TIP765: What the World’s Great Philosophers Can Still Teach Us About Wealth and Wisdom w/ Kyle Grieve

24:43So go make it one. Start your free trial at shopify.com slash tip. Start your free trial at shopify.com slash tip. All right, back to the show. During extreme fear, the herd sells much of their holdings and hoards cash out of fear that the market will continue to go downwards. The skeptic may either accept temporary losses and wait until the market sentiment improves, or they may just deploy all their cash into all the cheap opportunities that are now available to them. You can see here that the skeptic is taking part in healthy skepticism. They're intelligently viewing where price and value have disconnected, then they rashly make decisions based on their observation of the market as a whole.

25:27Hume teaches us to strike a balance between open-minded doubt and practical decision-making, A lesson that's just essential for investors navigating a very volatile market. Yet, even with this balance, another challenge remains, which is our tendency to cling to conforming beliefs, even when the evidence changes. This is where Voltaire steps in, helping us confront the stubborn optimism and confirmation bias that often appear in investing. So one of Voltaire's books, Candida, is a literary classic that is a tale focused on a key psychological bias that every human has. And that's our inability to change our beliefs or decisions despite overwhelming evidence that contradicts our initial assumption.

26:09Everett circles back to Voltaire's key concepts regarding investing, discussing it through the lens of the efficient market hypothesis. Now, believers in the efficient market hypothesis believe that zero work needs to be done in investing other than to just hold an index because people are incapable of beating the index. Efficient market hypothesis provides an assurance to believers in efficient market hypothesis. Now, when you think about it for a few moments, it's actually pretty comfortable assurance for index investors. I'm totally fine with index investors, but to say that there aren't investors out there that can beat the index just seems dishonest.

26:45To me, the people saying investors can't beat the index are investors who either A, don't wish to put the work into attempting to understand numerous businesses that could provide superior returns compared to an index, or B, they're just incapable of having an edge in the market. And I think the first option really relies on honesty. Many investors fall into this category, which is perfectly fine. Not everyone enjoys reading financial statements and thoroughly learning about a specific business. However, you get some investors who clearly cannot beat the index and therefore become the index themselves over time.

27:18I've seen this with a few funds, whereas they scale, they just no longer outperform simply because they diversify their position so much and they just try to mirror an index rather than have any differentiating factors. And differentiating yourself is the only way to outperform the index. Everett writes, as opposed to believing that the world is governed by some divine provenance that ensures everything happens for the best, Voltaire believes that the modern world is largely shaped by human-built institutions that affect history's outcomes. It is the nature and structure of those institutions along with the good or bad traits of the people constituting those institutions that ultimately shape our lives.

27:54Now, an institution that Voltaire believed was highly influential was the stock market. The stock exchange is a powerful symbol of both evil and greed, yet also embodies numerous positive aspects. While some people believe the stock market is evil due to the greed that it fosters, they overlook many of its positives. The stock exchange does many great things for society. A few things off the top of my head. They provide companies access to capital, which allows for growth, which often means more jobs available and higher tax dollars that are paid to the government. The stock exchange can bring people together from diverse backgrounds and it allows the average person to access the upside of owning a great business.

28:32The last part on Voltaire I'll mention reminds me of Morgan Housel's The Psychology of Money. So Voltaire writes, we have no other conscience than what is created in us by the spear of the age, by example and by our own disposition and reflections. Man is born without principles, but with the faculty of receiving them, his natural disposition will incline him to either cruelty or kindness. So how we are raised and the social institutions that we're a part of all heavily influence how we may act in the market. This illustrates why some investors with a propensity for gambling might opt to use leverage and trade to maximize their profits just as quickly as possible.

29:09Or why people who maybe were raised to be distrustful of institutions may not believe in other institutions that are trustworthy to those who were maybe brought up to be trusting of those institutions. This is a fascinating concept because it can open our eyes to why others might act or invest in ways that just feel nonsensical to us. Knowing this allows us to be introspective about why we do things the way we do and why we may be making errors. Hume taught us about skepticism and Voltaire showed us that we should think about how to apply our thinking to the outside world. But now we're going to focus on looking inward at ourselves as investors.

29:45And to look inwards, the book's author chose one of my favorite characters from history, Blaise Pascal. Now, why did he choose Pascal? Pascal, along with Pierre de Fermat, laid the groundwork for thinking about how luck influences our daily lives, or as Everett puts it, how much we have contributed to our investment success and failures. It's easy for people to assume that their success was a product of skill, but in reality, much of their success is a product of pure blind luck. Pascal helped show us why that was through mathematics. If you'd like to know more about his equation, please check out WSB 701 where I discuss it in much more detail.

