richard Thaler discussed in his interview with Ritholtz. It’s the idea that we respond to our environment – in ways that can seem illogical – and we should figure out why that is. It’s why Thaler writes that we should nudge people toward things they say they want. If people want to be skinnier, put apples in a prominent spot in the cafeteria. That’s a psychological tool.

Zweig’s focus – especially his book Your Money and Your Brain – was on neurology. His examination applied the tools of neurology to extend findings in psychology. It’s what Dr. Coates writes about in The Hour Between Dog and Wolf.

There are neurological actions that lead to decisions. In Mean Genes, the authors write that it’s biologic to have fat waists and thin wallets. Carbohydrates and fats taste good, because we’ve evolved from people who ate them. Those people survived by eating more when times were good. Our love handles then are a savings account we can draw from when times are lean. 

If we think of things in both psychological and biological terms we get a more complete picture. That’s what Zweig does. 

Have you checked today what your home is worth?

Our current world is a tugging match between our biological evolution and our rational brains.

Evolution has led us to a place where we sort benign from dangerous. Bird, good. Tree, good. Rock, good. Lion, bad.

It’s simplistic, Zweig admits, but it’s true. Dan Ariely told James Altucher that while it may not be rational to jump at bumps in the night, it makes sense. The cost for running from what might be a lion was just a short run. The cost from running from what was a lion was much more. 

Well, we still have those mental triggers. See something bad, move away. The bad thing now is the Dow. If the stock market loses 1%, you may activate that primal part of your brain. It gives “bear market” an additional meaning. 

The problem, says Zweig, is that we get too much information. When you ran from lions, it was only lions in the immediate area. Now we “see lions” whenever we see stocks fall. And this is a problem.

In The Intelligent Investor, Zweig gives the example of your house. It’s also a large asset that changes in price, but no one calls their real estate agent at the same frequency they check stock prices.

Why, because it’s harder. And this leads us to a candy dish.

In his book, Mindless Eating, Dr. Brian Wansink explores what makes people eat. A nightly indulgences in moose tracks ice cream isn’t what makes most people overweight Wansink says. It’s the little things that add up over time. If we can change those little things, we can change what we eat.

In an experiment Wansink gave secretaries in his office building candy dishes with Hershey Kisses. Some received the Kisses in clear bowls, others in white bowls.

Wansink found that people ate 71% more from the clear candy dishes. That would add up to five pounds a year. Just seeing the food made people eat more. This is part of the convenience factor. If it’s easier to eat, we will eat it. If it’s easier to do, we will do it.

Why does this matter financially?

There’s a cost, says Zweig. “The more often people get news, the more often they traded.” The more they traded the more fees they piled up. They also tended to get out on the way down (I can’t stand how bad things are getting) and get in once things were already on the way up (whew, it’s finally safe to invest again).

One research analysis showed that investors who turned over more than 3/4 of their portfolio each year earned 6% less than the market. Oops. 

Here’s two steps to improve your returns 6%:

Step 1: move the stocks app to the very last page on your phone.

Step 2: repeat Step 1 as necessary.

Why you stink at predictions – but one hack to get better.

We are awful at predictions. If you don’t think so, you’re probably not keeping track. We have a tendency to remember the times we do well, and forget those when we do poorly.

I return to the golf course because I have rosy retrospection. Those three – or was it four(?)- balls I dropped in the drink are forgotten more quickly than the par three I stuck tight.

If we want to improve our predictions Zweig suggests three things.

1. Remove unclear feedback. There is a lot of noise in our life. He tells Ritholtz that his first investment went up for a reason he had no idea about. The challenge is to figure out what is noise, and what isn’t. A good first step is to simplify your models and focus on the process. 
2. A lack of consequences. The second reason we don’t make good prediction is a lack of skin in the game. It’s easy to read ESPN and think how dumb a coach is. It’s another thing to go for it on fourth down in a big game. Managers of all type face this situation with asymmetric rewards or punishments. Stock brokers are rewarded for big wins, but not punished for big losses. Coaches are not rewarded for bigs wins, but are punished for big losses. 
3. It’s not prompt. Feedback is not prompt and that’s a problem. Look at tennis, Zweig says. A professional tennis player like Serena Williams gets immediate feedback. She hits a ball, it lands in or out. In our lives we don’t see prompt results. Over the long term it’s harder to figure out whether one action was positive or negative. That’s why we have trouble with accurate predictions.

And, we get to the 10K hour part of this post. A lot of people have referenced the idea, but Zweig explains it better than most. “If all we needed was 10,000 hours, he tells Ritholtz, “then everyone who’s picked up a guitar would be Eric Clapton, every band the Rolling Stones.”

But we aren’t.  The problem is that the 10K hours of practice needs to include immediate and clear feedback that includes consequences.

Ugh. 10K hours is a long time. Isn’t there a good enough solution? Maybe.

In his book, Gut Feelings, Gerd Gigerenzer writes that we can use our ignorance as an asset. If we find ourselves in a situation where we don’t know everything but know some things, we should take that as a signal to side with the things we know.

What you’re doing, writes Gigerenzer, is using your ignorance to your advantage.  If you don’t know about it, it’s probably not that important. In his research he’s found that people who know some make better predictions than those that know more.

