Introduction

Patrick: [00:01:21] My guest this week is Khe Hy. Khe has a very interesting two-part story. We start with Khe's career at BlackRock, where he rose to be one of the youngest MDs at the firm, specializing in quantitative hedge funds. Khe shares his perspective on how the hedge fund landscape has changed and what investors should look for in hedge fund managers in the future. The second part of the story is about Khe's attempt to understand himself. We get into fear, joy, and all that he has learned across several years of introspection and exploration. His lessons coalesce around four key pillars, compassion, stillness, what he calls uncomfortable introspection, and finding the truth. We explore what he means by each of these ideas in some detail. I'm not sure if Khe is capable of lying. He's one of the most honest people I've met for better or worse and was kind to share both his struggles and moments of clarity on investing and life. With deep questions about purpose and deep questions about how to evaluate a quant hedge fund, this was my kind of conversation. For show notes, visit investorfieldguide.com/khe. And now please enjoy my conversation with Khe Hy.

This is going to be a conversation that I think about a third or half of the way through, will really start to surprise people. But we're going to start in a comfortable world, which is that of finance and investing. If you could give a 30 second to a minute summary of your career from start to finish in finance, we'll use that as the jump-off point kind of where you are and what you did at a high level.

Khe: [00:02:53] Well, first, thank you. It's a privilege to be here with you, and I'm really excited. So a minute on Wall Street, let's see. I started as an investment banker at a firm called Broadview and actually quit 18 months into it. Not that I couldn't cut it, but it was not the kind of way that I wanted to be living my 22-year-old life. I stumbled upon a career in a fund of hedge funds and started as a research analyst. And effectively did continue down that path for 12 years. So a total of 14 years in finance and I was evaluating hedge funds, predominantly hedge funds that were quantitative in nature and across all different asset classes. In the last eight years, I was at BlackRock, I was the head of research for the New York office and was really focused on two parts of investing, evaluating quantitative equity funds and quantitative trading funds and doing seeding.

Patrick: [00:04:01] So let's talk a little bit about the hedge fund to fund business at a high level, because it's something we've only really explored once, maybe twice before. So just give us a sketch of how the flow of capital works, where you're a bottleneck in the process or a stage in the value process. From capital to the end deployment, how does it work?

Khe: [00:04:16] We're one cog in the process and we used to take... I say we, a fund to funds, used to take quite a heavy toll fee along the way. And so if you step back, hedge funds, I think there's 7,000 of them, highly unregulated, no real central database, a very much of a relationship and access-driven business. So you're a large institution, a family office, and endowment a government, and you read about hedge funds and you hear that they're uncorrelated to other asset classes. You want to go invest in them. However, where do you go? You don't go to Morningstar. You don't go to WSJ or other sites. You really need to know the inside baseball; [a] of the players, and [b], how to do due diligence. And so as a fund to funds, we sat between these big investors and their large institutions. They're also smaller individuals, but really we cater to the large institutions. And then they would come to us and say, "We have half a billion dollars to deploy. We would like this return target. This is what the rest of our general asset allocation looks like. Can you build us a portfolio of hedge funds? Can you go find them, diligence them, put a portfolio together that matches that risk-return and liquidity profile, and then monitor it for us? And then in exchange, we'll pay you a fee."

Patrick: [00:05:42] So how much did that change across that 14 years? So you mentioned inside baseball, there is a sort of privileged access, deep relationships that govern a lot of this flow of capital, but would it be fair to say later in that timeframe that more hedge funds were going direct to end investor, institutional investors as sort of the Yale model or other big asset allocation models became popular and alternatives were on the rise, did that reduce the sort of choke point that fund to funds sat at?

Khe: [00:06:15] Yes. Great question. And it's one of the many reasons that I ended up changing careers. So I'd separate that into two paradigms, and the ones that I lived through. So from 2003, until 2015. And obviously, 2008, being the marker for the two paradigms. Prior to 2008, you had a bull market and pretty much everything. The leverage was cheap. And it was really easy to catch a trend, catch a beta trend, catch a credit trend, lever it up, skim 2 and 20 off the top, and still generate net returns in excess of 10 to 15%. And so it was really, "easy" and fund the funds kind of stepped in and they took 1 and 10 on top of the 2 and 20. So basically everyone was making money. 2008 hits, and it's kind of an "emperor has no clothes" moment. All these assets that were supposed to be uncorrelated, highly correlated, leverage amplifies the drawdowns. I mean, you had major hedge funds that were down 50%, five zero. Then you try to redeem, guess what? You actually can't get your money back because we own copper mines in Indonesia, it'll take you seven more years. And then, as if it wasn't bad enough, then Bernie Madoff happens. So you have this wounded industry, a fund to funds, and it gets kind of kicked to the curb.

Because on top of that, you don't know how to do due diligence because the biggest fraudulent scheme ever was invested in by some of the top investors in the world. So what is your value? So that was a change in the fund to fund side. On the underlying collateral side, being the hedge funds. You start to realize that it was a lot of levered crowded trades, and everyone had caught the trends in the right direction. But as QE came in, liquidity went away. These kinds of easier trades were much harder to identify, and hedge funds love to say that that higher volatility is good for them because of increased stock dispersion. But it's like a slightly higher amount. It's like VIX 15, not in excess of that. Because then your leverage starts to really become scary. Your investors start to panic. So the hedge fund strategy, I believe, got more difficult because of the environment, and just because, it was such a lucrative business, so many more people came in to chase out these excess rents. So it just became more competitive. And so there was just a gigantic end. Because the industry matured the end investors matured. So they were also able to do the work better than they used to pay the fund to funds to do so. It was kind of a perfect storm from so many different angles. And the fund to fund industry has fundamentally changed since 2008. And in fact, a lot of the smaller ones are already consolidating away and the bigger ones have changed their business models from what I gather. But even the hedge fund industry is really challenging now because it's been a long time since 2008 and the returns have not really been there as an industry. And then it's getting hard to justify fees of 2 and 20.

Evaluating Hedge Funds

Patrick: [00:09:36] Talk a little bit about the role of evaluating hedge funds. And maybe we could stick within quants since obviously, I'm familiar with that world. Talk to me a little bit about that process. So from soup to nuts, how are you sourcing the ones that you're going to look at? How many are you looking at in a given month or a year? We'll start with those two questions and then we'll go kind of fund by fund the things that matter most to you as a prospective investor.

Khe: [00:09:58] Yeah, I think a lot of it is about access. And there was a lot of, let's see, incentivize players to help kind of deliver some of that access. So prime brokerage being a very obvious one where, for the unfamiliar, the prime brokers were effectively the hedge funds broker. So they were incentivized to do these kinds of roadshows of their hedge funds. Then there was the conference circuit. There was the paid conference circuit that all the different providers. But the thinking that we had espoused was that by the time the hedge fund has gotten to that level of stature, popularity, and just AUM size, you really wanted to be there much earlier. And there's a lot of research that shows that hedge funds, in the first couple of years, performed significantly, as well as the fact that low, smaller sized hedge funds, in general, tend to perform better than larger hedge funds. So the question is, how do you get there early? And there was no playbook for that. And I think that this conversation will happen. We'll talk about this many times today, but there's this mix of hustling, real, genuine relationships, establishing yourself as a credible thinker, long-term compounding small wins over the long term. And so a lot of, kind of in summary, without giving away the juicy part of the answer, it was around being really good at building relationships, building long-term relationships. With your second question, how frequently, it depends. So in quantitative equity, there just weren't that many funds, probably one per week you would look at and maybe invest in two per year. But if you were long, short equity, fundamental analyst, you could, in theory, meet one new hedge fund per day. So it really depended on the space that you were at. We at BlackRock were also very big. So the two guys in the Bloomberg, it just really didn't make sense for us. So that kind of chopped off a portion of the long pail.

Patrick: [00:12:11] So define big. Because in our world, that can mean a lot of things.

Khe: [00:12:15] Yeah. At the time it felt like... Well, if you use the kind of higher profile see deals, where those were the Blackstones and the Reservoirs, you're talking checks of 50 to 150. So that kind of felt like the big size of this seed market. But funds with sub 20 million, it was very hard to justify the amount of resources. And oftentimes those funds were very hesitant because it was such an institutional platform, just, there was a very high bar on compliance on operations and all that, that it just required a certain AUM to make that even feasible.

