Successful investors do not comply with human nature. They divide it. And by that, I mean, they unstick themselves from the emotions of the moment and try to take more of a God view of the game that's being played. And when you can do that, you always realize it all comes back to emotions, right?
An emotional decision. Truth has a great line and I'm gonna botch it. But the essence of it is along the lines of, during periods of intense emotional feeling that are destined not to last, we make our irrevocable choices. We always think we know everything there is to know.
We don't know one percent of everything there is to know in my opinion. And so, like back it, right? Try fail. Try again, fail again, but fail better.
This emotional problem that we have with being seen to fail is a real problem because failure is a ladder, right? Mistakes are portals of discovery. Welcome to the 14th episode of Humans on the Loop. Before we dive into today's dialogue, I wanna offer some scaffolds to situate us in our zone of inquiry.
We live in an age of paradox, empowered by new technologies, the gap between what we can imagine and what we can do seems to be shrinking rapidly. And yet, this proliferation of novelty can make it hard to know what's worth doing or find the repose within which to reflect on how our desires may not even be our own. Collectively, we may know more than ever, but individually, we each know less of the whole. Amidst these fundamental transformations, our emotional species often responds by either retreating into the familiar or charging into the unknown as if we understand what we're doing better than we really do.
It's an historical moment that calls for active participation and radical creativity, and also fatigues many of us with constant change and the looming ever presence of the strange and unpredictable. On one side, we gather into herd mentalities that inhibit our ability to adapt. And on the other, we lurch after competitive advantage without concern for the consequences. How do we live in the questions and still act with courage?
A few things seem relatively certain. Every problem we solve creates new problems. Change is a constant. The strength of human beings comes from our ability to be both distinct individuals and intimate collaborators.
Zero-sum mentalities do not benefit everyone. Collective intelligence is a time-tested approach for exploring complex search spaces and there is no one path forward. Some things cannot be designed, only evolved. And that means not just placing trust in one another, but in the process.
It means developing a willingness to take risks. The best risks are those based on an understanding of the game you're playing. And long-term, the best games are those you get to keep playing. For those reasons and many others, I'm excited to bring you this dialogue with Jim O'Shaughnessy today.
Jim is one of the most renowned investors and asset managers of all time. After decades of success and wealth management, he left his company in care of his son Patrick and launched O'Shaughnessy Ventures, a firm that combines, as they say on their about page, Jim's deeply rooted interest in all things, art, science, investing, and tech with his long-held desire to establish positive some scenarios designed to help promising creators and their inspiring ideas succeed regardless of age, location, job history, or level of education. Supporting artists, authors, and vendors, and maverick startups, including weird transdisciplinary initiatives like my own, OSV is an all too rare incubator for precisely the kind of genius it is clearly time for us to embody together. Last fall, on his podcast, Infinite Loops, Jim and I engaged in a far-reaching game of mind jazz about how we can live curious, collaborative, and fulfilling lives in our deeply weird, complex, probabilistic world.
I'll link to that episode in the show notes and strongly recommend you explore his archives and newsletter for another abundant helping of inspiring big picture thinking. For this discussion, I wanted to rotate the axis of our exploration and learn how Jim's personal experiences have contributed to the frame through which he engages life, sweeping across scales from candid autobiography into some of our wickedest problems, like how we foster meaningful relationships and balance achievement with humility, and we covered a lot of new ground. I hope you enjoy it as much as I did and benefit from a fresh take on the mind and heart of one of the most exemplary mavericks I know. If you value what you hear, please like and subscribe, leave a comment, and consider supporting humans on the loop and other edge-dwelling projects like it.
You can make tax deductible one-off or recurring contributions at every.org slash humans on the loop. If you're interested in partnerships or consulting, feel free to email humansontheloop at proton.me. Lastly, I'm excited to announce that this spring will be rich with online community and learning opportunities, including my book club for Italian philosopher Federico Compagnia's prophetic culture and the School of Wise Innovation Spring Cultivator program where turquoise sound and I will co-facilitate a session on right relationship with AI. Visit humansontheloop.com for more info and an extensive back catalog of bold investigations.
And thank you for listening. Without further ado, let me present the singular Jim Ashanasi. So yeah, we just picked up where you said, if you wake up and realize you're filling out government forms and cable news networks are covering the walls that you think you're in hell. OK, so obviously there's that scene in the Matrix reloaded where you meet the architect.
It's kind of that vibe. I had a dream many years ago that I was trying to make it through a gas station convenience store, like all the colors and candies and fast foodie junk and trying to get to the hotel room in the back of the convenience store. And I woke up from that dream realizing that it was the Tibetan barto. It was like the image that I get from your version of hell and my version of hell.
What they have in common is a million things competing for your attention and a vague gnawing sense of confinement and responsibility to something oppressive to the human spirit. So totally. What I want to talk to you with you is getting around and through that. But first of all, you're on the loop.
Hey! You're on the loop shows. Hey! What a crossover.
It's going to be humans. Yes, humanson infinite loops. It's infinite regress. We're going to be loops with it loops.
Let's do it. The first loop I would like to start with you is biographical, because I believe that you can't really know why someone has come to the ideas that they hold and the passions that they follow without knowing, I don't know if you know the Enneagram personality system. Yeah. So there's that notion that the Enneagram is actually a map of childhood traumas and that your personality is a strategic response to a sense of lack of some kind or an absence or you're trying to win the affection of your parents or this kind of thing.
So I would love to go as far back as you are willing to go about who you are and the incitatory or catalytic narrative of Jim and I think that's the way that he's going to be. I think that's the way that he's going to be a part of the story of the book that is very prominent there. My grandfather had fascinating, interesting life that led him to the oil industry in the early 1900s. And he was the 13th child of a Irish athlete family from Stillwater, Minnesota.
He himself was such a colorful guy that at some point I want to make a movie about him and maybe write a book. There is a book about him, but it leaves out literally all the fun stuff. And the comedy ensued because the Mexican government realized that these were American insurance policies. And if the people who bought them died, the American government actually paid them out.
And that wasn't in their plans for having a peaceful ruling. So literally they kicked him out of Mexico for Sona and he found himself I think in Oklahoma where he noticed all of the activity in oil and wild cadding and discovery. So he thought, yeah, this looks like it might be a great business to be in. Last forward due to many factors, he became at one point the largest privately owned oil company in the world.
