Toby Stuart - Anointed

29:15We want to understand what our biases are or our systems that we've used in the past. And how do we get to better answers quicker? That's what the system is always trying to adapt to. So I was trying to think of like your worker B equation. And we were talking about this beforehand. But I live here in Phoenix, Arizona. this is a very meritocratic type of society where no one's from here and therefore you show up here and what's good to society and what do you provide and things like that so kind of worker b-esque but i was thinking about worker b equation against the idea of nouveau rich are there a lot of similarities or is there not a lot of similarities was what i was asking myself yeah so let me give you two super separate kinds of responses to that, that question.

29:59So one is, um, let me, let me, let me push, push, push us off on worker bee for just a minute and, and go to like, what I think is like a really, a really critical point that, that probably everybody will resonate with, which is that, you know, you're from, you're from Phoenix. I split my time between Manhattan and the San Francisco Bay Area and a couple of other places, you know, your listeners are from all over the place. And, um, and each of these places has like, and there's variation, there's always variation, but each of these places has like an ethos or a value system. Um, and it prioritizes certain things.

30:45So, you know, I was a long time in Boston. So I think, you know, I've been, I've been at the Boston universities. I've been at two of the Boston universities off and on throughout my career. And when I'm there, like, Boston's a pretty intellectual town. It's a sports town and an intellectual town. Phoenix I spent less time in, but sounds like it's a lot oriented around wealth. Like, who's sort of the most affluent? New York has a lot of different status hierarchy. I mean, it's giant and vast. So there's definitely the kind of the Wall Street side of Manhattan, but New York is, there's the cultural elite in New York.

31:29So, you know, many of the most high status Manhattanites are someplace in the cultural elite. They're critics or artists or musicians or you name it. But the point is that there's a status system everywhere. It's just oriented around different characteristics. The Bay Area is so tech. It's so like, I mean, my world in the Bay Area is so much, oh, are you a founder? What company did you found? Is it a prominent company? Who was your investor? Was it one of the six big ones? And that just like, you're immediately high status if you're the founder of a Y Combinator. of a company that went to Y Combinator and got a Sequoia check.

32:12Like you're just like in the Bay Area elite for having that kind of street cred. But in Phoenix, you're like, you know, what the hell is any of that? Like you have no idea what any of that is. Yeah, what does that mean? It doesn't mean like you don't orient around it. So status hierarchies are everywhere. They're truly ubiquitous. But what people value is different by the group. And it even, you know, it's even, so status is given out by a group of people. and groups can even value things that most of us that are illegal or unethical. So you could imagine like there's a street gang, inner city street gang in Chicago, and it doles out status for violence.

32:55Like the most high, the, you know, the, the, the most high status member of the gang is sort of the gnarliest, most violent gang member, because that is what the, what the group values, right? And so you have in all throughout life, these different status orderings that we orient around and all of us walk into in our daily lives, different groups in different places where what's valued in those groups might be different than the one we just left. And that's one of the really interesting things about it. Yeah. So, so back, I was gonna say back to worker B, you know, you kind of build in what you think the components are to that.

33:32Yeah. So that's about where does status come from? And the answer to that question is sort of three primary places. Like how does someone acquire a status? The worker bee angle is that's sort of, I think, intuitively what most of us think or many of us think or believe. and definitely what most of us if you asked us in the abstract where would you like status to come from the answer would be what the book calls worker b um activity and and that's merit like you have you have high status because you're either really really good at something or you put in a ton of effort that's valued by the group and so you're making a big contribution and you're rewarded for that with the deference or respect from the members of the group.

34:28And then that gives you influence and opportunity. So that's the status dynamic. Like, you know, I'm in a group, like it's the group really values, you know, I'm in the chess club and I can see 12 moves into the future and everybody else can see six moves into the future. You know, I have like, you know, I crush it. And because of that, I have high status in that group, right? which is really different than how you get high status if you're on the football team or whatever else. But you're adding to a group. The second place you get status, and this is what we were talking about before, is you're born with it or without it.

35:06And in the social sciences and sociology in particular, we make this distinction between what we call achieved status and ascribed status. So achieved status is worker bee. It's like you earned it because you're really, really good at something. Ascribe status is like, you were born with a bunch of characteristics, right? You're tall, you're short, you're blonde and blue eyed or dark and brown eyed. You're, you're, you know, white, yellow, brown, black, you're, you know, you're American, you're, you're Japanese, you're Ghanis, you're, you know, you're what you're male, you're female. You are a member, you were born into the upper class of whatever society you're in.

35:47You were born to the lower class of whatever society you're in. And you basically don't, and we call them ascribed characteristics because you don't choose any of those and it's a total lottery. Like you are assigned them when you're born. Like they just, they're given to you by whatever birth conditions you come from. But all of these are status characteristics. So people at birth are basically pre-sorted into a status hierarchy. And, you know, and maybe the simplest way to think about that is like for nearly all of human history, we have all lived in some sort of super hierarchical caste system or caste like system.

36:25And then, you know, you're just born into a caste or a class and there is no mobility. Like it's not even open for discussion. Like, you know, you don't go ask like the kid of the, you know, the son of the surf, what he wants to be when he grows up. Right. Like, I mean, he's just going out into the fields like his father did because he was born into that life. And then the third part, which is the really interesting part, to me is the anointment part, which is that the third place you get status is people who have it give it to you. Yeah, and that's your point. I think of like the starving artist who has really wealthy patrons and therefore that's what gives them status is they're great artists among friends that value them highly.

37:11um you you talk about the competence confusion i love this because i you know where where i think a lot about this idea is where um and i think i galbraith actually wrote a lot about this john kenneth galbraith um he talked about the idea that when you you know you you create a certain amount of wealth there is an intelligence ascribed to you and that intelligence that people ascribe can be ascribed by the person themselves. And is it that in effect the competence confusion because you have something that you perceive, you believe you purposely earned it when you may not have? Yeah, so I use competence confusion slightly differently, but this is also a crucial point.