Patrick: [00:13:03] I'll mention this kind of slight nuance to maybe color your answer on how you then evaluated the funds. So there's a balance where some of it is just direct investment in existing hedge funds. Some are actual seeding, meaning put a new manager into business with a $50 to $150 million check, front-load the management fee to fund their working capital, and then usually take economics in the business, take some percentage of the GDP. So when you've got one of the one managers per week, or whatever it is on your desk, what do you do? What, is the process? What are the things that you look for? We know how hard it is to pick stocks. I think it's arguably harder to move up a meta-level and pick pickers of stocks, whether that's via quant models or fundamental analysis. So what's the process. How can you actually... How is their alpha at the manager picking level? And is there alpha, do you think there is alpha?

Khe: [00:13:56] Yeah, you can move up one level further, is how do you pick the engineer who designs the computer that picks the stocks? It's a really tough question, but I would start with a few things. One would be to start with the history of the manager. And here, I want to be a little careful and draw a nuance around, because history and pedigree are very different. Because yes, so there was a pedigree angle, and I'm always a little bit skeptical of that angle because that's like saying I would only invest in startups that are founded by someone from Harvard, where it might actually be inversely correlated to where they went to undergrad. But I think history is something a little bit different because that informs the type of thinking that they espouse. So if you... And I'm not a fundamental equity guy, but if you look at the Tiger lineage, it might be kind of a gappy approach. Or if you look at the Greenlight and a Third Point, Diaspora, it's kind of a value-oriented approach. And so if you look at kind of the Goldman special sits desk, it's kind of a legal nuanced approach. And so if you take that into quant land, you had... And this was what was so fun for me, is you would study the history of these strategies and these organizations all the way up to an Ed Thorpe in quantitative trading, and kind of see how it evolved. And you actually learn a tremendous amount there, because if you're very good at the relationship part, you start to see who were the key teachers along with that kind of family tree and their style of investing or trading. And then you can start to kind of tease out different patterns between different strategies. So I think one example that we used was Susquehanna, for example, are just notoriously... It's a proprietary trading firm outside of Philly, notoriously great option traders, poker players. And when it was very rare for a Susquehanna guy to leave Susquehanna, but when they did leave, they actually had this really unique set of skills that were infinite supply, because you could only learn them there, that if you had the relationship with the individual that was leaving, then you had the privilege with "access". But that whole thing, believe it or not, in the fund of funds industry, there are people who invest in options funds who have never heard of Susquehanna. And so that doesn't mean that knowing about them makes you a good investor, but it just shows the breadth of how deep do you want to dig.

Patrick: [00:16:59] We'll mention the incredible rise of quantitative strategies across the investing landscape. And it's sort of been like a takeover in the long-only space where basically all the money is going to pure passive, or I'll call them rules-based. I don't want to use the word quantitative because sometimes it'll be like a hedged Europe portfolio or something that fits a kind of a category need for the investors. But rules-based kind of systematic strategies has come to dominate the long-only world. And listen, of course, there are privileged data, but we all look at and see value works. We see momentum works. So how did you think about differentiation at the hedge fund level? And I'm sure you're looking at black boxes where it's hard to know exactly. They won't even tell you what they're doing. So then how do you think about it? What were things... Did you perceive that the edge for quants dissipated over the eight years at BlackRock that you were looking at them?

Khe: [00:17:59] Okay. So there are two questions there. What did we look at to distinguish quant funds? So this is where kind of this really intense kind of curiosity was a sort of advantage. And what I mean by that is that I would spend months, years reading different approaches to building risk management systems, like mean variants and different types of approaches, PCA, and things like that. And there's no way that I could replicate them on my own or that I even understood all of the nuances of it, but it gave me a toolkit to have a meaningful conversation. And again, we were talking about this earlier, asking the right question. And so why would you use a principal components based analysis versus a mean reversion risk model? And then you asked that question enough times to managers, but then you also go ask them to your smart friends who work at other hedge funds. And then you go ask them to like Andrew Lo to get his take on it. And you start to... it's no different than the mosaic theory of investing in fundamental stocks, are you start to piece together these different platforms. And so you could talk about data sets. You could try and again, with the time you build that rapport that they wouldn't necessarily tell you what that data set was, but they might intimate something like, "Oh, we know of a site that gets crowdsourced earnings estimates." And you might happen to know that there exists a site that has crowdsourced earnings estimates, and then you realize that nine other managers never talk about that. So you'd kind of start to see, "Okay, these people are in on the cutting edge." The last thing I'd say on that point, and this is probably one that brought me the most joy, was that it brought me down this personal rabbit hole of trying to understand high-frequency trading. High-frequency trading, for your listeners, who may not know is pretty much uninvestable as a trading strategy, because it doesn't really require much trading capital. It just requires a huge infrastructure built. But as you started to understand the high-frequency training world and the nuances between dark pools and all these different trading venues and order types and all that, there were times where I was actually more versed in trading infrastructure questions than the person that I was interviewing. And right away, that was a red flag. So a lot of the things I'm telling you are more red flags to pass than a stamp of approval for a go.

Patrick: [00:20:39] This comes up constantly. We see it all the time in the data. Very often, negative screens are more powerful than positive ones. And to kind of use, that inversion approach of what not to buy any kind of what's leftover is probably pretty good. It's always interesting. And I liked the answer a lot because it just goes to show that there's not a formula, right? There can't be a formula for picking or denying managers. There's got to be some experience and mosaic behind it. Looking back on all the managers you saw, you don't have to name them, or you can remove any specifics you feel necessary. But what firm or strategy, when you first saw it, intrigued you the most?

Khe: [00:21:24] You could tell very quickly who was doing this for the intellectual pursuit and sport of investing and who wanted to buy the jet. And a heuristic that I personally used, I'm never funding the guy that wants to buy the jet. Because at some point he'll realize... And I use pronouns because they were all he's, especially in quant, but at some point, they'll realize that the jet is not worth it, or the jet is unfulfilling, or the jet is a proxy for a lot of other kinds of personal manifestations in one's life. So there's something about the guy who has half a billion dollars personally, that still has his psycho watch. Because then you realize that it's, the true art that brings them joy and not the end result. And I think I spent a lot of time trying to suss that out. And that's, again, where I understood a lot of the quant stuff, but it's not... You know how that works. Even if you understand it, if the person doesn't give you the information, it's really hard to know what's actually being discussed. But I think one of my abilities was to really get to know people. And this is why this was a long game to know what their true motivations were. So that was the screen. Now I can answer your original question was, and this probably goes to my lust for technology, but there were a few firms that were fundamental trading firms that had such a deep commitment to investing in technology systems and data, and the robustness of understanding decision-making and type one and type two errors and all of that for fundamental investors and risk management on top of that. And those were the incredible fundamental investors because they were truly skilled stock pickers. But on top of that, they just came, to a knife fight with a gun, and they were all about repeatability of the process. So they brought that quantitative mindset to a fundamental game, which really separated them from the kind of finger in the wind fundamental guys where it's actually hard to know if it was skill versus luck.

You could tell very quickly who was doing this for the intellectual pursuit and sport of investing and who wanted to buy the jet. And a heuristic that I personally used, I'm never funding the guy that wants to buy the jet.

Patrick: [00:23:41] That last point is so key, the need for repeatability and a process. It seems to me like if I were in that seat, that my first checklist item, and maybe the checklist wouldn't be that long to allow for this mosaic understanding and experience driving the decisions would be, there's got to be proof that this is repeatable. There's got to be a process, even if it's a loose process and there needs to be a history of that process surviving a hard time. Meaning it's easy to have a process from 2002 to 2006 when everything works and values working and momentum's working and it's hunky-dory, but there needs to be a process of surviving a stress test. And at least in my limited investigation, I certainly don't evaluate managers for a living, but I'm interested in all of them. That seems to be a pretty ironclad must-have if you're evaluating any investing system.

Khe: [00:24:35] You'll be surprised though, I mean, we were in a... I don't think anyone's officially called it a hedge fund bubble, but we were in a regime where it was so easy to start a hedge fund, the combination of capital being awash and returns have been so good that... I mean I take it back to Bernie Madoff, right? It wasn't that, if you ask a few right questions, you'd pretty quickly see that that was not a replicable strategy. Yet some of the top investors were caught in that.

Patrick: [00:25:06] So I want to do a couple of questions, which are sort of a holistic look back at this whole era. So the first is a positive one, which is, at what stage, it doesn't have to be a moment or a defined period, but at what stage of that whole run, did you feel most alive?

