Tadas Viskanta

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.

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 (@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.


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.”

thatsinterestinBakshi 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.

  1. 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.

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

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.


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.

  1. 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? 

monster beats studio black

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

bowser_by_treefrogbcStep 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.

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.


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

Naval Ravikant

Photo by: Kris Krug“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.


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.


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 Adamsblog.

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.


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.

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.

Jazon Zweig

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.


“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. 

5058986888_6a321aff71_zThe 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.

hershey-kissIn 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.”


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.

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.’”

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

Scott Galloway

Scott Galloway (@ProfGalloway) joined Barry Ritholtz (@Ritholtz) in June 2015 to talk about brands, entrepreneurship (and implicitly dentistry), and so much more. At the end of the interview Ritholtz says that he encourages other people to check out Twitter if only to follow really smart people. That’s just like these podcasts. Galloway’s NYU course costs $6,000. You and I get to listen to him for free. Add in some great questions from Ritholtz and this is further proof that it’s a great time to be a learner.

As always, the interviews are more in depth than the notes. Here’s a few things we’ll try to cover:

– Unlimited tweets, but a limited budget.

– Don’t waste a crisis.

– The first rule of marketing is to have a good product.

– It’s never been easier to make a billion, but never harder to invest for a million.

– The wealthy dentist of Silicon Valley.

– Our death grip on smart phones.

– Don’t do what you love.

– The 4 (5th?) Horsemen.

– Signals, red flags, and brown M&Ms.

– Galloway’s book suggestions.

Ready? Let’s get to it.

Unlimited tweets, but a limited budget.

Marketing seems easy. Gary Vaynerchuk‘s books Jab, Jab, Jab, Right Hook and The Thank You Economy give step by step instructions for what brands should do online. Stir in Seth Godin who writes about Tribes and Permission Marketing and you have a recipe for success. Right?

Lathe leversWrong. Galloway says that there are four areas a digital brand can use; site, digital, social, and mobile. Each of these is like a lever that can be pulled for different results.

For example, if you want to drive engagement with younger users, you need more social. Even though you can tweet, flick, gram, and pin all you want, you don’t have the resources to do it well. You need to pick your punches.

And this is good. As we’ve seen before, constraints help. Kevin Kelly says that without unlimited money, he finds better solutions. Amanda Palmer says that without unlimited time, she has to choose what to do. Stanley McChrystal says that constraints were crucial to Ranger training.

Planet Money talked with Rob Cohen about making movies. Cohen directed The Fast and The Furious in 2001. After that he was one of the hottest directors in Hollywood. It led to the $135M movie, Stealth. Heard of it?

Probably not. Stealth’s worldwide gross was $35M. That’s a big haircut. Cohen’s career quickly cooled down. Then Jason Blum called to say that he wanted Cohen to direct his movies, but the budgets would be a bit smaller.

Blum was responsible for movies like  Insidious, make for a scant $1.5M but grossing $54M. A much better investment. About working for Blum Cohen said:

“You’re going to have to be clever, and that cleverness stretches you, it makes you think outside the box because the money panacea isn’t in your arsenal anymore. You have to fix the problems another way.”

Galloway’s point is that companies have to deal with constraints – and do so wisely. It’s not enough to just put pictures online (see Gary Vaynerchuk) or create an email list (see Seth Godin). No, what you want is a social method that is in line with your overall strategy. 

In this video (2:00 mark) Galloway talks about how Asos does this well.

His point is that even though they are a clothing company, they don’t always sell their clothing. Sometimes they publish photos of dogs and ice cream cones. “101 stuff” says Galloway.

Don’t waste a crisis.

In 2006 Macy’s stock crashed. Galloway was asked by a group of investors if they should buy the company and sell the land – which was worth more than the brand. Galloway said no, and tells Ritholtz that Macy’s has done great since then, going from $5/share to $72/share over the last seven years.

Screen Shot 2015-09-11 at 6.14.15 AM“A crisis is a terrible thing to waste,” Galloway says. Macy’s reorganized around being a place of convenience. People could order things on Amazon, but stores like Macy’s provide other services too. It’s those things, Galloway believes, that will bring in a new era of retail.

