On Strategic Reading transcript

Okay. Let's start this. Yeah, no need to wait. So, most of you know my background, but I'll give a short recap. Um I'm in the investment business, but I did not start it out, nor was I trained to be in the investment business. I went to to Babson and learned entrepreneurship and finance with a minor in philosophy. Um I played backgammon and poker after college for 3 years. It's all I did. That was actually the first big money I ever made.

Uh and when I got into the investment business, I was given a desk and a computer and said, "Go make money." So, the first thing that I did was I bought all the books on investing that I could find. And for me, that was my savior. Uh the second thing that I did is once I had all the books is I made a list of all the smartest people that I knew in the in the investment business and I went and asked them questions. And I was lucky to be given a seat by the Santo Domingo family to be able to invest their money and really to learn.

And frankly, I should not have been given the responsibility that I was given at that age considering how little I knew, but I was lucky. But anyways, young people today don't read anymore. And it's uh a bit of a problem actually. And I'll go through why. It used to be table stakes to have read. Uh but today it's actually become a competitive advantage because no one does it anymore and now you can actually get an edge.

Um but let's go through why. So, investing is you can actually read books to learn investing. Uh investing is an intellectual capital business and intellectual capital is found in books. The main power that reading does for you though is it triggers your imagination and your visualization skills. You know, when you talk to a really capable investor, often as you're pitching him an idea, he's actually sitting there imagining the idea uh in his mind uh and using his visualization either from past reference uh uh material, current things, but really replaying a sort of a movie.

And the problem is modern environments, especially today's environment with social media and now what I think is modern environment on steroids which is coming which is uh these AI tools, is that they take away your visualization skills. And the other problem that they have is that they're too fast. You know, creativity in human beings requires incubation, it requires germination. There's a bit of a slowness that you need as you get an idea that you sit with it, you question it.

And today, you just ask the machine a question and it gives you the answer and you don't develop that imagination or those skills. And again, you know, I could go through all these quotes on reading, but I recall my grandfather when I was uh 7 years old, I asked he was reading a book. And by the way, for for those question what was the book he was reading, he was reading Atlas Shrugged by Ayn Rand, which is a book that people love to hate except they've never read it.

Um and I asked him, "Why do you read? And what do you love to read so much?" And he says, "It took the writer of this book 2 years to write this. It's going to make me to take me a few weeks to read it. That's why I read." And at the time, I recall like I was like, "Wow, 2 years?" For me, I was 7 years old and I was such an a an incredible amount of time and in 2 weeks and I was like, "I could do that." You know, and by the way, I'll share this presentation so you don't need to go through all of it.

But really, you know, the quotes on reading um it's important to think about them and and to really help trigger your curiosity. Barton Biggs, uh whose books uh you should read, especially if you're in the investment business, he has this great quote on reading and I'll read it. There are no relationships or equations that always work. Quantitatively based solutions and asset allocation equations invariably fail as they are designed to capture what would have worked in the previous cycle, whereas the next one remains a riddle wrapped in an enigma.

The successful macro investor, and by the way, read macro investor or fundamental investor in this, must be some magical mixture of an acute analyst, an investment scholar, a listener, historian, a riffable gambler, and be a voracious reader. Reading is crucial. Charlie Munger, a great investor, and a very sagacious old guy said it best, "I have said that in my whole life, I have known no wise person over broad subject matter who didn't read all the time.

None. Zero." Now, I know all kinds of shrewd people who by staying within a narrow area do very well without reading, but investment is a broad area. So, if you think you're going to be good at it and not read all the time, you have a different idea than I do. I love this quote from Henry. Um uh uh By the way, some of his books are incredible, especially the older ones. Um and he says, "Reading books requires you to form concepts, to train your mind to relationships.

A book is a large intellectual construction. You can't hold it all in mind easily or at once. You have to struggle mentally to internalize it. Now, there is no need to internalize because each fact can instantly be called up again upon on the computer. There is no context, no motive. Information is not knowledge. People are not readers, but researchers. They float on the surface. This new thinking erases context. It disaggregates everything.

All this makes strategic thinking about world order nearly impossible to achieve. The environment, there's too much information. Things are moving too fast. Things move twice as fast as they used to. And frankly, our cognitive makeup isn't designed for this new environment. We're we're basically, you know, human chimpanzees that know high-level math and have way too high an opinion of ourselves. Um and now we're dealing with god-like technologies.

You know, and by the way, we can't compete with the engineers at Apple, TikTok, Instagram, and Spotify, okay? These guys are smart and they're constantly coming up with smart strategies to hijack our attention and dopamine. Why read? It can increase your longevity. Now, all the young ins on this podcast on this uh interview don't have to worry about this stuff now, but I'm 50 now. I have to start worrying about Alzheimer's and all the other stuff.

And there are a lot of studies that show that reading can increase your longevity. But here's the common refrain that we're hearing now for all the young guys on this. So, the PMs that we speak with, when they get together, they all say, "Hey, the juniors the junior analysts, they're not developing fast enough and they don't have the gravitas, insights, or reference points to have commercial conversations about businesses, management, or stocks." And this is something they're never going to tell you up front.

Okay? But a lot of these guys are like, you know, the junior guys today, they're not like the junior guys that were before. And also, a lot of things they focus on is quantitative and it's not qualitative. Part of what reading gives you is the reference materials, the previous patterns, the previous uh experiences that other people have had, both their successes and failures, that enable you to say, "You know what? This situation that I'm looking at right now," as you're talking to a a senior or a PM, "this reminds me of this." Or if the PM asks you, "What do you think the CEO is going to do?" because you have the past reference material and you've read, you can actually say something like, "Oh, I think the CEO is going to do this." You don't have to be correct, but at least you can come up with the scenarios.

All right. So, now we're very tailwind driven in in my firm. You know, I would say that whenever we look at an idea, we look for four things: fundamental momentums, trade tailwinds, behavioral archetypes, and timing, right? Now, this is the monster tailwind in the next 20 years, one of them. So, uh we call this the boomer to zoomers theme. So, what you're looking at here is the boomers have about half the wealth. So, this would be basically my parents and most of the young ins, this would be your grandparents.

Um so, pe- boomers are people that are born from 1946 to 1964. They have 76 trillion. Gen X, which is my generation, they have 37-trillion. The silent generation, so those my grandparents, uh the young and great grandparents, they have 19-trillion. And the millennials today have 13-trillion. Now, what's interesting about this dynamic is as the boomers are passing or retiring, that wealth is trickling down. And by the way, we've actually found investments that benefit from this tailwind.

Uh uh one of our best is here actually. Uh but guess what? The boomers and Gen-X, we were really the last generation that was trained before the internet. Okay, we actually read books. And a lot of the lessons as the environment changes, theoretically, and we I've seen this actually actually, is that it should prevent you from losing money. But a lot of the guys that are about to inherit that money, I think are in trouble.

And and you're already seeing young people that are inheriting money make classic mistakes that literally a $10 book can prevent you from making. Right? So so I think that the predator-prey dynamics of the next 20 years are going to be really interesting because the newer generations, they just don't read. Um uh and a lot of new a lot of new dogs are going to make old dog mistakes that they could have literally prevented just just from reading.

By the way, as an investment dynamic, it's important to understand this because it's not only happening in the US, it's happening in France, where there's a generational shift happening from boomers to the new generation guys. And really interesting dynamics are developing from that, too. It's happening in Mexico, it's happening in Brazil. But this is a very important tailwind. And uh it it's worth thinking about. All right.

Now, why read? Because it's going to allow you to better compete against the machines. Uh AI, algorithms, um uh the quants. And in Tyler's book, "Average Is Over," he actually covers uh the dynamic of what happens in freestyle chess. So freestyle chess is a competition where a human can compete against other humans, against other machines, or against human plus machines. And Tyler's insight is that the best teams are actually humans plus machines together.