37:59And so let me go to the first and then the second. So the way I use competence confusion is, is that gets into stereotypes. So we have all of these associations. So if you're male, you're female, you're black, you're Hispanic, you're Italian. I mean, I'm, I'm, I'm staying at, I'm, I'm right this week at an Italian friend's house. So let's pick on the Italians. Like, you know, I have this, I have this kind of Italian stereotype, which is there are lots of gestures, right? The, the, the Italians gesture all the times. I was thinking of this, like, you know, I know for a run video, but I'm like moving my hands all around.

38:41Like I would see, imagine an Italian person does. Well, it turns out that like, so that's a form of a stereotype, but it's a pretty harmless one. Canadians are nice. Yeah. You know, like every Canadian's nice, but yeah, I mean, look, I mean, I, I, I, I've, I've only met nice Canadians and I even used to live there for a couple of years. But so those are like stereotypes, right? Where we associate a category with a characteristic. But we also do that for status-based characteristics. So, and then this is what comes back to like women in the workplace, where if you take an idea in the workplace and the idea comes out of the mouth of a white male employee, it's probably more likely that that idea will be taken seriously than if it comes out of the mouth of a female employee, even if it's the same idea, same rank, same situation.

39:39And there's tons of evidence that that's true. And then I think of that as a form of competence confusion, which is that we think gender implies something about competence, but it really doesn't. It's just the stereotype we have. And again, like it all happens sort of quietly and silently. I mean, most people who, who, you know, who feel this way, like it's, it's nearly implicit. I mean, and in fact, there's whole literature on, on biases like this that are implicit, but it has implications for the status order, um, and strong implications in worlds in which status accumulates so that if you get a little bit, you start, you start to get further, further and further ahead.

40:22So, yeah, that was a long-winded answer. So I'm going to go back to you.

40:50Past performance is not indicative of future results. Investing involves risks, including loss of principle. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges and expenses. Read and consider it carefully before investing. Smead funds distributed by Smead Funds Distributors, LLC, not affiliated. So I want to jump forward to this is a really interesting story because it points to your it gets to the idea of the structure of things in a way. can you can you briefly tell the story of Matthew Cooper front-running the anointers oh the best this is the best um it's awesome I love this yeah I mean it's this is like such a I mean this is this is one of the in my opinion one of the greatest entrepreneurial acts I've ever known so I agree this is this is like a former Harvard Business School professor of like multiple students who have started multi-billion dollar companies in the past but none of them compare to Matthew Cooper and wine.

41:51So Coop's story is he is, so he's first off a super personable guy and he does an undergraduate degree in Tulsa, Oklahoma and becomes interested in wine and then he goes to get a PhD in, of all fields, toxicology at the University of Kentucky. and when he's there something happens I won't go into that but he gets really interested in wine and so he starts and this is the late 90s and what's happening in California is like these boutique wineries in Silicon Valley are getting big like they're getting these like cult followings so Coop goes out to Silicon Valley and meets a bunch of wineries and he hears a rumor and the rumor is that Robert Parker is going to go the following year to Australia to raid Australian wines for the first time.

42:51And this is shaping up to be a great year. All the weather conditions are right. Everybody's expecting a really high quality crop of wines from Australia, but Robert Parker's never done this before. So part of the story is we have to talk about Robert Parker. There's a big part of the book where I talk about the anointers. These are the prestigious actors that have credibility, legitimacy, respect in our society. And what they do is they transfer their prestige to other people. And we can come back and talk about that. But Robert Parker becomes, by a mile, the most important critic in the wine business.

43:35And what that means is every month, he publishes this, um, this, this, um, this magazine called the wine advocate and the wine advocates got a bunch of wine ratings in it. And if you do well on the wine advocate, then you crush it in the market, right? So if he gives you a 97, then all of a sudden you gotta, you know, your, your bottle of wine's not, it goes from 20 bucks to 200 bucks or something like that. So, so interestingly, there was this whole group of people who would try to get the wine advocate just before publication, right? Because if you could just get it like, you know, hours before publication, then you go out and you buy all the highly rated wine and then you can sell it at a huge markup, right?

44:19So everybody - You arbed the market. You arbed the market. So it's like front running, like it's a guaranteed return. So everybody was trying to front run, like not everybody, but a bunch of people trying to front run the market by getting these ratings ahead of time and then trading on them. But Coop takes us like seven levels ahead. So what Coop does is he's like, okay, well, this guy's going to go to Australia and he's going to rate wine. So what I'm going to do is figure out ahead of time what wines he's going to rate highly, which is to say Coop goes back to Kentucky, pulls out some old issues of the wine advocate.

44:56He acquires a bunch of bottles of wine and then he starts tasting them. And he's already by now a very good taster. So, and what he's basically doing is learning Robert Pallet's Parker palate. So he can then taste a bottle of wine and he'll say like 93, 97, 89, 99, 88, 97, 100. So he is basically learning what Robert Parker likes. He then goes to Australia, front runs Robert Parker, goes around the country, goes to all these like boutique vineyards no one's ever heard of, tastes the wine, figures out what he thinks Parker's going to like, and then buys it up. In fact, he buys so much wine that he has to rent a box shipping container on a cargo ship to move it all back to California.

45:41So he buys wine, he moves it back to California. He rents a two-bedroom apartment in the Bay Area to stash all the wine in it. He waits a couple months until the wine advocate issue of writing Australia comes out and then he's got the wine all queued up at auction and he does something like a seven or eight X on his investment. Um, and it just like, it's this incredible story. So, but what that is, is it's the Rembrandt story, um, in real life. It's like, there's a bottle of wine. It's worth one thing the day before or the minute before the wine advocate comes out and rates it high and it's worth something totally different the minute after it gets a good review so if you can forecast that you can arbit yeah when and so again like i'm i'm thinking about this you know to your point earlier like i'm always trying to learn a little about a lot and as i'm thinking about some of these things obviously there's a lot of markets related information that you're talking about that on its face like that's a great story but it's a markets related story.