And in fact lost an antitrust suit that Rockefeller won because his companies were perfectly vertically integrated. And while Bill Donovan, who was the van at the OSS, which became the CIA, the OSS was formed and the wars and wanting to have covert abilities. Anyway, the thing about my grandfather that I really love most and most proud of is how they, all the rich guys, they take the pledge to give away their money to various charitable things. Well, my grandfather did that 50 years before anyone was even talking about it.
During his own lifetime, he gave away the vast majority of his fortune that he had accumulated. So I guess we're talking early childhoods. Like I had this incredible example of somebody who was amazingly fun, wickedly smart, wickedly funny, who then proceeded to just, as he quoting, I think, hello, Dali, he used to say, you know, money's like manure. If you pile it all up in one place, it stinks to I heaven, but if you spread it around, it's a great fertilizer.
So that was one of the guiding principles that was in my family was where much is given much is required. And so unfortunately, my eldest sister, I'm the martini baby, the caboose in my family. Thank God for booze because I wouldn't be here without it. The Homer Simpson, that little gift of Homer Simpson, where he's saying, to alcohol, the cause of and solution to all of life's problems.
Anyway, so my eldest sister died when I was 10. And I guess that was, if we're talking any of grams and things like that, was very difficult for me to process and create an environment where I saw my parents frozen with grief, honestly. We were out of the country and needed to get back fast and they just were frozen. And she had had age 10 was like, well, we got to get back there.
And so it made me try to help and get us back. We did get back. But I see the formation of a crisis personality at that time. And crisis personalities are really interesting because you get very calm to crazier things get, right?
Like when the pandemic hit, I already had two oxygen generating machines. I had all of the drugs. I had masks. I had everything.
I had a woman that we bought the two oxygen generating machines from in Texas. When I called her first, she's, well, we haven't ever had anyone who wanted to buy it to. And I'm like, you haven't been stuck? And she's, yeah, we got a ton in stock.
A couple of weeks later, I got a call from her with a decidedly less friendly tone. And she said, what did you know? And it was good. I don't know.
It was by Spidey. But so I was incredibly privileged. I guess you could say born on third base. But my family still had the family business, but it had been because of Uncle Sam, just royal exploration.
They had sold off all the refineries and the gas stations, et cetera. And my favorite uncle, Uncle John, was very insisted that I come to work for the family company. And I really had no interest in oil, but I had developed a really keen interest in Wall Street based on getting promoted to the adult table. The money that my grandfather didn't give away went into a foundation that my father and his siblings were the trustees of.
And they would have quarterly meetings, usually in St. Paul. And I was invited to the adult table for the dinner that they had at the end of these meetings. And I was listening to my uncle, John, and my dad argue about, I think it was IBM.
And as I'm listening to them, I'm trying to figure out, why are these guys just talking about the CEO, right? And so I interrupted, I'm like, dad, Uncle John, I wonder if it's big more sense to look at the underlying factors of their business. What makes sense to see how much you have to pay for every dollar of earnings or sales or what its forecasted revenue gains are going to be in the future, et cetera. And they just kind of looked at me blankly.
But that started this obsession of mine to try to figure Wall Street out, to try to figure markets out. And it started when I was a teenager. I very ambitiously took, and this will age me. I'm 64, so this is in the 70s.
I took a paper spreadsheet. Yes, kids. They started on paper. And it was this big.
And I went down to the James J Hill Library in St. Paul, Minnesota. He was a railroad baron who had given this beautiful library, and they'd turned it into a research library. And my ambition was I'm going to take the S&P 500 and I'm going to list all the companies and I'm going to look at all of the factors and I'm going to see if there's anything there.
And being naturally lazy, I immediately when I looked at the books, thought, this is going to take way too much time. So I decided to use the 30 stocks that were in the Dow. And that required going back and looking what stocks were in the Dow for each one of these years, because many people think of the Dow as a passive index, but it's really not. It is an actively managed index by the editors of the Wall Street Journal.
And as one example of that, in 1939, they kicked IBM out of the Dow and replaced it with AT&T. Over the ensuing years, IBM went up 50 fold and AT&T double. If the editors of the Wall Street Journal had not made that decision in 1939 to replace IBM with AT&T, the Dow Jones, as we know it today, would be like five times higher. So it's one of those things that's really interesting because we think that things should be one way, but then you find that little glitch, right?
You mentioned the matrix. So we find the little glitch and we realize, whoa, okay? So it's really not a passive index. It's passively held.
But anyway, did the research, but being far more interested in girls at the time, I let that kind of go away and then resumed it after getting married at the tender age of 22 to my wife of now 42 years. And I dove back in to the rabbit hole, wanting to figure out, is there a method to this madness? Is there a process that could conceivably be superior to got a hunch of a bunch? And I found out that yes indeed, there was, which led me to what we call today quantitative investing, some call it factor investing, empirical algorithmic investing.
And so I had by that time moved to New York because another early childhood experience, when I was eight years old, my parents took us to live for a summer in Ireland. And we had, we're going to take a ship over, but we'd arrived in New York the evening before the ship sailed that afternoon up the next day. And so, AJ, 1968, without asking my parents or my siblings whether it was okay. If I did so, I put out a little white windbreaker and did about a three to four hour explorer of New York City on my own, not thinking that like that was going to be a problem.
I get back to the hotel, it's swarming with cops. And I see my mom sitting on a couch facing the entrance to the hotel and she's got this female cop next to her. And I can see my mom is obviously incredibly distressed. And so I run over.
Now, this isn't my memory, even though it feels like my memory. It's not because I was told this story so many times by my sisters and by my mom and dad, it feels like my memory. But apparently I rush over to my mother, but this huge smile on my face. And I said, mob, why are you sad?
I've had the most extraordinary time here. I'm sure it didn't say extraordinary. But, and I look at her and I, with eyes wide and I said, I am going to live here someday. And so many years later in 1991, we moved nearby, not to New York directly, even though we do live there part of the time now to connect again.
And I had the work had progressed enough so that I knew I really had something. This is 1991, 1992. So the only things that were really being written at the time about this style of quantitative investing were basically academic papers. Now, French and Fama, of course, are the most famous for their multi-factor models.
