Introduction

Patrick: [00:01:21] My guests this week are both veterans of the podcast, Jason Zweig and Morgan Housel. They are two of the best in the world at making the complicated, simple, and in that spirit, I'll keep this introduction short. Morgan shifted from public markets to private markets a year ago when he joined the Collaborative Fund. So we begin with what he has learned about venture capital in his first year on the job.

Morgan: [00:01:43] I got disenchanted with a lot of the investing industry just because it was so heavily focused on markets and not business. And I viewed venture capital as the closest as you could get to the actual businesses. And actually, the farthest away that you could get from markets. I viewed it as just the purest form of making an investment in a direct business where you were getting your hands dirty and you are really seeing day to day, the daily knife fight that Brent Beshore talks about, of how dirty and ugly and difficult it is to run a business, which is why I got interested in investing in the first place when I was a teenager. It wasn't markets, it wasn't the stock market. It was business that I really liked and my career gravitated towards markets as I think a lot of ours has, but I wanted to get back closer to businesses. And I really thought a year ago, Patrick, that I was going to have to learn a completely new skill. I was being so far removed from the markets business that I had spent my career in, that I was going into a completely different field. And I think what has shocked me the most over the last year, is how wrong that was. If you make a Venn diagram with VC on one hand, and public markets on the other, the overlap is way larger than I thought it would be. And there are of course some huge differences between the two, but the overlap is been so much more substantial than I thought. And a lot of the really key drivers of public markets investing transfer, not only a little bit, but I would say perfectly into venture investing. And I think no matter the stage or size investment you are making, no matter the industry, there are some elements of change that drive competition.

And there is some element of stability that drives compounding. Those are the two elements that make any investment. And VC investors versus public investors just weigh those two differently, but it's just a different cut of the same meat. So things around long-term thinking or business modes, or compounding, or the impact of fees, or the needs and the desires and the psychology of LPs is really all the same. And that's been, I think, encouraging to me because I really felt like I was taking a big leap of faith in the middle of my career to do something totally new. And I realized pretty quickly, but I'm still reminded almost on a daily basis of how we're all doing the same thing. We weigh variables differently, but we're all doing the same thing.

Investing in Public and Private Markets

Patrick: [00:04:05] One of the funny things about venture capital is how tiny a sliver of the assets that are being invested represents, relative to the attention that it gets. And I think of course that's because of some of the most exciting stories in any given market are almost always happening at the venture stage, because it's where there's the most growth and excitement, I guess you would say. I realized when I was thinking about framing today's discussion that Jason and I had actually never talked about early-stage or really any private market investment. And obviously, a lot of what you've written also is about public markets. So I want to almost, without having a very specific question, just open it up a little bit to you to riff on concerns and I guess pros and cons of a private market investing, through the same lens of businesses. Of course, these are still markets, right? There are still competitive bids and there's still some pricing efficiency, but I'm curious, your general take on private markets in general and venture capital specifically.

Jason: [00:05:04] Yeah. I mean, one of the things I was thinking of as Morgan was talking was there's a wonderful remark by Ben Graham that I think he actually... I think he made it in this speech from 1963 that I have on my website, but I'll have to double-check where I first read this. But he advocated that security analysts when they are appraising any public company, should make their best estimate of the business value of the enterprise. And then how much of the remainder of the stock market value derives from speculation. And it's a suggestion that to the best of my knowledge, no analyst in the history of Wall Street ever took him up on, but it's an excellent approach that we could all do more, I mean, it would be great to see more of that in the public markets. I guess one of the things I've been thinking about quite a bit over the past few months is the extent to which returns vary based on where they are earned.

If you think about a lot of people, Michael Mauboussin most recently has pointed out that it's almost as if there are three stages of corporate life. There's venture and other early-stage, angel and other early-stage investments, there are the public markets, and then there are private equity or buyout funds. So we count on the early stage to give birth to companies, the public markets to nurture them, and then the private equity or buyout market to take them in, fix them, and then put them back out again. And as time passes, I'm starting to become skeptical that the returns differ all that much in the aggregate, from one of those categories to the other. I'm inclined to think once you adjust for a leverage, and particularly when you adjust for risk, and returns probably pretty comparable throughout that life cycle, which is counterintuitive.

And I think particularly people can get sidetracked by the jackpot phenomenon that you can get in venture capital or in private equity for that matter, where one buyout deal or one venture deal becomes Amazon or Dell, and a few people make a ton of money, but I think when we properly weight the returns and we take account for the deals that don't survive, the risk that's incurred and especially with private equity, the leverage that gets layered on, I'm not sure the returns are all that different. What do you think, Morgan?

Morgan: [00:07:57] No, I think that those are fair points. One of the big differences between private markets, whether it's PE or VC, most of the time in almost all the cases the investments are being done out of funds that are probably a 10-year fund, maybe more, with effectively, no liquidity in the meantime. Now 10 years is long enough that you're probably going to go through a full market cycle or maybe two. So some of the biggest elements that drive public markets investing of the in and out, the reactions to a recession, whatnot don't cycle into volatility in VC and PE just because the pricing mechanism in the liquidity is just not there. So I think it's difficult to compare risk apples and apples, just because so much of what risk is, where I would say one of the main concept of what risk is, is your ability for better or worse to react around the liquidity that you have. To take liquidity or to leave it on the table when you haven't. And in private market oftentimes that decision is made for you.

You don't have liquidity even when you want it. And actually, I think that's probably one of the things that I like most that I didn't really think about that much going into it, but I think has been one of the most enjoyable aspects of private investing, is that it is specifically the lack of liquidity that so many public investors know that if you can take a longer-term view, and ride the ups and downs versus trying to time them and get in and out, that you'll probably have a better experience over the lifetime of your experience as an investor. And in private markets, those decisions are made for you. And so we don't have to deal with the spooked investors running in and out. It's a 10-year fund and you're in this partnership.

And that just makes the job easier, I think on both sides, for us as investors and also the LPs on the other side. That once a deal is made and you can really, there's a big difference between people who think they're long-term investors want to be long-term investors versus how they actually behave in practice. Carl Richards writes for The New York Times. He talks about this a lot of... What if you set up and he means this tongue in cheek, not literally, but what if you set up, if you are a public markets investor and you want it to sell, you had a legal document that you could only sell with your brother's permission. He's just trying as he explains that he wants to put a gap between you and stupid. And I think in private markets, that gap is actually like a legal doc. There's nothing you can do about it, which has been encouraging.

Patrick: [00:10:23] How do you both think about maybe from both the private and public market standpoint valuation? So we'll start with you, Morgan. And you tell me what the going rate is, right? For a standard seed stage, or even earlier stage, friends and family valuation and how much that's changed in the recent several years, whether that's something you think about or worry about. And do you see signs in venture valuations as indicative of any bigger, broader trends?