Khe: [00:25:24] I would say around the actual credit crisis, I think that I was fortunate to be kind of young enough in my career that I didn't have a lot of deferred stock and I was less at risk of layoffs and things like that. But I love teachable moments and every single day for two years, because, I mean, really it started in Feb '07, if you were in credit, was a teachable moment. And you're just learning about leverage loan unwinds in August of 2007, how that impacts equities. And then in 2008, you're learning about all the outs that prime brokers have to deliver books. And then you're looking at how netting agreements work with credit default swaps, these billion, trillion-dollar portfolios. And it was just like every single day you were teaching yourself about short selling and I think that's what I loved about the fund to funds industry was that there was infinite breadth potential, especially because things were changing so fast, but just the vast number of strategies that existed. And so 2008, which was terrifying in terms of the stability of the global system, I don't know. I guess, and that can segue later to some of the things I'm doing now, but it was kind of cool to be living through that. And yes, I was nervous, but I was also very aware of things that I couldn't control and things that I could control and being able to separate those two made for a little bit clearer thinking on what was happening, and it was a bonanza of learning experiences for two straight years.

Patrick: [00:27:11] Then the second look back is, thinking now about the industry itself, and maybe this is less of a look back and more of a look forward, at the potential for adding value in this space. Because I think under the right structure, it can be a really great vehicle or means through which capital that can't do all the work themselves can find interesting investment opportunities. So I'm actually going to ask, what was right about the structure while you were there? What was wrong? And what parts of the business created the wrong incentives or reduced the returns in the wrong way that maybe those that are interested in this field, we'll call it to fund of funds, even though maybe it's going to be going under a different name in the future. The people that are going to be interested in this world, what should they be thinking about if they're entrepreneurs in the space?

Khe: [00:28:05] What was right about it is that a highly specialized understanding of specific markets, combined with the depth of relationship. Technology is never going to replace that. It could even become a tool for some of that. And so, I think that that is a skill that no amount of technology and transparency can take away, access and relationships, meaningful relationships, and specialization. So I think that that worked well. I think that what didn't work was just too much capital, and I don't think that that's a fund of funds thing specifically. There's just so much capital chasing not a lot of return with low fixed-income rates. It's just pushing capital into these fringier, or alternative asset classes. So, size. And I think the measurement periods where, again, as a fund of funds were a derivative of hedge funds, obviously, but the monthly reporting cycle is just so bizarre. I think it's wrong, even for liquid equities. And I think that that has such a trickle-down effect all the way down to the capital, that you're optimizing for the wrong thing. But not only that, by claiming to try to manage volatility, you're actually injecting more volatility into the strategy. And so, that would be the second thing, is the actual window of measurement. And the third is incentives. I think that as you grow, by definition you can have skin in the game in all the things that you're adding. And so, I think that is always going to be the principal-agent challenge with growth. And so, I think for budding entrepreneurs, I think that there's an opportunity in the specialization. There's an opportunity in staying small, in many regards, like capacity, incentives, and things like that. And again, it goes back to, do you want a jet, or do you find this fun? And for those who want jets, you need to raise a lot of money. And that's fine. That's capitalism, and incentives drive innovation. I'm not knocking that. But I think as someone that's choosing to get into these products like that, I think that's a legitimate due diligence question. Do you want a jet?

I-Shaped and T-Shaped Individuals

Patrick: [00:30:52] So we've referred now to, we get to the surprising part may be of this, which will be the remainder of our conversation. You've referred to these 14 years, past tense, a couple of times. And what's unique about you is, were we to stop the recording right now, I'd get all these emails saying, "Wow, that guy really knows his stuff in that space. This guy is clearly a deep expert in the world of alternatives, and investing." And it'd be great, it'd be a popular episode. But what's interesting is that, when you were in your mid-30s, you completely left. You left it all. And so, I'd like you to start by describing the period of deliberation, maybe we'll call it. And maybe you always had some pang of this, but what was the catalyst that caused the cascade of events that led to you ultimately leaving? I think you've told me before you were one of the youngest MDs, if not the youngest MD at BlackRock. That's something that is in some ways incredible but also can entrap people, meaning it's extremely hard to leave something like that. And you left it in your 30s. So, I'll just leave it there and let you describe the transition.

Khe: [00:32:02] For those of you... everyone's listening....Patrick has quite a smirk as he asked that entire question. Okay, where to begin. I was one of the youngest MDs at BlackRock at 31, and I think it was a combination of luck and hard work. Mostly I got a lot of battlefields promotes around that 2008 period, which might be why I felt so alive, to your earlier question. You feel alive when you get promoted. So, I had been doing this... I'm going to cheat a little on the answer. When I joined the fund of the funds' industry in 2003, I told one of my friends, "I don't think this industry is going to exist in 10 years." I knew nothing. But it was more just a comment on the middlemen and the disintermediation of middlemen. And so, I guess I always had that in the back of my head, that just the economics just didn't make sense. And this was when things were returning well, where the returns were good for everyone. But what really started to happen was a few things. One, I was really, really specialized. The world is a huge place. The world of investing is a huge place. And here you have Khe, who's a reasonably smart guy, that is really, really good at one basis point's worth of the entire investing landscape. And it hit me, it's like, "Yes, and I did a lot with that one basis point." I went from high-frequency trading to FinTech datasets, but it was still one basis point. There's this concept of being an I-shaped individual or a T-shaped individual. I spent my whole life becoming an I-shaped individual, deeply, deeply specialized. And I collected excess rents from doing that, but it was very empty. It was intellectually empty. So that was the second thing that was, I started to just feel this intellectual emptiness. And every year I would try to "disrupt myself" just to stay fresh. And so, I'd immerse myself in a new field just to learn about it. It was like, startups were one year, and Bitcoin was in another year, and high-frequency trading was another year, and energy markets was another year. And I was just having so much fun doing them. But as I started to get further off the reservation from my I specialization, I really realized that I wanted to be more of a T-shaped individual. So that was the first two things.

Patrick: [00:34:39] Hang on for one second. Just more thoroughly describe what those two things mean, what I versus T mean.

Khe: [00:34:45] So I mean you are a specialist, and by knowing more than everyone else in your field of specialization, you become an expert, and you're able to collect access rents personally or from your company. A T is more like a CEO. The CEO might have a vision about the product, or the future. Like there are going to be driverless cars. But to execute on that vision, he or she needs to [A] understand the self-driving car technology, like product; [B] be a really good recruiter, so just empathy and compassion; [C] needs to understand marketing, and branding, and digital; [D] needs to understand operations; [E] needs to be a charismatic salesperson; [F]... And I could go on and on and on. And I was forcing myself to switch from an I to a T through hobbies. But I hit this point where I said, "I want to do that for work. Why should I just do that with the evenings, and the mornings, and the weekends? Why can't that be my whole life?" Does that answer the question?

Patrick: [00:36:00] It does. So, that's the seed, if you will, of-

Khe: [00:36:03] That was one of the seeds.

Patrick: [00:36:04] Like, "I'm devoting crazy hours and mindshare to deep knowledge in one tiny area, and that doesn't align with my interests."

Khe: [00:36:14] My personal interests, yeah.

Patrick: [00:36:15] So that then starts to accelerate.

Khe: [00:36:19] Yeah. Well, can I add one thing though?

Patrick: [00:36:20] Yes.

Khe: [00:36:21] Before we accelerate. The other thing and this is captured in the story of, I guess, my life at this point was that finance is a very zero-sum game. I win, you lose. And that was the prevailing mindset in the industry. So the example that I always use to exemplify this scarcity thinking is, someone leaves, star analyst leaves to go to a competitor. What happens? And a lot of your non-finance listeners will really be surprised to hear this. So you announce you're leaving. And then HR calls, I guess, security. And at BlackRock, it was this big bald guy. And they come in and they open your desk. And within two hours, you're out of the building, and you're locked out of your email. And it's so humiliating. It's so inhumane, and I actually think it's bad business. Because it just shows corporate insecurity that you're so tied to this one person that you need to humiliate them and show your colleagues and your fellow soldiers that betrayal will not be accepted and that we will plow on. And he was worthless anyway. And then, what happens in tech? When that happens in tech, the CEO writes this floral blog post that's like, "We're so happy that so-and-so dedicated so much time. These are all the innovations that were attributable to them. While we're really sad that they're going to go, we're going to throw a party for them, and we encourage you all to stay friends." So then what happens? Two years later, the person who leaves is at a different company, no one cares anymore. Then they become a potential client. Then they mentor someone, and they're like, "Oh, don't work for that company. They humiliated me the day I walked out of the door." And I think it's just the wrong way to do business. And you kept seeing that everywhere. It's this premise, if I buy a stock and you sell a stock, one of us makes money, one of us loses money. It actually doesn't work that way. But this zero-sum game was everywhere. And I hit a point in my life, I think it was just a personal maturity, that I just didn't want to live in a zero-sum game environment. And I actually believed... I couldn't verbalize it as well as I can now, but I believed that there was a way that you could create businesses, create cultures around the concept of a rising tide lifts all boats.