30:24But one of Pascal's lesser known narratives, which I've never actually heard of before reading this book was from an essay that he wrote titled Discourses on the Condition of the Great. Now, Blaise Pascal's father's Etienne placed an interesting financial wager in 1634 on the French government bonds. And this bet actually paid off very handsomely. In the years following the investment, Etienne and his family were able to live comfortably off the income from this investment, enjoying a very luxurious lifestyle. But only four years later, the investment would sour, and young Blaise Pascal was highly impacted by the loss of his family's fortune.

30:59What happened to the bonds shows that investments, and especially bonds, are never truly risk-free. The chief minister of France decided that the government should actually default on these bonds to help fund the 30 years war. And as a result of that default, the bond's value was essentially wiped out. Blaise learned that fortunes can change in an instant, and a life of modest means could easily replace a life of luxury if someone's luck were to shift. Everett writes, he understood that that since the slightest change in fortune could lead to undeserved harms or benefits for anyone, all rich people exist under a significant degree of conditionality.

31:34Now, this is a fascinating insight because it showed Blaze that wealth was not a product of pure skill, but also a product of luck. And just as a wealthy person could be seen as being skilled, the unwealthy could be seen as having a lack of skill. However, his point in both scenarios was that luck played a significant role in part in these outcomes rather than solely relying on skill. Pascal wrote a short passage in which she asked the readers to imagine themselves in this scenario. So you're a sailor of low means and you find that the ship that you're on is falling apart underneath you in the sea.

32:08You are the lone survivor of your boat and you find yourself awakening on the shore of an unknown island in a faraway land. As you spit out salt water and sand, you spot a group of the island's inhabitants looking actually more like admiring you while they walk towards you. The people pepper you with gifts and services that are just fit for a king. You learn that their king went missing shortly before you arrived and that you very closely resemble the king. You're smart enough to put two and two together and conclude that they are treating you as their king strictly because you bear a remarkable appearance to their real king.

32:41But as time goes by, the truth begins to weigh on you. While everyone in the kingdom believes you to be their king and treats you as such, you know that you are just a man of lowly means and no titles. As you reflect, you realize that you are no true king. The only reason that you're being treated as such is based purely on luck, proper appearance, proper time, and right place. None of these factors were within your control, yet you are living a life that you never deemed possible. This short story is an excellent parable about the role of chance and circumstance and how they can shape one status or fortune quickly and easily.

33:17Just as the man's kingship was a product of chance rather than merit, our position, whether that be in wealth, birth, or social standing, are often also the result of random events that are entirely out of our control. This principle aligns well with Buffett's quote about being born in America at the time that he was and how he felt that he had won the ovarian lottery. Now, how do we circle this to investing? by helping to infuse a degree of humility into our investing process, by accepting that much of the success in investing is a product of a mixture of luck and skill, and not allowing ourselves to get too high on our successes or too low on our failures.

33:55I often think about luck in my own journey towards TIP. I'm just very fortunate. I can honestly say that there was never a point in my life where I thought I'd be on a podcast talking about finance as my vocation. I was fortunate to discover crypto. I got lucky that I failed miserably in that experience. I was again fortunate to rediscover investing, which COVID provided me with the opportunity to do. I was blessed to discover value investing rather than adopting some sort of leverage approach. I was again fortunate to be the type of person who loves to learn and already developed a passion for writing to help educate others, which in turn made me better at learning things myself.

34:31I got lucky that my co-host Clay read some of my writings and that it resonated with him. And I was lucky to be invited onto one of TIP's communities and that Stig listened to that chat. And I was very fortunate to be just a great fit with TIP as I know that TIP is a good fit for only a very small minority of people. Now, even with investing, I wonder if my entire track record is just a matter of luck. I'm often the right person looking at the right opportunity at the right time. Now, I believe that investing skill allows serendipity to play a part. And without skill, you're probably closing yourself off to that opportunity for serendipity.

35:06So when I wonder if my track record is pure luck or not, I'm always brought back to reality that the truth is probably somewhere between luck and skill. And I'm perfectly fine with that. Now, the thing about luck is that it can be perceived as an abstract concept. While we know it's there, it's pretty tricky, if not impossible to measure it definitively. Now, we can't allow abstractions to cloud our judgment too much. To learn more about abstractions, the book turns to William James, one of the foremost experts on pragmatism, a philosophical concept that resonates very deeply with me. Pragmatism resonates with me because it's easy to take abstract ideas that just have no real-life use.