46:46He was able to arb the market in a way. You mentioned this for a piece of your book and you kind of dabble in it in other parts, but talk about some of these dynamics in the stock market. For example, as you note, the stock market's kind of like the social arena. What do we find on average? People are not very good at predicting the future. They're just not. And yet at the same time, to use a publication from one of your former schools, Buffett many years ago now wrote in the Columbia Business School, one of the publications there, he wrote about the super investors of Graham and Doddsville. And he talks about what have you found all these monkeys that are flipping coins and it just so happens that they flip it, you know, however many times in a row, heads, and then you find out they're all, you know, eating and drinking at the same place in Omaha, right?

47:33You kind of think, well, there might be something to that. So even in a market dynamic where at large humans are not good at it, and they're not going to call it ad alpha, as they say, yet there's still an anointed group, even in a big market like that. Yeah. So let me, let me take this in a couple of directions. Love the question. I mean, so, so first let's go back to Robert Parker for a second, cause you're, you're, you're totally right. Like it's a market thing, but it's also just to underscore the meta point of the book. it's a valuation thing right and sure and agree and i want to take take listeners back to this idea that you literally have the same product but its value shifts radically in in you know just in the snap of a finger when one person says this is good like and that's anointment it's like a bottle of wine is worth way less until Robert Parker blesses it.

48:36And that's why he was considered the kingmaker of the business. So the stock market, if only I understood this better or could forecast it better, but what's a fun market right now when you're thinking about status dynamics is crypto. So we now see this multi-trillion dollar, right so so the crypto market is a multi-trillion dollar market now think about a meme coin for example like yeah why i mean we could surely have and we we could probably do 27 um um episodes on why dogecoin is worth something but um but dogecoin is worth a lot like i mean i don't know what today's market capital cap of dogecoin is but it's in the billion the many billions and it's a meme coin, right?

49:26It has no value. We don't even pretend that it has value. It's this weird collectible. And the history of Dogecoin is like, you know, it's Elon Musk and it's Snoop Dogg and it's Michael Dell and whoever got involved in the Dogecoin thing. But these are all like high status, this highly visible people who bless something and then it acquires a ton of value. Um, and it's even better because they hold a bunch of it when they bless it. Um, and so they're creating value for themselves by, by blessing it, you know, in the market, you know, it's always been my belief that fundamentals don't explain very much and, um, or they don't explain, I mean, they explain some fraction of the market, but certainly not nearly all of it.

50:18And, you know, I live in the tech world, which is a world of fads and fashions and could-bes, would-bes and ifs, and the movement of equity values in that world, particularly in the private markets, right? And so I think you think probably a lot about the stock markets. I live much more in the private markets because, Because I work in the world of venture capital back to entrepreneurship. And there, boy, I'll tell you, valuation is so much of an anointment dynamic versus a fundamentals dynamic. Well, to your point, I mean, in that world, who you take a check from really matters. No one's going to go back and be like, well, who bought your stock today?

51:03Right? I mean, that's just that. It's a public market thing versus a private market. If you get money from Sequoia, it's pretty much guaranteed you're going to a billion-dollar valuation over time. Yeah, unless and less and less the person who bought your stock today was Warren Buffett. Oh, great. And I thought a lot about Buffett as we were talking about some of these dynamics. Also, because once you go to an anointing status, it's like, oh, that's where Buffett eats his cheeseburger. That's where he goes to his steakhouse. That's the plane company that Buffett flies. It becomes this like, you know, like you talked about Kobe.

51:38Did Kobe deserve to go to all those All-Star games? No, but it's Kobe Bryant. He's anointed and therefore he goes to the All-Star game. Correct. Yeah. And that one was in there because sports, you know, so sports are another area where, so sports is a fun area to think about this whole status process because like in sports, if you just think about it, like, you know, if we're talking about wine or art, we can all agree like these are confusing products like they're super like idiosyncratic taste-based you know one person looks at a painting and says amazing and another person looks at a painting a painting and ah you know i hate it like you know one person wants like all the bright colors and the other is like the minimalist like me and you know and and is happy to see a red line across a white canvas you know so like our tastes are super different and there's no like and we can't even pretend there's some yardstick for quality right there is no yardstick where we can say okay well like i'm gonna take look at that painting and here's the here's the eight things that make an amazing painting and i'll go through the checklist and rank this painting on each of these eight things like we can't do that we and we don't even pretend we can do that and the same goes for wine but like sports let's take sports so sports this shouldn't matter at all right because like i mean like if you're if you're a runner like suppose you're a you're you're a sprinter like what matters is one thing which is how many seconds does it take you to finish the race and is that fewer you know is that one hundreds of seconds fewer than the next fastest person in the race like well the only thing that matters is how fast you are or if you're you know or you know did you win the match or not or you know did you make the basket or not right i mean so and those for those things like i mean right you think about running like it's super simple because it's just objective right it is like it is who got to the finish line fastest end of story that's the only that's like the only criterion that matters nothing complicated like that we have a yardstick the yardstick's a clock easy simple okay so um so i'm sitting here in New York, I'm a tennis fan.

53:57The US Open's coming up. Okay. And so let me give you kind of a scenario. Like let's say we have 20 tennis players and we're going to do a thought experiment. The 20 tennis players are exactly equal. There's no difference. They're exactly equal. And we put them into a competition. And the thing about a tennis match is somebody has to win. Like, we enforce that, right? I mean, like, even if they're playing all night, like somebody's got to go two games ahead and the two points ahead in the fifth set and they win. So somebody's got to win. But the thing is, if we played them out like a hundred times, it'd go 50-50 across all of them.

54:41But the first time somebody wins. Okay. And then let's suppose once somebody wins, we rank everyone. Okay. Now the winner is the winner and the second place is the second place and, you know, whatever. So now we've ranked people. They're all the same. We created a ranking. If we repeated this experiment 20 times over, we would have 20 different rankings, right? Because they're all equal when they start. Okay. But once we rank them, somebody's ahead. Okay. So who's going to get the best coach? who's going to get the best fitness trainer? Who's going to get the best nutritionist? Who's going to get to stay in the suite at the nice hotel next to the tournament?