Patrick: [00:38:56] So more of like an abundant-

Khe: [00:38:58] A total abundant.

Patrick: [00:38:59] ... abundant philosophy versus a scarcity or a zero-sum one.

Khe: [00:39:03] Absolutely.

Patrick: [00:39:04] What did that last day look like for you? Were you ushered out by the bald guy?

Khe: [00:39:08] Yeah, yeah. Good question. No, I was terrified to call the founder of the firm. Not of BlackRock, but of my group, and the CIO. But again, he's a special individual. And at first, he was a little skeptical, because I also, what you didn't mention, is I had nothing lined up. And so I told people, "I'm quitting, and I have nothing lined up. I don't even have a kernel of an idea." And 90% of the people thought that that was my way of saying that I was going to a competitor and that I would just disappear and then pop up on the other side of Park Avenue. But my CIO is just a kind and cerebral guy who knew me. If you knew me, it would all start to make sense, "That's why he was always talking about Bitcoin and investing in committee meetings. That's why he's been obsessing about China when it has nothing to do with... " So, people who really knew me, they didn't agree, but they kind of saw how it could fit. And then there was just a lot of just general confusion. I think the biggest thing was, "Why would you not try to start something while you have the job?" And that was the prevailing narrative or reaction. And I had an answer to that question. My answer was, "I tried. I tried for probably two years waking up at 4:00 AM, writing business plans, and trying to start companies, and try different ideas." But the reality is, and this is something that I talk a lot with my finance friends still because they don't understand. It's a very linear way of thinking in a lot of ways, and they don't understand creativity. In their mind there was... This is a lot of peers, not everyone, but there are two states of the world: you're working on something, or you're on vacation. And this in-between area of creativity, of learning, of self-discovery, of experimentation, that's a vacation. And so, it was actually very hard for me, because I'm extremely hardworking. And for people to keep pointing their finger at me and say-

Patrick: [00:41:26] You're on vacation.

Khe: [00:41:27] ... "You're on vacation, you're on vacation." I'm not on vacation. Do you know that Twitter started as a podcasting company? And Slack started as a gaming company? But that's not a sexy media story, and no one really wants to believe that. And I really was insecure about that for a while, being in that in-between phase. But we're jumping forward a little, but that was the process of me leaving. And just a lot of head-scratching. I think people, especially when we talk about what I did after, but people just were just really confused.

Lessons from a Family Trip

Patrick: [00:41:57] So where did you go? What did you do?

Khe: [00:42:00] This was May of 2015. My daughter was one, and I had set up my life knowing... I had made the decision to leave a year prior, so I had set up my life in the sense that we had no debt. We had savings, I had earmarked... I did the whole take a chunk of money, put it in a different account, pay yourself a salary monthly to give yourself that peace of mind. So we didn't have any debt. And we bought a one-way ticket, and we went to Bali. We did a family eat, pray, love with my wife, and my one-year-old. And we got off the grid, did a lot of exercise, surfing, just chilled out, and very spontaneously decided where we would go next. And we'd open the map and see where there were cheap flights. We ended up going to seven different countries for three and a half months. Although the last month was in LA because we thought about maybe moving there. And so, we did that, and it was one of the most... It was difficult. Traveling with a one-year-old, I think she'd been on 22 flights on that trip, is pretty-

Patrick: [00:43:09] I know how that goes.

Khe: [00:43:10] Yeah, it's pretty daunting. But it was just a magical time. And I would add one thing, though. Before we left, there was a month before we left on that trip between quitting and leaving, going on the trip, I decided to really start to invest in, I would say, my health, but almost like my emotional health. And meaning that, I wasn't physically burned out. I didn't think I was. But I was a little bit emotionally burnt out. And what I was starting to realize was that my entire life was a sprint, and I just cranked, and worked, and exercised. I did everything so intensely without really questioning why I was doing it. And I started to just see little strands that there might be more to my behavior than just being a high-achieving person. And I really started to explore that. And the big change was... And I approached it from a performance perspective. A lot of my entrepreneur friends had executive coaches and life coaches. And so I was like, "Oh, high performers can have coaches? Cool. I'll get one." And so, I had started to see a life coach, and she cracked me open.

Patrick: [00:44:38] What on that trip did you learn? What were the lessons from that trip about what you were doing wrong, or what mistaken priorities that you had that have been most indelible? So that was a couple of years ago now. Were there specific realizations in that period that have lasted, and/or maybe things that you thought you had realized that have turned out not to be true?

Khe: [00:45:05] Yeah. The biggest realization that I had was that I was always living for tomorrow, my whole life. And I had set up such an efficient machine of learning, of investing, of relationship building. And it all came from a good place, I wasn't building relationships to transact on them. But it was so focused on achievement, and I had equated happiness with achievement. And I had tried to push that out as far as possible to have bigger achievement, hence bigger happiness. But deep inside, I was tremendously unsettled. Nothing bad, but I was anxious, I was envious, I was judging, I was entitled. I think the thing that really hits home with people is that my inner monologue, my self-talk was very, very vindictive. And so the way I would talk to myself in my head was basically like... I can curse?

Patrick: [00:46:16] Yeah.

Khe: [00:46:17] It was like, "You're a piece of shit, and you don't deserve this, you have to work harder." You're always on the cusp of losing it all. And I thought that that was the way to motivate myself. And so, I think when I talk about emotional burnout, you do that for 35 years, and you don't share it with anyone? And on the outside, people are like, "Oh, things are great for you."

Patrick: [00:46:41] The guy's a stud, yeah.

Khe: [00:46:42] Yeah. "You should be the happiest person on the planet, a 31-year-old MD." But I didn't realize the tax that that was putting on me. And to be even more direct, I was just scared. I was an afraid child. And that was the biggest revelation from... It wasn't necessarily the trip, but the coaching work planted the seed, and the trip gave the space for it to really flesh out in my head. But the afraid child that I was when I was nine, 10, 11 years old. I grew up in New York City, I had been mugged three times. There was no girl who would ever date me. I was 130 pounds when I got to college. That stuff had really started to build up. But in my 20s, I learned all these defense mechanisms. It's like, "Okay, I'm 130 pounds. If I take creatine and do tons of burpees, I'll weigh 165. Okay, that works." And it's like, "Oh if I read whitepapers when everyone else is going to a bar, I'll make more money. Oh, that works." And so, I had tricked myself into thinking that I had created this elaborate machine of achievement. And once that achievement had hit, happiness would just start raining from the heavens. And that was the biggest shift, the combination of giving myself that space.

The Power Of Consistency

Patrick: [00:48:12] I know I've mentioned this multiple times, so apologies if everyone's getting sick of me talking about it. But the story is pure Joseph Campbell mythology. It's pure a known world, a threshold that's crossed into an unknown. Literally, an unknown where you don't even have anything lined up. And I'm very interested always in what happens beyond the pale, beyond the threshold, because you always get these stories of magical helpers that appeared to help you along your way when you don't necessarily expect them. In classical mythology terms, the grail that you find and then bring back. At the end of the mythology story, it's always a circle, so there's a return. And looking at what you do now, and we'll get into this in some detail, it definitely has the flavor of a guy that figured something out after a really tough time, and is trying to bring that understanding back to other people. I hope that's a fair characterization, understanding that it's not a process that ends, and that it's ongoing, and it's not like you've figured everything out. But let's use that as a bridge to describe what you've done since. So you go on this literal trip, and start to learn a fundamental truth about past and future, versus focusing on the present. What has been the organic process since then to get where you are now? So I'd love to hear, how are you going to make money? You're a father, and as a father or I should just say a parent, there's that drive to provide, and that's a double-edged sword. And so, I'm curious how you think about what to pursue, what not to pursue, and tell us a little bit about what you're doing. And then we'll get into some of the philosophical points about what you've learned.

Khe: [00:49:59] There once was a newsletter, and it's a crazy thing to say that an email newsletter could really throw off all of these just out of, not even left field, out of Mars occurrences for me. And I'll return to that. The only "work" that I did while I was gone, I had started this email newsletter called Rad Reads. And the reason why it's called Rad Reads is, I had said to myself, "If I ever start a company as an homage to skate culture, I want to use the word rad, and I want to say it as often as I can in business settings because that will really be happy. Because I will just be reminded of this culture that I grew up in and I really admire." And so this is a little-

Patrick: [00:50:52] Can we pause for one second?