“We have these great warehouses,” says Galloway, “they’re called stores.” His perspective is that people will browse and buy online, but want to pick up their things at a store. Half of all car buyers don’t test drive before they buy he says. The new trend is to click and collect. Macy’s emerged from their crisis focused on this.

Galloway’s own life has had its own crisis. When he was young he had a health scare and it made him realize he didn’t want to be an investment banker. When his company IPO’d he cashed out and become a professor.

Jon Acuff said something similar when he talked with James Altucher. Acuff had planned for a big event, 1000+ people, early in his career. He had stickers made. He reserved a huge space. He rehearsed his speech.

Two people showed up.

Two. Rather than “waste a crisis” Acuff realized that he got a story out of the situation. How he reacted to this let down and how he shared it would determine whether or not he seized this opportunity.

The first rule of marketing? Have a good product.

It used to be – in the 1980’s and 1990’s – that you could get by with a merely good product. A good product with the shine of great branding could go a long way Galloways says. That’s no longer the case.

Now you need a great product and great branding to have something truly successful.  

There’s a reason, says Gary Vaynerchuk, that Lil Wayne doesn’t need a good social media profile. He’s a great artist. Gary goes on to say:

“The product you’re selling is the variable to success. If your product is shit, there is no great marketing that’s going to save you.”

Seth Godin wrote; “The best marketing isn’t advertising, it’s a well-designed and remarkable product.”

Ryan Holiday told James Altucher the same thing. Holiday has a reputation of doing outlandish things to market products. Like dogs in clothes.


People often come to him and ask about things like this. Maybe buy some weird name. Do something crazy. Holiday says that might work, but only if you have a good product.

Galloway says it has to be a great product and that’s where anyone should begin.

It’s never been easier to make a billion, and never harder to invest for a million.

In his classes at NYU Galloway says that he sees some of the brightest young people he’s ever known. “Millennials are the most talented generation I have ever worked with,” he tells Ritholtz. These millennials are entering a new work environment. The Hollywood Model.

We laid it out broadly in the post with Adam Davidson and Taylor Pearson, but if you missed it, here’s the big idea. Work is changing. Lifetime employment has been replaced by alliances. Skills and ratings matter more. Expect your job to have some “Yelp style rating,” writes Tyler Cowen in Average is Over. Don’t be a jerk, word will get around. Expect to freelance more. 

Galloway says that he’s seen this with the millennials he works with. They are willing to make tradeoffs. They stay for less time. Galloway says that creating loyalty is something he and his partners are working on. (For more on this idea, listen to the Phil Libin & Tim Ferriss podcast.)

Another change, Ritholtz says, “is that the middle class has really shrunk,” and Galloway agrees. What Cowen, Galloway, and Ritholtz all see is a larger upper class – maybe 20% – that earn most of the rewards of the future economy. The remaining 80% will see their earnings stagnate.

A corporate canary might be Apple, who earns 93% of all smartphone profits. Samsung collects a tidy 15%. Everyone else loses money. The macro trend is that some people will collect a bulk of the profits and some will make almost none.

That’s not to say things won’t get better. Facebook and other free entertainment is great. The internet, medical advances, and trickle down technology (which Alex Torenberg talked about with Cowen) will bring some rewards to everyone. But the real gains will be had by the ones that help themselves.

And it’s getting harder to help yourself.

Education has become so expensive, Galloways says, that people who graduate “have a headwind before they get out.” Too much debt means they don’t have the same chances that he and Ritholtz did.

They mention that university endowments are something that seems ready for change and Freakonomics (hosted by Stephen Dubner) had an episode on this. Endowments are more complex than they first seem says Harvard President Drew Faust.