Morgan: [00:10:52] Yeah, I would say two things. The first thing that a lot of people think of when the topic of venture valuation comes up, is the phenomenon of unicorns, the billion-dollar or the deca-billion dollar startup, which is a funny way to phrase it. You have companies that are 10 years old and worth $50 billion still being called startups. That I think is almost entirely an impact of an incredible drop in companies going public over the last 20 years. So companies today that in any other world in the past would have been public companies long ago, are still private. And that has the effect of completely changing the makeup of the private venture-backed universe of companies. So in past eras, companies went public when they were worth 50 or $100 million. Now they go public when they're worth 25 or 30 or $50 billion or more, which makes it look like, oh, venture valuations are orders of magnitude higher than they were in the past.

I think it's largely just a difference in timing of when companies go public. The other thing I would say is to the extent that there is tremendously more money in venture capital today than there was in the past, has that had an impact on valuations in some areas? Yes, undoubtedly. I think a bigger area it has had an impact on is the supply of startups. And it's not necessarily that the valuation of startups that would be around in any era is being pushed up, but the number of companies that are trying to raise money, some of them successfully is substantially higher than it had been in the past. And the number of cold pitches, I would say that come across our radar, in our inboxes that you can tell a little effort has been put into it, let's say is substantially higher.

And to those companies, clearly why they're doing it is that there are funds out there who will fund them. So I think the biggest challenge for a private market today is not necessarily navigating around higher valuations. Although that is an element, I don't want to put that. A bigger challenge I think, is creating a deeper and more specific filter to navigate around the number of companies that might come across your radar and just being more selective about it. It's almost, I think in the 1990s, it was the same thing for public market investors that so many companies were going public that, yes, were there increased valuations? Well, especially in the late '90s, yes. But let's say in the mid-1990s, yes, there were increased valuations but were there as a tremendous amount of were just floods of companies going public. And it was incumbent on a public market investor to create a deeper filter at that point to get to the bottom of what was worth investing in.

The biggest challenge for a private market today is not necessarily navigating around higher valuations. Although that is an element, I don't want to put that. A bigger challenge I think, is creating a deeper and more specific filter to navigate around the number of companies that might come across your radar and just being more selective about it

Patrick: [00:13:20] Jason, as you're thinking about public markets, how much time do you spend thinking about individual businesses and companies? I've been thinking a ton about this as the age of the default, where there seems to be a company, usually a tech company really, in its DNA that has colonized key parts of our attention in our lives, and serves as the default for how we do the major activities. So these are the obvious ones, it's Amazon, it's maybe an investing, it's becoming Vanguard. We could talk about, obviously that's a good thing for a lot of reasons, but I'm curious what you guys think about just there's a scale problem, right? At some point, maybe it's Uber, maybe it's Netflix. It seems as though the little bits of our attention in our day and key functionalities are being sucked up by just one player, which is interesting, but obviously, there's always competition, there's always creative destruction.

So I'm curious how much you think about, and these companies tend to be exorbitantly expensive through traditional Ben Graham price to earnings, price to book ratios, et cetera. And some of them have never really made any money. Amazon's a great example. So, how much do you think about that when you think about public markets knowing full well, of course, that you're an advocate of a fairly passive approach to markets, but what do you think about individual companies like that?

Jason: [00:14:36] I guess the first is that I am a big believer that there is an... I hate the term new, but I think maybe it does apply here. There is a new business model that has emerged in the past let's say, 20 to 25 years. James Anderson, who's one of my favorite active stock pickers at Baillie Gifford's in Edinburgh, Scotland calls this the west coast model. And what he has in mind is CEOs and companies exemplified by Jeff Bezos and Amazon. People who essentially don't really care about pleasing Wall Street, making quarterly earnings who have at least a 10-year planning horizon and are willing to ignore all short-term interim obstacles along the way, and will sacrifice any number of conventional short-term goals to meet the long-term goal that they see out on the horizon. And Zuckerberg at Facebook, I mean, there's any number of companies like that we could name, and they're not all in the US. Ali Baba, maybe is another example, some people might say Roku in Germany, there's a fair number of companies like this and they won't all succeed.

A lot of them will fail. It's no easier to predict the long-term than it is to predict the short-term, but it's more rewarding. Both for the business and for its investors. So I think that's a very healthy thing. If you think about it, it's very much an analog to corporations in the 19th century, when you had great builders like Andrew Carnegie, I'll name a couple of controversial names, John D. Rockefeller, maybe even J.P. Morgan. People who today are both admired and reviled for ruthless business practices, but there's no disputing that they had a long-term vision for their company, for the business, and for the economy and were able to realize it. So I think that's the first thing, is that as a society and as investors, we haven't really come to terms with the best ways to identify businesses that are using that model and effective ways of trying to predict who the winners will be.

The second point I would make, circling around to the passive part of your question, is there're obvious implications in the move toward indexation, among investors. And one of the most obvious, and frankly, the most troubling is that to the extent that passive investing works and it does work very well over time. I don't think there's any disputing that at this point, but it's an abrogation of the investor's responsibility. Is that appropriate for many people? Absolutely. Is it appropriate for most people? I think, yes. Is it appropriate for everyone? Is it healthy if everyone does it? No. If the entire US stock market ultimately is indexed, that's not going to be a good thing. It won't happen.

Patrick: [00:18:00] Yeah, it can't happen.

Jason: [00:18:01] It can't happen. Because active investors won't let it happen because it's too lucrative not to let it happen. The arbitrage opportunities become enormous as indexing takes a larger and larger share of the total stock market. But when we become a nation of people who are simply letting it ride or who believe they're letting it ride, that's when I think we get into danger because as Morgan pointed out, at the top of our conversation here, the real distinction is between people who are long-term investors and people who just think they are. And in my dictionary, in The Devil's Financial Dictionary, when I define risk, I say in the end risk is the gap between what investors think they know, and what they end up learning about their investments, about the financial markets, and about themselves. And the real danger I think, is not that people are doing the right thing, which I would argue indexing is, but that they're doing the right thing for the wrong reason. And if somebody is buying an index fund as just the latest form of performance chasing, and I think that applies for tons of financial advisors out there who are just buying the next hot dot, and it just happens to be an index fund. Those people and their clients are going to end up really, really sorry, in the end.

What it Takes to Start a Business

Patrick: [00:19:28] I'm going to go a totally different direction on both of you because we are... I think all investors at our root or that's how we came up. Imagining for a minute instead that we are entrepreneurs. And I'm thinking of this question really, because of your experience in the past year, Morgan, working with so many entrepreneurs. If I told you, you had to leave your current day jobs and go start a business now, given all of these things that we've talked about. These ideas of complacency, of behemoths that are gathering our attention share, et cetera, and you wanted one to enjoy yourselves, but to be successful, how would you attack that problem? What kind of business do you think you'd start?