Khe: [00:50:54] Yeah.

Patrick: [00:50:54] What is it about skate culture that brought you joy? What about that culture?

Khe: [00:51:00] I think-

Patrick: [00:51:02] I know nothing, literally less than zero about skate culture.

Khe: [00:51:04] Okay. So skate culture, it's creative within constraints. That works well for me because I'm not... My wife's an artist, she's creative. I need constraints. That's why I'm really good at Snapchat. It's creativity within very high constraints. There is an element of thumbing your nose at the establishment of it. There's a real element of fashion in it. It's fashion trend-setting, even back in the '80s. But, you'll like this part, it's the ultimate 10,000 hours sport because you do the same trick over, and over, and over, and over, with no reward. And then one year later, you can ollie over a trashcan. And two years later, you can land a kickflip. And I do surf, too. Not often, but it's that comparison. If you measure the minutes of joy that are brought in a surfer's lifetime, it's probably 1% of their lifetime, but it defines their happiness for an entire. And so, skateboarding had that combination of culture, culture slash counter-culture, the Gladwellian notion of 10,000 hours, and creativity within constraints.

Patrick: [00:52:27] I'm glad I asked.

Khe: [00:52:29] Okay, so we were talking about, I left, come back from the trip. I have this email newsletter, really simple, just link blogging, five links with a little bit of perspective that I added. And people thought it was cool. A couple of hundred people subscribed to it. And that was the one common narrative of this entire journey was the consistency. And you talk to a lot of entrepreneurs and investors, and the one recurring thing is consistency is just, it's a... I don't want to call it a superpower, because it's pretty simple. But it's an underappreciated virtue.

Patrick: [00:53:05] Totally.

Khe: [00:53:06] As you know with your podcast, consistency. And probably many things in your life. So, I'm doing this newsletter. I have a WeWork space. This is January of 2016. There were a few little things I dabbled in. Actually, there was one very important thing that happened at the end of 2015, and this will really resonate with your readers. And it's an insignificant event to most people, but I think you'll get it. At some point in late 2015, I had loosely explored the concept of doing a venture fund because that's what I should be doing. You like finance, you like tech, go do FinTech. But I had this conversation with myself where I said, "You know what? I don't want to do finance." It was a really difficult conversation. Think about loss aversion there. Think about, you built your entire life around getting that thing and you got it or you were on the path and then you just say, "I don't want to use those skills anymore," and you... I guess, throw them out. And I just say right now, because I just don't know how to predict the future, but it was so liberating because I basically gave myself permission to try whatever I wanted. But I needed to have had that conversation with myself. And that's the big turning point. I haven't actually verbalized that before, but so that would be one major turning point. But again, nothing happened off of that, but I think it opened these creative and emotional... Positively emotional floodgates.

So January 16 starts, I've given myself permission and I just started to write and what was happening was in my email newsletter, I was hiding behind curation to share my ideas and I didn't have the courage to share my ideas. So instead, what I would do is X says that "Manage your ego." And I would say, "I really agree with X." And the Internet's a very public place, say two guys recording a podcast. But especially in finance where you're just told to be closed off, don't show emotion, wear the mask and all that stuff. And so I was hiding behind that, but I could tell that people were really gravitating towards even my little commentary. And I just hit this point where I said, "Fuck it, I'm going to stop hiding, I'm just going to write what I'm feeling about." And I just started to write and it came out of me about... Basically, my LinkedIn might look great, but I don't know what the fuck I'm doing. And this is confusing and I feel like I'm disappointing a lot of people. I'm scared of the responsibilities. I've got "two years to figure this out". I'm scared of the responsibilities of a family, my identity. I remember this moment when I went to a conference and the woman asked me, "What's your company name?" And I didn't have one and my heart sunk, but I just made one up like K H H holdings, which are my initials. But it really... You don't appreciate how intertwined... When you equate achievement with happiness and in that achievement comes identity, you pull identity out of it. You pull happiness out of it potentially.

And so I was just like grappling with all that stuff and I just started writing about it. I mean, it was just coming out of me, and like five people would read it, seven and my parents, few friends, I didn't even have the confidence to link from my newsletter to some of the things that I was writing. It was almost like I was writing it to not have it be discovered, but it felt good. And then little by little, mostly in my finance circle, people would find it and they would consistently come up to me and say, "I don't know what you're doing, but you are writing about things that I have thought about my entire life or career that no one has ever put on paper." And it was really around three things. It was around fear, it was around ego, and the mutant child of the two of them mortality. I was writing about my fear of death and being a secular atheist, hyper-rational, I can control everything through action, through effort, it was a very difficult thing for me. So we'll come back to the philosophical stuff, but I just started writing and little by little people started picking it up. Then I started experimenting on Snapchat. The reason why I got on Snapchat was so silly, but it was basically, I kept reading all these articles that say millennials hate email. And so I thought my email newsletter was going to become my product, my source of revenue. So I said, "Well, if millennials don't like my source of revenue, like my product, I better learn what they like and Medium.com is telling me that they like Snapchat. So I got on Snapchat and I have no friends on Snapchat. 37, 38-year-old guy my friends think Snapchat is for extramarital affairs and weird stuff like that. And I just started telling the stories. I was experimenting and I didn't hold the camera right because I'm not part of the selfie generation. So people would be like, you have a double chin, hold the camera up into the right. I'm like, "Really? But you look like an idiot walking down the street, doing that."

Patrick: [00:59:00] I just did this when you had me do.

Khe: [00:59:03] There you go. Everyone check out my Instagram and you'll see it. But anyway, by telling those stories I started to get messages from 18-year-old saying like, "Thank you for sharing that." And it just was really fun, it was really rewarding. I engage... It was a small enough audience that I could engage with people. And it was just very moving and I never felt that alive and they kind of pushed me to go even deeper into my own psyche to put it out there. And so I'll shift to the pragmatic because I know that people want to hear about the pragmatic as do I want to hear myself explain the pragmatic. I had a moment like you had with the Jack Dorsey retweet. And for me, that was a Bloomberg article and a CNN article and it took me from being this quirky, emo, ex-hedge fund guy to... I guess... I don't want to say expert, but a recognized name in the self-exploration world. And so from that, we were actually sitting in the court's recording studio, the entrepreneur in residence at courts. So I write for courts. I do speaking. So I do a mix of paid and unpaid speaking around the topic of facing your fears, recognizing your ego, and unlocking performance and surprisingly a lot of financial services firms have asked me to come to talk because I could really speak the language. I've got Patreon ongoing on my side.

So I'm cobbling it together, I'm still eating into my savings, but I had a two-year plan, but the two-year plan assumed no revenue. And so now I'm cobbling together some revenue. So maybe it's a two and a half year plan, but it goes to the abundance point that it's starting and I have more confidence now and I'm working on a book proposal. So, things are moving in the right direction, that I still have real... We're having our second child and so I'm having... I have real pangs of what am I doing. But at the same time, I just entrusting the process and just going for it. I'm surprised by something, almost every day. I'm surprised that I'm a guest on your podcast and it just came from trusting the process. And so I have that confidence and you're going to like this saying, I just appropriated it. But I've done a lot of work to manage my emotions. Self-regulation kind of managing my psyche around fear and around different biases and different ambitions and over ambitions. And when you're a solo entrepreneur with... You haven't figured it out, things can be irrational for a very long time. And it reminds me of the quote, Markets can remain irrational longer than investors can stay solvent. And so what I've realized is the world for my ideas and business product can be irrational for as long as I can stay, for longer than I can stay emotionally solvent. And more so than the amount of money in my bank account or the revenue that's coming in, the ability to extend the window of my emotional solvency, that is hands down, more powerful and confidence-building than knowing that I was able to generate a little bit of income from these different sources.

More so than the amount of money in my bank account or the revenue that's coming in, the ability to extend the window of my emotional solvency, that is hands down, more powerful and confidence-building than knowing that I was able to generate a little bit of income from these different sources.

Patrick: [01:03:01] I'd like to do a little bit of the equivalent of a sidebar or a case study that you would read in a book.

Khe: [01:03:06] Okay.

Mutually Beneficial Introductions

Patrick: [01:03:07] And we'll use the way that you and I met and how we've interacted since as the story. So can you talk about your approach to what you call a mutually beneficial introduction?