55:23Who's going to have the shortest walk to the courts? Who's going to play at the most favorable times? Who's going to get seated so they play weaker, right? And so what happens is you're the same at the outset. But even in sports, once we rank people, these treatment effects come into play where the person who's a little bit ahead in the hierarchy gets a whole bunch of special treatment, which gives them an advantage at sport. So even in the most objective areas where there's like a clear yardstick of who's good or who isn't. So none of the confusion of the art world or the wine world or the scientific world or the tech world, it's just straightforward, but we still see these status hierarchies emerge with real consequences on how on life outcomes, earnings, performance, fame celebrity all the things sure when you use your story of the two goldfish i think it was your daughter yeah to explain the cumulative advantage it's funny you when you mentioned cumulative advantage the only other person i've really heard talk a lot about this is actually charlie munger he explained you end up building up a cumulative advantage and he was talking like over the course of his life as an investor as a thinker as a polymath etc but i i think a lot about cumulative advantage.

56:38To your point, if someone said, Cole, why do you host a podcast and interview two authors every month? Because I want to attain a cumulative advantage and it gives me an incentive structure to go out and be reading constantly, which gives me, to your point, a cumulative advantage over time. It's a very self-seeking thing in some ways. Yeah. Yeah. And let me, can I tell the goldfish story? Is that okay? Please. Oh, this is great. It's a great story. So please. Yeah. It's such a good, it's such a simple but great illustration of a cumulative advantage process. So the story is, like I was living in Chicago, it was freezing cold, gray, crappy day, like most of them in Chicago.

57:16It kind of comes with the place. And so we decided to get my daughter a couple of goldfish. And so we go off and we go to like some pet store in a mall where you buy goldfish. and we like have this conversation and we bring home two fish because like i mean i was going to get one because you know my view of goldfish is it's like just a short little window of time before they get flushed down the toilet so who wants to do that you know but she wanted two and then we decided to get equal ones okay because she wanted like you know she just you know she wanted like i don't know she decided so so we look for like the two most similar fish so they They're like, you know, give or take the same size.

58:01They look kind of the same. And so we bring them home and we dump them into a goldfish bowl. And it turned out, and we didn't notice this at the shop, that one of the two had this tiny little imperfection at the side of its mouth. Like it had been hurt or something. And the food that we had to feed the goldfish were these pellets. And when one of the goldfish would eat its pellet, it would just eat the pellet. But when the second one tried to eat it, like every other pellet would pop out of its mouth because this little injury that it had. And then what would happen is the second goldfish would rush in and eat it before the first one got back to it.

58:41So within like three days, we named one of the fish Hoover, like the vacuum cleaner, because it was like sucking up all of the pellets. And we called the other one little guy. And what happens is, and it's a perfect illustration of cumulative advantage process, because what happens is when Hoover just eats like five pellets that belong to little guy or 10 pellets, it gets a little bit bigger. And when it gets a little bit bigger, when we drop food into the tank, it has an advantage against the little guy in the competition for sustenance. and like a month in hoover's this giant fish and the little one can't thrive so i'm now literally spending 10 minutes a day to feed the fish because every time hoover pops up to eat a pellet i have to put my finger in the tank and smack it down so that the little fish actually can get some food because otherwise the the big one was going to eat everything in in the tank so what does that teach us that teaches us that in certain aspects of life it is enormously valuable to have what we call a relative advantage.

59:48And when cumulative advantage processes happen, what often is at stake is that one of two actors has a tiny little advantage over the other one, but that tiny advantage just compounds and compounds and compounds and compounds. And so the bigger that Hoover gets relative to little guy, the larger the advantage that it has in the competition for food. and it turns out status works that way in many different places where if you just get a little bit ahead you go off to the races with it because people think you're better they give you the benefit of the doubt they evaluate everything you do more favorably and then you start to get more resources so you actually become better and that's like the tennis story where you actually become a better player because you get a better coach and a better nutritionist and you get more sleep and you're better rested and you're, you know, everything around you is smarter and more scientific.

1:00:48So you actually become a better player over time. You didn't start that way. You started equally, but you got a status advantage and then a compounded, compounded, compounded. Well, to your point, a relative advantage with time being maybe the biggest factor creates large cumulative advantages over time. Yeah. I mean, like think about a musician, right i mean like somebody gets a lucky break or an or an actor i mean hollywood's perfect for this right i mean like you know there's like a hundred starting actors interviewing for every part one of them gets a lucky break like you know they were on it that day or more likely they just looked right for the part or you know there is something about you know whatever director or whoever chooses a cast is like oh i'm excited about that about that person for any random reason um you know what they were wearing, what they looked, how they, you know, they're the, the energy they had that day, you know, who knows, but you know, once you get that part, if it's in, if it's in a film that becomes successful, you're totally off to the races.

1:01:52Like it completely changes the trajectory of your career, which is the essence of a cumulative advantage process. Like you're similar to when you begin, everybody's like, uh, you know, most of the actors are pretty good. Um, but the one who gets the break. Hey, I want to give a big shout out to everyone who's been working so hard on this show. You know, we recently hit the top 10 in investing podcasts on Apple Podcasts and even number one in the business category in several countries. As you may know, this show is brought to you by Smead Capital Management. Smead Capital Management understands how frustrating and illogical the stock market can be.

1:02:29If you're searching for funds with a proven track record, give the Smead funds a look or better yet, reach out at SmeadCap.com. And don't forget to mention your fan of the podcast. Past performance is not indicative of future results. Investing involves risks, including loss of principle. Please refer to the prospectus for important information about the investment company, including objectives, risks, charges, and expenses. Read and consider it carefully before investing. Smead funds distributed by Smead Funds Distributors LLC, not affiliated. You talk about people's reaction to anointing and you kind of explain that there's four types of reactions to anointing.