Morgan: [00:20:06] Well, that's a great question. I think my answer would be and this might be interesting coming from someone who works in venture capital. I don't think I have the disposition to be a startup. I'll put it this way. There was a pretty fierce debate on Twitter a couple of months ago from an analyst who works at a VC shop, who was pushing back against the idea that if you work in tech, you have to work 100 hours a week. He was pushing back against that he said, no, it's much better to have a work-life balance, just to be more sustainable, you'll be able to actually maintain your job, yadda, yadda. And two pretty prominent VCs pushed back on that and said, no, if you want to work in tight work at a startup, it needs to be 110% commitment.

I think the disparity... And I agreed with both sides and I'll tell you why. If you want to be an Elon Musk character, if you want to be the founder of a startup that's going to be massive, you need to work 100 hours a week for years, or maybe decades on end. There's no other way around it. There are no part-time founder jobs. If that's the route you want to go, that's the disposition and commitment that you need. And a vanishingly, small sliver of society, I think actually has that a lot of people think they do, or I'd say a lot of people can maintain it for a limited period of time.

But the number of people with the endurance to put in what it takes to be a successful, not only founder, not only startup CEO, but CEO of any size company, the amount of commitment that it takes is a dedication that is not very common among people. And to bring it back. I don't think it is what I have in me, or it's not an endurance thing, but I think how I like to structure my day around, learning and thinking, is not the kind of mentality or disposition you need to be a CEO, which is spending your day executing.

Patrick: [00:21:50] So a key clarifying question, which will be before we get to Jason's answer, I want to hear both of your opinion on this one is, when you say work 100 hours or whatever that crazy status, it implies that other time is being spent on things not defined as work, whether that's rest, sleep, or pleasure, probably those are the other three categories. So how do you define work? I know you very well. I know that for you, reading a really interesting book is not work, but in some sense it is work.

Morgan: [00:22:19] For writing, which all three of us do. All three of us at this table are involved in writing and financial content, not only part of the job, but I think the majority of that job for all three of us is reading and learning. So if any of the three of us on a Saturday morning are reading a history book, that's not even related to investing at all. Maybe it's a biology book. Jason talks about this a lot. Multidisciplinary learning. Is that enjoyable for all three of us? Yes. All three of us are nodding our heads. Is that also directly related to the work we're doing? Of course, the distinction I would make to bring this back to the original comment is, to be an effective CEO, do you have to have that natural curiosity and read about different topics? Yes, absolutely.

But the huge majority of your day is going to be taken up by actually executing the business at hand. Whereas I think the curiosity that the three of us have, I think a lot of... particularly at the startup levels, there's just not enough hours in the day to be able to do that because you're dealing with hands-on things of signing contracts, dealing with employment issues. There are so many different, I'll bring it back to what Brent Beshore calls it the daily knife fight. I think Brent described it. I love this description of you roll out of bed in the morning. You grab your knife, you fight off the business demons all day, and then you get back into bed and you do it all again the next day. So there's not a lot of time for, I think, unstructured learning in that environment.

Patrick: [00:23:39] How do you parse that idea, Jason, of work versus pleasure, versus rest? First of all, do you even agree with that as the framework for...

Jason: [00:23:47] We are letting Morgan completely off the hook here.

Patrick: [00:23:50] We'll come back to him.

Jason: [00:23:52] All right. I think as Morgan said, we have a bit of luxury here, the three of us in this conversation, because of course what he said is absolutely true, which is everything we do is both work and play. And I don't think that's true for a lot of CEOs. I don't think that's true for people who are starting new businesses. There's this wonderful line. I forget who said it about him, but the great 17th-century philosopher Spinoza, somebody called him the God-intoxicated man. And if you're running a startup, you are the business-intoxicated person. You see the entire world through the lens of what you're trying to build. Everything isn't an opportunity or an obstacle, or hurdle to be leaped over.

Whereas for somebody like me, a lot of my spare time I spent looking out the window, reading books that don't seem to have much of anything to do with anything, browsing some academic journal, talking to people I meet who aren't even in the business world. And I'm waiting for Brownian motion particles to collide. That will give me an idea for something different to say about the same old beams that I've been banging the drum on for 30 years. So it's a different way of looking at the world, I think.

Patrick: [00:25:32] If you had to start a business, what would you do?

Jason: [00:25:35] A few days ago, I tweeted this, what I thought was a very fun and hopeful observation from the Pritzker brothers, the great business builders in Chicago, and they did an interview at the Booth School of Business, I think. And they were asked, what's the one thing you look for, or what's the one question you ask when you're thinking about investing in a business? And as I recall, the answer was, what pain, P-A-I-N. "What pain are you trying to heal and how much does it hurt?" And I think that's a great question to ask anybody who's starting a business. And I mean, in my case, mine is I don't think he'd describe it as a pain. It's more like an itch. That's probably only my itch. I may be the only person in the world who is bothered by the fact that when I'm looking for a Renaissance painting or a medieval manuscript, or a Japanese print, I can't immediately search online and get exactly the image I want, returned to me with information about whether it's in the public domain. So if I were to launch a business, I would launch some comprehensive archive of the world's greatest works of art in all media, from all cultures, that was intuitively searchable because even like Google Art Project, I don't find it very satisfying and there are developing alternatives, but none of them quite grabbed me, but I'm never going to do that. It's just what I would do. You asked a hypothetical question.

Patrick: [00:27:21] I talked about the age of default. That also seems to be the age of the niche, where you can thrive in fairly small little corners of the world. And if anything, that can be a large competitive advantage because the scaled-up competitors that have the scale and the cost of capital, like on Amazon, it's not worth their while to compete in some of these little tiny niches. So I'm not going to let Morgan off the hook. We're going to need an answer from you on, if you had to start a business, what would it look like?

Morgan: [00:27:48] Yeah. I think what's been really encouraging in the investing industry, is that over the last decade, let's say the access to investment planning has really been democratized, the access to good investment planning, through let's say Betterment and Wealthfront, that has been a really encouraging move in the right direction. The access to financial planning hasn't. And by and large, if you want a financial plan today, you have to do it in the same way that you got investment advice 10 or 20 years ago, which is you book an appointment with the guy down the street, you have to go pay him a couple of $100. You'd go in, sit across the desk in his office. He asks you about your weekend and your family vacation. And there's a lot of good advice out there, but it hasn't been distributed yet in a really efficient, scalable way that investment advice has. So I think there's a big opportunity there. And I think a lot of the reason that it hasn't really picked up to the extent that I wish it would, is that investment planning for a lot of people is exciting. Let's go talk about my investments. Planning your will, planning your estate, thinking about college education funding 10 or 20 years in the future is easier to put off for people. I think that's why it hasn't gained the demand from consumers or the popularity among entrepreneurs. But I see a pretty big opportunity there with increasing importance and just something that hasn't really gained much scale or hasn't really changed much in decades.