“I worry a lot that there’s not a broad understanding of what endowments are. So thank you for this opportunity to say a little bit about it. First of all, an endowment is made up of gifts given to the university over time that are legally bound to certain uses. So some of the endowment is restricted to funding a French professor, or funding student aid. And that means that we have to use the income from that money for that particular purpose. And also at the same time preserve the corpus of the gift so it can continue to fund that in perpetuity. Now let me say one other thing about comparing Harvard’s endowment to Yale’s or Princeton’s or anyone else’s. It depends what a University does. Harvard is much, much bigger than Yale. So if we look at endowment per student, Yale actually has more endowment per student than Harvard. And if you think about some of the things that are funded by Harvard’s endowment, things like our art museums, things like a Renaissance research center in Italy, we can’t take that money out of that. It can only be used for that. But it gets counted in that figure of Harvard’s total endowment that you described. A major thing we use our endowment for is student aid. And we are able to fund in our undergraduate college student aid for 60 percent of our undergraduates because of the very generous gifts to financial aid that have been given over the years.”

The Wealthy Dentist in Silicon Valley

Ritholtz and Galloway turn the conversation to the HBO show Silicon Valley. Both guys like it because it’s real enough. The show shows that it’s not always glamorous to be an entrepreneur. “On a risk adjusted basis,” Galloway says, “you’re better off going to work for a platform, than be an entrepreneur.” If there’s a better introduction than that for Nassim Taleb, I don’t know what it is.

Taleb begins (p.20 actually) his book Fooled by Randomness with the story of John Doe A and John Doe B. Mr. A is a janitor who has won the New Jersey lottery and moves into Mr. B’s neighborhood. Mr. B is is a dentist, “who has been drilling teeth eight hours a day over the past thirty-five years.”

Even though Mr. A, won millions of dollars, he is not wealthy. Taleb explains:

“If John Doe B had to relive his life a few thousand times since graduation from dental school, the range of possible outcomes would be rather narrow. At the best, he would end up drilling the rich teeth of the New York Park Avenue residents, while the worst would show him drilling those of some semi deserted town full of trailers in the Catskills… as to John Doe A, if he had to relive his life a million times, almost all of them would see him performing janitorial activities (and spending endless dollars on fruitless lottery tickets), and one in a million would see him winning the New Jersey lottery.”

Taleb’s points is that we should consider the alternate histories, not just the realized one. 

Timely (September 2015) for this post, was this letter. A teacher from the Bay Area wrote an open letter to Steph Curry asking that he not come to speak at his school. The teacher’s point was that it would encourage students to think about the lottery option without thinking about the alternate histories.  Steph Curry made it to the NBA with lots of hard work. That doesn’t mean that lots of hard work will get you to the NBA. 

We suffer from the survivorship bias. We see the examples that have survived, and these are often successes. There’s no movie about a college student at the University of Nebraska who dropped out to make a social network. But dollar to donuts, he’s out there.

We see the janitor who wins the lottery, we don’t see the ones who’s a janitor. We see Steph Curry, not the kid who wanted to be him. We see entrepreneurship* this way too. Maybe instead we think of things on “a risk adjusted basis.”

“You can pry it from my cold dead hands.”

No, not guns. Something more valuable – smartphone. Galloway says that Apple has become the new luxury brand and is headed for a trillion dollar valuation. Like Sherman’s March to the Sea, Apple’s wake will be filled with companies that stood in their way. If you’re thinking the carnage will be Microsoft tablets or Fitbit bracelets, you’re wrong. The next victims are the luxury brands.

“There’s only so much disposable income in the ecosystem that goes to products that cost between $300 and $1000,” says Galloway. Apple is the premier item in that space. If you can only get one thing from that price point, you’ll probably want an iPhone.

On his podcast, John Gruber talked about the same thing. He was thinking about Apple sales in with regards to the shaky Chinese economy. Gruber doesn’t think it will be that much of a problem. People will cut out a lot of things before a new phone. Vacations and luxury items will be sacrificed in lieu of a new phone.

Don’t do what you love.

Follow your passion is bad advice. I’ve never heard a successful person – no matter how they define success – say that it was passion that got them where they wanted. No, the thing everyone says is hard work. “Find a platform and work really hard at it,” says Galloway. Entrepreneurship (like the lottery or professional sports) success is rare. It’s also not for everyone. Galloway suggests that instead people can find a company to work for, and do good work.