And he goes into the reasons as to why that is. And part of it is the human can come up with the qualitative insights, the machine can go through a lot of information and distill uh and distill it for you. But the human also understand when the machine messes up, right? And also, to be really good as a human, you still need to have a lot of context, and reading gives you that. You know, and by the way, even prompt generation, you it involves giving AIs a lot of context, and to be able to give a lot of context, you need a very wide intellectual wingspan.

Right? For networking, one of the fastest ways to build a relationship with someone, especially an older influential type, is to have read the amazing books that have influenced them and to be able to discuss these books. Uh one of my closest friends, uh uh he and I bonded over Noble House. And uh if it wasn't for that book, we probably wouldn't ever had the relationship that we have today. A book can make you a billionaire.

Okay, I'm serious. This book has made three guys that I know billionaires. Now, how is that possible? Well, if you read this book in the '90s, it was literally a competitive advantage because it disclosed to you how to leverage spin-offs that have mostly been arbed away. But also, there's a chapter in there on leaps. Um and I think this is a must-read because and I'll go through why abstraction from it because a lot of people say, "Well, that book doesn't matter anymore because it talks about spin-offs, and spin-offs have been arbed out." But index funds are not the only market participants that because of institutional imperatives create opportunities.

And I think that's one of the main lessons of this book, and I'll go through that. You can make money from reading a book. You know, I remember when I was looking at uh uh this industry, I found this book. And in the book, the writer, Willis Johnson, and comparing to to other companies he was competing with, uh it was so clear that he had the better culture and the better management just from reading this book that even though we were pitched the competitor, we ended up buying this one at a higher multiple and actually made more money.

And also, any CEO of a sal of a junkyard firm that will move his family to a junkyard deserves backing in my uh book. All right. People always talk about foundational investment skills like accounting, modeling, forecasting. But here are the others that you rarely talk about that you still need, and reading trains these. Visualization. Self-awareness. You know, a a great book is not a book that you read, but a book that re reads you or reads you.

Uh informational weighting. Okay, you're presented 30 pieces of information. What is the one or two or three pieces that really matter in a company? A lot of great PMs, you can pitch them an idea, and immediately they're they isolate the one thing that really matters in the idea. Recall. Uh uh I always find that great analysts have great recall. Writing. You cannot be a good writer unless you are a great reader, and then analogizing.

You know, there's a great investor I like that when he people ask him, "What do you do?" and he says, "I make an analogies all day long." All right. Reference positions. Chess, backgammon, other games have reference positions. Investing does as well. Have you studied the best or worst investments in history? And are you able to abstract information and things that matter on it uh there? So for example, um Actually, I'm jumping the gun, but it doesn't matter.

So, this book, "One Up On Wall Street." An incredible read. Okay, this is another book that has made uh a couple guys that I know billionaires, seriously. So, there's a chapter on checklists, where he describes to you every single type of stocks and how to actually uh ask questions uh based on the type of stock. So, a slow grower, a growth company, a turnaround. You know, he they all of these descriptions and these this checklists are in this book.

Uh chapter 15. Right? So, for cyclicals, what are the questions you should be asking? For fast growers, what are the questions you should be asking? You know, if you only read this part of of this book, it's very very valuable, and it gives you the reference questions from the reference positions. So if you're looking at a turnaround, as as you're doing the work, take this out and ask those questions. Right? Okay, Napoleon.

Napoleon talked about how in his early education, he studied the battles of all the great generals. And one of the the comments and observation people had about him was that he could look at a battlefield and immediately see what was really important. And Napoleon would actually tell you in his writings, uh Napoleon wrote 60,000 letters in his lifetime, and they're all at uh the Napoleon Foundation. And there's only one histor- There's I I shouldn't say that.

There's probably two or three historians that have gone through these letters, and my favorite one I'll talk about in a a bit, Andrew Roberts. Uh he wrote one of my favorite biographies of Napoleon. All right. So, why read? Because it teaches you to communicate well. Writing, public speaking, one-on-one dialogues. And remember, it's those that communicate well that are given positions of responsibility, okay? Now, "Bird by Bird" by Anne Lamott is my favorite book on writing.

It's actually a book about life more than anything. But really, the importance of reading to write can't be uh uh overstated. And not only that, especially for leverage creation. You know, I speak a lot today about creating leverage to accomplish your goals, not borrowing money, but non-recourse leverage in the form of six uh six categories. Capital, code, community, content, contractual leverage, and conditional leverage.

Right? And for especially for content creation, uh you have to read. It trains your recall. The great ones know more. Okay. So, what should you read? Let's transition over. You know, there's a bit of a duality in what you should read because, you know, for highly competitive analytical people, often they're reading too much, let's say, strategy. And they disregard the soft stuff. And I kind of love this cartoon because these are two favorite books of mine.

Uh The Art of War, specifically the Roger Ames translation, by the way, because when the traditional Americans translated The Art of War, a loss was a lot was lost in translation. And How to Win Friends and Influence People, which was my grandfather's favorite book. Uh and uh I was given a copy very early. But anyway, so remember the duality of it's not just the hard stuff you want to read, but it's also the soft stuff.

And the best part about a network, because you have network components, you have mentees, you have mentors, you have connectors, you have the hubs you spend time on, but I think of these filter aggregators as a very essential component of a network. So, what a filter aggregator is, it's somebody that goes through a lot of information, aggregates all in one place, and then is able to distribute it out to you. So, Ryan Holiday, who has written, in my opinion, some of the best uh books on either the media.

Uh if you haven't read Trust Me, I'm Lying, uh Confessions of a Media Manipulator, it's a must read. Uh he wrote a book on on Peter Thiel's takedown of Gawker called Conspiracy, which is an incredible book. Uh Josh Wolfe, I'll spend an hour with Josh and come out with 20 books that are some of the best books that I'll read that year. Tim Ferriss, both on his podcasts, uh uh and in conversations has recommended some of the best book.

Patrick O'Shaughnessy the same thing. Uh Graham Duncan, who recommended to me The Power of Engagement 15 years ago, which led me to really change the way I look at my my health. David Senra and Charlie Munger, I love this picture of these guys together. David has the Founders podcast, which is incredible, must listen. Frederik Gieschen, who is a dear friend of mine and an intellectual sparring partner, and he he's helped me develop some of my best frameworks.

Uh uh James Clear, and of course, uh Josh Waitzkin, who in many ways changed uh my life when he introduced me to the book Zen and the Art of Zen and the Art of Motorcycle Maintenance. Right? Uh an amazing book. Let me just make sure that everybody is still on this thing. Okay, we're good. All right. So, filter aggregators, all these guys have public interviews, podcasts. Whenever they recommend a book, always write it down.

And what I suggest you do is write down the list of the books, and then force rank them how many times they're mentioned, and then start by reading those things first. So, for example, Tim Ferriss is recommended that I uh was the first to recommend that I read uh Bird by Bird by Anne Lamott. Right? A very powerful book. All right, you want to study failure. So, one of the things that young people haven't gone through yet is failure.

Uh but don't worry, it's coming. Uh part of what you need to do is to study it. Now, this is one of the best books I've ever read on failure because he actually goes into why militaries have failed. Now, generally, and I'll mention this later, you want to study the military, sports, and intelligence. I meaning how countries and governments do spying or intelligence. And the reason why is the things that they have come up with in terms of processes, tools, even assumptions or knowledge of human behavior, it works.

If it didn't work, people would die. So, generally, the things they've come up with are are battle-tested. In this case, reading this book, by the way, helped me come up with an insight that stopped us from losing a lot of money in January of 2021 uh during the whole GameStop uh craze when our shorts were running us over. Um uh it is a very powerful book, and it's worth reading. Uh the the the the one the chapter on the German submarines during World War II is a must read.

All right. Another thing is you also be should be learning from successes. Now, other than books, you should be reading memos. The memos, uh for example, I'll go through what a a bunch of them are, but one of my favorites is learning from my success and learning from others' failures, evidence from minimally invasive cardiac surgery. So, what this researcher figured out is that individual surgeons learn more from their successes than their failures.