Jason: [00:29:18] Yeah. But I guess I would jump on top and say that if you're going to do that, Morgan, you better do it soon because to the industry's credit, there are some good people working on this. It is so long overdue. It is decades overdue. And it's outrageous that the financial advice industry has trained the public to pay 1% a year for the investment management aspect of financial planning, which is essentially trivial and which financial planners are not very good at anyway. But at the same time, has trained the public to believe that the financial planning aspects of that relationship, which are really important and can make a vastly bigger difference in their future wealth, then portfolio management should be free. It's bonkers. I mean, you go to the typical investment advisor in this country and you'll pay 1% a year to have your portfolio managed. And the other aspect of financial planning is free. It's nonsense. And it's a crazy business model that developed by backwardation almost, and the fee structure is nonsensical, and people are overpaying for a commodity product that underperforms and they're underpaying for a very useful service that makes a massive difference to their future wealth.

Managing Stress

Patrick: [00:30:55] It makes me think about the role of stress in a couple of different ways. So you mentioned this idea of a great way to find a good business, the Pritzker brothers. It was also in this book, Modern Monopolies, which I'm a big preacher of the value of this book. I think it's so interesting. It talks about, well, you called the west coast business model, they call it the platform business model. Uber is the quintessential example, and the simplest way is to say X, fill in the blank, no longer a pain in the ass. And another way of saying this for financial planning is, it's something that is annoying, a little stressful, not exciting. So if there are interesting ways to maybe make it easier or make something difficult, easier, that's also a great approach to business, but I almost want to think about stress in the other direction. So it's a great approach because you're solving someone's problem, making things easier or less stressful for them.

But I'm curious how you both think about the role of stress in your own development and in business development. So one of the things that I think about all the time is trying to monitor myself for complacency back to this idea of complacency. And yeah, we all love to sit around and read, and write, and think, and coalesce and let the subconscious marinade. But I also find that if I'm not saying reading a very challenging, frankly stressful book, with ideas that are a little bit beyond my ability to understand, then I get in this rut and nothing new that subconscious Meredith doesn't produce anything interesting. So how do you both think about keeping the right level of, I guess, intellectual, maybe even physical stress in your life, and how do you think about the value of stress as it relates to growth and wellbeing?

Morgan: [00:32:27] I think there are two things that pop in mind for me. One will be familiar in the investing context, which is the margin of safety room for error, which I'm sure all of your listeners will be familiar with in investing context. But I think that's a philosophy that scales to a lot of areas in life, whether it is health, or your career, or your friendships and relationships, giving yourself room for error is just an acknowledgment that our ability to predict what's going to happen next. And again, I mean this well beyond investing context, is beyond our ability of what we think it is. And I think the best response to areas that are hard to predict is not to try to come up with better formulas of prediction, or try to create new analytics for predicting what's going to happen next but to give ourselves room for error. There's a great quote from Daniel Kahneman, who says, I'm butchering this all, we can post it at the end of the podcast.

The best response to areas that are hard to predict is not to try to come up with better formulas of prediction, or try to create new analytics for predicting what's going to happen next but to give ourselves room for error.

The quote is along the lines of when you come across a surprise, the correct takeaway is that the world is surprising, which seems obvious, but when so many people come across surprises, their takeaway is, okay, how can I learn from this surprise to predict, to learn from it, to make sure that I can predict that it doesn't happen again. Whereas your takeaway should be that the world is surprising, which gets back to the quote that you mentioned earlier of history being, the study of unprecedented events used to predict the future. So I use the concept of room for error in a lot of areas of my life as a stress management tool, to not only try to predict the future but set up my life in a way that I have to be right about things. I'd much rather give myself room for error in a lot of aspects of life.

The other element that came to mind when you asked the question is, in some ways the opposite of that, which is cutting my losses short, particularly around reading, as you said. I think this is something that Jason and Patrick, you would agree with this, too. This is a monger quote. I don't burden myself with bad books. And I have no problem reading five pages of a book and saying, not interested, I'm out of here. And I think a lot of readers don't do that. And I think a lot of people learn early in life, a really bad habit, which is I should plug away at this book until the end. And that's a lot of reason why they don't like reading, is because they're burdened with bad books. And I think if you develop the habit of very quickly cutting your losses for something like not just in reading, but in, let's say friendships, relationships, jobs, rather than trudging through something that is clearly not working for it. You're not scratching your itch. I think cutting your losses pretty quickly is a good philosophy that spans a lot of areas of life.

Jason: [00:35:01] Yeah. I mean, I would just add to that. And I would say that the various forms of sunk costs are a huge burden on people. I mean, just following on what Morgan said, I don't know. A few weeks ago on Twitter, I don't know who started this, but I said something like, if I don't like a book, I just stop immediately. I mean, I've stopped reading books after five sentences. If it's bad, it's bad. And I'm a huge reader of 19th century English and French and Russian fiction. And there's one writer I will not read, Henry James. I can't stand Henry James. I will not read Henry James. And all my literary friends tell me how great Henry James is. I'm like, I'm sorry, I'm done. I tried him five different ways and I'm done. And the same attitude I think can be helpful in a lot of aspects of life.

And I think one of the difficulties though, is that the most important decisions in life tend to be the ones we can't practice. So think about, I mean, I'll throw three out there. So marriage and buying a house. I mean, those are not decisions people make dozens of times in a lifetime. At least not many people. Even people in Hollywood don't get married dozens of times. So you get married... Most people get married once or twice. Some get married three times. That's a very small sample set. It's no wonder the error rate is so high. I mean, depending on whom you ask, it's 50% to 2/3. There's a lot of regrets built into that system. People change jobs, what, four to seven times in a lifetime. So they get the job wrong, a lot of the time, they make the decision wrong a lot of the time, and they buy a house in the wrong place because they're not practiced at it.

So I mean, the advantage of stress is that when we have practice in a task, stress is a signal that our pattern recognition system is generating that something's wrong. You're not going to get that stress signal in a decision that you don't make repeatedly over the course of a lifetime. So people's own intuitions tend to be a very poor guide to decisions they don't get a lot of feedback on, you need that structured feedback if you're going to improve the quality.