Add that to the other advice:

  • Gary Vaynerchuk said to be so good that venture capital companies come to you.
  • Brian Koppelman said to get great at writing.
  • Ramit Sethi said that you get passionate about something once you get good at it.

We always come back to this quote because it explains it so well. In his book, So Good They Can’t Ignore You, Cal Newport quotes Steve Martin:

“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.’”

The 4 (5?) horsemen.

The podcast covers a lot of “The 4 horsemen.” Rather than summarize it here, this video will explain it.

And here is where things get interesting.

It’s academic to create models that fit what’s happened. It’s profitable to create models that fit what will happen. Galloway admits that he may be wrong about all this, BUT what if he’s right.

These companies all have five things in common.

  1. Truly differentiated products and intellectual property. You can open another fro-yo store, 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 get mess things up in the last mile.
  4. Vanity. People want to be seen with their product.
  5. Maternal. These places are all great places to work.

What might be next? Galloway’s guesses include; Nike, Alibaba, Starbucks, and Uber.

Now, to reduce the options further. Let’s create a multiple regression that includes market share, stock prices, working capital…. wait a minute. We don’t want to do any of that.

The beauty of Galloway’s five points is their simplicity. In the book, Gut Feelings: The Intelligence of the Unconscious, Dr. Gerd Gigerenzer writes that there is a problem with too much data – it overweights the past.

“In an uncertain world, a complex strategy can fail exactly because it explains too much in hindsight.”

The more data we put into a model, the more noise we get.

When Michael Mauboussin talked with Barry Ritholtz, he said that as skill increases, luck plays a larger role in successes. 

This is how  Zach Lowe ended his post about the NBA champion Golden State Warriors:

“Yep, the Warriors got lucky. They suffered no major injuries, beat teams that did, and got through the West without facing the Clippers or Spurs. Guess who else got lucky: every team to ever win the championship….The Warriors, on balance, were luckier than most championship teams.”

In an uncertain situation, the more complex a model of prediction, the more it weighs things that were luck. Galloway may be wrong about which company will excel in the years to come, but his model is right.


The conversation between Ritholtz and Galloway was full of a lot of good signals. Rather than spread them widely, I collected them here.

    • How to spot an industry ready for disruption. If you want to see where disruption might strike next, says Galloway, look where prices have outpaced inflation. Galloway bets that education is ready for disruption.
    • How to appear sexy. Have an Apple product. We are in a time when a lot of signaling is done by the products we wear, Galloway says. Right now there is no better brand than Apple.
    • How to tell if the stock market is too high. Ritholtz says to look at the prices of classic cars. Classic cars – or any scarce good – go up in price when fewer are on the market. Fewer are on the market when more money is available to buy them.
    • How to tell if you have a good product. When Galloway started L2’s Digital IQ Index he did so to conduct academic research. After he published his results 40 companies began to call him about using that data. This was a good indicator for business.

Some classic signals include.

  • Ramit Sethi looks for certain words in interview responses to see if someone really has the skills.
  • What Barry Ritholtz says that when he hears “Sharpe ratio,” it’s a signal people want a hedge fund. When he hears traders say “ugh,” it might be a stock worth investing in.
  • Van Halen used brown M&M’s, actually a lack thereof, to see if their equipment was set up properly.


Here are some of Galloway’s suggestions.

  • The Alchemist. A great book. Don’t take my word for it. Pharrell loved it. James Altucher too.
  • Winds of War. From Amazon, “A Masterpiece of Historical Fiction-The Great Novel of America’s “Greatest Generation” Herman Wouk’s sweeping epic of World War II, which begins with The Winds of War and continues in War and Remembrance, stands as the crowning achievement of one of America’s most celebrated storytellers.”
  • Adventures of a Bystander by Peter Drucker.
  • John Irving.

Thanks for reading. I’m @MikeDariano.

* Taleb has said that entrepreneurship is good, for us at large. You don’t want to be the one who takes the risk to open a new restaurant, but if someone in our town does, you and I get to reap the rewards. Taleb has even suggested a national entrepreneurship day where we celebrate the risk takers.