While when they were studying somebody else, they learned better from the failures of other people than the from the successes of other people. And part of the reason is in surgery, when you had a really big failure, somebody would die, and that learning could be almost traumatic for you. Whereas if it happened to somebody else, it's not as traumatic, but having said that, uh uh it's actually uh uh something that you can learn for from because your empathy's turned on.

Okay. So, history of our business. Two must reads by Sebastian Mallaby, a friend of mine. Again, young people, you need the context of our business. It's very important. You know, a lot of the events described, a lot of the old-timers, including myself, I'm close to a boomer now. Um uh you need to have read these events and gone through them because it gives you context, and both those two books actually do a really good job at it.

Charlie Ellis's memo, The Loser's Game. Now, by the way, if I mention somebody here, uh uh assume that their books are worth reading and just go buy them, okay? Charlie's written a couple books uh that I've read. He's probably written more, but they're amazing. Um uh other memos that I would read is Richard Zeckhauser's memo, Investing in the Unknown and Unknowable. Uh there's a leadership and business coach called Randall Stutman.

He has a Substack/website called Admired Leadership, where every day he sends you a small blog about being a good leader, being a good businessman, and and a good manager that are still with wisdom. Uh and he's very, very good. But anyways, The Loser's Game, Charlie makes an amazing point. He says, "Within every investment business is the fundamental belief that what they do can beat the market." And yet if you look at statistics, the majority of investment firms cannot beat the market.

And he actually goes through some of the reasons. Now, what's fascinating when you give this memo to other people is the majority of them actually think they're going to be the ones that beat the market. Okay? And there's a lot of insights that you can get from this memo. Uh uh and reading it is very powerful. There other memos like this, and you'll get to them. Another thing that you should be reading is there's a a Twitter called Internal Tech Emails.

So, whenever management teams uh uh uh and are in a lawsuit, they have to release the emails. Sometimes these enter into the public realm. It's very important to read, especially at to to understand how they think. Excuse the typo here, by the way. But anyways, uh Malone John Malone got deposed some years ago, and I think it was uh Barry Diller or one of the lawyers that took advantage of having Malone on stand to be able to depose him and has asked him all sorts of questions about the way he thinks and strategy.

Important to read that stuff. Salesforce had a leaked PowerPoint document for their board about potential acquisitions around 2018-2019. It's worth reading these. You know, these are very powerful. Biographies. Now, biographies are important because they combine a person, the person's evolution, historical context, and if the writer is very good about insights about what made the person successful or unsuccessful. In this case, Andrew Roberts took new material from the Napoleon Foundation, which were all the letters that Napoleon had written in his lifetime, and he used that as a context to be able to judge what was really happening in historical events, whereas everybody before was basically using what their opinions were, uh uh, and specifically cultural opinions from Napoleon's enemies, uh uh, specifically the UK.

And I think Andrew did a really good job debunking a lot of Napoleonic myths in this case. Something else to read. So, it ends up that I never recommend people read behavioral finance books to be able to get a behavioral advantage. And the reason why is uh, behavioral finance is really good at individual behavior and managing a a small group of people, but markets are about group behavior. And if you really want to take advantage about group behavior, you have to read things that have to do with groups.

So, ecology, chaos theory, complexity. So, complexity is the Santa Fe Institute, of which a bunch of my mentors are either on the boards of, uh, or involved with. Uh, and then systems thinking. And all the books on there kind of deal with hey, how do you make sense of group behavior? Because group behavior is very counterintuitive. And reading these books will will more or less, you know, give you the the background judgment to be able to do so.

Now, you have to study philosophy. All right. If you ask somebody, what is your edge in investing? Most people actually don't know how to categorize it, but there's really three edges in investing. There's analytical, you analyze better than somebody else. There's informational, you get better information than somebody else. And there's what we are good at, which is the behavioral side. So, and and the behavioral is the emotional, psychological, incentive, institutional behavior aspects of investing.

But there's a fourth one. Actually, there's actually nine of them, but I'll disclose a fourth. And what it is is a philosophical advantage. And those three guys, uh, my mentor Bill Miller, uh, George Soros and Peter Thiel. Peter, for example, is a friend of mine calls him the world's richest applied philosopher. And all three of these guys derived their advantage, if you study them, from not only their intellect, but from having studied philosophy philosophy.

In the case of George, it was Karl Popper, Gregory Bateson, uh, in the case of Bill Miller, it's William James and others. In the case of Peter Thiel, it's Girard. And all of them use philosophy to be able to see different perspectives and to alleviate blind spots, to give you the tools to question your own thinking and deepen your self-awareness, to see why certain cultures, whether businesses or countries, see things in a certain way, and also to be able to see give you variant perception.

All right? And more and more, I believe that you have to read and study philosophy. Now, the school of philosophy that I've chosen to read is the one that's in this book, Treatise on Efficacy, the book all the way on the right. It's a comparative philosophy that analyzes the way the the the West thinks, mostly China, and the way the Sorry, the way the West thinks, mostly European and American traditions, and the way the East thinks, mostly China.

And it's a genius book. And in my opinion, the best book on strategy I've ever read. Don't disregard fiction, okay? Uh, uh, intellectual wingspan is important. Reading history, biographies, blah blah blah, but as humans, we learn from stories, especially if the story is emotional. And truth in many ways is stranger than fiction, okay? Uh, and a lot of young people ignore fiction, and that's a mistake. A a great fiction book allows you to to put yourself sometimes in the mind of a character.

Uh, and it's emotional, you retain the lessons. These are some of my favorites. There are others. If you just went through and said, hey, who are the top 100 fiction books in the world? Go do that. Uh, and and and pick those, but Ender's Game, Noble House, and Conquerors Born are just some of my favorite fiction books. And those are just meant as suggestions. Already covered this. You know, make sure that you read books on warfare and sports, books on creativity.

Uh, very important to to read. Uh, uh, creativity in business is one of my favorite, uh, after the the famed Stanford, uh, uh, business school class. Uh, uh, Rick Rubin's book. Uh, I recently found out that Neil Strauss is the ghostwriter for that book, and now I understand I think I I think Neil is a very, very capable writer. Graphic novels. A lot of lessons in graphic novels. That's some of my favorites. The Largo Winch series, still ongoing, originally in French.

Uh, it's actually a great story. It's about an adopted child that's chosen to lead a business. And he goes into all these adventures. His best friend's a thief. Uh, uh, uh, he gets into all sorts of business entities and romantic relationships. Fantastic uh, graphic novel, very emotional. A lot of lessons there will stay with you. Uh, the graphic novel of The Goal, excellent. All right. In my opinion, the top filter aggregator in finance is this individual.

It's Michael Mauboussin. Um, I cold-called him 24 years ago. He made the mistake of mentioning to me that he was teaching a class at Columbia. I've been crashing that class ever since. It's literally been a game-changer for me. And if it wasn't for Michael, I would not be where I am today. Uh, prob- In my opinion, the best mentor in investing. He's written a bunch of books. Must-read, Expectations Investing. Michael's edge is that he combines both complexity, finance theory, specifically competitive strategy, and also psychology all in one mix.

And an incredible, uh, uh, teacher. Uh, and I could not be could not be more, uh, grateful, uh, for for him being a mentor to me. Study cheaters and cheating. Okay? Now, I didn't say this because I want you to be a cheater or cheating, okay? But in a highly transparent society, the cheaters have gotten really, really sophisticated. So, you have to know when it's actually happening to make sure that the doesn't happen to you, okay?

Study con artists. The economics of kidnapping. The economics of piracy. It's fascinating. You know, the the way countries and companies are cheating today is is gotten really, really creative. For example, somebody should do a bit of a study on how certain countries are bypassing US tariffs right now, okay? So, it's important to as you're you're studying that you also study this stuff, you know, mostly, you know, to to to to prevent this stuff from happening to you.