35:47Things like the efficient market hypothesis or the capital allocation pricing model are two that really jump out to me. While the academic community welcomes them, they're often shunned by investors who actually invest and make money for themselves and their partners. I'd rather align myself with the pragmatists who find use for concepts. Here's what James writes in one of his books, The Meaning of Truth, regarding vicious abstractionism. Let me give the name of vicious abstractionism to a way of using concepts which may thus be described. We conceive a concrete situation by singling out some salient and important feature in it and classing it under that.

36:23Then, instead of adding to its previous character all the positive consequences which the new way of conceiving it may bring, we proceed to use our concepts privatively, reducing the originally rich phenomenon to the naked suggestion of the name abstractly taken, treating it as a cause of nothing but that concept, and acting as if all other characters from out of which the concept is abstracted were expunged. Abstraction functioning in this way becomes a means to arrest far more than a means of advance in thought. It mutilates things, creates difficulties, and finds impossibilities. His primary point is that abstractions are valuable tools, but only when we remember that they're shortcuts and not the whole picture.

37:08Too often, we treat abstraction as the entire picture, and this really just distorts our reality and limits our understanding. One example that comes to mind when thinking of vicious abstractionism is the categorization of value stocks versus growth stocks. Many investors will categorize stocks into one bucket or another, completely ignoring relevant facts. Let's say a value investor finds a business trading at a PE of 5. He classifies it as a value stock, does his due diligence, and determines that it's still a decent investment because it's cheap. But if we zoom out, this investor might be ignoring the bigger picture of concepts, such as the business's declining industry, the poor management that the business has, a weak competitive position inside of its industry, weak competitive advantages, the ability to be disrupted, and maybe even a very poor history of capital allocation.

37:57Now, in this sense, the label of value is just mutilizing this investor's reality. It's hiding several additional risks and complexities behind a simple concept. While I think simplicity is definitely the key to investing, it's vital not to oversimplify things like investing. Now, continuing with the subject of abstractions, we look at simulations. While simulations are abstractions, they are an essential tool to use in investing, especially when evaluating a specific business. No matter how you think a business's narrative will play out, there is always a simulation that could occur that is much worse or much better than what you expect.

38:35In this sense, simulations are a great way to help you how risky an investment might be. Now, Everett chose a French philosopher, Jean Baudrillard, to help us understand the concept of simulation. Everett writes, when Baudrillard writes about simulation, he is referring to representations of a real-world process and systems via different modalities. Now, what Baudrillard was getting at was that signs and symbols impact the world beyond their basic use values of standing in as signifiers for a signified idea. Baudrillard writes, as I saw it, in that the world of signs, they very quickly broke away from their use to enter into play in correspondence with one another.

39:19Or to put another way, these signs and symbols can shift from representing an underlying idea to taking a life of their own. Baudrillard refers to these signs and symbols that take on a life of their own as simulacra. Now, there are three orders of simulacra. There's first order simulacra, which is a clear counterfeit of the underlying object or idea that they reflect. Then there's second order simulacra, which are representations which blur the boundaries between a reflection and what is being reflected. And there's third order simulacra, which are representations that take on an existence completely independent of the underlying object or idea that's being reflected.

39:58Confused? I always do, but let's just use an example here to help clarify things. So Everett provides some excellent examples of simulacra in public equity markets. So the first is a tracking stock, which is an example of a first order simulacra. So a tracking stock's value is tied to how well a specified division of a company performs. AT &T did this for a while. However, owning a tracking stock doesn't mean you actually own that particular division of the company. It simply reflects the performance of that division. The real thing is a division's actual business, and the simulacrum is a tracking stock, which mirrors the division's results in the stock market, but is not the business itself.

40:40Next is second order simulacra. We can look at common stock ownership as a great example here. When you own a business's common stock, you receive ownership and voting rights. However, there is a blurred reality regarding the differences between common stock and the company's physical business operations. For instance, a company might increase their profits by 15 % per year with no dilution. If there were no blurring between a business's fundamentals and its stock price, then the stock price should also steadily rise by exactly 15 % per year. However, the average stock price fluctuates significantly with a peak to trough range of about 50%.

41:14This clearly shows how a common stock can be disconnected from reality nearly all of the time. Now, finally, we get to third order simulacra. The example in the book was the meme stock mania, and I don't think I could come up with a better example myself. So in this case, a meme stock such as GameStop becomes completely disconnected from reality and takes on a life of its own. In the case of meme stocks, their share price become completely detached from reality. If you look behind the curtains of the GameStop example, numerous things were happening in the background, including attempts to sabotage short sellers intentionally.