Sam Holtz knows this. Holtz, a 12-year-old from Illinois was one of the best predictors of the NCAA men’s basketball bracket . With a potential prize of $50K in gift cards and trips it was a lucrative opportunity. So how does a kid do so well?

Sam said he watches college basketball only when his favorite teams — Notre Dame, University of California at Irvine and Michigan State — are playing…“Just pick the team that you like and pick whoever you want,” he said. “You never know what’s going to happen in March Madness so just pick teams that you really like.”

Kahneman(!!)

Just to recap, I’m not the only Kahneman fan.

Zweig got to work with Kahneman on Thinking Fast and Slow and tells Ritholtz:

“He has the wonderful ability that most of us lose in our intellectual lifetime of putting yourself into the shoes of a child and just asking why.”

Stephen Dubner writes that this is one the ways he thinks like a freak. In his book, Think Like a Freak, Dubner has chapters like, “Think like a Child” and “The Three Hardest Words, ‘I Don’t Know.’” The point these guys are getting at is, don’t be a know it all. If there is something that befuddles you it’s best to figure it out. It happens to everyone, even Nobel Prize winners like Kahneman.

When it was time to write Thinking Fast and Slow, Kahneman told Zweig that he didn’t want to fall for the planning fallacy, of which he was once gullible. The roots of the planning fallacy sprout what General Stanley McChrystal calls red teaming, Michael Mauboussin calls in/out box thinking, and it’s the reason Hollywood screens their movies.

It goes like this.

The people involved in a project tend to be more optimistic about its completion and success than people not involved. For Kahneman it happened early on in his career. He was part of a team of people tasked with writing a new textbook. They began the work and in the beginning it was easy. He writes that the team had made good progress over the first year.

Soon they began to write about the planning fallacy (Chapter 23 of Thinking Fast and Slow).

Well, thought Kahneman, let’s see what this looks like. He asked each team member to write down how much longer they thought the book would take to finish. The collective average was 2  years. Not bad, but Kahneman didn’t stop there. He writes in Thinking Fast and Slow:

“I turned to Seymour, our curriculum expert, and asked whether he could think of other teams similar to ours that had developed a curriculum from scratch… and Seymour said he could think of quite a few.”

Okay, so far so good. 

“I asked him to think of these teams when they had made as much progress as we had. How long, from that point, did it take them to finish their textbook projects? He fell silent.”

Uh oh.

“I never realized this before, (Seymour said), but in fact not all the teams at a stage comparable to ours ever did complete their task.”

This sounds bad.

In groups with comparable situations 40% failed to finish. Of those who finished, none did it in less than 7 years.

But, wait! This group has Daniel Kahneman, a man who would go on to win a Nobel Prize in economics. Surely a brilliant star can lift a team. Kahneman asks about this:

“I grasped at a straw: ‘When you compare our skills and resources to those of the other groups, how good are we? How would you rank us in comparison with these teams?’ Seymour did not hesitate long this time. ‘We’re below average,’ he said, ‘but not by much.’”

Zweig tells Ritholtz that he doesn’t think the book ever was published.

Another reason Kahneman thinks so well says Zweig, is that he’s mostly immune to the Dunning-Kruger effect.  Dunning writes, “if you’re incompetent, you can’t know you’re incompetent.… The skills you need to produce a right answer are exactly the skills you need to recognize what a right answer is.” You don’t know what you don’t know. 

You know?

Zweig also praises Kahneman’s work on base rates. It’s another idea – I said I wasn’t the only one – that other guests have talked about. Rather than rehash those specifics, here are some links. Ramit Sethi said to look for base rates in similar businesses. Dave McClure looks at base rates for what his venture fund should aim at. Michael Mauboussin told Shane Parrish that base rates are the best place to start.

What to read.

Lots of good suggestions in this interview, here are the links.

• Current financial journalism lacks the institutional memory but does have some great young writers. Morgan Housel at the Motley Fool, Ben Carlson at A Wealth of Common Sense, and James Osborne at Bason Asset are all good places to start. 

Of course there were some book suggestions as well.

• Anything by Richard Feynman is good says Zweig.
• How to Lie with Statistics, though old is still relevant.
• Where are the Customer’s Yachts is a book that Ritholtz admits not having read, though he says he should.
• Charlie Ellis and Daniel Kahneman are both people to read as well.

Zweig doesn’t promote his own articles in the interview, but here are some links.

• Fat Tails Thin Ice. “the real lesson of the late 90s mania and the 2000 massacre is that certainty is every investor’s worst enemy. The only universal truth that the past offers about the markets is that they will surprise us in the future.”
• The Cruel Psychology of the 1,000 Point Drop. “Crimson arrows pointing down, pundits shrieking on financial television, stock-market charts flickering like monitors in a hospital emergency room: all these indicators make what is happening in the short term seem perfectly clear. But…”
• Like Buffett, Another Folksy Investor Turns Patience into Profit. “ he is keenly aware of his limitations. “I tell investors, ’You’re smarter than I am, but I’m managing your money, if you see me doing something I shouldn’t be, tell me.’”

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Thanks for reading. I’m @MikeDariano on Twitter. If you have a book suggestions or difference of opinion, let’s chat.