1:03:10You talk, and this is very personal for you. You talked a lot about your own feelings and you felt anointed earlier in your career and how that made you feel and react. And I'd love for you to talk a little bit about that. Yeah. So, and let me say like, I had no intention of it actually working out this way. But I mean, I ended up studying status because I found this paper in graduate school that just, I was introduced to a paper in graduate school. It's actually called the Matthew effect in science. It just completely changed how I saw the world. And, um, and it was a random thing and it was, you know, the, the fellow who became my dissertation advisor, who really was my mentor and, um, was one of the leading thinkers in this area.

1:03:56a guy called Joel Podolny. But anyways, so I start studying status. And then when I finished graduate school, I got this job that I thought was like just a super lucky thing. I thought like the circumstances all kind of lined up and a bunch of things happened. And I lucked out and I got this assistant professorship at the University of Chicago. And I see it, you know, University of Chicago is one of these places, like it's a little less, it's probably a little bit less well-known than some of the other universities I've been at. But I, I have always seen it as like the purest place to do academic research, particularly in the social science.

1:04:40Like, you know, as you said, there's the Chicago school and it's like the hallowed halls of the old quad at the university of Chicago. So many in my mind, brilliant people have been through that place. and it just when you're there it has this kind of edge to it that's like you know intellectual honesty and hard work and austerity and um and i was like i felt so fortunate to get that job um and then but then what you realize is like okay now i have that job and i'm nobody like i'm an assistant professor no one's ever really heard of me but like and if you're an academic so you build a reputation by getting papers published.

1:05:18And the thing is when you send a paper in to be reviewed, you send it in on your letterhead, your old stationery. And so I'm sending this, I'm nobody, but I'm sending my papers off to these journals with this letterhead from the University of Chicago. So I am the beneficiary of the big shift. No one knows that the work is any good. Nobody really knows who I am at the time. Everybody in my world knows what the University of Chicago is and that they're really smart people there, right? So I get the benefit of being a University of Chicago professor. I never felt like I earned that, but I felt like that put me, that was my version of Hoover and little guy.

1:06:03Like it gave me an advantage against people who were in my cohort and it was a compounding advantage. And so I was, you know, the way my career went is I was, you know, given tenure and full professor and chair professor when I was, when I was actually quite young. And so the consequence of that is everywhere you go, like when you're carrying this, you know, big, long title at this very prestigious university, um you know but you don't have to shave yet um everywhere you go people are like oh you must be you know super you know you must be brilliant like it's going to be amazing and so it creates this super high expectations on you but if you understand the matthew effect which like of all people i understood the matthew effect because it was what i was doing my work on you feel like well, yeah, but I didn't earn any of this.

1:06:59Like, I'm not as good as you think I am. I just was the beneficiary of this sort of anointment dynamic. And so for me, the reaction to having high status, particularly when I was younger, was like some version of the imposter syndrome, where I felt like the expectation was that I was going to stick the landing every single time and just nail it and wow everybody but that that was never going to happen and so i was constantly getting invitations to do things um that i felt were like unearned and then i was nervous about doing them because i felt like i was going to under deliver so so that's one response to um um to having you know to having achieved some some status i would argue it's probably the least healthy but the most rational response.

1:07:51Like that's how most high status people should feel about the world. But I don't think it's like the most emotionally healthy way to deal with a problem. Well, it's kind of, it's a healthy sense of paranoia in some respect is how I took it to be too, where you're like, do I really deserve this? I need to prove this. You know what I mean? There's like a self-fulfilling aspect of that. And then it raises exactly that point, which is, you know, in the book, I call it the hamster wheel, but like now you have to prove yourself, Right. And so now you feel this internal pressure to really deliver. And that means you have to work hard and you have to, you know, for most people, it means you really have to prepare everything.

1:08:31Like, I mean, I've been an unscripted person my whole life, but if I were a scripted person, then I would spend tons of time working on the script. but for me I worked hours and hours and hours because you know I just needed to prove that I deserved um this position that I had and that you know that's very stressful well there's a reason why we have gray hair uh lots of it yeah so so that imposter is the first and you talk about the hamster effect off that what are the other three uh reactions yeah so you know the second reaction which you know is probably the most common reaction but like the best version you know the best there's there's this quote i have loved it always i mean it's often attributed to barry switzer the football coach but i'm not exactly positive that that's you know that that's the provenance of it but but the but um the quote is um in reference to someone um he says he was born on third base and thinks he hit a triple.

1:09:35I love it. And so it's perfect for this, right? Because it's like, you know, if you're that person, you believe that you're anointed because you are just that good. Like, it's just, you know, it's your incredible ability. And that person sleeps a lot better at night than I did, right? Because you feel like you deserve what you got. And that's a way more comfortable mental state to be in. I think it's an empirically poor representation of the fact pattern, which is that anyone who's got high status has benefited from the cumulative advantage process, essentially. So it's not exactly accurate, but it's probably a healthy way to think.

1:10:21And then the two others, one of them I called in God we trust, And that is, so if you have religious beliefs, particularly if you come out of the Protestant Pentecostal traditions, that belief system features preordained ordination. You are preordained to be somebody, and it's sort of a belief in divine differences among us. Which is like a Calvinist view out of those doctrines. Out of those doctrines. And there's the modern version of that's the prosperity gospel, right? Which is actually a pretty widely held belief system in parts of the United States. And that is like - It's a very aggressive.

1:11:15By the way, I think of, to your point, and I was really glad you brought this up because there's some, I mean, like, and I just, full disclosure, and our listeners know this, but I am your classic right-wing evangelical type. And as I'm reading this, I think this is so unhealthy. It is so damning, in my opinion, that people have this view. Yeah, interesting. Super interesting. I mean, now at this point, we should turn it around and I should interview you, but. Well, by the way, I'll give you a movie. I don't know if you ever saw the movie, but Kingdom of Heaven was a movie that came out in the 2000s.

1:11:48And it's a story of the Crusades. and this kind of fictional story of the Crusades. And what I think of this divine intervention is like someone would say, oh, and we're gonna conquer and do this. And then like the court jester yells, God wills it. And they're like, God wills it. It's like, everyone goes on. It's like, well, does he? Or did the guy just say it over there? Yeah. Well, and so it's funny. And I remember like sitting in front of, this was like a pre-AI book because I wrote it pre-AI. I remember sitting in front of spending a lot of time with Mr. Google looking at like looking, you know, looking sort of searching through finding examples of this.