41:48This short squeeze helped propel the share price, which had very little to do with the business's fundamentals or value. Everett writes, Baudrillard is emphasizing that while signs, in our case, meme stocks, may have previously served passive roles of reflecting certain underlying objects or ideas, they can ultimately detach from those underlying objects or ideas and go on to be exchanged among themselves in an independent virtual realm of their own. Baudrillard drew some notable contrast between two significant stock market crashes that he experienced. So there was a 1929 crash and Black Monday in 1987.

42:24So in the 1929 crash, there wasn't much of a blurred line between the stock market and reality. The economy crashed and as a result, public stocks were affected. But when you look at Black Monday, the events precipitating the crash were utterly different. In 1987, there was no obvious catalyst to justify a 22.6 % drop in the stock market in a single day. While reading about Balto Yard in this chapter, I couldn't help but be reminded of George Soros' concept of reflexivity. So I wasn't really surprised to see that Ethan Everett directly mentioned Soros in the book in this exact chapter. The idea of reflexivity is that stock prices are not just passive reflections.

43:03They are active ingredients in a process in which both the stock price and the fortunes of the company whose stocks are traded are determined. The simplest way to think about this is that if a business is perceived positively by the market, it can drastically change the strategy and outcome for that business. The easiest way to understand this is to think of a company's cost of capital. If a business is trading below its intrinsic value, then issuing shares of its stock to raise capital to grow is just not a good idea. But if a company's shares are above intrinsic value, then using the company's shares to develop is a great idea and produce is quite a lot of value.

43:38But the problem is that the company has limited control over what the stock market thinks about its shares. Sometimes a company will be categorized, for instance, as let's say an AI stock. Therefore, any association can help the business increase its share price, which can aid in raising capital for future growth and expansion. So reflexivity works well when you have a view on the market's perception of a business. Now, all this discussion on the abstract and simulations is interesting when thinking about things going on in the world that are specifically external. However, it's also vital to consider what's going on inside of our own minds.

44:13This is where we spend most of our time after all. And to do this, we're going to turn to Arthur Schopenhauer, a philosopher that I admittedly know very little about. Schopenhauer has one compelling concept. As much as we spend time in our own heads, planning out our lives and smoothly idealizing ourselves in this abstract, the fact of the matter is that reality contains all sorts of ugly bumps in the road on the path to significant success. The main takeaway from this simple concept is that we just live kind of a dual life. That first life is in the concrete or in reality, and the second life is in the abstract.

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48:15Get started today at vanta.com slash T-I-P. That's V-A-N-T-A dot com slash T-I-P. All right, back to the show. One way that some investors identify as a form of abstraction is as a gambler. While gambling generally has a negative connotation in society, I can't help but think about all the really good investors that I've heard of who have gambled at some point in their life and have pointed to that experience as something that enriched their investing process and didn't actually act as a detriment. Charlie Munger is the first person that comes to my mind, but the book mentions David Einhorn. So let's go with him.

48:53Now, Einhorn used his experience playing poker to help shape his reality as an investor. For instance, he realized in poker that you don't play or win every hand and that you sometimes have to play hands that you might not think are the greatest simply because you have an edge over someone else at the table. So when he makes an investment, he tends to follow general principles, but he will go outside of these principles if he sees the right opportunity. Now, when observing luck, Einhorn realizes that good luck comes and goes. In a poker tournament, you can play perfect poker and lose. This is because poker is a game of both skill and luck.

49:30The profits will always go to the people with the most skill in the long term, but in the short term, luck guides a lot of the outcome. This is especially apparent in poker because you must play a significant amount of hands to see your actual results. Now, I personally played online poker very regularly for a little over a year. And in that year, I played about 200 ,000 hands. I know this because I had tracking software. A poker player going to the casino and playing live games might play, you know, maybe 20 hands for an hour. So for them to obtain the same sample size that I did would take approximately 10 ,000 hours.

50:04Now, the point here is that sample size matters. If I were to go to the casino and play for a few hours, I might get 100 hands in. In that small sample size, anything can really happen. I can go broke or I can multiply my money. But when you're talking about hundreds of thousands of hands, you can easily see if you have an edge or not. And to anyone wondering, I don't think I had much of an edge. Now, how did Einhorn use this principle for investing. To help him realize that in reality, his stock picks won't always go the way he wants them to. Instead of making poor and irrational decisions, going on tilt as poker players would say, when you lose, just accept that as part of the game of investing and carry on.