Morgan: [00:37:35] I think there's some part of stress to that. And this is why the topic of stress is so difficult for so many people is that long-term thinking is the ability to put up with bullshit. That's really what long-term thing is, the ability to endure volatility, the ability to endure discomfort, cutting your losses short is having no tolerance for bullshit. And I think you need both of those to be able to handle risk over time. And though it's almost like a barbell strategy to it. And those two things are conflicting, but you have to be able to accurately navigate both ends of that spectrum. And that's really difficult for a lot of people, when to cut your losses short and when to take a longer-term view and endure discomfort.

Long-term thinking is the ability to put up with bullshit. That's really what long-term thing is, the ability to endure volatility, the ability to endure discomfort, cutting your losses short is having no tolerance for bullshit.

Patrick: [00:38:17] Are there markers of that? So looking back on both careers, I'm always fascinated by this question of when is it smart to cut losses and move on? So I love applying the startup iterative model to reading, you should fail fast as a reader. I'm a huge believer in that, because then you're going to get more shots at finding a great book, right? That could be really life-changing or incredibly enjoyable, but there's this often long slog in the middle of what turns out to be a very successful endeavor. We talked to you about the process of writing a book, maybe not this one, but some of your other books that there's this long needle, that can be just brutal. And I think we'd all agree. We'd call it work and often very stressful work or agony. And you think about things that in retrospect were incredibly enjoyable periods or successful periods, or some of the accomplishments that you look back on with pride, where there markers of why you should have kept slogging, versus cut the losses short? Can you think of anything like that?

Morgan: [00:39:14] There's a key difference between waking up in the morning and saying, this is going to be so incredibly difficult, but I still love what I'm doing, versus waking up in the morning and saying, why am I doing this? Those are distinctly different, but they're very easy to conflate. I think in real-time, it's very difficult for most people to tell the difference between those two. And that's what causes a lot of, let's say bad marriages, bad careers, bad investments. It's an incredibly difficult thing to separate. And I wish there was an easy answer for it, but I don't think there is. And yeah, I've had a lot of times in my career where I've woken up and said, "God, what I have in front of me today looks miserable and I don't want to do any of it." but I still loved what I was doing. I still loved the act of writing, the act of learning, the act of investing, the study of business. I still love all of that, even when it's incredibly difficult. And other areas of my life, let's say different careers when I was still in college, had some internships where I woke up and said, I don't want anything to do. I don't like any element of that. And luckily I think it was pretty black and white for me. But I think a lot of times it's not, it's some shade of gray and that's where you get really difficult decisions.

Jason: [00:40:21] Yeah. I mean, one thing that I advise my younger colleagues at The Wall Street Journal is, I mean, I do have this expression that I don't think I got from anybody else in journalism. I say, listen to your fear. As you guys know, my column goes up online every Friday. It runs in the weekend print edition in The Wall Street Journal. And by Wednesday, I need to know what I'm doing for the end of the week. And there have been Friday mornings where I said, why are my palms sweating? Why have I been to the bathroom twice in the last hour? Something's wrong. And a couple of times I ignored that feeling. And that's when I made mistakes. That's when, at the very least I looked back later and said, that was really not a good thing to persist in. You have to listen to your fear. I mean, there are moments when your body will tell you something's wrong. If you're sitting there and your face is all screwed up, and your forehead is wrinkled, and you're frowning and you can't concentrate. And you feel as if you're trying to lift much too heavy an object, in way too short a time, then you probably should stop what you're doing and start all over again from a clean slate. And in journalism, especially in deadline journalism, that is a very unpleasant experience, but it was way better than the alternative of just putting the garbage out there and then having to face the consequences. I mean, when I was working with Danny Kahneman on Thinking Fast and Slow, there was one chapter where I felt at the end of the day, literally that day, the calendar day, that we had done really good work.

And one of us went to sleep. That was me. And Danny stayed up all night. And when I woke up the next morning, I had just this stream of emails from him that he sent out between 2:30 in the morning and 5:30 in the morning. And this was all we were in the same time zone. And the emails started out with a subject line like, "Are we sure about this?" And then it progressed to, "I don't think I like this." to "This has to be wrong." To by the end, it was something like disaster or catastrophe. And then at 8:30 in the morning, my phone rang and it was him. And he said, "I think I figured it out." And a little later in the day, he sent me this revised draft and it was completely transformed. There was nothing in it from what we had done the previous day. And as somebody who'd been a professional writer for almost 30 years, at that point, I was flabbergasted. And I said to him, "Danny, how did you do that?" And he said, "I have no sunk costs." And I've never forgotten that. And to this day when I'm writing something and it doesn't work, once I come to the conclusion that it doesn't work, I don't fix it. I don't tweak it. I just blow it up. And I just start from an empty screen, no words, no nothing. I don't look back at what I did before. I just started over. And I think that's a really useful discipline for people in any walk of life.

Patrick: [00:43:54] Reminds me of the old Turkish proverb, which is something like, no matter how far you've gone down the wrong path, turn back.

Morgan: [00:44:01] Phil Knight, who founded Nike, he writes in his biography that came out last year. He writes about the difference between giving up and quitting. And he says, you should give up all the time, but you should never quit. And I think that's a simple way to phrase it. And he talks about how he did that at Nike, this constantly giving up on things that weren't working, but he never quit the overall mission of pushing the company forward.

“And for those who urge entrepreneurs to never give up? Charlatans. Sometimes you have to give up. Sometimes knowing when to give up, when to try something else, is genius. Giving up doesn’t mean stopping. Don’t ever stop.” - Phil Knight

Principles for Learning

Patrick: [00:44:20] If you had to sum up maybe a couple of those principles for how you approach learning the world, business, life, what would those be for you?

Morgan: [00:44:28] Well, it's a great topic because the most powerful concepts are those that span multiple disciplines. If you can find philosophies or behaviors that are just as true in physics as they are in medicine, they span multiple different disciplines, that's where you really get something that is really powerful. So some of those for me, this will be I've written and talked about this so ad nauseum. But for me, it's really the basis of how I think about not just investing, but life which is long-term thinking. This will come to no surprise to you or anyone at this table. But I think in investing in particular, it is probably the last area of edge in investing. That most of the edges that existed, let's say 50 or 70 or 100 in previous areas of investing, where you could find edge from intelligence, from your ability to calculate, your ability to analyze.

Most of those have been arbitraged away. They've just been competed into the ground. So most analytical edges, even though they're still there, they're still our analytical edges, but they are decreasing. But I think edges that you can find in behavior, particularly around patience and long-term thinking are both still deep and valid edges. And I think they are significantly more difficult or almost by definition, impossible to arbitrage over time. So if you are an investor today, I think this is a good framework, particularly if you are a new investor coming into the world, but also if you're a professional investor and you're looking for a philosophy for how to invest, or what is your edge in investing? What I advise people is to not think about an edge of how you can be smarter than other people, but what can you do that other people aren't willing to do?