1:12:27And then I found John D. Rockefeller who like, you know, Rockefeller. Very much believed in this. Yeah, exactly. So Rockefeller, the founder of Standard Oil, which goes on to be like many, many things in the next on mobile is, you know, probably in, you know, present day terms, the wealthiest ever American in terms of the proportion of the outstanding wealth in the nation that he controlled in his prime. And, you know, for him, it was just like he was preordained, right? He was destined to be the richest person. It was God's decision, not anyone else's or his. And so what happened is what meant to happen.

1:13:10So that is a view and a very non-trivial fraction of the country holds that view. And then the fourth approach to it, which a psychologist would probably tell you is the healthiest approach, is to accept the fact that if you have high status, you do, but to take a very humility -based approach to it. And that is to say, always recognize that other people helped you, recognize that status itself comes from other people. Like status is deference. And for anyone to have status, they require somebody else to defer. So it is a form of a social relationship. So you have a following. You should be grateful for the following.

1:13:57You should be appreciative of the following. You should realize it's not all you. And, you know, that's probably the most psychologically healthy approach to responding to having high status. But the point of that section of the book is that, like, you know, it's often, you know, I do this all the time. Like, you know, in my life, the grass is so often greener over there, wherever there is. And, you know, and so if you're kind of looking up the status hierarchy, it's like, you know, the grass is green up there. But actually, when you look into those lives, like, people aren't necessarily happier.

1:14:35Like, net-net, you're better off with status than without it. But it's a little more complicated than it's just like, it's all amazing. I agree. And by the way, as I was going through these four categories, so I'm going to throw out a different picture of the last one. So my view of it, what I think for me, or what I think is the most healthy view, is I look at it as all a gift. And by the way, the definition of love, I would tell people, is giving something to someone that doesn't deserve it. And to your point, status isn't deserved in so many cases. and so i look at it from a humility perspective i look at this as all a gift and i would say from god i don't deserve it i feel blessed that i have it though to your point yeah yeah i mean i love that and and i don't even think i love that and i i don't even think that you know so for me like you know as as as as i mean and so i'll tell you i'm the opposite i'm i'm i'm the liberal atheist But for me, I could just take God out of that equation and see it as a gift and be very, very— Correct, which it is.

1:15:41I agree with you. It is a gift. It's truly a gift. And people over-assume their talents relative to what are just gifts. Exactly. And in that case, gratitude is very much a part of—humility and gratitude are very much a part of how one might respond to this gift. I love that. um let's see uh i i just i want to kind of be quick on this one but i i i love this um you know you talk about we're born compares and a lot of your your book goes through that you talk about pawns um i've always had this like big mental debate in my mind because you know who you associate with you mentioned is a big deal so um i am the kind of person i'll just i'll kind of you know use i'll be more introspective myself i'm the kind of person who i want to be in a pond where I'm not that big of a deal.

1:16:32Not because I'm not arrogant or something like that. People will tell you I'm probably arrogant and I'm self-confident, things like that. But I like being a pawn where I can learn a lot from other people, if that makes sense. And that's why you get back to the dynamic of the podcast. I like being in a pawn that's a lot bigger than me, okay? Yeah, right. I know other people who like, they wanna be the big fish in the small pond. Have you thought a lot about those dynamics? Because it really tells you something about the person in a lot of cases. I mean, it tells you about the person and it tells you about, yeah, I mean, thought a ton about it.

1:17:04So, I mean, it's, so, so we are born comparers. And the thing about comparisons are, is that we have a lot of discretion about who's in the reference group. Sure. We pick. And we pick, you know, like, and we pick in so many ways. And oftentimes we do it without like carefully thinking about it or thinking about it at all. But then it has like really, really, really significant consequences. Right. And so, and so, and that's the metaphor. Do you want to be the big fish in the small pond or do you want to be the small fish in the big pond? And those are very different roles. and they're very different places in the pecking order.

1:17:48And, you know, the kind of, you know, I was actually thinking about this earlier today, but there are these set of studies, which I, you know, I didn't mention in the book, but I've always thought they were great. I mean, part because I'll tell you why in a second. But so there are these studies, like let's suppose that you're born in a place when the school year starts on September 2nd. And that place has a bunch of kids who were born on September 1st, and it has a bunch of kids who were born on September 3rd. Okay, so if you're born on September 1st, you're in the, on September 3rd, you're in the new school year if you're born on September, you know, the other way.

1:18:36If you're born in September, so if you're two days younger, you're in next year's school, and you're otherwise in this. And so we have this, like, there are two people. They're born two days apart, but one of them ends up being the oldest person in their class, and the other ends up being the youngest person. And so that's this interesting setup, because it's super random. Like, no one controls when they were born. It's when you're born. It's the Ovarian lottery, as Buffett said. Yeah, exactly. And most parents just conform to the letter of the, I'm sure you could exempt, but most parents conform to the letter of the rule there.

1:19:19And so they send their kid to whatever. And so you end up with kids who are the youngest in the class or the oldest in the class for random reasons. But that, in a way, is like putting you into different ponds, right? Because it turns out if you're the oldest in the class, you're intellectually, emotionally, and physically more mature than the rest of your classmates. You get your car before everybody else does. You get your car before everybody else. I mean, but you also get like, you also hit a home run before anyone else does. Yeah. You make a basket before anyone else does. And you figure out how to calculate the slope of the line before anyone else does.

1:19:56And like all of it. And so you have this, like you end up in different ponds. And it turns out that like nearly all of these studies show that what you really want in life is to be the oldest kid in the class and not the youngest kid in the class. I say this as someone who is always the youngest kid in my class. Like, I mean, I have. So when's your birthday? My birthday is September 21st. Okay. And the mid-September birthdays generally put you into the youngest, into the, I mean, it depends on when the school year starts. So I didn't skip a grade, but I graduated high school when I was 17 years old.