50:42I like this case study in looking at an investor and seeing what part of their life in the abstract they're able to really pull into reality and use successfully. It's a great tool to use on yourself to reflect on where you observe strength and weakness in your own investing process. My favorite way of doing this is to simply look at investments that you've made that have been the most and least successful. Then spend some time thinking about them, why you made them in the first place. Then draw wisdom as to how you can double down on your successes while improving or avoiding on your mistakes.

51:13In this case, we want to reflect on our identities to figure out if the identities that we are aligning ourselves with are helping or detracting from our success in investing and in life. One interesting thing that I learned while researching the world's best investors was just how many of the successful investors have had very rocky marital lives or relationships with their children. And this can obviously wear on them very much and massively affect their levels of happiness. It's important to remember that it's nearly impossible to have a long, successful track record in investing and not become wealthy.

51:45But even swelling wealth cannot fix poor relationships with loved ones. So in that sense, money cannot always buy happiness, despite the widespread belief that money is the solution to many people's problems. Now, the creator of the essay itself, Michel de Montaigne, once spoke about how wealth created more problems and solutions for him. He concluded that the more wealth he had, the more anxious that he became about things like theft, trust of those around him, and the fear of losing it. He felt that owning money brought just more troubles than earning it. Now, Montaigne came to this conclusion while thinking deeply about his relationships with money and how it affected him.

52:24Interestingly, there were some people in his time that thought that thinking of yourself was vain and unproductive. And while Montaigne agreed that thinking of yourself solely as self-adulation and aggrandizement was indeed vain and unproductive, you shouldn't overlook the positive aspects of self-reflection. Everett writes, if we go about it from the perspective that we are often an enigma to ourselves and need to spend time in self-reflection to get to know ourselves better, we can significantly improve our human condition. Where many of the investors from my co-host William Green's book, Richer, Wise, or Happier, defer from some of the unhappy ultra-rich is that they invested into intangibles that could never be stripped away from them, regardless of the number of zeros that they had in their bank accounts.

53:10Montaigne believed that true wealth wasn't just owning tangible possessions, but rather wealth that existed outside of the world of contingency, which cannot be affected by gains or losses in fortune. This is why being truly happy with what you have is such a good measurement of happiness. If you are genuinely content with what you have, then you can have no material goods and still be the wealthiest person in the world. It's an interesting notion and probably very difficult to achieve with complete honesty, but I think it's a good goal to strive for. One incredible way of observing if what you do makes you happy is to just answer a fascinating question that was posed by Soren Kierkegaard.

53:49And that is, would you pay to do what you do today? It's an interesting question because I don't think that many people have ever posed it to themselves. And if they did, what percentage of people do you think would say yes? My guess, maybe 5 % to 10%. Before we dive more into that, let's cover Kierkegaard in some more detail. Now, Kierkegaard lived a pretty interesting life and experienced wealth and money losing ventures. The book outlines one of his first financial dilemmas. This occurred when he went to university. So while in university, Kierkegaard was given an allotment of cash to use at his own discretion.

54:22He ended up spending a significant amount of that cash on luxuries. But his love of luxuries was actually larger than the amount of money that was allotted to him and he ended up having to dip into credit to cover his costs. By 1837, he found himself in an absolute financial mess. Since he knew his father had the money to help him erase his debts, he begged him to help bail him out. Less than a year later, his father ended up passing away, leaving Soren a very large inheritance. But it actually appears that between the death of his father in 1838 and the time that he graduated with a master's degree in theology in 1841, that something shifted in him.

54:58He now had the means to continue living a life of luxury if he wanted, but he felt that the society around him had an alarming fascination with money and he didn't want to take part. So in his book, Two Ages, The Age of Revolution and the Present Age, he notes ultimately the object of desire is money, but it is in fact token money, an empty abstraction. Ultimately, Kierkegaard spent the rest of his life funding the printing of his books, many of which did not sell well. He also self-published pamphlets against the church, and he pretty much died without anything to speak of. But let's go over the initial question that I pose a few moments ago here.

55:37Kierkegaard felt that the pursuit of money as a goal itself is a very exciting concept. And I think Ethan did an exceptional job connecting this to investors in today's markets. So Ethan writes, essentially, it is these investors love for the process of forming investment theses and watching those investment theses play out that drive them, not the pursuit of money itself. As soon as I read this, it just kind of got me thinking. Everett connects the love of investing to a game like chess. So chess grandmasters don't want to get good at chess because they are going to make a lot of money from it.