Learning advertising, marketing, sales, and distribution. Uh, most analysts today don't read enough about it. They assume that sales and distribution is like some little thing that happens, and they only need to focus on modeling. When if you talk to a a surreal CEO, this is the stuff that really matters to him. Right? Uh, processes that minimize, uh, your biases. The Art of the Long View, an amazing book. Uh, these two books on the right, Psychology of Intelligence Analysis and Structured Analytical Techniques, are the books that are that are that the CIA uses to train analysts.

By the way, as a study and a learning project, as an analyst, it's very worthwhile to study the different intelligence services all over the world, and then study their techniques, their processes, and their past operations. Uh, uh, it's important to do that because you start understanding how different cultures use different techniques and what they're willing to be able to to to do. And it's it's a it's a it's like a mini, uh, uh, microcosm of of investing, and it it it's they're they're very powerful, uh, uh, mental models to have.

Uh, books for dealing with power dynamics inside of investment firms. Investment firms are highly political environments, okay? And power dynamics are massive within them. And these are a few books that actually explain what they are and how to manage them. All right. Let's go through now some processes, you know, because the the the procedures people are probably going nuts right now because, you know, the people have four learning styles, right?

You have the why people, if you give them the why, they go find everything else. You have the what people, you just give them the what, they know what to do with it. And then you have the how people, like they need the procedures. Let me go through a few procedures, okay? But first, you got to remember, all this reading stuff, it's important only if it impacts your behavior. Learning is behavioral change, okay? If your behavior hasn't changed, you haven't learned.

Learning isn't cramming stuff in your brain and reading just so one day you might sound smart on a date or on an investment meeting, okay? Can you use this information to actually go and accomplish your goals? Um you need this mindset of data hierarchy. So, data hierarchy says that you have data, information, knowledge, understanding, and wisdom. So, 1 oz of data is information, 1 oz of information is knowledge, 1 oz of knowledge is understanding, 1 oz of understanding is wisdom.

Now, the only thing that gets you from data to knowledge are your goals. That's it. If your goal is to be a doctor, the data, information, knowledge you need is very different to be a goal to be an investor. But now, here's what's important. The only thing that gets you from knowledge to understanding is experience. Knowledge, you've taken this procedure, you've tried it, it doesn't work, it worked. Okay, now you actually understand why it might work, why it might not work.

And the only thing that takes you from understanding to wisdom is what I call meta experience. You've taken that understanding, you've tried to teach it to somebody else, you've tried it to get your team to do it and you're like, "Wow, why are they fighting me on this?" You know, and now you have a little bit more experience as to what to do. But what matters is experience. Now, let me describe to you a few procedures.

So, the mailroom strategy. One of the reasons these two guys are so successful, this is Barry Diller and David Geffen, is that when they were first starting out, they were starting out in the mailroom of Hollywood agencies, where you had to send memos, not emails, to everybody. And what these guys would do is stay up and read all the internal communications between the agents, the customers, and their managers. And the amount of learning that they would do was accelerated.

And imagine all the negotiations they would learn. So, when they were promoted to being agent, they knew everybody's strengths, everybody's weaknesses, they knew who who how to negotiate. It was a very, very powerful reading strategy, and you have to figure out ways to replicate this. Another procedure in an age of distractions, I don't like wearing noise-canceling machines, but I like wearing earplugs. You need to focus.

You sit down, you put your earplugs on, you turn off your phone, you read. Uh uh this helps quiet down my monkey mind. Okay, because I'm very uh uh I have a four It's not ADD, but I'm very easily distracted, and putting these on, I can zone out and just focus on. These are very powerful, they cost cents, but they limit distractions, which can cost you millions. A daily ritual. I put a tweet about this about feeding your competitive advantage.

Every day for 90 minutes, I read three hedge fund letters, one 10K, one IDM memo, and I prepare them the night before. Now, this feeds my competitive advantage. Whatever your competitive advantage, design a daily ritual that you do this for 90 minutes. All right, people that have great recalls recall, what they do is when they read and they have a piece of information, they run the piece of information through their mental models, their principles, the goals they want to accomplish, what turns them on, and then the people in their lives that they deeply admire.

If you're trying to improve your recall, always think about this stuff through these five things: mental models, principles, the goals, outcomes, and intentions, the emotions, what turns you on, your heroes, your mentors, your peers that you deeply admire. Uh uh uh that's how if if you Charlie Munger, for example, used to always talk about how he would hang a piece of information he had just learned on his mental model in his mind, right?

That was the hook. Okay, Mohnish. Uh I like this quote from Mohnish where he says, "Look, reading about different disciplines only adds to your investment process. It's something I've probably done later in my career than I should have." Um and that's another procedure. Make sure you read about different disciplines. Okay. Now, my favorite reading technique is inspectional reading. And what inspectional reading is, it's a way to read the 20% of a book that really matters in less than an hour.

Uh and then afterwards, you can decide if you're going to get something powerful out of the book and go through it and decide if you're going to read it. But the thing that inspectional reading does is that it creates a structure in your mind of what is going on with the book, and at the same time, it improves your recall, uh and you know where to look for stuff later on if you have to use the book as a reference. So, I'll use this book.

It's actually an incredible book if you haven't read it, by the way, The Dow Jones Averages. Um so, what inspectional reading is is this. So, you pick up the book, and you read the first table of contents. Okay, you go through it, and with a pen, you check the part that interests you. Then you go to the back of the book, and you read uh the index. And again, you note where in the index the things that interest you are.

Then you go back to the front of the book, and you read the introduction. Then you go to the back of the book, you read the last chapter or the conclusion. Then you go to a each chapter, you read the first page and the last page, and then you go through and look for the graphs or the summaries of each chapter, or in this case, he has these amazing cartoons in there that are hilarious that that that prove a lot of his points.

And by doing that in less than an hour, you've gotten a lot of out of the book. And then as you're reading it, you have to do less highlighting and less note-taking to be able to recall it. If you're looking for a better explanation in this book by Mortimer Adler, How to Read a Book, I I believe it's chapter four. Um uh and you should probably create a ritual where you do this at least once a day. Okay, I have to speed up because we need to leave time for questions.

All right, abstraction. Discuss this book before. In this case, spin-offs and index funds, there are other So, what abstraction is, by the way, let me give you context, is being able to read something, take the principles and lessons out of it, and almost at a meta level, and then be able to apply them in your actions. In this case, the lesson is index funds, because of their institutional imperatives, once they get a spin-off, they have to puke the stock, and that's what creates a bargain.

But guess what? Every single major market participant, because of their cultural or institutional imperative reasons, also either bids up stocks where they become shorts, or puke stocks where they become longs. And that's one of the main lessons of this book, and basically what you have to take is abstract the principles from it, study another market participant to be able to actually see if that's happening or not. All right, another procedure for the attention-deprived people.

If you're having a hard time focusing as you're reading Kindle, there's a feature now that allows you to play the audible, and it highlights the word as it's said. That way, you're able to both read and listen at the same time. My buddy Dan McMurtrie from Y Combinator recommended this to me. If I'm having a hard time focusing uh because of monkey mind, that's uh one of the the the procedures that I use. Another procedure, the learning project.

So, I happen to to do a learning project every year. Uh I've done one on restaurants, I've done one on the NFL, I've done one on submarine commanders, I've done one on movie directors and procedures, I've done one on Israel, I've done one on intelligence services. Every year we do this, me and two people, we get all the books on a subject, we read them, watch all the relevant videos, we have questions, and we literally start calling people.

Right? To ask them the question. In this case, for the NFL as a learning project, it's a gift that keeps on giving because not only do I keep meeting amazing people, one of my investors came from that. It's It's just an incredible uh thing to have learned. Um and specifically to have studied certain certain organizations such as the Patriots, for example, and the Kraft family. Uh I think Robert Kraft is one of the most amazing businessmen uh uh I've ever studied.

All right, the Bezos mem- memo reading ritual. Amazon, you write a memo, and then as a group, you read it, and then discuss it. This is one of the most powerful rituals you can institute in your business, in your life. Do it with your friends. But whatever you do, keep the memo short enough that people are actually going to spend 20 minutes reading it and then discussing it, because if you actually don't have them in a room to read it, they're going to do what everybody does, which is pretend they've read it, and then have really amazing opinions about it.

