The Exchanges

Q Talk to me about the power of things that don't make sense or surprise us. What does that mean? It means our, our expectation of the world is different or off?

A Yes. Well, it, you know, Sherlock Holmes once said, it's a capital mistake to theorize before you have all the facts. And I think it's, That's silly advice, with respect, uh, Sherlock. Um, we, we can't help but theorize beforehand, before we have all the facts. It's not clear what all the facts, I'm using air quotes, constitutes, but it's more important to have expectations about the world, and then look for anomalies. Surprise is always, what surprise is telling you, Shane, is this, your model of the world is incorrect. Which is fantastic. It's a learning opportunity. That's what surprise is. And so I know when people talk about surprise, that's, surprise is an investing algorithm for me. When things don't make sense, when people say things don't make sense, all that tells me is they're not thinking about the world correctly. So when someone says, for example, it makes no sense why tenure yields, U.S. tenure yields remain below three percent. After all, the Fed's talking about how Well, the economy is doing. And by historical standards, three percent is pretty darn low. So I don't understand. It makes no sense why ten-year yields aren't going higher. And when someone says that, I know that ten-year yields are going to stay below three percent for quite a while, because that person's model of the world is, is in conflict with what that person is seeing. That person is in denial…

AI assessment note: “what surprise is telling you, Shane, is this, your model of the world is incorrect.”

Q On the phone with me. Can you elaborate a little bit?

A Sure. So human beings have a limited processing ability, right? Our brains are, have very little, what's known as, um, working memory, right? We can't maintain a whole lot of information in our head at any one point. And so because of that limited processing ability, Um, we, we have a hard time with too much information, and so, so we like to think that the more information we get, I'm using air quotes now, the better informed we are, and we'll make better decisions, but that's not true, and, uh, a seminal study was done by, by a psychologist named Paul Slovic back in 1974. So Paul Slovic gets eight horse handicappers into a room, and he says, I'm gonna see how good you guys are. Right? And so he says, we're going to spend today handicapping horse races, which is to say predicting the winner of a horse race. And these had been races that had been run over the last few decades that Slovic had gotten the stats on, and he deleted the names of all the horses, because if you knew the name of the horse, it would give you an edge, right? So all you saw was numbers.

AI assessment note: “human beings have a limited processing ability, right? Our brains are, have very little”

Q But is that their approach, this fundamental analysis, as you understand it?

A Certainly, certainly. Well, I'm not sure. I'm not sure. Um, I know that Buffett, uh, Benjamin Graham, uh, Not to take anything away. Benjamin Graham was brilliant. However, as an investing approach, notice that what Buffett does is he buys a company and intends to hold it forever, which is different from what most, the way most people invest is they buy a stock, and at a certain point, they intend to sell that stock. That's not what Buffett has done. Buffett has acquired companies, right? He will acquire good companies at good prices and hold onto them forever. That's his investment approach. Whether that, I don't believe that fundamental analysts who are looking at quarter to quarter earnings and trying to predict what the PE is going to be X months from now are doing what Buffett does, right? I mean, it's interesting that you should cite Buffett because Buffett is, and by Buffett, Buffett and Charlie Munger are pretty unique, right, in their investment results. I mean, there may be a handful of other investors in the world who've beaten The market to that degree by that length of time. So if fundamental analysis works, the question is, why is Buffett the only person who can do it? Clearly he's doing something else. I don't know what the something else is. Um, so, so here's the other problem with fundamental analysis. It's one of hubris. Every fundamental analyst believes he o…

AI assessment note: “I don't believe that fundamental analysts who are looking at quarter to quarter earnings”

Q Is there, or what is the difference between passing a test and understanding and applying?

A Oh, well, see the problem in school is that, is that your goal is ultimately to pass the test, right? And cause that's how you're judged. And sometimes what you need to do to pass a test is different from what you would need to do to really learn the material, right? And cause often to learn a material, you have to be willing to go through a process of confusion and not really understanding and groping. And yet that would interfere with test performance. So schools encourage a kind of Rote learning. Think about the law school admission test, right? The law school admissions test, which future lawyers have to take in the United States, right, to get to law school, the LSAT. Well, the LSAT asks you a question. It gives you five choices, and to do well on that test, you need to be able to pick an answer quickly, an answer, not argue for two choices.

AI assessment note: “sometimes what you need to do to pass a test is different from what you would need”

Q Or what are the most powerful questions we can be asking?