56:11They do it because they just love chess and they love the ability to use chess as a vessel for proving their intellectual and strategic abilities at a world-class level. Then I examined myself. So I've always loved video games and through my life, there are probably two games I think I've loved the most. So the first was Madden, a game based on American football. And the second was Starcraft, a real-time strategy game. I spent many, many hours playing these games, so many that it's probably embarrassing to even discuss it with you today. But I played those games because there was a high degree of strategy and my brain had to be operating at a very high degree to execute my strategy.

56:47That was my big draw. I never wanted to make money from them and I never did, but I played purely for love of the game. Now, when I reflected a little bit about investing, it's really not that different. I don't worry much about what other people are doing. I mostly just focus on if I'm doing the best possible job that I can do, and if it's a decent job, the secondary benefits of making money is a very good second prize. But the verification that I achieve a great intellectual victory is probably the biggest prize that I get from investing. Kierkegaard said that in ancient Greece, people had to pay to serve as a magistrate.

57:18By the same token, Kierkegaard did pay significant sums just to be an author. He spent money to do it, and even when he wasn't successful in making any money simply because he loved writing and he felt his concepts were worth sharing with the world. Now we get back to the question. And since most people listening to this podcast are investors, the question stands, would you pay to continue investing your own money in the market? Since our audience is probably not a good representation of the overall population, as many of our listeners, I think, would enthusiastically reply yes to this question, maybe I'm asking the wrong cohort of people.

57:50So let's let Ethan Everett describe the answer for professional investors. For most people on Wall Street, there can be minor interesting parts in their work, but the reality is that their only major goal is money as an object. Thus, they would be nowhere near Wall Street without the monetary incentive. When I think of my own investing journey, there are many parts of my trip, as a matter of fact, all of it that have been paid by myself. All the subscriptions I paid for, the books, the subsec accounts, articles, news, software services, and time spent have been paid by me out of pocket just so I could find interesting investing ideas that I thought offered significant upside, limited downside, and intellectual satisfaction.

58:31Then I just have sat back and watched to see what happens. Sometimes I'm wrong and it hurts, but more often than not, I'm right and I've been rewarded. The hard part about investing is that being right is often equated with making money. And in the long run, I agree with that statement. I challenge you to find a business that has, let's say over the past decade, grown revenue by 10 % per annum, per share profits over 15%, has no debt, is incredibly well managed, is a monopoly, and easily has another decade to go where the stock price hasn't at least matched that growth in EPS. But in the short term, things are a little bit murkier.

59:07In 1900, Samuel Langley was seen as the man most would have bet on to create the first powered airplane. Langley was a well-known scientist. He had funding from the US government. He had the best connections. He had access to the most intelligent engineers, and he had support of the nation due to the media coverage that was surrounding his mission. By 1903, Langley's aircraft, the Aerodrome, made its public debut with great fanfare and a significant media presence from the Potomac River. It took off twice, and each time, it immediately nosedived into the river. The media heavily mocked him, and he quit trying to make a powered airplane just then and there.

59:44Now in the same year, Orville and Wilbur right to bike mechanics with no formal education, no funding, and no prestige launch their first successful flight. The process was iterative. With each failure, they got one step closer to success. And when they successfully launched their first flight, barely anybody noticed. They weren't inundated with reporters, there was no fanfare, and there was no instantaneous reward to be found. The great Stoic philosopher Seneca said one of my favorite quotes of all time, Time reveals truth. And this applies directly to the story about the first successful flight.

1:00:20Sometimes the successes are nearly impossible to identify, and obvious wins are the ones that become the duds. Only time will reveal the truth. Now in investing, it's hard to focus on the long term when there are things like charts, flashing lights, apps, and alerts that keep us focused on the short term. Yet humans continue to believe that they can make money in the markets by finding stock ideas solely by looking at stock charts and drawing a few lines. Now, Albert Camus can help us answer this question of why we seek meaning and patterns in areas where they just don't really exist. Camus was a Nobel Prize winner in literature in 1957.

1:00:57He lived a life similar to many of the philosophers that we've covered of both being part of poverty and wealth. One of Camus' best philosophical contributions with something called absurdism. So this philosophy stresses the importance of recognizing the randomness in our lives, as well as the positive effects of embracing the absurdity of our struggle to find meaning in an inherently meaningless world. The point is that it's human nature to search for meaning in the world around us. But often, the meaning that we find is purely illusory. Like a stock chart. If you look at Wiggles on a stock chart and conclude that as a result of how that chart looks now, the lines are just going to keep going up, you're looking for meaning in, frankly, a meaningless pattern.