Okay? Uh uh if you're looking for a detailed way on how to create this reading ritual, uh Working Backwards details it. By the way, and less than there's a uh a sneaky leadership trick to the Bezos Bezos uh memo uh ritual. When you're in the room discussing the memo, the leader can notice who has a strong opinion, but weeks later, he can also notice who had an opinion that changed his mind and came up with an even more insightful interpretation of the memo.

So, this is actually a way of figuring out the way your people think, and specifically to find the really good people you have and how they change their minds, right? There's a lot lot to this this memo ritual. It's I think it's very uh popular Kindle highlights. So, it so happens that this book is given in a bunch of classes, and the guys that have highlighted it go into the Kindle, read the popular highlights. It actually it gives you a lot of power uh uh of what that book is.

If you don't have time to read the whole thing, this case I recommend you read the whole thing, by the way. How we doing on time? Okay, good. 10 more minutes and then I'm going to take questions. Books on visualization or artic- articulation. Uh The Einstein Factor, very much worth reading this book. Uh uh on how to generate insights. Again, this this this this book describes to you a process on journaling and then giving you a space of a break to be able to give it give you the insights.

Worthwhile reading. Reading snacks. So, one of the things that I do, uh if I don't have time to read during the week, one thing that I'll do is I'll read one or two pages a day from each of these books. Uh Daily Stoic, where he has one page per day, and they're very insightful, can add a lot of value. The Art of Worldly Wisdom, or my favorite Indian philosopher {slash} self-help {slash} extremely wise individual, Krishnamurti, uh the Book of Life.

And they're they're it's worthwhile reading all these books. Uh reading books that have been made into movies or vice versa to train your visual system. You know, for example, watching The Godfather and then reading the books, or watching the Star Wars movies and then reading the science fiction books, very powerful. All right. Before you read, what are your goals? What's the purity of your intent? If you know your goal before you read, your recall speeds up.

Especially if you if you also do inspectional reading. During reading, okay? You should train your recall. Put on earplugs, set a timer, hour 90 minutes. Should you be in a reading room? One of the best leaders I know, he has one room, no distraction, just a desk, stuff for him to read. That's it. When he's in there, no one's allowed to to contact him unless there's a massive emergency. Right? It's very important not to take notes or highlight as you read, especially the first time.

A, the time adds up, and B, all you're really doing is training your behavioral finance and endowment effect and loss aversion. But what you should do at the end of a chapter is you write down your notes in two to three lines and go through the checks and the stars that you've put. If you don't want to highlight, just put a check or a star next to it. Uh uh you know, one, two, or three checks, depending on the importance, one, two, or three stars, depending what you think is really insightful.

And then after that, after you read, okay? Teach what you've read to someone, preferably a group. By teaching it, you've learned it in two ways, at your level and then the meta group level. Put into action what you've read, and very important, always always get in touch with the writer after you have written a book. It's a cold call. If you need a procedure uh to do it, I recommend the Professor Rao technique. Professor Rao was a teacher at Columbia University.

He teaches you a technique of saying writing a cold email or letter that has three parts. The first part, this is what I admire about you, and you show that you've read the person's work. The second part, this is what I can do for you, and the third part, this is what you can do for me, and then make always the third part smaller than the second part. All right? And then ask him thoughtful questions. You know, and by the way, all writers uh I'm related to a writer, my grandfather was a writer, are basically attention They wrote the book to get attention, okay?

So, trust me, they're not going to get uh pissed that you got in touch with them. Um anyways, that's it. We can open it up to questions. Um if you have uh uh more questions, make sure to go through them, okay? Uh I'll start by some of the questions that I was given by uh uh Colin Kang, who is a Caltech student. Um and he says, "You know, for someone starting out in the investment industry from a non-traditional path, and he studied applied mathematics, what are some specific stocks you recommend they study and analyze to get some reps with respect to idea generation, stock pick pitching, um and and so on?" Well, first, anybody with a strong analytical background or quantitative background, the first thing I would recommend doing is actually uh other things than exercising that edge.

So, public speaking, very very important that the highly quantitative people learn that skill. So, joining Toastmasters International, reading Dale Carnegie books about public speaking, practicing it. This is a very important skill for the highly quantitative nerdy type, okay? The second thing is these guys always need to loosen up their minds. So, it's important that they do something emotional. Uh I recommend dancing class, uh something where it's so outside of their personality, it's going to draw them out.

And then the other thing is definitely read the philosophical and the qualitative. So, reading books like the Dow Jones Averages, uh Zen and the Art of Motorcycle Maintenance, Creativity in Business, very important. Now, having said that, the books the the ideas that you have to study are ideas that other people uh that are the baseline. So, have you studied and read Amazon all their shareholder letters and since inception?

Have you looked at uh Constellation Software, where Mark Leonard has written some of the best shareholder letters that you'll ever read. I recommend the one where he's critiquing Wall Street analysts' uh perception uh on his stock. Uh it's a master class. Definitely start with with businesses that have done well, so you kind of have that mental model of success in your mind, right? All right. Second question. He says, "For that same individual, what would you recommend a stable state readings to be well-equipped initial tool set before honing it at a prop trading firm as a fundamental analyst?" One Up On Wall Street, Expectations Investing, uh uh Lowenstein book book on Buffett, Snowball on Buffett, uh uh a all of Charlie Munger's speeches and writings, the Almanac of of Charlie, basically.

Uh these are all must-reads that you have. Intelligent Investor, specifically uh the chapter on margin of safety, and uh uh Mrs. Market, uh Security Analysis. These are all table stakes for you to read. There are others, you know, definitely recommend some of Michael Mauboussin's work um on General Judgment, Success Equation, uh More Than You Know, uh and so on, but these are worthwhile. Then he says, "What publications have you recommend your junior analyst subscribe to as they begin their journey into public equities?" Read Fortune, okay?

Read BusinessWeek. Read uh the Bloomberg. I actually think Bloomberg and BusinessWeek are the same thing right now. Read Forbes, magazines uh Entrepreneur magazine, ENC. For example, if you're studying a country like India or France, read the local magazines. Uh very important. If Forbes publishes wealthiest person in France list, go read that. Very very important. And again, in your reading, especially for the highly quantitative types, make sure you're reading as much about people.

Because that tends to be the blind spot of the educate of the of the uh uh uh uh quantitative types. All right. Fourth question, you wrote a portfolio management ritual for PMs. How would you map this daily workflow to students looking to enter the buy side? First thing, go read every investment memo you can get your hands on that are on Value Investors Club. Start by the the the highest ranked memo uh and figure out the guys that are the money makers on there.

Read their memos. Very important to read. If you're part of an endowment or an institution that has invested in a lot of hedge funds and you haven't read all the hedge fund letters, you don't even deserve to be in this business. Okay? Reading hedge fund letters is a must. One of the most powerful things that you can do in the investment business. You should be a connoisseur of investment letters. And by the way, there's a lot of public ones that are really good.

For example, Baron Capital writes these uh excellent uh letters on all their growth stories. Very important to read those. But anyways, those are some of the questions that Colin And Colin, thank you, okay? For for for asking those if you're if you're on. Now, let's go through some of the other questions. All right, my uh my friend Paulo Pasquini, he says, "My question is, how to connect dots efficiently on the go while reading?

Also, sharing key knowledge with people reinforces what you learn." Basically, doing what I'm doing now. So, so um you know, connecting the dots efficiently, if you're on a plane, whip out your Kindle. You don't have to read for a long time. 20 25 minutes. Uh uh In terms of efficiency, also, we tend to be bombarded with information and we don't really know how to store the information. I would definitely set up a Google Drive that if you get something on WhatsApp and if you get or something on Twitter, you can set up a a uh uh uh an algo to basically push a button that saves it into Google Drive and then that Google Drive, you can always go into it and read that thing.