Khe: [01:03:18] Yeah. Yeah, the MBIs. My Snap crew knows very much what I'm talking about. So I have this belief about the world, which is if there are two people in the world who should meet, and I know about it, it's my responsibility to make it happen. And with a little footnote, if they're both kind people. And it was something that I just believe in, I still do. And I developed, I guess I was doing it so often. I meet a lot of people. I think in this current year, I'm meeting on average 17 people per week. And I know because I have a Calendly set up. So it's like three per day. Three per day, plus Saturday, one Saturday, one Sunday, a mix of Skype and calling. Some are new and some are recurring and friends and business people and so on. But I believe that if two people should meet, then it's my duty to do it and I call that the MBI, and somewhere right around when I had my daughter, I tried to use a heuristic where I would try to make three per day. I don't think I ever averaged three for a sustained period of time, but I would say around when my daughter was born, I was definitely averaging like 2.5 per day. Now it's probably 0.7 to 1.2 a day and the network compounds from the 17 people. But the thing that I want people to take away from that is, I don't expect any... It's nice if they tell me what happens, but I don't even care what happens as long as no one's a jerk. If someone's a jerk, I want you to tell me, and that person, I will remove them from the heuristic, but other than that, I don't care. And so it's just...

So I have this belief about the world, which is if there are two people in the world who should meet, and I know about it, it's my responsibility to make it happen. And with a little footnote, if they're both kind people...then it's my duty to do it

Patrick: [01:05:21] Abundance again.

Khe: [01:05:22] Total abundance. And from that, if I had to guess, I've probably connected to 2000 pairs of people in my adult life, I mean, in my lifetime. And the way it comes back to help you. And I could say the great things that happened to me in 2016, TED Talk, Quartz, EIR, two great press coverages, and coaching. Someone asked that was another source of income. I do a little bit of coaching. All of those happen through some random connection, this podcast. It's gotten to a point now that it gives me a lot of confidence. It's something I've invested in a lot of time, all the ton of time. But it gives me this confidence that I'm going to be okay. But more than that, it just gives me joy because now there are so many of these pairings that happen that someone will say, "Hey, remember you connected me to this person?" And they're now my CTO and I'm like I didn't even remember connecting you guys. And so I really do think, and I've structured... I've tried to bring as much abundance into my life right now, and it's really made it special. And I'm really grateful.

Patrick: [01:06:41] So I'll just tell one little tiny example of this just to put proof behind the system. So there's... I won't name who it is because he's going to be someone that will be on the podcast, but it's a guy who I didn't know anything about, I'd never heard of. And I hopped on the phone with that. You connected me to him, unsolicited. I just got an email or a text, I think it was a text with the two of us on it or something. And this guy starts telling me a story and literally I'm sitting in a UBS office in between meetings, talking to this guy with a little bit of a break. And my jaw is just like hanging on the floor. I mean, the most ridiculous story and interesting guy, and who the hell knows where that will go. I just think it's such a powerful, incredible thing that everyone should do with almost no downside. It doesn't take much time.

Khe: [01:07:30] And you know how I met that guy who was under a business pretend, I won't give it away a business pretense. I happened to be reading at that time Lolita, and I think he sees it and he says, "Oh, Lolita." We'll just say this guy's very technical. And he recites the entire first page of Lolita from memory because it's his favorite passage, is his favorite literary passage ever. And so you can't make the shit up. And I am a linear and hyper-rational thinker, but at some point, you have to tap out and say, there's something else happening to make it happen this way.

Patrick: [01:08:14] So let's come back to philosophy now.

Khe: [01:08:16] Okay. The philosophy that makes it sound so serious. I just call it a public confessional.

Four Pillars of Khe's Life

Patrick: [01:08:24] There are four... I think you call them pillars or truths or whatever name you want to use that it seems like if you are forced to distill some of what you've learned, a lot of it would fall in these four categories. And so I'd like to start, let me think which one I want to start with. I think maybe what I'd like to start with is compassion. So, that's one of the four. And I started that one because it seems obvious, yeah, compassion's good. So I want to know maybe what... Did that replace something... Are you're stumbling on that as being so important because before you weren't compassionate? What's the nuance behind this one that seems the most obvious of the ones on your list.

Khe: [01:09:07] The most obvious is that... Or the most surprising, I guess, is that it's, self-compassion. That's one, it's two parts. So it's compassion towards self and compassion towards others. And self-compassion is, we're not very good at it. There is a narrative out there that if you are compassionate to yourself, you are soft. You will lose your edge. In the world of the type of overachievers, as you will wither away. And I bought into that very much. Don't call me soft and there's actual research. So I actually asked this question in my talks, if you take the ratio of yourself, your inner voice, what's the ratio of kind things and mean, or demanding voice. And for me, it was 90, berating, 10% kind. And when I talk to people, usually they score, anecdotally score in that ratio. And the main fear is I don't want to be soft, I don't want to lose my edge, but what happens? And this is what happened to me is I would have my unlimited Metro card and I'd forget it, and I'd have to be used my paid Metro card. And I would beat myself up over that because I'd re amortize the cost of the Metro card. And one of my core fears that I grapple with is that I'm going to have no money. And so that fear would kick in off of a Metro card swipe and I would be on the train for 40 minutes, just talking crap to myself like you're never going to amount to anything. How do you want to start a company, pick your favorite ambitious thing?

Patrick: [01:11:07] You're an intense dude.

Khe: [01:11:09] And so the first thing was learning to flip, A get it to 50, 50. Now I had a triple whammy on Metro cards. I bought it on limited, I lost it. Then I got another one and I lost it and then I was like, it happens. I just moved on. And at the end of the day, it doesn't matter. But if I could get back all of those 40 minutes when I was beating the fuck out of myself out, and that's a Metro card, imagine a presentation for a client that doesn't go exactly how I want it to go. If I could take all that back, I think I would have been happier for sure, but I don't think it would have actually impacted my achievement level. I think I would actually have "achieved more". So that's one part of the compassion , but I would actually think is more important than the compassion towards others. I think that I was a pretty compassionate and empathetic person, but I was very judgmental. And so I guess I viewed the judgment as to the opposite, the reflection of compassion. It's not totally one for one, but that judgment was very much a manifestation of my insecurities. And so I would say... I would see someone that was thriving and I'm like, "Oh, he's probably not happy." Still happens now and it was that way that I would self-soothe over my own issues. And again, it wasn't like... I think in general, like a nice decent guy, but I never lifted up the hood and saw some of this stuff. And I just didn't like what I saw and I thought that there was a way, a way to change that.

Patrick: [01:13:06] Let's move to stillness, which I think is another one that's maybe easy to describe, but incredibly hard to do.

Khe: [01:13:14] Yeah. The first day I met my brother-in-law, he said you always remember this quote. And I said, "I have the ability to squeeze the rag of time." And he was like, "What the fuck are you talking about?" And I knew exactly what I was talking about because I had... You get a kick out of this. I had created a shorthand language on my Blackberry, I converted the top 40 words into two-letter equivalents so I could write faster on a Blackberry and then relearn the language. I could write faster on Blackberry than on a keyboard. And so I was always rushing for the next thing. I could not sit still. And so stillness and I've become a big meditator. And I think meditation is just one tool in the quiver and I'm a big fan of it, but I'm not screaming on all rooftops say meditate and all your problems will go away. In fact, I think when you meditate, you see more of your problems and then that's where the other tools come in, but I view stillness as this continuum where on one end, and I still struggle with this, even today. I took one conscious breath, meaning I took a breath of air and I felt the air go through my lungs through my nostrils. And even as I just described, both of our tension levels just went like huuh. And I mean, if we just did that from one breath and I don't know, I don't think I took a conscious breath for 35 years. And as you start to recenter yourself around really like absorbing what we have in the present, breathing is a big component of that. So, that's one part of stillness. When I'm stressed sometimes, I do... There are four-part breaths where you breathe in for four seconds, hold for four seconds, and breathe out for four seconds. Your stress will go down. So, that's one, that's the very short end of the continuum. And then on the long end, there's Yuval Harari, like 60 days, 60-day silent retreat. People ask me, "Can you write?" No, you can't write, you could barely eat. And then somewhere in the middle, somewhere in the middle, there's no more traditional forms of meditation. But then somewhere closer to the one healthy breath is mindfulness around your phone usage. And I think that not being on your phone for six hours is... You were talking about negative screening at the beginning is now a form of meditation.

Patrick: [01:15:58] When I first met Khe. He's engineered it so that his iPhone screen is black and white. And the password that he has to enter to get into it is like 75 characters long.