1:01:39This is a potent lesson for investors. Even if you are a fundamentals-based investor like me, there are specific patterns that I may erroneously conclude have led me to be right or to be wrong. I had a great discussion today with the TIP Mastermind community where one member brought up that I, Kyle, have a rule against buying Chinese equities. Completely true. He pointed out that my reluctance to buy Chinese stocks might be the result of losing money on my Chinese investments rather than errors on my analytical abilities. He pointed out that perhaps I was making an error based on resulting and confusing it for mistakes on my analysis.

1:02:12And this is actually a pretty excellent point. I pointed out that funny enough, all the stocks that I'd actually sold in China have actually gone up in price over the past few years, but I haven't spent too much time looking at the fundamentals of those businesses. Perhaps my conclusion was based on me looking at specific patterns that didn't actually exist to come to an irrational conclusion. So I looked a little more closely at the basket of bets I made in China, which were on Alibaba, Tencent, and Qfin. And the business have actually improved a little bit on fundamentals. So while I may not have made the worst possible decisions with these Chinese bets, perhaps it was all just a matter of bad timing.

1:02:47Had I waited for these businesses to be selling at heavy discounts before buying them, I might have had a completely different outlook on Chinese equities. This is why KMIS's focus on absurdism is just so crucial. You want to take lessons from information that actually provides meaning and to skip the rest. Now imagine it's 2008 and you're Ken Langone, the billionaire philanthropist who helped fund Home Depot in its early days. This annoying guy, Bernie Madoff, just keeps trying to get ahold of you. And he says that he wants to meet and he has an interesting business proposition for you. You take the meeting.

1:03:20At the meeting, Madoff delivers a 19 page pitch deck. He tells you that he's not offering this deal to his current clients. Puzzled, you ask why Madoff is only offering you this deal. And Madoff responds that the deal isn't big enough to give to all of his existing clients. So he's only offering it to you. Your gut tells you that this deal is just no good. Your positive business experience in life tell you that you want to do business with people who should prioritize their current relationships. If this Madoff fellow has a great deal, it just makes no sense to offer it to a stranger rather than to his own investors, whom he has worked with previously and whom he reportedly has done absolute miracles for.

1:03:58You take a pass. Two weeks later, Bernie Madoff's multi-billion dollar Ponzi scheme was discovered. What the story shows us is that in a deal, it matters not what both sides are getting out of it, but also how it's affecting hidden parties. In this case, Langone didn't like the deal simply because he didn't want to do business with someone who wouldn't bring a cinch of a deal to his own investors before presenting it to a stranger. Screwing over the people that you do know to do a deal with a stranger just wasn't how Langone did business. He was a people person who highly valued relationships.

1:04:30Now, a philosopher named Martin Buber has a concept that perfectly explains Langone's deeply held skepticism on this deal. Buber's concept is highly esoteric. So the name of it is I, you, and his counterpart is I, it. Buber's philosophy is based on how we relate to the world and to others. So in an I-it relationship, we treat the other person or thing as merely an object, something that can be used, analyzed, or acted upon. There isn't anything inherently immoral or wrong about it. It's just very impersonal. When looking at a business, we might focus just on the financial statements to decide whether we want to invest in it.

1:05:06The opposite of an I-it relationship is an I-you relationship. Here, the person is viewed as a whole being rather than an object. We want to engage with them authentically, fully recognizing them with presence and respect. Now, the difference between the two alters how we treat others and alters who we truly are. Because the I and I-it is much different than the I and I-you, every moment that we interact with the world, we choose to see others as objects with no inherent value or as fellow subjects with their own significance and meaning. Bernie Madoff saw Langone as an object using an I-it view.

1:05:41He was someone who could potentially be just a source of cash and someone who probably would never even see that money again. Langone took an IU view. He considered the deal good, but since Madoff had others in his web who should have been prioritized over Langone, it just didn't sit well with Langone. For me, the biggest lesson here reminds me of the great Buffett quote, which is companies get the shareholders that they deserve. If a company treats its shareholders as a source of cash to be tapped whenever needed, chances are it's just not going to have a very loyal shareholder base. If instead you treat your shareholders like true partners are honest and transparent with them and have aligned incentives, you're likely to have shareholders who are going to stick with the business through thick and thin.

1:06:20And when you have a strong shareholder base, there's tangible benefits to it. Companies will find it much easier to secure funding when their share price is stronger. And when the markets tumble, they're likely to have a more resilient share price, allowing them to act counter cyclically, which further improves the value of the business. The final investor that Everett chose is my personal favorite, and that man is Bruce Lee. As a teenager growing up, I was obsessed with Bruce Lee. I had all of his films on DVD, and I watched them on repeat. At that time, I was primarily interested in Bruce Lee because he was great in his movies and had a physique that I wanted to emulate.