We have I have a to read Google Drive and it's very very powerful to actually go through that. Uh uh I try to go through three of these things per day. I'm an information junkie, so I I tend to hoard a lot of information. Part of what I do though in that folder, unless the thing really is going to help me make money, hire better, or or or serve my partners better, I tend to just delete it. Uh uh and then just keep that delete folder if I can go through it uh after that.

All right, other question. Any Chad Showney, any non-intuitive note-taking tools or strategy you use? Do you use software or paper-based methods? I use both. Um one thing I recommend you doing, by the way, is to keep a daily agenda. By structure, I use these Japanese notebooks, for example. And in terms of intuitive, what I do is if I need to remember something a month from now, I write myself a message from a month from now, so I fall on it when it comes, right?

The other thing uh uh that I do note-taking wise is I take notes on note cards, right? And when I go through them, I'm not overwhelmed by going through everything in a notebook like, for example, this one. Okay, where just the idea of having to review everything, I can review these note cards one by one if I really need to save something. It can literally go there and if I don't need it, I just tear it up. Um and in terms of electronic, my KMS, my knowledge management system, is Roam, Trello, and Apple Notes.

And uh I have I used to have I have a bunch of stuff on Evernote. I haven't brought it over yet. I still go in there and I have a bunch of stuff on there. But those are the three of them. I've I've been messing around with Perplexity. It's very powerful. Uh I definitely recommend you use it if you're older. I don't recommend the young guys use the AI tools yet, okay? They're they're too underdeveloped mentally to be able to use that.

Actually, do you guys know how a Navy SEAL is trained? It's actually important to understand. You know, a Navy SEAL, when they're first trained, they're basically dropped into a jungle with only a mouth uh with only a knife in their mouths and they're like, "See you in 2 weeks." You know, and they have to survive and for 2 weeks without just literally having their wits and a knife, right? When they've survived that, then they're given the toys, the heads-up display in their masks that can see around corners, all the the the amazing weapons and communication tools.

As analysts and PMs, we have to be trained uh analog first and be able to survive doing that and after that, use all the the really cool tools. Okay. Uh okay, discovery process from Chad. And again, always people. People are the best uh sources of books in in my mind. All the filter aggregators that I mentioned, if uh or things I'm interested in. So, for example, some of the best books I've read are on leadership in the NFL.

I read leadership in basketball. I read leadership in soccer uh and so on. All right, any examples of investing insider idea that you gained from reading fiction or philosophy? Uh uh good question. Um so, I'll go to this. Zen and the Art of Motorcycle Maintenance. And by the way, Zach, thanks for for the question. It teaches you about the concept of quality. Okay? And intuitively, when I was first starting out, I gravitated towards high-quality businesses.

When my valued buddies would pitch me something that was a value stock, it's a piece of business, I would take a look at it and be like, you know, I'm not turned on by this. And it really wasn't until I understood this book and specifically also his second book, by the way, uh which my friend Josh Waitzkin always recommends you read, which is Lila, uh which is about dynamic quality, that I really started understanding about the importance about the qualitative aspects of investing.

Um there are others. So, for example, in The Art of War, um if you actually take instead of taking, let's say, seven powers fr- Hamilton Helmer's book on competitive strategy or Michael Porter's book and you take The Art of War by Sun Tzu and apply that to a CEO and actually say, "Hey, based on Art of War principles," which by the way, Art of War is basically a philosophical book, um uh uh China in the uh 2,000 years ago, they considered warfare to be uh a subdivision of philosophy.

Um uh and basically, if you take Art of War principles and look at a CEO and say, "Hey, what should the CEO do based on these principles?" You can get to a lot of insights of what a company is actually going to do. Uh user user says, "Do you think about reading a few books multiple times versus reading a bunch of books?" That's a great great question. Um I do both. The best books, I reread them all the time. They're like old friends and I learn something new every single time.

Part of what happens is you read something, you haven't had the experience yet to put it into context and it kind of goes over your head. A year later, you got your ass handed to you uh on something, whether in personally or business-wise or other, and you read the book and immediately the lesson was like, "Yep, I needed to go through that experience to actually get that." There are books that are dashed for me. Uh Age of the Unthinkable by Joshua Cooperemo, uh Noble House by James Clavell, Ender's Game by Orson Scott Card, uh uh Napoleon by Andrew Roberts.

These are books I've read over and over. Uh Atlas Shrugged, uh it's a book my best friend used to call it my mating call because whenever I met a girl, I would always take Atlas Shrugged and give it to her uh and uh get her opinion on it. Uh these are all important books to read. All right, best Sebastian Corral, best hedge fund letters. Uh I can't share them. I maybe no longer get them or not. But Larry Robbins at Glen View, reading those things are like sex for me.

Uh uh especially the older ones. Okay, Larry went through an amazing evolution where whenever he would go through success, he would write these amazing letters, but even more importantly, when he was going through a hard time, he would write incredible letters. These are incredible hedge fund letters to read. Uh there are others. Um but uh those are those are Okay. Uh Jake Serembatov, how do you recommend long only new analysts should be trained?

Should they be focused on financials and modeling before understanding big picture and approach of the firm? So, look, there's currently a fetish against the short side. Okay? Mostly because of the current bull market and market structure that we're going to. At some point, though, we are going to go through the a hell of a downturn, okay? And the guys that don't have short selling skills are going to be very, very disadvantaged.

Because we tend to think, oh well, you know, you have to suffer through a drawdown, and then we always point to Munger and and Warren then the '70s experience and Munger's case close to 70% drawdown, and I think Warren was down like 65%. But those are the guys that we know that survived. There's a lot of guys that went through that and did not survive, and we don't hear about those guys. Part of what I would recommend a long only guy to do is learn how to be a short seller.

It makes you a better long only guy, okay? The the second thing is understand competitive strategy. And specifically, the insight you're looking for is not that a business has a moat. Is is the business I'm looking at, can the moat expand? Right? When you start understanding how a moat can expand, or if a CEO is good enough that he can actually do things that expand the moat, right? So, for example, Formula 1, they expanded their moat when they did a content strategy on Netflix called Drive to Survive.

It's one of the most incredible things I've ever seen, how a 10 to 15 million dollar investment per season can create billions of dollars of market cap for Formula 1. That's um a a content strategy can expand your moat. Right? The third thing I would understand for long only guys sales and distribution. Okay? Most long only analysts, uh they don't really understand sales and distribution. Are you able to look at a strategy?

By the way, let's step back a second. So, there's a few questions I like to ask if I'm looking at uh I'm actually going to write about this on Twitter during the weekend. If you're looking at a business, you should ask unusual questions. One of them is, can I front run this business? Meaning, can I put myself in between the customer and the business and literally get customers for the business and eventually even get a commission from them?

If you find that you can do that, you can develop insights on how a business can grow their sales and distribution. You know, there's a business we love, for example, where they want to build a sort storage, and we actually thought about, hey, what if we went out and built those storages for them in the right locations and sold it to them over time. My business partner, for example, uh he had a strategy of building these shops in Mexico that literally looked exactly like this uh business in the US, and he built a bunch of them, and then was able to sell those to the company in the US.

When they showed up, they were like, this is literally how we do things, and they had no choice but to acquire them. Right? So, asking these sorts of unusual questions, I think are are very valuable. All right, other questions. Um let me see. Okay. Let's see. You recommend long only. Okay. So, Ashutosh, can you please also bring up the exact dynamics of how do you do strategic reading on a new stock you're initiating on?

How do you figure out key drivers of the business? Okay. First, you should always research according to your personality. Okay? I'm an extrovert. So, doing the introverted stuff first is not what turns me on. Okay? So, me, for example, if I get an idea, if I'm pitched a stock, one of the first things that I do is set up the extroverted work first. I set up a call with IR for the management. I go try the product. I speak to Wall Street analysts that cover the stock.