Because there are a tremendous number of smart people, brilliant people in this industry. And increasingly it's not even smart people, it's just fast computers that are going to calculate analyze better and faster than you can, but if your edges are in behavior and patience, that is something that I think you can carry with you that is stable in time. So that to me, is a philosophy to bring this back, that I see across multiple disciplines, multiple fields, whether it is business or investing or relationships with your friends or your spouse. And it gets back to what we were saying in the past, it's the ability to endure discomfort. I think if you can make that a central part of how you go about your life, you have an edge over most of the competition that is not only valid today but will probably be stable in time. Meaning it's incredibly difficult for that edge to be whittled down over time.

Jason: [00:47:03] Yeah. And I think there's maybe a second element to what Morgan was just saying, which is, I'm not positive about this. I'd have to think harder about it, but it seems to me that there's also... I think that varies inversely with scale. I think the smaller you are as a person or an organization, the easier it is to take advantage of that time arbitrage. It's a lot easier for any of us sitting around this table as individuals to invest in a particular asset with a 10 or 20 or 30-year horizon, then it would be for our firms to do it, or for mutual funds that we invest in to do it, or for most hedge funds or any other form of professional investment to do it. I guess the other point that I would make, just getting back to your original question, Patrick, is I think the touchstone I use is people say to me, did you have a good week?

I answer that always by saying, "Yes, I learned something." or "No, I didn't really learn anything this week." And if I were to define a great week, it would be not only did I learn something, but I learned that something I thought I knew was wrong. That isn't really a good week.

Patrick: [00:48:35] So, if you unlearn something?

Jason: [00:48:37] Yeah. Another way of putting it, we're saying the same thing is, did somebody disprove some belief of mine? That's a thrill. And as I look at society today, particularly American society, although it's seems to be spreading like a contagion. I mean, if I had to boil down the disturbing trend in society today, it's that people are getting to the point where they can't stand being confronted with the possibility that they might be wrong about something. And I think to live a satisfying and rewarding life, you had better be able to embrace the idea that the only way you can get better is by learning that you're wrong about things. And in this country today, if you tell anybody that they're wrong about something, you might get hit over the head with a 2' x 4', and that's just stupid.

Morgan: [00:49:43] I think what's difficult about that problem too, is that the internet and particularly social media, more than any other medium in human history exposes you to different opinions and different beliefs than anything else, which for a lot of people, maybe most people on social media leads to anger and further polarization. It does the opposite of what should be done.

Jason: [00:50:05] I think there's still another aspect to it though, which is that media like Instagram, Twitter, Facebook, any number of other social media we could name, people seem to want to present... I mean, there's something about the me me me aspect of it that makes those media tailor-made for telling everybody how great you are, how smart you are. And no, I don't have one particular person in mind. Stop that, Patrick. I'm thinking of everybody, not just one person. And I think that's really unwholesome because first of all, it leads the individual to constantly reinforce that message about himself or herself. But secondly, it creates a competitive environment in which, not that Morgan would ever do this, but in which Morgan says, "Look at me, I'm Morgan, look how great I am." And then here's Jason over here. And he's saying, well, Morgan is saying how great he is, now I have to be greater than Morgan. And then Patrick has to one-up me and it just goes around in a circle. And it's like a bunch of college sophomores in a dorm drunk at night, all trying to outdo each other.

Patrick: [00:51:20] I can't agree with that more.

Jason: [00:51:22] See you're doing it.

Patrick: [00:51:24] One of my favorite, Morgan wrote about sources of edge. And it's interesting whether or not you should think about it as edge. But one of my favorites is Paul Graham's notion of keeping your identity small, that most of these problems that you're talking about, Jason, arise because we create for ourselves some identity, which has a certain number of features. I identify as Republican or as whatever it is. And we defend that territory viciously and are unwilling to really change once something is seated in our identity. And so Paul Graham's notion, which I think about constantly is keep your identity as small as humanly possible. So you want to be Teflon. You want stuff to just bounce off of you and really hold beliefs very loosely and be willing to change your mind-

Jason: [00:52:13] This is hugely important. And you really see it in the political arena, but that's an analog for all walks of life investing and everything else. There's a great psychologist at Yale named Paul Kahneman who has developed this idea that he calls identity protective cognition, which is a terrible name for what you just did. He's not in the marketing department. So far as I know, it's an awful name for what you just described, Patrick, which is if you're a Democrat, then you judge ideas, not based on whether they're valid or what the evidence supporting them is, but rather are they ideas that the democratic party's presently constituted agrees with. And if you're a Republican, you do the exact same thing. And that just makes no sense. And people do the same thing in investing. There are schools of thought, if you're a value person and anybody with a growth orientation is completely wrong. If you believe in smart beta, then anybody who doesn't is a fool. If you believe in passive management, anybody who buys an actively managed fund is a dope. I could go on, and on, and on. And if you're not judging the validity of ideas by long-term objective, ideally peer-reviewed evidence, then you're just protecting your own identity. And that's foolish.

Morgan: [00:53:41] I think it's true in sports too, where most sports fans, I think ironically are not really interested in athleticism. They're not interested in a great play. They're interested in, did my team win. And it's almost completely removed from what it should be, which is being impressed with athleticism.

Patrick: [00:53:57] In the spirit of keeping our identity small. If you could both give an example of the last significant thing that you changed your mind about. So, it's been about a year since we formally had a conversation like this, both of us. But maybe in the last year, is there any big thing that either your view significantly evolved or changed entirely?

Morgan: [00:54:18] No, not necessarily in the last year. But if I look at the span of my investing career, which is not terribly long, but more than a decade now, I definitely embraced. And this is specifically on the passive side, which is much more competitive. I really was a pretty diehard stock picker, definitely 10 years ago, but I would even say five years ago. And I would say for many reasons, I have come around to be almost as passionate and as believing on the other side of passive investing at the public stage. And that was a difficult transition to make. And there were years where I... Parts of my brain believed it, but I pushed back against it because I had so much of my learning and how I was brought up as an investor, was towards the active side. So there were several years of dissonance that was really uncomfortable before I made the leap towards the passive side. So now I'm at a point I've written about this recently, my entire investment portfolio on the public side is Vanguard total stock market index and venture, that's it.

Patrick: [00:55:23] What about private markets breaches that confidence? So as a passive investor in the public markets, you are now effectively part of an engine that is a stock picker in the private markets. So what is different, why one way in public and really the opposite in private markets?