There were others, but literally in the retail version or even institutional version of investing, not a lot of quants at the time. So I decided, well, if I want to be taken seriously and want to pursue this as my career, I have to have a book, right? I have to have some thing that announces that I am indeed an expert on this. So I decided I was going to write a book about it.
That was my first book called Invest Like the Best, which essentially showed you how you could clone any active asset manager by taking their portfolio of stocks, putting them on a huge database like the CompuSAT or at the Time Value Line, which is smaller. And you could see where they differed from market as a whole, in essence, get a fingerprint, if you will, of that manager style and then use the factors that had the most significance in that manager's portfolio as screens to get you to a portfolio that looked active and most importantly performed like your favorite manager. And so I went home and my far more practical wife looked at me and said, that's great, Jim, publish a book. You've got to have somebody willing to publish it.
And I said, well, I'll find somebody to publish it. So I went to the bookstore and bought one of those books. We worked a hell of a lot harder prior to the internet than we do today because you actually had to go to bookstores and stuff. Go to bookstores and find the book and use a typewriter and make out a hundred different letters to publishers.
And that's what I did. I sent a hundred letters to every publisher that I found listed in that book. I wish that I had not lost all of the rejection letters because some of them were absolutely hysterical. One from a highbrow publishing company was kind of like, how dare you ask us to publish this book?
It's true. Please never contact us again. But I got two letters that were, yeah, we'll publish the book. And one was a little ifier than the other.
And so I decided that the one I got from McGraw Hill, that was going to be my publisher. So the book came out, got well reviewed, lucky for a first time author. And I think probably because it was doing things that a lot of people in investing weren't thinking about at the time, right? The idea that you could clone other managers, the idea that algorithmic style investing was equal to possibility.
That was still pretty nascent at the time. But as I was writing that book, I'm like, you know what, wouldn't it be great if we had a long term history of Wall Street's favorite? You know, when you talk to a Wall Street guy and they just saw a woman, then they would say, like, why do you like this stuff? Some would talk about, well, because it's cheap.
That's called value investing. Some would say, oh, the gross prospects are like amazing. That's growth investing. And so if you wanted a song for each one of those, right?
So value investing would be been down so damn long that it looks like up to me. Growth investing would be future so bright. I got to wear shades. And so I dissected all those things in the book, got a lot of great feedback.
But I wanted to say, I went looking for, okay, where's all the research that shows? Here's what happens for 50 plus years if you buy the stocks with the lowest PE ratio, that's price earnings ratio, or with the highest earnings gains, et cetera. And I really, I found some work, again, French Obama had done some of the work, but they had in terms of factors really only thoroughly investigated price to book. And I couldn't find anything that methodically just went and tested every factor.
So I pitched that book to McGraw Hill. I had to talk my way into the database, which is the CompuSAT, which is the gold standard for doing stock market research, because at that time they'd never given it to an outsider before. And I convinced ultimately the president of that company that McGraw Hill probably had unreasonable expectations for CompuSAT. It was a subsidiary of McGraw Hill CompuSAT.
Probably had unreasonable expectations for their growth. And what better way than a book written by a third party with no affiliation to you that would say, and this is the gold standard for databases? But they had a unit called the Custom Business Unit that was running these tests for managers at really high prices, right? So there was conflict there, but I ultimately convinced him to give me the data set.
And what was on Wall Street was the result. That book, the inconceivably because it's mostly tables and graphs, became a best seller. And I had started a company called O'Shaughnessy Capital Management, and literally we got about $600 million over the transfer, because of people who had read Wall Street. And this was the first kind of making the general investing public aware, hey, there is this other way that you might be interested in doing.
And so that essentially was the beginning of my long career in asset management, but I was also an early adopter in technology. Kids today probably have no idea what this means, but my version of online was the, you have to take your phone now, put it on a modem, and there was an online community that was just text, right? I think it's the name of CompuSAT. And I had one of the highly valuable retrospectively, we understand, but your ID was a number.
So it was like 74132, comma, and then as they grew, the numbers after the comma started at one digit, right? So if you had one through ten, you were the founder of that company or worked at that company, and then double digits 11 all the way through 99. I had to come at it to digit after the comma number because I was one of the first hundred people on there, but it was literally just text. And you would have conversations with people, and I just thought it was the coolest thing in the world.
So I started writing a lot about, wow, the future is going to be amazing. That got me deeply interested in technology and innovation, et cetera. And in my spare time, I love writing and ideas and fun stories. So I did, I don't know, maybe a dozen different treatments for books or movies because I love both.
But I was spending all my time on asset management and then really trying to advance it, making technology work even better for it. So in 1999, I started a company called NetVolio, which was essentially the first online investment advisor. We actually got a patent for the, and the patent we got was absurd because it was so broad. It was for the origination and fulfillment of stock investment portfolios over a worldwide computer network.
And I was going to ask you about NetVolio actually, and about the patent. I'm glad you brought that up. So listen, I had no interest in being a patent troll, and a patent troll for those who are not familiar with it. Somebody who holds a patent that can put a lot of big companies out of business because they're infringing on that patent.
I did it honestly, just for marketing, and again, just to see if I could get it. And I did. And we were just maybe 20 years too early in terms of both the investors being receptive to such a thing, but also in terms of technology. It just wasn't quite there yet.
But it was something that when I, so I did a stint at Bear Stearns, which had been one of our backers, decided big company life really wasn't for me and rolled out of Bear Stearns. Lucky for me, before the financial crisis. And at the new company of Shavas, the asset management, we rolled out smack dab into the global financial crisis. And people who weren't around for that don't know how scarred.
Many people were from that, like literally many people who had been just incredibly enthusiastic about the long term prospects that were stock investing just were like, nope, nope, absolutely not going to do it. This changes everything, et cetera. So I basically said to the president of my company, look, we're probably not going to sell another long, only equity portfolio for another three years. So what I want you to do is spend that time building the tech for the way we invested, which was quantitative, but it was also pretty involved in terms of the way you would sell a security, the way a portfolio was built, et cetera.
And there was no off the shelf tech that was suitable for this. And so I said, let's build it. And years later, after making my son, Patrick, the CEO of Ostamie Walken, my office and said referring to all this technology, that we built a Death Star to Kill a Mouse. And I think we should be like AWS and repurpose this.