I haven't read anything about the idea yet. But I want to be able to get their opinions. I'm not going to anchor to the opinion. I don't need to to to to say it's a bull or it's it's it's it's a it's a long or short based on what somebody else tells me. I want to be able to have all these different opinions swirling in my head. Now, for example, if you were to ask this, I I was at a lunch at a breakfast for Todd Combs, where he says, don't do the extroverted work first.

Read everything. But that's according to his personality. My personality, I'm an extrovert, so I do the extroverted work first. Okay? Then I go to read the stuff. The first thing that I do is I pop open a 10K. Okay? Read the CEO letter. Read the business uh and management discussion of the idea. Read the the risk section. It's very important to read the risk sections because this is where management goes to cover their ass.

It's written by a lawyer. It's very important to read it over time, see how it changes. Often, the risks of the business are literally there. Right? The second thing is read all the presentations of the previous 3 years. You need visuals. Okay? It's very important, especially for me, because I I'm I'm I'm a very visual person. The third thing that you should do is there's so much really good stuff on YouTube now. Put the business on YouTube, try to watch videos of the CEO speaking, of the product demos, of customers using the product.

These are very, very powerful things to read. Okay? Now, the key drivers of the business usually have to do with return on invested capital, okay? Margins and growth. Right? The the So, focus on those things. And then, once you've done that reading, start running it through some of your processes. So, we have very unusual processes, mostly because I was never trained as an analyst, so I do stuff like timeline analysis.

I use Michael Mauboussin's price implied expectations. Um I do these pros and cons list, but we have our own ways of doing them. Uh I recommend for you, for example, modeling. You know, the I recommend um uh thinking about how the cost of capital of the business can change over time. One of the things that analysts uh have a hard time understanding is as a business grows, uh and they're projecting over time, the cost of capital that they use on the business is static.

It's often too elevated, whereas 4 years from now, if it's hit your targets, whoever is underwriting that business at that point, the business actually, let's say, has gone less risky, and intuitively is going to use less of a a lower cost of capital. So, I would definitely recommend understanding how the cost of capital of the business can change over time and have actually have that in your scenarios. Right? So, so other uh drivers of the business, if you're going to read about a company, study their top three competitors.

Study their top three suppliers. Understand how uh market shares uh are changing in the industry. Understand the tailwinds. You know, what is happening in the industry or within the industry cycle that could be either a tailwind for the business. Very, very powerful stuff to actually uh understand. All right. Let's see if there's any other questions. Okay. So, Jalal uh Jalaj, sorry. Uh could you talk about knowledge project?

So, I'm assuming a a learning project. So, look, why do we do learning projects? One, I'm a learning machine. Learning actually turns me on. Okay? So, uh one of the unusual signs we look for when we're studying something, if I'm not learning, we're not going to make any money. Okay? So, so so if I don't get that feeling like like, you know, this is not interesting, just pass. I'm just not turned on by it. It's also the same when I meet somebody.

Usually the people I spend a lot of time with, I'm like, I'm learning from this guy. Like, it's it's like, "Wow, you know?" Um so, the reason why we do learning projects or knowledge projects is some of the biggest things in business, we actually don't have a vocabulary or procedures for it. Right? So, for example, timing in the investment business. How can something be so important, but we don't really have timing methodologies in the investment business?

You know? But guess what? And in intelligence and the military, they have a lot of timing procedures that are really useful to apply to investing. So, the reason why you study different fields is to literally plagiarize the best principles, tools, and processes that they have to try to apply it to investing. Because there's only so many books that you can read about buying a dollar for 50 cents. Okay? It's just not useful anymore.

I mean, I love Buffett. I'm a Buffett freak. Uh I love Munger. I've read so many of these guys. The the I I've met them personally. It's it's they're amazing. But beyond a certain point, value investing, you got to you got to read other things to be able to improve your investing. Um uh that's definitely one of the reasons why we do these these learning projects. The current one I'm working on right now is probably the best one yet.

Um I'm not talking about it yet because I'm trying to to to deepen my knowledge before I open up uh on it, but it's it's incredible what you can read. All right, can you talk more about controlling the monkey mind and the ability to focus for an extended period of time? Okay. So, uh Ganishk uh I struggle with this daily. Okay? You need to figure out your power zone time. For me, it's the morning. In the morning, I can focus.

I can literally wake up at 5:30. I wake up, I drink a couple glasses of water, I put the earplugs on, okay? And I go and create a piece of content or read or go through my my daily workflow. Okay? But you need to to get rid of distractions. I turn this off. I close myself off in a room. I clear my desks the night before. Don't depend on your willpower to be able to focus. Okay? The second thing is um I don't recommend meditation.

Uh meditation happens to be powerful for me, but it's very dangerous to recommend to other people because uh there have been negative outcomes for people that that try meditation. But sometimes, if you're not able to shut off your mind, couple things are happening. Uh one, you may have chemical imbalances. So, in your body, if you haven't worked out for a while, if you've been eating like, for example, the way I was eating last weekend, your brain kind of feels slow, you have a hard time, you need to kind of drink coffee.

These are all things that jack up your anxiety. You know, some people that when they quit coffee, they notice that their heart rate variability actually improves, right? Caffeine has an impact on you. So, if I were you, for example, when I wake up, I would go through a physical activity that helps you focus and gives you energy to focus later on. Right? And then the third thing is uh if you're having a hard time, there are tools uh uh such as uh binaural beats.

Uh uh you can just go on YouTube, look binaural beats, and these are things that you listen to to help you focus. A lot of my friends like to listen to one song over and over. It helps them focus. Uh me, for example, it's really weird, but if I'm in a on a cafe surrounded by people and I have earplugs on, I can focus. If I have a I'm in an airplane, an enclosed situ- uh uh environment, I can focus. Uh uh but again, uh I think I'm going to struggle with this uh my entire life.

It it's not easy, but depend more on external environment rather than depend on your willpower. Um uh Jalaj asked again, another great question, by the way. How important is forecasting for you while you model understand a company since I find a little futile to predict the future. Uh so do I, pal. Um we have a saying in my firm. It's better to observe than to predict. Human chimpanzees are really bad at prediction. In fact, they're terrible at it.

Okay? Part of it is evolutionary. The other part is the environment is just way too complex. Uh the environment today is prone to emergence. Emergence can't be predicted. Novel happens all the time. So, it's much better to invest based on observations than it is to invest based on predictions. So, for example, has the management team of a business that you're looking at, have they done something that expands their moat?

You know? So, for example, um uh uh going back to Formula 1 with Drive to Survive, that piece of content, it's literally expanding their moat. They added another race in the last year. Part of their moat is the inability to replicate these these racetracks. So, adding a moat actually expands it. You know? So, so it can you observe things happening that are basically not reflected yet in the stock price. Uh and and you're But but by the way, let's step back a second.

Um two things. Timing, for example, isn't something that you predict, it's something you need to observe. So, what are the things that you need to observe that give you timing, that give you the why now moment? Uh these are this very interesting thing to think about. Uh by the way, generally on reading, you want to read things and abstract the principles from it. I wrote a memo on principles. It's actually in my Twitter, you can find it.

Uh uh and some of the most powerful principles that I've learned from other people. But the the the we don't put much faith in prediction. Very few people uh that I know are good at predicting stuff. And usually, if they're predicting, it's after they've observed that they're able to predict. But beyond a certain time frame, it's just too hard. The environment changes too fast now. Industry structures are changing. Geopolitics is changing.

Everything is changing. So, you have to be very very careful. Uh Jake, uh we do have a dedicated process researching uh shorts. Uh but we have also uh uh uh uh if we get pitched a long uh or we take a look at it uh and we we we don't think it's a long, we force ourselves to look at it on the short side. Too many times, uh we've been pitched stuff and we're like, "This is not a long at all." And then uh we've missed on what is a great short opportunity.

Uh on the short side also, we focus a lot on certain dynamics. So, for example, customer concentration shorts. Right? Any company that has a too high a a concentration of a certain customer, we analyze the reasons why that customer may walk away. We set up indicators, things that can remind us or if something happens that that we're alerted. And if we think that customer may walk away, we might short it. Um uh generally, the four things that we look for, fundamental momentum, tailwinds, behavioral archetypes, and a timeline, they happen both on the long side and the short side.