1:20:35And everybody else, you know, so everybody else graduated when they were 18 or 19. Yeah. So, and then that creates, but anyways, yeah. So because we're born comparators, when we end up in one pond, we might be at the bottom looking up. And when we end up in a different pond, we're at the top looking down. And that creates totally different dynamics. But as you said, there's some benefits to being in the lower rungs in certain communities. but your my guess is that might be true in the podcasting world where where you you you probably manage to meet all kinds of of of people but it's not true in all walks of your life right and that's and and that's that's that's the key thing right we all live in multiple hierarchies and we tend to occupy very different positions across them sure i i agree um all right so i'm gonna come let's see, I want to go, since you mentioned it, I really, I want to ask you about the idea of AI.

1:21:37Now, I will tell you, like, I've thought a lot about this. I don't want to talk about the investment cycle of it, just kind of purely the use of AI. And like, as an example, I've pulled, over the last month of my life, I have pulled such good historical data out of Grok 4. I mean, like the kind of stuff that it would take in a colleague of mine and I days and weeks and to build and whatnot. I mean, like, as an example, I was writing a piece this week, I wanted to know what the stock market concentration was of the railroads in the late 19th century. And Grok told me what it was roughly by decade.

1:22:14Now, it's an approximation, I don't expect to be perfect, it's just gives me a fairly good picture. I also asked it to tell me what the size of the stock market It was relative to GDP. Sure enough, it's going into like Federal Reserve academic work to come up with this data. It's like, wow, this is incredible to get approximate data, not perfect data. And so I've thought a lot about what you can do with that. It is a great equalizer in that fact because it doesn't require an army and a mass of people to get you some of that information like it would have in the past. yeah i mean so my view of ai is that it is like you know distantly distantly distantly the most significant development in human history like i think you know we're like we're like a meteor hits the planet and creates the ice age like this is a change everything about everything kind of a moment so okay let me let me make a couple reactions to just that observation so one is um you call it imperfect but it's racing towards perfection right so so grok 4 will do that task much better than grok 2 would sure and gpt5 um and gemini 2.5 and claude 4.1 opus will do these tasks like distantly better than the previous versions of those models which existed two months ago, right?

1:23:41So the rate of the, so if you look at the slope of progress in AI, like remember the LLMs have been on the scene for 24 months or something like that. Like it's insane how much better they've gotten over that 24 month period, which is of course the investment cycle that you alluded to. I mean, we've never seen a capital deployment at this scale in the history of everything. Like it's literally unprecedented capital deployment with the enthusiasm around this. But another way to say what's just happened is there has been the most incredible reverse split of human labor, cognitive labor. So there are tasks I do that I might've spent months on that I can now do in a minute, literally.

1:24:31But anybody can do them. Like, I mean, it took the PhD in all the years to be able to do this. But now, like, whatever prompt I'm typing in is pretty straightforward. Like, anybody can type it in. And, you know, as the models get equal to and then better at us at analytic work, right, you're not going to need the PhD to look over its shoulder and see what it does, right? You're just going to have an agentic AI system checking the work of another agentic AI system. And that alone is just a radical change in everything. But the last part of the book is it's also going to really affect the status system in profound ways.

1:25:16Anticipating how and why is, I mean, that's the next book. I've already started to work on that one. The next book's an AI book. but about all the things that it's going to change. But that's the topic of the day, the year, the century, you know, huge, huge set of topics. So let me come back to that because I and I've had this debate. And so let me use this. So I think the meteor that hit the earth was the Internet, just so just so you know, because it was revolutionary from an information perspective. Like to your point on all these large language models, the fact that they have all this information that was born out of the internet, which created things like price discovery and the processing of information of different parts of the world that we just never seen before.

1:26:07We'd never, you know, like I think of you could be in a good sized city and you could sell products, everything, you had the cheapest price. And then boom, the internet hits and you didn't, you were over earning, right? To your point that your status was depleted by that. And so I think of the internet as the most revolutionary thing in my life from a technology perspective. I actually look at this as evolutionary because it's actually drawing on all the information that came out of the internet era. yeah so i i mean i i totally agree and disagree at the same time so okay what where i where i agree 100 is no internet no ai yeah so so and that but that tends to be true it's kind of tautological truth yeah tautological well i mean you know there are technologies cumulative so you know to for modern ai systems we need to be able to cram billions if not trillions of transistor onto semiconductor chips, right?

1:27:08And to be able to do that took like, you know, a hundred years of work on, you know, different areas of material science and different areas of science. And so without those semiconductors, there's no internet, without, you know, without like optical network, you know, without transmission and networking, there's no, like, so all these technologies come together and they create something. But the LLMs, part of the reason why they're so amazing is because they train on internet scale data. So you needed, you know, you needed those gigantic, you know, you know, trillions of trillions of trillions, you know, like these giant databases of, um, everything about everything, um, to train the models to be generalist geniuses, um, which they are.

1:27:57So no internet, no, no AI, but if we kind of take the effect of the internet on our lives, which I think has been enormous, and we take the effect of the internet on the economy, and then we compare that to the effect that AI is going to have on our lives and the economy. My bet is, and we're in inning one half, like we're just starting um with with ai my bet is that it's going to be hands down the larger set of social economic psychological societal changes um will come from ai like it is going to radically change the world and how it works sure well and it's funny so i when we won't do it here but i i'll have to come have dinner with you sometime because the whole separate to your point about like economically important.

1:28:54If you look back at history, and this is kind of what I was writing about a little bit, the biggest thing that ever it was invested in to this day, as a percentage of GDP was actually the railroads. Okay, and that was a huge deal for the West. I mean, really, you could run the East without railroads as economic history would argue, but the West had to be tamed by railroads. Now, the interesting thing to me and to your point is like the railroads were a big explosion off of James Watt's technology of steam engine, ultimately. And it actually didn't matter for decades for investors. So I've also had to have this kind of dual conversation of like, I agree, I can see the value in AI, I wonder what the investment implications are.