You're going to love it because it's real net folio. And we dubbed it Canvas, Patrick's name for it, which I thought was quite good. And it allowed at scale registered investment advisors to customize their clients portfolios to a level that was not possible in the past. So it was also consistent with our theme that we were moving from mass production to mass customization.
And one of my ideas was like look at some rich person in America or New York or in London in like 1930. What did they have? Well, they had probably a beautiful house and multiple houses, like vacation houses. What does that get to?
Get to Airbnb? They probably got a car and driver. What does that get to? Get to Uber?
And they most certainly had a manager for their portfolio who was probably at a merchant bank at the time. And it was customized just for you. It was run just for you and your interests. And that is what the goal of Canvas was to allow investors to fine tune their portfolio right down to their preferences if they so choose.
Or they can just use it as a custom index, what that is tax managed for them in a way that packets products can. Well, that attracted the attention of Franklin Templeton. And they approached us to buy the company. We came to terms.
And then I realized, wow, I get to now pursue all the things that I've loved all of my life. And that was the birth of O'Shaughness Adventures, which is where we're at today. Okay, so let's see here. Thank you for giving.
Yeah, you'll have to edit that for sure. Well, we'll see. I've listened to a few interviews with you. None of them have provided as much biographical background.
So I feel like I would be depriving the listeners of a public good by taking too much out of that. Okay, so a couple of things here. He brought up crisis personality. I feel like this first question that I ask about people always tends to generate an enormous amount of material that hooks into this project in different ways.
And that by the end of the conversation, we usually get to most of it. But I want to start here because I too have a crisis personality and I appreciate you giving me the language with which to describe this challenge to the way that I talk about with my wife is when things are going well, I'm unhappy. I'm bored. I'm looking for something to disrupt.
Like my heart was broken for the first time in high school, and I was in a depressive feud for months until the river in our town overflowed and flooded the whole town and a train crashed in town at the same time. And suddenly I felt so full of Jwadavi. I was like, what why? Like this is like a formative experience to realize that some of us are people that do well under unusual conditions.
And you're talking about the loss of your sister and having to step up. This is a common thing, I think, among a certain demographic of people that had to take responsibility for the emotional regulation of their parents. And that is a kind of existential crisis when you're a kid. That is a loss of security in a really fundamental way.
I just finished reading. I think I might have mentioned this to you on your show actually. Eric Wargow's book from Nowhere. Yeah, we did.
Yeah. So Eric does a very good job in his book of connecting the psychological writing of the emergence of symbolic art and human communication. As due to having to develop object permanence in children and you begin to create categorical systems in your brain so that when your favorite toy drops over the edge of the couch, you don't think that it's gone forever. It's a cliche that artists have some sort of extra hardship.
It's not due to their being artists actually. It's that they've had life experiences that have pushed them into the edge in some way. I just think about this because the comment that you made about how did you put your practical wife? I feel like in a lot of relationships, there's two people.
And I think that this is an expression of the bicameral structure of the brain, like Ian McGill-Chris notion that one hemisphere is focused on optimization and the other is focused on pattern detection. I noticed this in relationships as well that one person tends to be out there on the edge, tends to be the crisis personality, tends to be the first mover, the first adopter. The other person is concerned with very earthy and immediate goals and keeps that person anchored. I want to connect this just finally to the comment that you made about mailing your book to a hundred different publishers and how you had to bootstrap your credentials.
I read a really excellent post the other day by Priya Rose, who co-founded the fractal university in New York. She was talking about Nadia Asparahova and independent research and how our society, one thing I know that you and I connect on is the desire to find new mechanisms for establishing credibility, authority and trust in the future. In these immensely complex, enormous landscapes that we live in now. And the thing of the publisher was wondering, how dare you is a comment from the prestige game in which all of the markers of prestige are identified and you're playing within what James P.
Carr's called the finite game. The rules are well known. It's a zero sum outcome. I just want to hand this bouquet of stuff back to you to ask a more fundamental question about the relationship between this where much is given much as required attitude in life.
The tendency to seek the edge, which can also be understood as an attraction to that which is not yet legible to our systems of accounting. And then ultimately, how can we reconcile these two different approaches where it seems that society and culture require people who are very preoccupied with risk mitigation and people who are very preoccupied with discovery and search and the production of novelty. Take that however you want to take it. Okay, lots to unpack there, right?
As far as the comment about the people, I guess Steve Jobs famous ad here's to the crazy ones, right? That's very relevant, practically speaking as well. One of the things a good friend of mine was Wicked Smart told me one day he was like, Jim, will you fucking stop telling everyone to become a probabilistic thinker? Because you're going to wreck it for us and I'm like, what are you talking about man?
And he goes, most people are short ball. In other words, risk mitigation. They want to get rid of risk. They want to ensure themselves from risk.
They want to insulate themselves from risks. And he put it at 10 to 5% who are risk seeking, long ball, right? And my personality had always been a long ball personality. You mentioned the idea of living on the edge.
I was very lucky to have started a journaling practice when I was 18. So I have more than 40 years of journals. And we're actually feeding them all into our on-prem large language model to create what I'm jokingly calling a SimGimp. But when I found that I wrote in 1979 when I was 19 years old, it was a line that said, I remember the future.
So I was absolutely, it really resonates with what you said. That's how I thought. I had another one from the early 80s where I was speculating about these vastly intelligent advanced computers. I didn't call them AI because I didn't know the term that.
But my version of it was a supercomputer, a 10 to the 30th generation supercomputer whose name was Alpha. And I affectionately called it an elf for short. And the idea of Microman might become a new species. These were all written by me in my early 20s.
Just because I think that I was just always absolutely drawn to that. I was always drawn to what's next? Like where can we go? How can we push?
Right? How can we become more evolved, if you will? And so on the issue of end of show eventually ventures, we call what's happening the Great Reshuffle. And we think it's been going on since about maybe depending on when you pick probably since at least 2015.
And the Great Reshuffle is essentially all of the old models and playbooks are collapsing. And you do not have to be Einstein to see that with your own eyes. Look at the desperation of the legacy media. Look at the desperation of the legacy gatekeepers.