Uh uh the the deterioration of a company's fundamentals can happen very fast. We look for that on the short side. Instead of tailwinds, we look for headwinds. Instead of behavioral archetypes that show it's a long, we look for behavioral archetypes to show it's a short, and we look for uh uh the why now. Why are people going to puke the out of this for the short side? Right? All right. Nero, great question. Can you speak more around the institutional mandate?

Has that gotten stronger or weaker? It's getting stronger every day. Um if you haven't researched or understood what Buffett says about the institutional imperative, it's a must. Because today the game isn't to take advantage of individuals in capital markets. It's to take advantage of institutions. And when you understand that institutions behave in uneconomic ways and a timeline at specific moments of a calendar of the year, you can make a lot of money from that.

If you you they tend to be more short-term trades, but in my firm, we're not long-term, we're not short-term, we're both. We're not micro, we're not meso, we're not macro, we're all three. Uh uh they can they can have amazing short For example, I'll give you guys an example. The current fashion for hedge funds is to use baskets. Okay? And now the baskets are creating all sorts of trading imbalances. And if you understand when a stock is going that whose fundamentals are intact or the fundamentals picking up, but it's being traded in a basket and it's being sold off, you can have a great short-term opportunity and even better yet a great averaging down opportunity.

This was happening to Uber in the last year. Uber was a part of a bunch of these baskets, the baskets were trading it. A lot of long only were like, "What's going on with the stock?" They were not understanding. It was just a basket situation. So the baskets are becoming more and more prevalent. Now short seller disclosure in Europe, for example, is changing. More and more of these guys are using swaps. Why are they using swaps?

Right? Can you isolate the names that show up in street hands and say, "Okay, this is actually a great short and this feels like so and so would short it." You know, so so the institutional mandate has never been stronger, but it's also important to remember that the business has changed. The investment business we used to be pirates. Legal pirates, but our ethos was piracy. Where we, you know, hit, run, hide kind of situations.

You know, but after night uh 2001, the business became more and more institutionalized where now instead of become We were pirates, we've now become the British Navy. Right? More hierarchical, more institutional, more bureaucratic. And it's actually uh uh very dangerous to be too institutionalized because we've forgotten that we were not designed to be institutions. Yes, institutional institutionalization of the hedge fund business has changed a lot of the ethos and power of the hedge fund business.

So you have to take that into account. All right. You also did a presentation on field research. How can you combine the two sides, reading or field research? Uh it's, you know, field research. I prefer to do field research and then read. A lot of my friends prefer to read and study and then do field research. Um uh it depending on your personality, I would go with that. Uh Jake asked, "How often do you make an analysis of past portfolio action?

What has worked and and and what hasn't?" Uh Jake, we study our mistakes uh to the point of self-flagellation with a whip, Opus Dei style. Uh it's very painful, but it's very important to study your mistakes. Um gently, okay? It's important to do it with somebody else, with a coach, a mentor, somebody that can put your mistake in perspective. Um the other thing that you should be doing is also studying your portfolio management structure.

So for example, we run a Jones model structure. Right? So generally 120 long, 70 short, 190 gross, 50 net. Okay? That fits my personality. We also run on the side different portfolio structures. What would our names look like if we ran it market neutral, factor neutral, beta neutral? What would happen if we ran net short? What if we happened with we ran instead of fit running 50, if we ran 400 gross, uh 350 50, 250 150?

Right? It's important to look back and look at how different portfolio structures are are affecting uh your performance. Uh uh that tends to work. The other thing is um are you adding value position sizing? So you should be running a equal weighted position sizing of your book and versus your actual weighting. Have you added value doing that? Even a an analog analysis of that can be very very valuable. Right? Are you adding value with your trading acumen?

You know, you've traded in and out of this name. Can you actually add value at it? Very very few people add value trading. Right? So these are all things that you can do. Uh and by the way, there are books, some of the recent books on portfolio management, they're okay. I think there's a lot of flaws to them. Um but you it's it's worthwhile reading these things. Uh okay, another question. You make mention of being wary of hero worship.

Can you be wary of failure worship where you over analyze them? 100%. Uh Peter Thiel says that failure tends to be over determined, so don't do it. Um I happen to know how to analyze failure and I do it with other people. Uh not after my confidence is destroyed, they know how to build it back up because that's one of the problems of analyzing failure, it can wreck your confidence. Uh I'm also pretty good at prospective failure.

So for example, uh failure points analysis before launching my second hedge fund, which is something I wish I'd done for my first hedge fund, I actually went out and met with 40 different people and asked them, "Hey, I'm about to start a hedge fund. How can I fail?" And then wrote down all the reasons by category, risk management, portfolio management, hiring, marketing, leadership, process. And what that did for me is the individual conversations were very valuable, but after you do it 40 times, you start noticing trends.

And we found totally new failure points that other people just haven't thought about. Right? So yes, failure worship can be a mess, but you need to do both. You know, and you can't You have to be comfortable doing both and having that that uh uh what Keats called the negative capability, where you have two points of views in your mind, you're able to observe both of them. Um All right. Alpha generation is a function of differentiated view.

What does per you works best to generate different differentiated point of view? Uh look, it's it's rare to have a truly differentiated point of view, but if I were to tell you, this is the way to do it. This is how you do it, okay? You need to develop qualitative insights. Okay? So read this quote by Buffett. It should be on on the screen. He says, "Interestingly enough, although I consider myself to be primarily in the quantitative school, the really sensation sensational ideas I have had over the years have been heavily weighted towards the qualitative side, where I have had where I have had a high probability insight, this is what causes the cash register to really sing." What's qualitative?

Culture. The moat of a business. Management quality. Product quality. Competitive reaction. Supplier dynamics. Industry cycles. The things that are difficult to quantify. That's usually where you get an insight. A friend of mine uh Ben Gordon, who's one of the best PMs I've ever met, wrote a letter talking about how he develops insights. It reading it was literally like sex for me. Uh very very powerful. Um Uh having equal weighted benchmark.

Uh Jake, I didn't get that idea. There's a business I used to be involved in called Novus. They're the ones that came up with that idea. It is a very powerful idea. Uh uh you need to figure out as quickly as possible if you're adding value position sizing, very important. Okay, invert always invert near ask. How can you your second fund fail in an understanding how not to do them? Uh, that's a good one. Uh, believe me, I understand very well how my first hedge fund failed.

And by the way, we didn't fail on returns, thank God. Um, uh, but we failed because our cost structure was too high. We built it before they came. Uh, we launched a hedge fund in '06, right before the crisis, and even though we were up when we shut down the fund, uh, I was I For example, one of the failure points, I didn't know how to handle stress. I literally trained myself afterwards to be able to handle stress stress.

So, believe me, I'm very very familiar with how funds fail. Um, and and thankfully, uh, the second time around, we don't have any of these issues. Okay. So, we're coming up to an hour and 40 minutes. Um, if anybody else has any questions, uh, where I'm probably going to share this presentation if you guys want it. It'll be on a DocSend. You'll have to enter your email. If you have any feedback, put it on Twitter. The video will be on Twitter, uh, uh, and YouTube, uh, as well, once we edit it.

Um, and I'll be doing more and more of these, by the way. As for I need a creative outlet. Uh, and also, uh, the content that we design is designed to add value, hopefully. Uh, uh, the reaction that we always want from people is, "I can't believe I just watched that for free." Some of the best content that I see on Twitter, I was like, "I would have paid thousands to be able to see that." You know, so so we're also trying to get our subscriber numbers above 1,000, by the way.

So, don't hesitate to subscribe. Uh, but we'll share this this video over the weekend. Thanks so much for asking the questions. You guys ask great questions, as well. And thanks so much for uh, for listening in. Uh, until the next time, probably in a couple weeks, I'll hit up uh, another topic. Thank you, guys.