Khe: [01:16:09] With disabled touch ID. But I still have it. I put the color back on because I've been messing around with video stuff. But the reason why this is so important, this long password is... Okay, you're in the kitchen with your... You're having coffee on a Saturday with your wife and your kids are running around and your phone's a little bit far, it's on a desk like 10 feet away. You're in this like great conversation, the best part of the week. Like Saturday morning kids wake up, everyone's in a good mood. You go walk, you happen to walk by your phone. You put your thumb on it, it unlocks, you read a few tweets. Maybe you respond to an email, five minutes goes by and your kids, my kid has done one of the cutest things in the best part of the day. And you missed it and you didn't... There was no value in reading those tweets. Zero, because either you would have read them later or just tweets have low value in general, the low expected value. And then you realize how often that's in like a very well-crafted example, but you do that. You do that 150 times a day, and you've missed a lot of beautiful things and like that breath that we took together. And so I view that as part of the stillness continuum and they're all challenging and meditation, for me being the anchor tenant, really still struggling with a lot of that phone stuff to the point that I could type the 15 character password so quickly now that it's almost as quick as the touch ID. I considered making it 25.

Patrick: [01:17:56] I didn't intend it this way, but this is going to flow nicely into the next one. You mentioned when you meditate, you become aware of problems. So the next one is uncomfortable introspection. So introspection straightforward. What is the uncomfortable part of that?

Khe: [01:18:12] This, I think of the four, if you really have to, if you made me pick one by leaps and bounds, it's the uncomfortable introspection. And I think so because of the work that I do, I often get lumped into the wellness category. And I'm a big buyer of wellness, I believe it, I'm glad that wellness is a thing. But I also I'm a believer that things take work, especially things that are important take work. And I think that the work...

The uncomfortable introspection is really the role of fear in our lives. Especially with males, there's this belief that, well, I take my fear and I put it in a box and I bury it deep inside my soul and I'm good. I don't see it, it doesn't see me, it doesn't impact me and it's just in this box and hopefully, it never comes out. The reality though, that I've observed is that once that fear comes out when it comes out, it probably will come out. I don't think anyone would take the other side of that. It will probably be... at the worst possible time for it to come out. Meaning if you're a hedge fund investor, it might come out the day that the market's down 700 points. If you're a writer, it might come out as you're writing your first proposal. And I think that the reason why it's uncomfortable is that talking about fears is not particularly fun. And it forces you to go places that are uncomfortable, but like working out, like knowledge, like acquiring knowledge, like with consistent effort and work and practice, I guess then you get to become one with them, I guess. But it really does for me, I'll say it flat out, I'm very scared of my own death. And it's because I'm hyper logical, I'm an atheist, and I just generally enjoy life. And I love people and it just really scares me know that it's all going to end. So, okay. That's the starting point. I've never verbalized that until two years ago. So you can imagine what holding that in, does for someone for their entire life. So I'm scared of that.

Then on top of that is layered a fear that I'm going to have no money. And I grew up middle class, lower middle class, but very much a kind of immigrant scarcity-based mindset. And I was always taught. And I think I said this earlier, at any point it can all be taken away from you. And so you must be vigilant, you must never be complacent. And that's actually something that ... I don't know if I believe that anymore. Meaning, and it doesn't mean that I'm going to go and totally live a hedonistic lifestyle and be irresponsible and do drugs and all that stuff. But I think that I could get a job, if I panic financially, I think I'm pretty employable. And so why should I be so hamstrung by that fear of running out of money? It's almost an irrational fear that I could almost model my way out of it yet that almost prevented me from becoming an entrepreneur. And so as you go through these you start to see how they're constantly reappearing. So perfect example and this is where the emotional solvency part kicks in, health insurance. Health insurance is a really ... if your fears are mortality providing for your family and running out of money, health insurance cuts through the heart of all of those three things. So when I left finance, the first question everyone asked me is what are you going to do about health insurance? And I had to do a tiny bit of research because I didn't know. And my answer was, well, I'll do COBRA. And so you get exactly the same insurance. It's just really expensive, and you pay for it out of pocket. But there was something ... it's just a simple ... health insurance is actually the least scary thing because it's a fixed cost and it's moddable and you know the duration of it. But it is, these are seven, eight-figure people asking me, they're like, "Well, I couldn't do it because of the health insurance." I'm like fucking paying for it. And then it gets into other stuff like loss aversion.

And so you start to see all of these effects, and so to take the health insurance thing full circle, I almost tapped out of entrepreneurship. And it was the week after the election. And so my COBRA had just ended, so I switched over to ACA. We found out we were having our second kid and we had a president that was going to repeal the ACA. And that insurance, when you've had corporate insurance your whole life it's like night and day difference. And so that's when I almost hit my point of emotional solvency. I'm like, what am I doing? My wife's an artist, so not W-2 income. But then you stepped back and you're like, okay. The easy fix, the fear-based fix would be like, I'm going to get a job. But you step back and you say, okay, the ACA coverage is not what we're used to, but it's still coverage. The new administration, it's going to take months or years. This was obviously before all this happened to know what's going to happen to ACA. And there actually are other ways to get private insurance. But can you stay emotionally solvent long enough when you've got a kid in your wife's stomach? Your wife is texting you in tears about the doctor's experience that she had. And on top of that, you're, "Fuck I didn't make any money. I haven't made any money in two years." And then I won't bore you with details, we figured it out. Because we quickly could say, okay, that's not the existential fear that's at play here. It's a pragmatic service question. It's not a coverage question. It's a service question, it's an experience question, it's a friction question. Just because we're having another kid that was actually part of the financial model and the two-year thingy. So that's already been accounted for financially. And the whole election thing, I mean, that's an exogenous thing that you can't really control but you have a sense of how politics works. That it's not going to, no one's going to snap their fingers and make it go away. So you step back, but you have to know that it's like your fears, it's like that movie Inside Out and they're all fucking with you inside. And they're like running for the dashboard. But instead of everyone beating each other for the dashboard, everyone's just staying where they're supposed to stay. You should have some fear, it should cause you to reconsider. But there's no reason why that confluence of events should've led me to go get a job and stop being an entrepreneur around things that had already taken some shape or form.

Patrick: [01:26:24] One of the interesting things about the entrepreneur idea is just you. And the last of the four things, I can't remember exactly what you call it but I'll use Campbell's term since we talked about Campbell earlier, which is to follow your bliss. Which sounds admittedly corny and contrite, or trite it rather. But it's a good final of the four because it probably best describes your compass today. When you are facing still an unknown, you've tried a lot of things. Some things have worked, I'm sure a lot has not.

Khe: [01:27:01] Yeah.

Patrick: [01:27:02] What is the mechanism through which, you're a very systematic guy. What is the mechanism through which you are doing that? How do you know what to explore, what to amplify on? How do you actually do that? How do you actually find the truth of the thing that's going to be the more permanent job, or career, or business, or company, or whatever it is?

Khe: [01:27:26] And I call it to live your truth, but the same concept. It's going to sound super woo, but it really is the compass. And I use joy as my compass. And am I finding joy in what I'm doing? And people will push back on that. They'll say, "Well, you have the luxury because you have savings and you had the luxury to find the joy." Is like, agreed. But also you have to give yourself permission to find that joy and you need to unpack the fear. You need to unpack the ego. Like, yeah, things are moving for me. But in January of a year ago, when I was writing these really mopey, emo blog posts, friends behind my back were saying to each other ... they were just really concerned about my wellbeing. They're like, "Is he okay?" And I'm finding it out now as I've started to get some clarity they're like, "We were really, really worried about you. We had group threads saying, did you see what he's doing on Snapchat right now?" So part of it is using joy as your compass. And I think that there's this narrative, it's scarcity based, that for something good to happen you must suffer. It must be really hard. And I've even said it myself a few times, but in the abundant mindset, when you find joy, it's this exponential level up that unstoppable almost.

My best, my proudest piece of writing, which was around my mortality fears, I'd been thinking about it for two years, but it came out in one city. And so joy comes and things start to become easy. As a solo entrepreneur, you start to cut things out of your life, cut people out of your life that doesn't bring you that joy. You become very in tune with it. You start to shed your ego and stop caring. I mean, to do what I'm doing I had to stop caring a long time ago. There's another part of the ego that's coming in now, as I'm starting to get validated from it. And I'm aware that it's happening and I'm very careful about it, but it's definitely there. When the CNN article hits, I'm hitting control, refresh on my MailChimp account. And it's the dopamine is hitting hard, it's there. And you probably felt it on the Jack retweet. I mean, and part of it is human. And so use joy, notice that he is ... And one thing I've written is I have written on a piece of paper, what does success mean to me and my family. And whenever someone starts to pull me in another direction, when I start to feel envious or judgmental or someone criticizes what I'm doing or passively aggressively saw something, I take a few four-part breaths and I just go back to that list. And it's going to change, but it is grounding and it's like, "Oh, yes, I'm annoyed that someone who is way junior to me has a really nice car." And then I was like, "I don't even like cars." And then, but I need to go through that exercise to say, "Not only do I not like cars but what I really value is the flexibility to travel. Having a car is a liability for travel, blah, blah, blah, blah, blah, blah. And my wife doesn't like cars and all that." And so having that laid out, going using joy as a benchmark. And I guess with all that is just a general openness to new things, new ideas, new experiences.