I think your remark about the woman was spot on. Right? They were playing, I'd will store on my podcast who is a great writer and thinker who wrote a book called The Status Game. And essentially, I'd always thought, no, my goal had always been that I didn't play the Status Game.
Right? I played the Press Each Game. I wanted to stand outside the hierarchy and will convince me that I was full of shit and that everybody is signaling all the time. It's just that they signal very different things.
Right? So I was not interested in playing the finite game. I was interested in playing infinite games with people that got the difference between those two. And it gelled for me like I was always fiercely anti-authoritarian.
I don't really know from whence that sprung, but going back to when I was a kid and my dad would interview me on tape, I was not a fan of external authoritarian or someone trying to claim their dominion over me. And so I purposely only applied to colleges where my family would have no influence. Right? Like my grandfather would hold these great things.
He gave buildings to like Notre Dame and other places. And so I remember when I was a senior in high school, Father Ted Hesberg was an amazing man. Many books have been done on him. He was just a really fascinating guy and we had him over for dinner.
And he was like, hey Jim, you're starting a Notre Dame next year, right? And I'm like, Father Ted, no, I'm actually not. What? Why not?
And I looked at it when I said, because you're asking me that question. And like what I love about him was rather than scowl or dead argumentative, he got this huge smile on his face. And he went good for you. Also, the only reason I barely have a BA, which is in economics, and it's in economics because I had four more credits in economics than I had in history, was to please my mother.
Like I thought college was a total waste of time. And I thought that I was being more indoctrinated and told what to think rather than how to think. And so back then, this is the early 80s, like you went to college, you'd played that game. And you did everything according to the plan.
And I wasn't interested in other people's plans for me. I was interested in what fascinated me. And so that streak was always very strong in me. And it was great because it allowed me to open my aperture very wide and see everything that was going on and just embrace it and be interested in it.
But as you point out, I still had to, if I really wanted to start my own company without anyone backing deep, I had to have credibility. And at the time, like having a book, it was hard to have a better import tour than having a book because David Beaum, the physicist, said if you really want to learn about something, write a book about it. And so I did teach me quite a bit. So as far as your comments about crisis personality, I'm very lucky.
And I don't know whether that's because I'm genetically lucky or because I started reading the Doudy Jing, which is Taoism when I was 18 years old. But I don't get restless or no, I'm stopping already because I can hear all of my family. I'm just going bullshit to have you get incredibly restless. But it's not that when things are in quotes normal, that I get depressed and, or luckily I don't have any tendency towards depression.
I'm very lucky in that regard. But I use those kind of normal times to look into all the things that were really on the edge at the time. But the crisis personality helps because, look, I think that we humans, our human OS, is driven by emotions. And I think that the governing emotion is fear, primarily fear of the unknown or the unexpected.
Witness the sheep-like way that we were all quite willing to comply with what under any other circumstances would be draconian policies by governments worldwide to basically stay in our houses for two years. And I did too. So it's not like saying that I didn't do that. But I definitely think that we are driven by fear and that we attempt to paper over decisions that are made emotionally with rational reasons for them after the fact, not before the fact.
It isn't these rational things that are driving our decisions. It is primarily emotional, which is the governing of human OS. The idea though that, okay, I need credibility, I'll write a book. I've got a book.
And then you got to be able to also communicate those ideas. And so to your trust, you mentioned trust as well. Trust is many people who are outside of Wall Street, right? Think all the popular cliches about Wall Street, want a friend, get a dog, et cetera.
But most of them don't really understand that essentially the bedrock that makes Wall Street work is trust. You have to trust your counterpart. And on Wall Street, there are severe consequences for screwing somebody over. If you decay, which stands for don't know somebody, let's say you and I are counterparties.
And I buy Tesla from you at some vastly inflated price. And after I've given you that verbal thing saying, yeah, Michael, I'm going to buy a million shares of Tesla from you at $1000 share. If as the market proceeds that day, it goes to $900, I still got to buy it. And I still got to buy it at $1000 because of trust.
If I try to, if I try to decay you and say, that means don't know about that. If I try to say, Michael, you misunderstood. I'm at end of day or whatever line of bullshit you tried to slay. The old Wall Street that I grew up in, you were boxed out.
That was it. You were done. If you did not honor your word with a counterpartie, the end, you became a dead player. So you're suggesting that has changed.
And I'm curious to know, because I've been thinking an enormous amount about the way that the tools that enable us to communicate with one another at scale. Also throttle the bandwidth available for that communication. And a lot of the development of information technology is about getting back to something like being in the room with somebody from across the world. And so we've created this, Homer Simpson, the cause of and solution to all of life's problems.
That's what this inquiry is really about is can we get back to being able to develop relationships with strangers? That's to the question of bootstrap credentials, right? It's how do we recognize experts, experts in topics that we've never even heard about until today, right? And so yeah, like I do think everywhere I look actually, was it McSweeney's put out a book a few years ago with some really excellent entries, a collection of essays called The End of Trust with Corey Doctorow and Doug Rushkoff and all these people.
If there's anything that people agree on anymore, it's that trust has become a challenge. I'm curious if that's what you're pointing to with Wall Street, that it's become so easy to transact that we need to find better ways to make relationships. Yeah. So one of the things that really deeply concerned me about the global financial crisis was nobody went to jail.
During all other financial crises, at least the United States consequences happened. There was a huge savings and loan crisis when George Bush, Sr. was president and the government had to step in and bail out a bunch of savings and loans, lots of fraud, lots of laws broken. And all those people went to jail and it was like, okay, you broke the law, you fucked it up, you made the government come in.
The consequence for you, dear friend, is you're going to spend 20 years in bedmax. And that didn't happen after the global financial crisis, which really troubled me because back to trust, right? In every other crisis like that, there was cause effect and the effect was seen and the Purple Walk, right? They do that for the theatricality of it because they want everyone to see this is the consequence of betraying people's trust.
You are led with your head down in a complete submission pose with your hands. It's all very theatrical. And it's that way for a reason. They want people to see these people utterly humiliated, utterly at the mercy their captors here.
I had to do a Perp Walk when I was 16. I got caught shoplifting from Walmart. And of course, when you're 16, there's that rebellious adolescent thing. You're like, I'm cool.