1:29:32And also, I'm thinking about your status point, who are the highest status people in society based on wealth and power and the ability to lobby, in fact, politics, Well, it's actually the big tech companies. So as they go from an OPEX business in the internet era or software era to a CAPEX business, those are different businesses and usually have different repercussions for investment. And are we using their status to actually over-ascribe their ability to deal with the investment CAPEX and infrastructure that could go on and therefore might actually cause returns to be lower? That's been like my whole working out.

1:30:05And as I read your book, I was playing these things around my head like, wow, there's a lot of hierarchies that you have to deal with in this discussion on AI. Yeah. I mean, I, you know, there's so many different levels of, of this and, you know, I wish we had another six hours to start some of it, but I mean, I think, so I think that, and there's so many, literally like 10 points just in that one, in, in that one comment. I mean, there's a lot of, there's a lot of chatter out there that there's no ROI on AI. You know, let me just say that one, I, I don't take that position And two, the ROI math is already super tricky, right?

1:30:42AI is literally ubiquitous already. And so the return on investments in AI, like that is tricky math already. The third is it is an investment. And so I think that the true returns are likely to come down the road. But the fourth is like, I don't know, how do you even count the trillions of market cap that have been created by AI. I mean, one stock alone, like what's NVIDIA worth today, $4.2 trillion or something? Well, guess what? $4.2 trillion of that is AI. Like NVIDIA was worth, you know, it was a pretty valuable company. It was a pretty valuable company, you know, three years ago, which means it was worth$50 billion selling, you know, GPUs to make video games.

1:31:34Like now it's like, like you've never seen anyone accrete$4 trillion in market cap, you know, in a three-year period. And now throw, you know, the half trillion dollar valuation of open AI or whatever it is today, something like that. The trillion plus valuation of Broadcom. Like literally, like we've already seen probably$10 plus trillion in market cap created with AI. And that's based on, you know, a whole bunch of people's expectations that this is a change everything technology. So I'm, in this case, I'm putting my money behind the dot, my bet behind the money. But I do think, you know, coming back to the book, and I think that it's going to have radical implications for how the status system functions, and it's going to reorient it.

1:32:29And then I've started to speculate on how, but it's definitely going to be a little bit of a wait and see game because it is going to change so much about how life functions. Sure. To your point, I mean, if you told me chat GPT was going to take, what does it take? And I think it's taken 15 % of the search market away from Google. I mean, my mind was just blown when I saw that. I thought, oh my gosh, I didn't think that would get anywhere touched in my life. No, I mean, if you had asked two years ago, is there like which of the, which company, like name the company that has like an insurmountable boat?

1:33:09Like, you know, if you asked me that, I would have said Google. Like all the companies in the world, Google has the insurmountable mode. Now, Google, we're getting a long way off the book, but love talking about these topics too. This is the other part of my life, you know, tech and entrepreneurship. I think Google has, Alphabet has over the past, you know, sort of 18 months made this. I mean, it's really been more than 18 months because in a lot of the seminal discoveries in AI actually came from Google. but that company over the last probably 18 months has just made this remarkable transition for an incumbent that owns its market you know it's you know full bore into AI first and fully transform the company so you know I still like Google's odds in the future but I think it's been brave you know pretty brave investments and strong leadership that has that have brought that company to where it is today.

1:34:11And we don't often see that in the history of corporate America. But yeah, I mean, who would have thought that we'd even be having the conversation that somebody might challenge Google's, I'll call it a monopoly, but Google's 98 % share search or whatever it was. They're really testing Shumpeter's creative destruction. Because in a way, to your point, if you look down the road, you can see where the search business goes away completely. And it's dominated purely by the large language models providing information back. I mean, I already my habits have changed radically, like I'm as likely to go to, you know, open AI to look for information as I am to go to Google.

1:34:57And I like already think about which one I'm going to serve up a query. And of course, when you serve up a query to Google these days, you more often than not get, you know, get it flipped over to Gemini or you're getting an AI based response to your search. But who'd have thunk it? I mean, it's just such a speedy change. I agree. This has been great. So I was going to ask you, Toby, where can people follow you going forward? Also, you mentioned your book you're working on. Do you have a working title that you've already given it um i keep going back and forth on that but i i am i am in the middle of it so i don't quite have a title yet i mean i've got like seven um and i keep i you know i keep i keep i keep going back and forth on it but it but it is it the but but um it's like super interesting to write because um because i think what ai is going to do is cause us to literally rethink almost everything about sort of, you know, our human operating system about how our world works.

1:36:02And, um, and so, so the book is, is diving into that. Um, LinkedIn love to love to meet people. Um, super easy to find on the web. Um, um, I'd love anyone to take a look at the book and, um, and I'm really easy to find, you know, so it's, it's, it's, I guess the thing about being to Toby. There aren't very many of us. Yeah, it's true. It's an easily rememberable name. Well, so I appreciate you coming on. I really enjoyed the book. And your book reminds me that people always want to do things quicker and that systems adapt around these nodes, these anointed that allow them to do so. As you point out, like the little black dress was a great example that those nodes include the anointed who allows us to know what we should be prioritizing.

1:36:46That's what they help us with. Also, every human on earth, as you pointed out in your book, knows who's in front of them in the game of life. Go buy a copy of Anointed by Toby Stewart today to think about how these structures influence your life and to his point, bias your outcomes. If you enjoy this podcast, go to Apple, Spotify, YouTube, wherever you listen to a book with legs, give us a review, tell others about the books and great authors like Toby Stewart that we have the opportunity to understand and study the world with and through. For our tribe, if you have a great book that you'd like to recommend, email podcast at smeedcap.com.

1:37:21That's podcast at smeedcap.com. You can also send your suggestions to us on X. Our handle is at smeedcap. Thank you for joining us for A Book With Legs podcast. We look forward to the next episode. Thank you for listening to A Book With Legs, a podcast brought to you by Smeed Capital Management. The material provided in this podcast is for informational use only and should not be construed as investment advice. You can learn more about Smeet Capital Management and its products at SmeetCap.com or by calling your financial advisor.