Gary Vaynerchuk #2

Gary Vaynerchuk (@GaryVee) joined Joe Famalette (@JoeFamalette) for a Fireside Chat L.A. Gary talked to James Altucher early on in his podcast, episode #2 if you’re counting, and this was a nice update to that talk. Gary wasn’t on to promote anything except Gary, which he does so earnestly I think that’s why people like him so much.

You can watch the entire thing here:

The conversation had so many good moments, stories, and reactions that you should listen or watch it. These notes will get at a few of the bigger points. Namely:

  • What does a D/F student like Gary really learn in school?
  • Why you have to LOVE the grind.
  • It’s – still – never about the money.
  • Zig zagging for max bragging.
  • Pattern spotting or, “wait a minute, I’ve seen this before.”
  • Mental models make mistakes – and that’s good.
  • The #1 thing to do before you get good at social.

The Education of Gary V

Gary was not good at school, but was very good at learning. As the Mark Twain quote goes, “don’t let school get in the way of your education.”

Listening to lectures that didn’t interest him and wasn’t a good situation to be in. It’s that system which Tyler Cowen and Seth Godin speak about. Don’t just teach people facts. It has to be interesting.

What interested Gary? People, wine, collections.

“I would sit in science class,” Gary says, “ and just read Wine Spectator.” James Altucher says that this is a good signal for what someone really wants. Look back to when you were 8, 12, 16 years old James says.  What were you interested in then? Find a way to do that now.

Bill Belichick and his right hand man Ernie Adams were like this. Long before they reached the pinnacle of the NFL they were schoolboys doodling in notebooks. 

“That Adams was football obsessed had been obvious from the time he had arrived at Andover and had sat in the back of some of his classes – more often than not science classes – and had pleased the teacher by seeming to be the most diligent and enthusiastic note taker in the class. Sadly, it would turn out, and much to the irritation of the teacher, these were not science notes but turned out to be sketches where eleven Xs took on eleven Os.”

Gary says his teacher just didn’t care. His teacher let him get away with it because he wrote him off as a dummy. The teacher’s academic expectations were zero.

This worked for Gary. It made him stronger. When people doubt him. When people dismiss him. When people hedge against him, it fuels him. Gary says that he wanted to prove everyone wrong. He says, “somewhere in middle school I started sensing I was going to be a different player.” He wanted to play a different game than the one taught in school.

This worked for Gary, but doesn’t always work. Stanley McChrystal told Tim Ferriss that he needed the opposite. It wasn’t until someone in school said they believed in him did McChrystal change his actions.

Gary wanted to learn the family business (a liquor store). So his dad began to teach it to him, from the ground up. Actually, Gary started underground.

“I hated every weekend for the first year,” Gary says. He was the owner’s son so the employees didn’t like him. He was paid half the hourly wage so he didn’t make much money. He spent the first year in the basement.

Eventually he moved upstairs and began to learn. Gary says that he has a very high EQ (emotional quotient) and was able to read people. As he worked he saw that people collected wine like he collected cards. “I was really into collecting stuff,” Gary says,  “and saw that people would come in to collect wine.”


Gary had traded and sold cards and he began to apply those same ideas to selling win.

This is the fulcrum that Gary Vaynerchuk uses. It’s wait a minute, I’ve seen this before. Keep this in mind, it will come up again.

So Gary began to sell wine, even if no one wanted it. “If you came in for a case of beer,” he says, “I was going to try to sell you a chardonnay.”

He faced a lot of no’s. But as Seth Godin counsels, turn that “no” into “no for now.” Gary also built up his expertise. The hours reading Wine Spectator, stocking freezers, and advising a customer about which red wine added up.

Gary, well before the term was popularized, built up his 10,000 hours of world class expertise. He says as much in the interview. He had offers from Bravo and the Food Network for television shows. He had an offer to start a Vodka brand with Usher.

He said no to these things because they lacked something he needed. They didn’t have the grind.

Love the grind

Gary says, “I need the process, period.” The work is what Gary likes the most. More than money or fame or anything. He compares the challenge to oxygen.