Morgan: [00:55:40] Yeah, so it's an obvious question. And there are two things. One is private markets, particularly I would say this is less true if you're looking at large PE buyouts, but the lower on the scale that you get down to the startup universe, it is substantially efficient than it would be at any other stage. I would make the analogy that the VC world is probably as efficient as the public stock market was in the 1950s, 1960s, maybe, so pretty efficient. But now, I mean, they're massively less efficient than public markets are today, that's one. Two, I would say, and this is a point that I think gets lost when people look at the VCs universe, you were saying earlier, it's a small sliver of capital begets a disproportionate amount of attention. And it gets a lot of attention when there is a high profile blow up. But we at the Collaborative Fund, we own, I think 140 companies. So is that active? Yes, it is active because we selected each and every one of those, but it is the philosophies around broad diversification that make passive work, I think can also transfer over to other segments of the investing world. So it's those two things combined. It's the combination of significantly less efficient market on one hand, and also bringing in a lot of the elements that make passive investing work onto the other two, to bring that into the fold as well. And also, I would say we touched on this earlier. There is so much less liquidity in private markets that it forces you to become a long-term thinker, which is the other element of what makes passive work. So there actually are quite a bit of elements of passive that have worked their way into private markets. And this gets back to what I started the conversation with, that is the center of the Venn diagram is wider than I thought it would be.

Jason: [00:57:24] So, Morgan, I have a follow-up question, which is, have you thought at Collaborative Fund about setting up an experimental passive portfolio? Because I know there are some VCs that have talked about using algorithms to-

Morgan: [00:57:39] Yeah. There are some that actually have done that. There's one firm called Correlation Ventures. That is really fascinating. That takes almost an entirely data centric, analytic approach to VC and is effectively a VC fund that operates as most people would think a factor fund. And it's a really fascinating approach. We're not there yet. Will we do that? I don't think so. It's just not how we would set up. It's not where we think we can... what we're interested in or where we see a lot of the industries that we get excited about moving. But I think that that approach to private market investors is absolutely valid. And I'm fascinated that people are doing it.

Jason: [00:58:15] So, let me interrupt you for a second, which is why not alongside what you're doing with active company selection. Why not run alongside it, a dummy portfolio that just consists of all the companies that make presentations to you, weighted by some metric, and just compare the live portfolio against this model portfolio and see which does better over time and what you can learn from it?

Morgan: [00:58:44] It's a totally valid question and the answer that might seem disappointing to some, but it really is the most practical answer is, the fees that would need to be involved in terms of the legal fees for setting up a tiny slice of a deal, that you do almost no diligence on and to invest in 200 or 500 or 1,000 companies would be totally impractical.

Jason: [00:59:03] But why not do it as a paper hypothetical portfolio?

Morgan: [00:59:06] I suppose you could do that. Why it wouldn't work in the practical world is that, if you weren't actually an investor in these companies, you wouldn't get pricing information on them over time. So it would be really tough to track that portfolio, but I don't agree with, or I'd say I don't disagree with the idea in theory. I think it is absolutely a smart thing to do in theory, and the firms that are doing it or something similar to it, like Correlation Ventures, I think are fascinating. I think because of the inefficiencies of the markets and the costs that would take, the cost and the difficulties of tracking something like that over time are why it hasn't been done yet. I would say though, that private markets as they grow larger, are becoming slightly more efficient and cost that involved in are coming down. And as time goes on, not this year, next year, but I can totally see a world in 10 years or 15 years where the gap between private markets and public markets starts closing and they become one and the same. And that's when I think those experiments will start working. And I think, Jason, one of the reasons that the index fund didn't really become a big thing until later in the investing courses is for similar reasons, the cost of constructing, and tracking, and distributing a product like that wasn't feasible in the 1910s or in the 1920s or in the 1930s. It took until the '70s, '80s, and '90s for it to work.

Jason: [01:00:25] Yeah, in Vanguard's first five or so years of operation, the index 500 fund was quite expensive, and it also had a very bad tracking error problem early on that hurt.

Patrick: [01:00:39] There's an interesting issue here. We actually explored it in the podcast that came out today with Rishi Ganti, which is about how refined an asset is. And obviously, to get to be a publicly listed stock, you're effectively the most refined asset in the world, right? There are all sorts of requirements which obviously makes sense. But by getting public, you have passed the necessary filters to be in the Vanguard Total Market Stock Fund. Whereas at the stage that you're investing, you're dealing with incredibly unrefined assets. Sometimes it's merely an idea and a group of people. And I think that it will be interesting to watch from a technology perspective and a legal perspective, how far downmarket we can get with the passive or even low-cost approach, and what that will do for business dynamics. One of the interesting dynamics now is low-interest rates have created this wash of capital, the supply of capital into riskier things. And so there's tons of venture funding that's happening. Imagine if there was some passive vehicle that effectively if you met some minimum requirements and I don't know what those would look like, but they would be lower than the standards for being public. Imagine if all you had to do was apply to Vanguard Total Private Market Fund, and you've checked seven boxes and you get your check.

Morgan: [01:01:53] There are some elements of that. There's a company called CircleUp that we're investing in that effectively does that, where you can buy baskets of startups. It's an awesome idea. And it's utilizing technology that has been around in public markets for a long time, but it's still been largely devoid in private markets. So again, I think that gap between public and private is closing pretty quickly and it's going to be exciting when it gets even more closed.

Patrick: [01:02:16] A great diversion, but I want to get back to Jason to hear if there's any major thing that you've changed your mind about recently.

Jason: [01:02:23] Oh, yeah. We were talking about that. Weren't we? Well in fact, just very recently I had written a column, I don't know, I guess it was about a month ago about the decline in the number of public companies in the US 20 years ago, according to the Center for Research in Securities Prices at the University of Chicago. I think there were 7,500 public companies, more or less, that would have been in late 1997. And today there's 3,600. So half of all the companies in the public set have disappeared. And the bulk of those has been on the small end, particularly micro-cap stocks whose numbers have fallen by more than half. And I was alarmed by this when I delved into it. And I ordered up some detailed data from CRISP and they were great. They worked extensively with me on that.

And I was very concerned. I mean, I saw in it one element to help explain why active management has so badly underperformed index funds over the past 10 or 15 years, which is if at the small end, there are fewer companies to choose from than active managers who normally would be fishing in that pool, now have to compete for a lot fewer fish making that end of the market a lot more efficient and making it a lot harder for them to get edge in the very place where edge could pay off the most. And so I was pleased with that argument. And then a bunch of people got in touch with me and told me I was wrong. So I went back and looked at it and I quickly realized that I don't want to say that what I had written in the first place was nonsense, but I don't think it made a lot of sense.

And I had made an elementary math error. That's embarrassing, which is that if thousands of companies disappear, but they're all so small that combined, they have the market value of bodega on the corner, it probably doesn't matter that much to the markets as a whole. And I would say it's embarrassing. I should've thought that through more clearly. And I didn't. And I fell prey to a really basic cognitive bias, which is I saw a big number in the thousands. And I ignored the fact that in the scheme of things, that unit number in the thousands did not amount to a lot of dollars.