You're going to make me walk in cuffs through the Walmart on the way out. I bet everyone else in the Walmart is probably like, I wonder what he stole. You know what's really funny about that, Michael, is that maybe why we're so simple to go and get along so well. I too, after my sister's that, acted out and got arrested for shoplifting in 1972 at age 12.
But my story's a little bit different because I wasn't Perp Walk because the store detective arrested me prematurely. He arrested me before I left the store. And I was incredibly lucky to get an incredibly kind actual police officer that was called to come and collect me. And as we're walking out, he's like, you feel bad?
I'm like, yes, of course. He goes, why? And I said, well, because I got caught me. He started laughing and that signal, okay, maybe I can talk to this guy, right?
So he didn't cut me, walked me out to the police car, let me ride in the front with him. And this is a bit of a family lore because we used to play this game trying to guess who it was and you'd give a line of something you did that is highly improbable. And so what I did was I was fascinated with guns at the time. And so I started talking to this cop.
What kind of gun is that they give you? And he pulls it out and he slides this and this. Now you got to remember guys, this is 1972 prior to all of the craziness and like people doing crazy stuff, right? So when we played this game that was written about me was who talked a cop into handing him a loaded gun in a police station?
Well, that's just it. Okay. So your point about procedure is well known among people who listen to my show anyway that I was also arrested in 2012 in Texas due to an unconstitutional search where I got pulled up on pot charges. And I had to deal with it in court.
The moment that I recall as the deciding moment in whether they were going to defer my charges was that the judge had just lost a civil suit in which I didn't know this at the time that I picked him, but my attorney had prosecuted charges that he had with held exonerating evidence in a murder trial 20 years prior. While he was the DA. So he lost that and the court was without a head for a while. And when the new DA in that county came into court on the day that my number had come up, I had never met her before in my life and I held the door open for her.
And I think that moment of just sheer simple unassuming decency between people led to my case and then later on the county court judge, and this is renowned as one of the most crooked and punitive counties in Texas, which is already a story. The county court judge on the day that I was to be released early from probation showed up an hour late to the court. And I found out later that the reason that he was an hour late in Flustered when he showed up is because he had been selling machine guns to Mexican gangsters and forging the paperwork to make them look like legal fails and had been caught by federal officers and then lied on two separate counts to the federal officers about it. And after that, my probation officer and the county court officer and pretty much everybody else around him quit their jobs because they realized they didn't want to be a part of this anymore.
I love these as very visceral examples of the issues of trust and accountability in society. And I want to ask you, I want to connect this back to something that you said a little while ago about mass customization because I do believe if you think about it in terms of thermodynamics, evolution is seeking all possible paths down the energy gradient and we're heading into more complexity and more diversity, which is why the market grows over time on the longest time frame. All of this stuff is trending in that direction. But there are also all of these regulatory mechanisms that show up like in the body that makes signaling expensive in order to prevent cancerous cells from requisitioning.
Extra nutrients, there's all these cheater prevention mechanisms that exist in mature evolved complex systems. And when I think about the trust problem in society, I think about the way that lifestyle consumerism, which has yielded so many wonderful benefits as you've pointed out. And the fact that you can even get your own shoes that fit you rather than just having to wear the one thing that comes out of the factory is a major improvement to the human condition. And yet among the consequences of this have been that we seem to all kind of live in our own reality now.
My buddy Adam Arunovich runs this Instagram feed healing from healing, which shows basically like hippie, new age spirituality gone insanely like catastrophically wrong where people are just believing things like, how are you believing this? And so there's this weird connection between convenience and accessibility and choice and optionality and all these things that we take for good. But this is a question you might have you were getting into when you had Brendan McCord on the show, which is like we're not trying to manage things from top down. How do we foster emergent systems structures processes that can reconcile the way that the consumer world trends toward everyone living in their own biometrically designed virtual reality?
Okay, your Apple watch is feeding your bio data into a music AI that generates the music that you want to hear at any moment. And if you don't go into, you know what, I'm going to take a chance. I'm going to go to a festival. I'm going to listen to music somebody else curated.
Maybe not like all of it. But I'm going to be able to make new relationships with people. There's this thing that I see in the algorithmic perfection of reward mechanism hacking, whether we're talking about it as AI or these kind of more conventional market systems that is related to this issue of how do we incent accountability? How do we incent trust?
How do we make it more obvious that relationality is desirable? I'm not like a Calvinist, but some things are good, not because they're easy, but because they're challenging, right? So I'd love to hear your take on all of that. Just think about how we evolve.
We humans. For the vast majority of human existence, culture such that it was was local geography separated various races, various tribes, various peoples. And there was a lot of space that was very difficult to traverse that space. And so your culture such that it was was extremely local.
You even had your own gods. You had your own ways of doing things. And many of those, obviously, that there are commonalities in we humans, much more than people who seek to divide us are willing to admit, right? Human nature makes us much more alike than dissimilar in my thinking.
But okay, so you take almost all of human existence. Culture is local. What you know is very limited. It is limited by what culture you happen to have been born into.
And it's small. It's not big. People don't really travel. Then suddenly we get seafaring.
We get travel. We get exploration. Culture is intermingle. They learn from one another.
They get conflict with one another. But it was not the panopticon. It was not always on. The thing that I'm increasingly speculating about is this culture of mass production, right?
It's relatively a baby in evolutionary or geological time, right? Bill Bryson has a good book called America One Summer, it's about the 1920s. And he's talking about the first time the radio announcer was announcing Lindbergh's return from his solo flight to France, the first to traverse the Atlantic Ocean. And Bryson notes that this man was talking to more other humans than any other human in history.
So the idea, and this is in, let's just call it the last hundred years, last hundred and fifteen years. When my grandfather, who I'm so proud of, was born in 1885, no televisions, no TV, no radio, no phones, no cars, or strong carriages, they got around the same way Romans got around. And then we get into this massive creative burst that allows for radio, for TV, for movies, for all of those things, where it was really the first time in history that humans could be programmed, if you will. And I'm not saying this was not intentional.
I'm saying, hey, let's put some great TV shows on that everyone's going to love to watch. And so 68 million Americans tuned in to I Love Lucy every week, right? And that was the anomaly. We are going back because of technology and all of the advances.