A Sure. Well, one question is, how can I create fun and delight for this person right now? And, and engage the person in play. I think much of life would be improved if we reversed the seriousness that we apply to work. We should be applying to games, and by games I include sports, all kinds of games. And to be more playful about the serious things in life. And so, that's a question I ask myself. How can I create more, more play in this situation? And again, for others, which is exciting and playful and fun for me. And why do I do it? Because it's fun. Because it feels good. And, and I don't know of any higher pleasure than that. So that's, One question I ask, I think the questions you ask will vary from situation to situation. Um, so for example, say someone goes on a job interview, right? They're probably thinking, oh, how can I, I'm using air quotes now, impress this person, or make this person want to hire me. And instead, if your question is simply, how can I create fun and delight for this person, then it's not an interview anymore, then it's a game. And if you truly create fun and delight for the other person, That person's going to want to be around you, and assuming you have the qualifications, you've just immeasurably improved the odds that you're going to get a job offer. Um, I think often a question that I ask myself is, who do I need to be in any situation, as oppose…

AI assessment note: “Well, one question is, how can I create fun and delight for this person”

Q What did you learn from watching him prepare?

A Hmm. Well, this is interesting. Fisher, Fisher woke up at 11 or 12 in the morning and went to sleep at three or four at night. So you learn that for him, that was the optimal time of day, right? Time of day and night, right? Where he functioned the best. And so you learn to find out, like, how you function the best. We all do that, right? Like, I know there's certain times of the day, like, The 1:30 minutes when I wake up are where I get the most creative ideas, or after 10 at night for me. Um, so each of us learned, so I learned the importance of that. I learned the importance of, of, of pretty much a single-minded focus. That's all he did, um, which is one of his tragedies. Um, he said famously once, all I ever want to do, ever, is play chess. And that's great, but when you win the world championship, now what do you do? And, um, you know, He, he sadly was lost his mind to paranoia, uh, over the years, and that was a real shame. Paranoia is tough, because you don't trust anybody, and after a while, he didn't even trust me. Um, he just fell out of touch with, with the world. Um, but on a positive note, I learned the importance of focus, um, of knowing your opponent. He, um, He had a game, a red book of his opponent's games. That's all he did. He just played over those games over and over. And, uh, and I could tell.

AI assessment note: “I learned the importance of focus, um, of knowing your opponent.”

Q Do you think that's fed by technology or accelerated?

A It's hugely fed. It's hugely accelerated by technology. The, think about the, the damage that technology, which is designed to hijack your attention, right? That's what technology is designed to do. And when I say technology, I mean, uh, Google or Facebook or your email, all of that Is designed to hijack your attention. Literally hijack your attention. So when you find it difficult to put your cell phone down, that's engineered. That's not just like a random, like, wow, I can't seem to put my cell phone down. All of that's engineered, and it's resulted in a hijacking of attention, and if there's one thing human beings need to know how to do is control their attention, but technology has hijacked attention, and Has created a world. If you think about it, technology is monetized. Once your attention is hijacked, That attention is monetized by making you click on links, right? That's how the Googles and the Facebooks and arguably even Netflix, right? It's designed to make you respond in a certain way. And again, it's all engineered. And so the, the, the problem with that is think about what I would need to do to you, Shane, To make you click on things. And I will tell you, there are only two ways. One is to reflect the world that you think. And so Google does that, right? If you think the world is a scary place, then Google is going to reflect that back to you. If you think that, …

AI assessment note: “It's hugely fed. It's hugely accelerated by technology.”

Q How do we learn to do that? What does that mean?

A Gee, you know, it's a bit like asking, um, Bob Bowman, who is Michael Phelps' coach, how do you get, uh, uh, you know, um, Michael to, you know, extend his arm reach, you know, and he's gonna go, well, I don't know, it's just the inspiration of the moment. Um, so I'm not sure that, uh, that I can offer a An easy rule for how do I, how do, how would I teach someone to get in touch with his unconscious? I think it would start with just allowing themselves some time. Here's, here's a clue that you've tapped into truth with a capital T, and that your unconscious is speaking, is that the answer will surprise you. You'll be startled by it. In the same way that I was startled by what I said up on stage, that was something I had never thought about. I'd been an introvert my entire life. And so here I was up on stage talking about the delights of extroversion. And, and as I was saying it, it surprised me. I had no idea where that came from. So, yeah.

AI assessment note: “I think it would start with just allowing themselves some time.”

Q So which is the smartest group to follow and when?

A Right. I'm going to tell you. Right. So, so, so, so yeah, I'm revealing some secrets here. Yeah. Cool stuff. So listen up. Um, so Let's look at stock traders. If stock traders are bullish on the world, bullish on the economy, they think the economy is improving, they will express that view, right? That's all an investment is, the expression of a view of the future. Stock traders will express that view by buying stocks, right? They can be more granular than that. They can buy cyclical stocks and maybe sell non-cyclicals as a hedge, but that's what they'll do, right? They'll buy stocks. What would a bond trader do who is bullish on the economy? He has exactly the same view as the stock trader today. How would he or she express that view? I will tell you. He will buy corporate bonds, but that exposes the bond trader to interest rate risk, right? So if interest rates rose, that bond investment would go down in value. So the bond trader will do two things. If he's, he or she is bullish on the economy, he will buy corporate bonds and sell treasuries as a hedge. How would a metal trader express his view of the future? And he's bullish on the economy. I know what he's going to do. He's going to buy industrial metals, right? Copper, iron, palladium, right? But he's simultaneously going to sell precious metals, because who needs gold or silver, really, or platinum if the economy is doing…

AI assessment note: “when I tell you who the smartest group is, you'll see”

Q What is it about that, the AI that scares us so much or, or threatens humanity in this case?