What works for Gary is losing. “I love losing,” he says. Loses contain the challenges. If Gary were a car, he would be a Jeep where everyone else is a Honda Civic.

The grind is good for us. It makes us stronger. In his book, The Obstacle is the Way, Ryan Holiday has dozens of examples about people coming out the other side better.


Sometimes we’ll fail at the challenges ahead. What happens then?  Holiday again:

“On the path to successful action, we will fail— possibly many times. And that’s okay. It can be a good thing, even. Action and failure are two sides of the same coin. One doesn’t come without the other. What breaks this critical connection down is when people stop acting— because they’ve taken the failure the wrong way.”

Another perspective is what Ray Dalio about challenges. Instead of thinking about how you’ll be strengthened, think about the rewards.

“I learned that everyone makes mistakes and has weaknesses and that one of the most important things that differentiates people is their approach to handling them. I learned that there is an incredible beauty to mistakes, because embedded in each mistake is a puzzle, and a gem that I could get if I solved it, i.e., a principle that I could use to reduce my mistakes in the future.”

These are the things that feed Gary, and these are the things that set him apart. He likes things that are difficult. The things that people fail at are obstacles to be conquered, they are gems to be harvested.

If you can find a grind, something difficult, and you can master it, then you will be rewarded. If we return to Bill Belichick’s story we can see this.

Do you know why Belichick is so successful? He watches film. He studies, examines, and extracts from it. An early head coach said that not only could Belichick study another team and figure out what play they ran in certain situations, but their thinking behind it. 

This took hours and hours of watching film. There was no socializing, something Belichick thought the other coaches did too much of anyway.

The grind fills Gary. He mentions in the interview that once the challenge of the grind is gone he has to move on to something else. It’s why he left Wine Library. Why he moved to VaynerMedia. Why he’s an investor. The one thing that’s never moved him is the money.

It’s never about the money

The topic of money comes up so often in these interviews that I can’t help but include it. Successful people want others to know that it’s not about the money. “Of course I like having money,” Gary says,  “but I am equally as happy as I was paying myself $27,000 a year at 23 years old because the building of the game is what matters.”

And he saw this in others too. (wait a minute, I’ve seen this before). Gary noticed that his life was fulfilling because of work and family, not money. “I have a read on 200 employees and what makes them tick,” Gary says. He reasoned that his employees may want the same thing. He was right.

People stay at VaynerMedia when they could make twice as much elsewhere. They stay though because there are other things they want that VaynerMedia provides.

This is the big idea with money; there are things you can have that don’t require money. Working at VaynerMedia could be a perk for some people. 

  • Tim Ferriss says his podcast lets him talk to people couldn’t pay.
  • Sam Shank would turn down 400M dollars to keep his start up. Peter Thiel said Mark Zuckerberg turned down 1B. Both liked their companies more than the money.
  • Penn Jillette, Kevin Kelly, and Mark Cuban all said they would live simply to be able to do what they wanted.  

What do people want then?

People want freedom to do good work. They want autonomy and responsibility. They want job security and clear rules and roles. If you can give people that, they’ll work for half as much. This is one example of when Gary zigged, while everyone else zagged.

Zig zagging for max bragging.

Gary nailed a number of online skills well before everyone else. In 1998 he had an email marketing list with 98% open rates. He bought “wine” for five cents on Google Adwords. He was an early user of YouTube. He had more followers on Twitter than Pepsi.

How does he do this?

“My game is very simple. Where is the attention while the rest of the market doesn’t think it’s there? Use it like crazy, figure it out. If it goes away, cool, because all you need is one or two to really work.”

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

It’s easier to be successful where others are not. For Gary that means zigging with others zag. One thing that helps him do this is how well he sees patterns.

Looking for patterns

Okay, let’s dive into “wait a minute, I’ve seen this before.”

In 2007 Gary headed to Austin to invest in some company (he hadn’t decided before he arrived). South by Southwest was a good place to zig to because Gary says, “there wasn’t a businessman in fucking sight.” Not only that, no one thought Twitter was all that great.