Yes, awareness of large culture, right, in any way you want to call that. But I definitely think that period, especially here in America, was highly anomalous because for the first time in history, you and a guy in, I don't know, let's say I was living in St. Paul, the Minnesota at the time, me and a guy in the deep forests of Maine, or of the swamps of Mississippi, or whatever, we're probably watching the same TV show. Very anomalous.
It cut across all of the old class indicators. It cut across all of the old distinctions that people used to make about themselves, like New Englanders were famous for their honesty, integrity, et cetera. And we had very severe regional accents back then that got really dissipated or eliminated in some cases by a model culture. And that was the weirdness, right?
Because we didn't have the technology to make that even a thing until that brief period in time. And then as we push the technology forward, we now have, as you say, the ability to have the AI determine what music you want to listen to. I don't think that the part of your thesis that people aren't going to go to concerts anymore is correct, though. I think I love watching young people because like their neurons are a lot faster than mine.
And one of the things that I'm seeing is actually quite the opposite of that. They're yearning for connection, physical connection with other humans. They don't want to mediate their lives exclusively through screens. They want to participate in concerts, in going to live presentations, debates, all of those kinds of things.
And I think that's great and it's healthy and it's good. But also to the issue of the question you have about trust. It sounds simple, but you want to be trusted, be trustworthy, honor your work, and do so even when it's really painful to do it. Another story about my grandfather.
As I mentioned, he was the 13th child of an Irish Catholic family. And very few people went to college or university back then. But he got the opportunity and went to a college in Minnesota called St. John's.
And they expelled him for having a keg in the woods during Vesper's, which is prayer service. And not letting his parents who lived in Stilwater took know about this before he found another position at another university. He took a train down to St. Paul, Minnesota.
This isn't January. Got a lump for having a keg during January in the woods. And that showed the high spirits. Anyway, he stopped a priest on the sidewalk of the University of St.
Thomas at the time, the college of St. Thomas. Excuse me, Father, can you tell me where the admissions office is? He said, I can, but why?
The admissions aren't open right now. We do that in the fall. Why do you want to see the admissions be? And my grandfather said, well, because I got expelled from St.
John's college and I'm seeking a position here. And the priest is, huh, you got expelled. Why did you get expelled? And my grandfather told him to try to spell because I had a keg in the woods during Vesper's.
And the priest asked him, do you think it was fair for them to expel you? And my grandfather looked him and said, absolutely. I knew the rule. I broke the rule.
They had every right to do what they did. What my grandfather did not know was the man he had stopped him was the president of St. Thomas, who admitted him on the spot. What else my grandfather didn't know was that his fellow keg-goers, who had also been expelled, had beat him to St.
Thomas, got an audience with the president, and said, no, it was so unfair that they expelled us and tried to make excuses and none of them got in. And so back to trust, right? You build trust by being trustworthy, by honoring your word. These are not hard things.
They can be hard to do. Very hard to do because it means, like, if you give your word and things go south, you still got to honor what you said you were going to do. So I do believe that trust is going to be able to be rebuilt with the help of technology, but also right now we're not hyper chaotic time. Whitehead said that epic or great eras are also chaotic eras.
And man, we're living in one right now, but I'm thrilled because of all of the possibility and potential that is inherent in building in the overall system. Right? What is Ethereum and crypto all about? It's about trust.
Right? How do we establish a protocol that is so good that it's not a thing? It's so good that you just inherently trust it. Right?
I don't know enough about it to give specific commentary on that, but I definitely think that trust is the basis of human civilization. And I think your story is very interesting to me because, at least from the viewpoint of somebody raised in America, we are inherently angry at people in positions of authority that abuse that position of authority. And what we've seen over the last 20 or 30 years is that happening on a broader scale in America, right? Where it's not just the politicians.
They're always kind of Congress critters, grifters, for the most part, but not all of them. Right? Now it's like everywhere. Right?
It's how many Nigerian princes do I have to say no to that? I'm not interested in taking a part of their fortune and taking that big fee. I think rather than focus exclusively on all of the ways that people can betray and lose trust, I think we should also focus on the human notion that for this still, in my opinion, majority of people who might be your counterpart in the world, trust is an essential aspect of that relationship. And the only way to build trust that you can't get it instantaneously.
So it becomes a rare commodity. How do you build trust by being trustworthy, repeatedly, again and again. Great example from games here. Right?
So the prisoners dilemma, which is two guys robbed a store, cops mamma, they put them in separate rooms and they try to get the one to write out the other. Okay. But the way the game is played is if you write out your partner, but he doesn't write out you. He goes to jail for 10 years.
You walk. If you write out each other, you both go to jail for five years. And if nobody writes out the other guy, you both walk free. So it's a really interesting proposition and game theory.
And for the longest time, speaking of strange loops Douglas Hops better in his book, Go to Lasher Park to both a lot of space to the computer gamers who would play iteratively, the prisoners dilemma, because they was trying to come up with code for the computer that could win the most games iteratively. Right? So you're not playing a one off. You're not playing the game.
What's because if you're only playing it once, you're going to play very differently than if it's repeated. Right? And most of the code that was submitted was like pages and pages of code. Right?
What do you think one like a three line piece of code that was at start a play cooperate. In other words, don't rat out your code conspirator. Then repeat whatever he did, but then return to cooperation. So if in the next iteration, he rats you out.
The next time you play, you rat him out to punish him. In other words, ask to have a cost. Right? How does that tie into what I said about the great financial crisis?
The cost. The cost was gone. Every time before the cost was there, you went to jail or you were disgrace or you lost all your money. All of those things that are very humiliating to a person.
And if you read Will Store's books, if you really want to put somebody into a corner, humiliate them. But if you're going to humiliate them, you better kill them. Because if you don't, they're going to come at you with everything they've got. Like, why does this matter?
Well, at the end of World War I, what did our intellectual president, Woodrow Wilson, walks into the Germans? He wanted to humiliate them. And so we exacted ridiculous terms from the Germans. And we got Hitler.
Right? Because not only did we humiliate a person, we humiliated an entire country. So we should learn from that, right? The prisoners' dilemma in the model that wins all the time, the code that wins all the time, I think, is one of those paths that we can examine.
So cooperate. In other words, be trustworthy. If somebody fucks you, fuck them right back, but then go back to cooperating. That's the key.
And sometimes because we were talking about human emotions, right? When emotions are hot and high, we do stupid things. And that is germane to everything. I have it in all my books.