Morgan: [01:05:13] Isn't there some argument though that because so fewer smaller companies are going public that a very tiny portion of those small companies will eventually grow into one of the companies that drives the majority of an index's returns all the time. So the example people use is when Amazon went public, or since it's been public, it's up something like 1,000 fold, something like that, where it's-

Jason: [01:05:34] 50,000 I think.

Morgan: [01:05:35] ... something like that. Whereas Facebook, which went public considerably later in his life. And it has only been public for a few years now, but there's almost no reasonable chance that Facebook stock will ever be up a thousandfold because it just the way it went public at such a later stage. So, more of the hyper-growth returns that small edge of the tail that drives the majority of market returns over time are accruing to private investors and not public investors.

Jason: [01:06:00] Yes, correct.

Patrick: [01:06:01] Seems now we in raw dollar terms. Let's take those two companies. So Facebook went public at 100 billion, Amazon at 600 million or something like that, but they both created four and 500 billion of raw dollar value, it's always interesting, right? Yes, of course, Amazon's return is been astronomically higher just in percentage terms, but they both created a lot of raw dollar for investors.

Morgan: [01:06:25] So you're saying that I, like Jason, just got excited at a large number and thought that it meant something?

Interesting Ideas Morgan and Jason are Tackling

Patrick: [01:06:30] Something like that. If you had to think back on the last year at the most interesting field of ideas, individual idea that you've been tackling, what would that be? And what are the key couple bits of source data, whatever those might be that sparked that interest?

Morgan: [01:06:48] Yeah. So for me, what's something that's been a really fun discovery, not even the last year. This has been like the last month or two for me is a service called Blinkist. I don't know if you're familiar with Blinkist, it's based on the idea is something that I think all three of us would agree with, but I believe for a long time that the average book is way longer than it needs to be. The average 250-page book could be a 10-page essay and you can move on down the change. Even a lot of really good books after about page 100, you say, okay, I get it. What Blinkist does is it does, and it's done this for thousands of books. Is it basically summarizes books into a summary that you can read in about 20 minutes. And on top of that, they also have podcasts that summarize books in about 10 or 15 minutes. And so it makes it so that... And they do a very, very good job of distilling something down to its most important elements without losing any of the really important.

Jason: [01:07:42] Is it done by human beings or?

Morgan: [01:07:45] Yeah, it's done by human beings. I think they have about 2,500 books that they've done this for so far, it's a paid service, but it's been really fascinating for me because when it's distilled like that, and again, this is not a replacement for books, but I think what it's been for me is a good way to filter or to taste a book before I actually dive into reading it. Because since you can plow through the summary of a book in 10 or 20 minutes, that means over the course of a couple of hours, you can really get the bulk of the essence of 10 or 20 books and then figure out what you want to dive into from there. It's been a really fascinating tool that I've used for the last couple of months.

Patrick: [01:08:20] I've never heard of it, but one of the questions I would have is I think back in my own reading, how many blog posts, which are maybe often the more appropriate length for the exploration of an idea have had a real lasting impact on me versus often over long books. And it would just off the top of my head, I would think books significantly outnumber, blog posts. And I wonder if it's just like time, just forcing yourself to come to sit with an idea or a set of ideas for longer. So maybe the use of Blinkist is really, as you said not as a replacement, but as a filter.

Morgan: [01:08:53] It's a filter for real. Because we were talking about earlier in the discussion, I think all three of us have no tolerance for bad books, but we still have to go out and pick up a bad book and read a couple of pages. It takes time. I think using Blinkist or something similar, but I encourage people to at least check it out, has really helped my reading process for filtering out what I want to read next.

Patrick: [01:09:14] How about you, Jason?

Jason: [01:09:15] Mine, I guess is a little more abstract, less concrete. And I don't want to make this too book-centric, but this was a very important experience for me. The best book I've read over the past year. I think you both have heard me talk about it before, is an amazing novel called Life and Fate by Vasily Grossman, who was this just phenomenal Russian writer who grew up during the Russian Revolution and lived through World War II and published this book in 1960. It's about the siege of Stalingrad among many other things. And it's enormous. It's structurally patterned after War and Peace by Tolstoy. But the book is so great that after you read 150 or 200 pages of it, you don't want to do anything except read this book. But the reason I thought of it in light of your question is ever since I've read it, there's this thing that comes out of it, almost like an aroma, you can't really get it out of your mind and your memory.

Which is that in a totalitarian state, I think the way I put this once is that an authoritarian state crushes the human spirit by destroying the human spine. And what's striking is over and over again, the characters in this book are corrupted by Stalin and the Kremlin, and the whole Soviet power structure. And it changes their thinking. And a lot of the people in this book are scientists, and gradually over time, their science changes, their view and their colleagues' changes, and they no longer believe in the value of the evidence before their eyes. They can only see things the way they're told they should see them, and friendships are destroyed. Families fall apart. In fact, spouses and children no longer trust their own family members because they've been told not to. And that's the really vital lesson that I took away from this book, which is that the human mind is not what we imagine it to be, which is some incredibly powerful device for gathering and evaluating evidence and coming to conclusions based on the weight of the data.

Instead of coming to conclusions, based on the evidence. Instead, we look for evidence to support the conclusions we already have. And this book shows you just how corrosive that is for individuals and for a society when people let that happen to them, or when it's forced upon them. And so I think as investors, as people, as citizens, it's just so important to put evidence first and do everything you can in your power to combat the tendency to twist evidence, to meet conclusions rather than to draw conclusions from evidence. And it is so much harder to do than it sounds because all of us think that's what we do. And in fact, usually, we're doing the opposite.

Morgan: [01:12:45] That's really encouraging.

Patrick: [01:12:46] Well, this has been a nice light place there.

Morgan: [01:12:51] Jason, I can't think of any modern parallels.

Jason: [01:12:53] All right. So now I just have to add one coda, which is, I don't think that's a discouraging conclusion because what it really tells you, and by the way, that book does not end on a sad note, it ends on a bittersweet, almost elegiac happy note. But this is where human dignity comes from. I mean, human dignity comes from struggling against some force that's greater than you are. And ignorance, especially our own ignorance, that's a lifelong battle to conquer that. And the fact that it's a hard battle doesn't mean that it's hopeless. And it doesn't mean that there's anything dark about it. I think it's very positive.

Patrick: [01:13:44] Well, this has been as fun as I knew it would be, this is a trio that we've been trying to get together for many months now. So I'm glad we were able to do it. Thank you guys both for the time, and I think we'll have to make it an annual tradition.

Jason: [01:13:54] Thanks Patrick.

Morgan: [01:13:55] Thanks Patrick.

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