Gary again:

“Don’t let anybody bullshit you. Everybody was like, this is the dumbest thing I’ve ever seen. This is stupid, who cares. Nobody cares if you eat a hotdog…and I was like, wait a minute, I think this is like email.”

Wait a minute, I’ve seen this before.

Gary ended up with an investment in Twitter and the rest is history. But it’s the prehistory that we want. Why can Gary Vaynerchuk see these patterns?

  1. Gary has a high emotional quotient. He mentions in the interview that he wants to be dug up and tested if we can do that some day. I don’t think this is entirely innate. Growing up the child of immigrants I think Gary learned how to read people. I think that hours behind the wine counter nudged him to understand people better. He may be born with these gifts, but he’s also put in time to learn them.
  2. Gary built up intuition. In Thinking Fast and Slow, Daniel Kahneman writes that some people have good intuition and some don’t. Firemen and pilots both are much better at predicting what might happen in fires and flights than stock brokers or football coaches are in stock markets or football games.
    Kahneman suggests that the former have more regular situations with clear feedback than the others. Gary had more situations with good opportunities to learn from.
  3. Gary has many repetitions. He mentions that he’s failed at interviewing “tons of times.” This is a domain that he doesn’t have the same skills in because he doesn’t have the same repetitions. The same is true for business. Each startup he invests in, and each business he creates are opportunities to see the patterns in them.

This is a lot of arm-chair analysis, and I’m sure that Gary will weigh in on this – as he does with most things – someday. One thing I know he focuses on are mental models.  

Mental models and when they miss

“I only bet on two things,” Gary says, “do I personally believe in this or do I believe so much in the entrepreneur?” Those two things mean that Gary favors investments he can understand or entrepreneurs who have had success before. It also means he’s going to miss out on some things.

This is fine Gary says. He missed on Snapchat because the founders were first timers. That’s okay. Gary sticks to his model because it removes emotion. “Emotional decisions are really really bad in business,” Gary says.

Chris Sacca told Tim Ferriss much the same thing. His criteria for investments sometimes works and sometimes doesn’t. When it works, Sacca points out, it works really well. He invested in companies like Uber and Twitter to great reward. But he’s missed on companies like AirBnB and Snapchat even though some of those companies reached out to him for an interview.

Mental models aren’t designed to grab every winner, they are designed to avoid most losers. Gary and Chris are both better off because they removed the risk of too many opportunities.

Scott Adams writes about his diet as a model – if it’s healthy, eat as much as you want. Michael Lombardi talks about choosing football players – eliminate the bad fits and take what’s left. 

Good mental models aren’t perfect. They don’t need to be. They just need to give good enough results. Much like a water filter only needs to remove 98% of contaminants, so too does a mental model work.

You don’t need to be good at social media – if you’re Lil Wayne.

Gary’s success has come in part through social media, but that’s actually the second step. The first is to have something worth selling.

Ryan Holiday says that he’s seen this with lots of companies. They come to him wanting to do some crazy promotion and Holiday suggests they improve their product first. “No,” they say, “we want to create buzz.”

You can’t create buzz about something that’s not good, and you don’t need to cause a buzz if you have something great. It’s why Lil Wayne doesn’t need social media Gary says. He may be leaving money on the table without it, but his work speaks for itself.

“The product you’re selling is the variable to success,” Gary says, “if your product is shit there is no great marketing that’s going to save you.”

Here we talk about the phrase, “be so good they can’t ignore you.” This is the advice Gary gives to a question from the audience. When a man stands up and asks how to get an angel investor interested, Gary says don’t. “The number one way,” Gary says, “is to not pick us, and have us come to you.”

You do this by being good at something.

It’s why Seth Godin doesn’t give advice. “People don’t follow it,” he says. Know why? The advice is to work hard. Ditto for Brian Koppelman who says to create something great, not to get an agent. Ditto for Joshua Foer.

In his book, So Good They Can’t Ignore You, Cal Newport quotes Steve Martin:

“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.’”

If you worry about social media before you create something of value then you’re doing it all wrong.

Thanks for reading.I’m @MikeDariano on Twitter.