And I always say successful investors do not comply with human nature. They defy it. And by that I mean they unstick themselves from the emotions of the moment. And try to take more of a God view of the game that's being played.
And when you can do that, you always realize it all comes back to emotions, right? And emotional decision. Truth has a great line and I'm going to botch it. But the essence of it is along the lines of, during periods of intense emotional feeling that are destined not to last, we make our irrevocable choices.
I think that there's enough in what we know now and what we will know in the future. That's the other failing of we humans, right? We always think we know everything there is to know. We don't know one percent of everything there is to know in my opinion.
And so, like back it, right? Try fail. Try again. Fail again.
But fail better. This emotional problem that we have with being seen to fail is a real problem because failure is a ladder, right? Mistakes are portals of discovery. And so, to your point about everyone kind of living in their own world, I don't think that is the natural condition for us as human beings.
I think that we are social creatures. After all, what's the worst punishment other than executing somebody or torturing them that you can do to them? Put them in solitary confinement. Do you know that somebody in solitary confinement begins to hallucinate as little as eight hours after they've been put into solitary confinement?
So, I think by our very nature, we are a gregarious species, right? And in fact, there's bed experiments with rats where they would addict them to cocaine, right? And then this other guy was like, well, maybe it's not the cocaine that's addictive. Maybe it's the environment in which you put that rat.
So, the rats that got addicted to cocaine were alone and they had two things that they could drink from. One was just water. The other one was water with cocaine. And they kept drinking from the water with cocaine until they died.
He posited it. Wait a minute. What if we give him a rat city? What if there's a bunch of rats in the environment?
Guess what? The majority of the rats don't drink the cocaine water until they die. And he concluded, now this is obviously speculation and we need to make sure that it reproduces everything. But I love the idea that rats, humans, we are gregarious social creatures.
And yes, there will be a certain segment of society that is like a loner and doesn't want that. But there always has been. We just didn't know about them. Now we know about them because they'll write a book or they'll have a podcast or they'll post on Instagram and all that kind of stuff.
So, I think that we need to be careful. Josiah Warren had a great line, which is don't understand new things too quickly because we probably deceived ourselves in coming and rushing to that conclusion. And we basically killed the baby in the bathwater. So, definitely think that this is not a cataclysmic end of trust.
I think it's the beginning of new ways to establish trust with people. This is precisely where I wanted to take this with you. I want to make it clear in the statement that I made earlier that I'm not saying that I think that people will always choose the seductive fantasy. But cocaine is a hell of a drug.
You look at the proliferation of addiction and other sort of trauma disorder stuff that went on during the COVID lockdowns. It's really serious. There are plenty of arguments for both remote work and back to office and the hinge on the kind of work and again, the issue of attention. I wanted to bring this though.
I wanted to, you were talking about human OS and our story is our rational frameworks as post hoc. And I want to connect this to the big question of the show, which is about agency in the age of automation. So, this is what we've been really kind of dancing around the whole time, which is a lot of things should be automated. There's a sense in which a lot of human thought is basically an evolutionary market where the invisible hand of unconscious information processing gets us where we need to go over time.
But as humans, we also have executive function. We have the capacity to reflect. And again, if you scale down the regulatory functions in society in their most charitable frame are something like the ability to choose to do something rather than just to always select what seems like the most efficient. In the time frame of your optimization function.
And so I really like the thing about the iterative prisoners dilemma because you're right, there is always a tomorrow. It's hard for a lot of people to remember that there's a tomorrow when you're stuck in amygdala overdrive or you're isolated and sitting there pressing the coke lever. I agree with you that if given the choice, people do want to remain social. And yet it's also true that as a millennial, I feel like I was the last generation that didn't suffer a precipitous collapse in face to face social interaction.
A big part of NPR's coverage on the collapse of festival culture specifically in the last couple years was that young people, like they're having fewer romantic and sexual relationships. They're, I'm not sitting here being like, the kids aren't all right. But the point is a lot of my friends want to go to concerts, but they can't afford to. And so it's not as much a matter of the decision making the regulatory top down thing as it is a structural concern or like I'll put it another way, which is that after Elon Musk bought Twitter and he made the blue check, something that people could buy.
And he made it so that you can edit your tweets, but only if you're paying for the service. He coupled the ability to pay with the ability to edit the ability to reflect on and modify what you had put out there. So like it's giving people more agency in precisely we were saying those moments where a kind of rash spontaneous decision affects the course of one's life. And the last piece I'll stack on this is when you interviewed Bilo Wellcedu about AI Media, which I thought was a really cool conversation and Bilo Well brought up the arms race of content creation and how the fact that we can make content faster now the fact that one person is getting right up to that point where you're using the right up to that point where you can make an entire movie with the phone in your pocket.
He was concerned that it was leading to a situation where on the one hand, it was harder for people to find really satisfying, deeply thought out, intelligent stuff. It was harder for people to pay attention to longer films that most people were choosing this sort of fast food media. You know, like Herbert Simon said, information consumes attention and the overproduction of information leads to a poverty of attention. And so getting back to the grocery store at the beginning of this conversation, how do you make it easier for people to find what they're looking for amidst all of this?
How do you make it easier to give people the time or the permission to take time off of your job and go to a festival and hang out with people like actually act on these decisions? How do you make it easier for people inside of an organization to act on the ethics that they claim rather than having everyone working in this corporation is good, but we're doing bad things. I hope that this picture is making sense because what you're doing with OSV seems like a very structured attempt to afford more time and more capacity for people to philosophize to create to think deeply. But how do we do this better at scale?
So I think that the answer is in one of the things you mentioned, which is agency and choice. I think markets are better at offering choices than any other distribution system. And sometimes the things that people end up loving, if you gathered the ostensibly 100 most brilliant people in the world together, they would never, ever come up with some of the solutions that actually work quite well. The world is a complex adaptive system, right?
The world is. So is our immune system. Complex adaptive systems rule everything around us. And so where does emergence come from in a complex adaptive system from below, never from above?
What do people who yearn for power over others really want? They want to impose top down rules, regulations, systems that you must comply with, right? Markets on the other hand are due it this way. No, we're going to try a million different ways to get, make it easier for kids to go to concerts to philosophize as you put it, et cetera.