1:06:54But I also enjoyed listening to him on YouTube. He gave great interviews, and nearly all of them turned into some sort of philosophical lesson connecting life with martial arts. The two quotes that he said that have always resonated with me are, one, One, empty your mind. Be formless, shapeless, like water. You put water into a cup, it becomes the cup. You put it into a bottle, it becomes the bottle. Be water, my friend. And two, absorb what is useful, discard what is not, add what is uniquely your own. So the first quote emphasizes adaptability and flexibility while avoiding rigidity. If I may quickly relate this to one of my passions in life, jujitsu, before relating it to investing.

1:07:33So whenever I look back to when I was brand new to Jiu Jitsu, there was a high degree of rigidity in my body when I would do Jiu Jitsu. And that's because when you lack skills in a physical sport, the easiest thing to rely on is your athleticism and strength. So novices think that they could just muscle their way out of everything. This has two big downsides. The first is that proper technique easily trumps strength. This is why a decently trained 100 pound girl can easily break a male bodybuilder's arm who might weigh 180 pounds. Second, when you rely solely on your muscles to defend yourself and move, you very quickly get exhausted.

1:08:08Once you can rely more on your skillset and strategy, you magically become less tired. In investing, it's easy to get rigid in your strategy. We can easily label ourselves as value investors trying to emulate someone like Ben Graham. And in that process, we forget that the world has changed a lot since his day. Rigidly focusing on businesses with assets and assuming intangibles are worth nothing forces investors to overlook large areas of the market that are ripe with opportunity. Of course, you can be rigid in many areas of investing. I, for one, have a pretty significant dislike for technical analysis as I never wanted to identify as a trader after my abysmal experiences trading crypto.

1:08:47But I allow myself to look at charts now and then just to use them as a source of information to help place bids on businesses that I may want to add to my portfolio. And even though I fear that those bids will never get filled, I'm always pleasantly surprised by how often the market will bid down a business that I really like and by how technical analysis helped me land shares at an excellent price. Now, the second quote here is excellent. It's a great way to look at how you do anything. I think most listeners of the show are people who are trying to improve. And the simple notion of absorbing what is useful while discarding the rest is just a great and simple framework.

1:09:21That is basically what learning is. You find things that work for you, adapt them into your framework, and when things don't work out, you throw them out, then rinse and repeat. It's actually the last part of this quote that fascinates me the most. Add what is uniquely your own. This is where your own preferences and creativity come in handy. You get to choose whether you resonate with something, then add or subtract it from your strategy. In sports, a quarterback like Lamar Jackson is known not only as a great passer, but also as a player who is absolutely electric on the ground, thanks to the physical gifts that he has with his legs.

1:09:53In investing, you can pick and choose what you want to invest in, stocks, bonds, real estate, crypto, alternatives, et cetera. You can look at your position sizing, your holding periods, how much you turn over your portfolio, whether to be more short, medium, long-term oriented, what kind of industries you want to invest in, what market cap quartiles or deciles you prefer, the quality of the business and the manager, and just so many more other preferences and variables. The list here is really endless. And if you get to know a really good investor well, you're going to see that no two investors are complete carbon copies of each other.

1:10:26And that's because you can add your own flair to your strategy and make it uniquely your own. It's why I think investing is so fun and why I think you can learn so much from different people. Even though I will never be as concentrated as an investor as Charlie Munger, I learned a great deal from him about his thinking processes. And even though I have zero interest in cheap cigar butts like Benjamin Graham, I learned so much from his margin of safety principle and his Mr. Markin analogy. And even though I have zero interest in bonds, I've learned everything I know about risk from Howard Marks.

1:10:55So I think that's why it's essential to keep an open mind, just like Bruce Lee would say. You never know what valuable insights you're going to learn from the most unlikely place. But if you remain a closed book, you prevent yourself from learning things that could provide you with massive improvements in your wealth. That's all I have for you today. If you want to keep the conversation going, shoot me a follow on Twitter at irrationalmrkts or connect with me on LinkedIn. Just search for Kyle Grieve. I'm always open to feedback. So please feel free to share how I can make this podcast even better for you.

1:11:25Thanks for listening and see you next time.

1:11:28Kyle Grieve:Thank you for listening to TIP. Make sure to follow We Study Billionaires on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor's Podcast Network. Written permission must be granted before syndication or rebroadcasting.