One thing I've written is, I have written on a piece of paper, what does success mean to me and my family. And whenever someone starts to pull me in another direction, when I start to feel envious or judgmental or someone criticizes what I'm doing or passively aggressively saw something, I take a few four-part breaths and I just go back to that list.

Patrick: [01:31:36] Of all the things you've got going right now, what's the top of the joy ranking? Maybe joy is the wrong word but we can use joy, we could also use what has you most excited? What's most interesting to you right now? And it can be a medium, it could be a specific idea, it can be anything.

Khe: [01:31:52] What's most exciting, so I've been giving talks about this and the best part is the Q&A of the talks. Because it's real, it's not like hiding behind a computer screen. It's real people with real questions. Sometimes I get really emotional and it is, and I really do think that my ego is not in this because they ... I've been able to connect with them on a certain personal level through story, through my story. And they want to know, they have a question that they can relate to something that I said. And that interaction, so it's the Q&A, I also like it because it's very unpredictable. It's predictable, I always get a few of the same questions and it's unpredictable because I get super left-field questions. And those are the fun ones because they make you think. And it's oftentimes I don't know the answer to that.

Patrick: [01:32:52] What's the best question you've gotten?

Khe: [01:32:54] The best question is around, so the Buddhist concept of non-attachment. And so the concept that ... I mean, I'm going to totally butcher it, but the general ... one of the concepts of Buddhism is that the present moment is all that we have. And so if you attach to anything, it's not the right ... you're going to be dis ... you will suffer because you can't attach. And so as I'm talking about, and that works well with ego and things like that. But as you talk about non-attachment, there is ... it jumps into this, how do I apply non-attachment in modern society? And I don't really know how to answer that question because I haven't answered for myself. I guess it's like, I haven't truly shed my ego to the point that I can just go sit. Yeah. Nor do I think I want that. But at the same time I move in that direction, so why move in that direction and then stop. So that's just a hard question to answer. And one that I struggle with, because it's just a little contradictory because you move into a certain direction, but then you know that you're not going to go beyond that. And is it disingenuous? Are you being a hypocrite? I don't really know.

Patrick: [01:34:26] So I'm going to pretend I'm in the audience and I'll ask you a question.

Khe: [01:34:29] Okay.

Patrick: [01:34:30] ... in this world. So the framing of the idea behind these conversations is helping people find better returns on their time and their money. And so the question is, is that even the right framework? Is thinking about things in terms of return, obviously wanting a higher return. And I think you and I have, you and I definitely share this inclination to model stuff and create efficient systems. And the language you made upon your Blackberry, that I think we instinctively gravitate that way. But is that even, is a high return ... is seeking out high returns like sowing the seeds of your own destruction?

Khe: [01:35:17] I think it all starts with ... one of my favorite quotes is "the quality of your life is measured by the quality of your questions". I guess the question would be, "what do high returns bring you? What do high returns bring you?" And I would keep the Simon Sinek, why though....so let's walk that through. High returns bring you financial freedom, let's say financial independence. But that's discrete. It's like at some point it stops, at some point, it doesn't matter. Then what do you...do you still pursue high returns? ... and so then the segue is do high returns bring you joy? And high returns may bring you joy through financial independence. High returns may bring you joy through recognition. High returns may bring you joy through cash flow, which can then be rerouted to different causes that make the world better. And there's no right or wrong answer. But I think that you should really ask yourself the real problem, but what do high returns really bring you to your life? And I think you would be surprised by some of the answers. I mean, here's hypothetical, would you still care about high returns if no one knew about your high returns? The Warren Buffet quote is, "I'd rather be the world's best lover that no one knows about than the world's worst lover that everyone knows about".

So it's interesting, and I think about this because I'm getting ... it's relevant to me personally because the returns in my case are validation returns. I feel dotted, someone says, you have, your ideas did something for me. And there's a form about it, which again it's okay. But really when you could say that new subscribers to Rad Reads is a form of validation, but that might really be more my ego, the dopamine hit to my ego, or it could be a manifestation of my financial insecurity where it's like one more subscriber equals one more X of monetization. and so this is why this framework is so powerful.

Because you have the stillness to cut through it, time slows down when your mind is quiet, when you can take those deep breaths. You have unpacked that fear that you put in a box, and it's just there. It's always with you, so you just see it. It doesn't go away but you just see it, you see its influence and you can tango with it. And then the joy, the bliss, the truth from that emerges your truest self. Because you're not putting the fear in the body. if you just, it's like I am how I am. You're not doing something because someone else wants you to do it and you're not doing something else for validation. You're doing it because it is your calling, it's your vocation. And I guess the word is compassionate. But you see where I'm going with that, is that when all of those things align, and yes, if your bliss is the intellectual pursuit of being an excellent stock picker, yeah, keep doing that. And use all of this to enhance your return. But if your bliss is knowing that you had one higher point of return than your HBS classmate, I would just dig deeper at that. I would prod at that because there's something else there. And newsflash when you get there, there are so many studies that show that it actually, nothing will change.

Khe's Most Memorable Day

Patrick: [01:39:42] What is the single most memorable day? You can choose a life or career. You could choose one day, what would it be what happened on that day?

Khe: [01:39:53] I think it would have to be, it was on our Bali trip. And it was one of our last days there. And it was my wife and Sariah, and I were sitting there watching a sunset and we were getting ready to leave, the trip wasn't over. It just, we all collectively felt that for that split moment we had figured it out. Meaning that there was some crazy stuff where I won't bore you with the details, but logistics with children in third world countries is very difficult. And so you have to let go of certain things that you would assume to be normal, like car seats and things like that. And so there was just we were, there's always a little struggle which some of it was just unpacking the stories that we had told ourselves. Some of it was actual fear because we had rented a condo, the electricity would go down for two days and what do you do about milk? Or you had to pay these, the gang members who protected all the residences. And so every month they would show up and you had to give them like $10. And I was warned about it, but I was just, this is so weird. And so but you realize that you're going to be okay. And it's a little like the Harari, there were a lot of stories that we had told ourselves. And you start to pull back the stories, and then we're just sitting there at this beach with a sunset, with a beer and it's just beautiful. And I think, and it's the three of us, and thinking about that, it would be hard to pick a moment that didn't include my daughter. So the window of items to from, there's a lot of items, but the window is really short. So I feel like that might be one of them, which is actually ironic because I'm very influenced by Naval Ravikant. And I've listened to his podcast through this recent one twice. And he bashes sunsets, no one remembers, you never actually remember the sunset.

Patrick: [01:42:09] Appropriate question I ask everyone, but especially for this conversation I think it's a really great closing one. Which is the kindest thing that anyone's ever done for you?

Khe: [01:42:17] I would say it's going to sound a little weird at first. But my friend, Sunil, as a connector, I'm always meet someone how can I be helpful? What can I give to you? But he told me once, and I think this is, I'd say kindness it's also probably the best advice that I think I've ever gotten. And he said, "The best gift that you can give someone is to share authentically with them and to share vulnerably." And it didn't really hit me for a while. Because he said this before I had done a lot of this journey and now it's very, very much resonates. And I think that because of that it just the compassion that it unlocks, but it's just, it is our natural state as humans to be vulnerable. We have something that scares us or that holds us back. And if you share that it creates this safe space for someone to share back. And from that, you get true relationships, true like real. Versus, "Oh, how'd your day gone? How did your day go?" And so I think that that was kindest, it is definitely a form of kindness. But it's also, I think the greatest piece of advice that I think I've ever gotten.

It is our natural state as humans to be vulnerable. We have something that scares us or that holds us back. And if you share that it creates this safe space for someone to share back. And from that, you get true relationships.

Patrick: [01:43:51] A great unifying, closing thought, I really appreciate your time. This has been awesome as I knew it would be. So thank you.

Khe: [01:43:58] Thank you.

Created by @ekmokaya