A Okay, so the, the real threat with AI, first, let's talk about how fast AI progresses. So right now there is no AI. It's not really AI. It's machine learning pattern recognition. It's not really AI. What people think of AI is an intelligence that left on its own can learn, right? So, um, Let's talk about a domain I know something about, chess, right? So I'm a rated chess master with a life title. I'm pretty darn good at chess. So I understand the implications of this with AI. So the best human chess player in the world is a 27 year old Norwegian named Magnus Carlsen. He has a chess rating of 28 20. So 2800 and twenty-ish, give or take. Something like that. The best computer software that had been trained on the best human games Right? Software trained on the best human games. Has a chess rating now of about 3300. Would crush Magnus Carlsen in a match.

AI assessment note: “the real threat with AI, first, let's talk about how fast AI progresses.”

Q From episode number 47 and 48, here's Adam Robinson. I want to come back to something you said about thinking and how we learn to think better. How do we learn to think better?

A Huh. You know, um, that reminds me of a great quote by the physicist Niels Bohr, who chastised one of his colleagues, and he said, no, no, you're not thinking, you're just being logical, and there are limits to logic, and I think that the thing about thinking is, it's a relentless asking of questions, that one question will suggest, will offer an answer, which will suggest another question, and so Part of thinking, at least logical thinking, is the relentless asking of questions. The, my greatest insights, such as they are, the meager insights I've had in the world, always come to me spontaneously, out of the blue, and I know you wanted to ask me about the Princeton Review and other things, and my work in investing, and my insights, and they all came out of the blue. They weren't a logical chain of, of, uh, of, uh, Deductions, and therefore, this is the answer. The answer pops into my head, and then I work backwards to what steps should have gotten me there, but I never know beforehand, really. So thinking, I think part of it is listening to your unconscious. Modern thought, logic, is the creation of the ancient Greeks and Perhaps a civilization or two earlier than that, but relatively recent, a few millennia of modern history, and logic only takes us so far. The, the essayist G.K. Chesterton once said, you can discover truth by logic only if you've discovered it first without …

AI assessment note: “the thing about thinking is, it's a relentless asking of questions”

Q So how do we learn how to ask better questions then?

A Right. Well, let's come back to that in, in, in, in, in a sec. An exercise I used to do with students is I'd give them a statement like this. Peru exports copper. So that's a factoid, right? And I'd say, uh, you've got three minutes to come up with as many questions as you can based on that fact. So who imports copper? Uh, uh, what else does Peru export? Uh, what is Peru import? And I gave it to ChatGPT and boom, it came up with some really impressive, uh, Questions. Like, what's the trend of Peru's exports? All of these things were conventional insights. At no point did it say, come up with a question or an answer that I went, oh my gosh, I don't see how it did that. So what ChatGPT, I said it's a smart research assistant. That's going to go out to the web or the library as it were and do the research and give you the conventional wisdom.

AI assessment note: “Well, let's come back to that in, in, in, in, in a sec.”

Q Were you always like that? Was this a conscious change? Like, how did you actually going, go about change? Like, what are the mechanics behind, I need to divert my attention to others, or I need to focus on the task at hand? Like, that does not sound common.

A Right. No, it's not. And the, it's so funny that you should ask that question, uh, Shane. It's not funny, because of course, I knew you would ask all the pertinent questions. But it's a question I've gotten a lot in the last year and a half. Like, what happened? Was it an event, or a moment, or something? And no, it happened up on that stage, and it was dot connecting, and it was my subconscious just saying, this is what is. And, and the more I thought about it, the more I realized that that was truth. Truth for me. Mind you, I'm not, I'm not trying to convince anyone that Of, of those truths. I just offer them.

AI assessment note: “it happened up on that stage, and it was dot connecting”

Q Didn't he do like a bait and switch? Cause he assumed.

A Yes. Yes. So his whole life. So mind you, he was a world-class chess player. Actually, let me talk about Fisher. Cause Fisher was unique in the world in the following way. Fisher learned the game of chess at the age of six. And by the time he was 11, sorry, by the time he was 12, he was a good twelve-year-old chess player. Not a great twelve-year-old chess player. He was a good twelve-year-old player. That's six years later, right? After six years of playing chess, Bobby Fischer was good. At the age of 13, a year later, he played a game that some people say was the game of the century as a thirteen-year-old. So one year later, he goes from good to playing a game people today still play over going, oh my god, like, a thirteen-year-old played that game? At the age of 14, he was the US champion. Mind you, at 12, he was merely a good twelve-year-old. At 13, he played a game that some people say is one of the best ever. At 14, he was the US champion. At 15, he was one of the top eight players in the world.

AI assessment note: “Actually, let me talk about Fisher. Cause Fisher was unique in the world”