All right, Sean. I have a study that's going to show why the amount of money that you make is almost entirely out of your control unless you do what I tell you to do. How's that for an opener?
Feel like it is like a late night infomercial that just like is about to brainwash me into something.
Okay, I'm intrigued. Go on. What do you mean? What do you mean it's out of my control? Nothing's out of my control.
Uh, it's about as out of control as it is your ability to control if you're 7 foot tall or not. So, I got have to give a shout out to Jim Onessy. I saw a clip where he kind of like brought me to this topic. He talked about this study that I'm going to reference. So, in 2014, there was a researcher in Sweden named Heinrich. Interesting things about the Swedes is that they are obsessed with two things, twins and money. So Sweden has this massive twin database where they have many many like hundreds of thousands hundreds of millions of twins that they've documented and for some reason you're they track twins. I think originally they did it for health reasons where they wanted to track like uh what type of twins got diseases and illnesses studies right because nature is controlled so it's all about nurture.
And so they have this like massive database and they were able to break the database down into fraternal twins, which are twins that are born at the same time but don't look alike and identical twins. They're also obsessed with money. They love money. And in particular, the government loves money. Up until 2007, they had a wealth tax. And as part of the wealth tax, Sweden basically uh tracked every citizen's entire financial portfolio. They they looked at which stocks you owned, the mutual funds that you owned, every dollar of savings. They basically tracked all of this stuff. And so what was interesting is that this guy named Heinrich, he went he had this premise, this idea where he was like, how much of investing and savings uh behavior is controlled by genetics. And so he looked at the differences between fraternal twins and identical twins because uh presumably twins grew up in the same environment. In many cases, they have the same education levels. um their parents spoke to them the same way, they were loved a similar amounts, whatever. And then he looked at uh well, how do the fraternal twins who only share 50% of genetics, how do they invest and save compared to the identical twins who have share 100% uh of DNA? And he broke it up into six biases. So people who held too few stocks, excess turnover, people who traded a lot. Uh performance chasing, so people who bought whatever bought that did well the year before, overinvesting in your home country called home bias, loving lottery type stocks. And then uh the disposition effect, which is refusing to sell losers, and he looked at all this data, and I think he looked at it over the course of 30,000 sess twins. Additionally, he looked at um outliers, so like for example, twins that were separated at birth and a couple stuff like that. And the results that he found was basically and concluded was that 45% of of savings and investing patterns and behaviors was genetic which I find to be astounding. And the reason I was thinking about this was you and I I would not I think we both in we both in different ways like investing but we are not I would say professional investors and yet
My portfolio would also say I'm not a professional investor.
And yet we love having professional investors on the podcast. We both love reading about Warren Buffett and people like that. And I was trying to figure out two things. The first is why do I like that so much? What what am I drawn to these guys for? uh so much. And the second thing was a couple podcasts ago, we talked about passion and how to figure out what you're kind of supposed to be doing. And I was trying to look for a more scientific reason about why I should do what I do. To address the first one of why do we like these investors so much? Well, I think I realized that in order to be a worldclass investor, finances are actually secondary to human nature. Financial trends change every decade. Every handful of decades something will some new thing will pop up. You know, spaxs are this new thing. So like learning about that is important, but that changes every so often. But what doesn't change is thousands and thousands of years of human nature and understanding how humans behave and asking yourself why do they do what they do is significantly more important than the financial stuff.
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Uh there's this great story from Monish Pabry. So people who have been listening to this podcast, you've probably seen that uh Monish came on the podcast twice. I think his two episodes are the most viewed episodes in the history of My First Million. So he's been this kind of Hall of Fame guest for us. And in the interview, I don't know if you remember this, but he said this thing where he was running a company. He was an entrepreneur. and he was running this company and it wasn't super super successful, but it was like moderately successful. I think it was like like a $6 million a year revenue business or something like that. Now, he did this but he was he wasn't loving it. He just assumed this was a normal entrepreneurial burnout. You know, I'm working really hard. I've been doing this for a long time. This shit's hard. I probably feel how most founders feel. But he was encouraged to do a like a very fancy version of a personality test where they talk to you, they talk to your co-workers, they talk to your parents, they talk to everybody in your life, this sort of 360. And um they try to understand like a little bit more about you. The result came back and they were like, you know, it's no surprise that you're miserable here. This is a game that is completely incompatible for your personality type. And he goes, what do you mean? and they go, "You like," and I forgot the exact descriptor, but it was something like, "You like solo player competitive number games." And he's like, "What?" And they're like, "Yeah, let's say that again. You like one person, so you by yourself, not team sports. You like solo player competitive number-based games." It's like things that had a lot of like a math or or number uh thing to it. And here you were, you were running this company. So now you're playing this multiplayer competitive non-numbersbased game. And so he uh he was like, "Okay, I don't know what to do with this." And he decided to start investing on the side. And basically, it turns out that as he's as he's done in his life, he did way better as an investor, as a solo investor playing a competitive money, the numbers based game, which was the stock market, than he ever did uh doing this other thing. He he really encouraged this sort of know thyself thing which is like you have to know who you are and what you are like predisposed to love and obsess over and then find yourself in those types of games. And he so I'll give you another example with that. When I was there he was like he was telling me about how he' been kicked out of these casinos um because he was winning too much money. I was like you were card counting. He's like, "No, I wasn't."
Dude, you are running around without your shirt on. Like, I I know the
That's not a casino. That was Margaritaville.
And so he was like, he he off camera, he wouldn't tell me on camera, off camera, he told me he showed me the exact system that he used. And then my my I've had like friends go and use this system uh in at these specific casinos, play this specific way. And it was he had actually found an edge. He's like, he's like, just the intellectual thrill of actually being able to beat the house, there's nothing like it. You know, financially, this is not a good decision to spend thousands of hours figuring this out, but I just like those single player competitive numberbased games. And same thing with philanthropy. He's like, when I got into philanthropy, oh, you make money, they got to figure out how to give it away. And it's like, should I be going to these gallas and dressing up and donating to these causes and socializing? And like there's a whole socialite scene with philanthropy. And what he figured out was the version that was fulfilling to him was again a single player competitive number based game where he realized the fun part of philanthropy for him was figuring out how to make $1 that he puts in have the highest economic return in terms of impact uh anywhere. So what he figured out was there were kids in India who are really smart that had no schooling like India's got a you know over a billion people. So a lot of people just live in rural India that are very intelligent but have no access to good education or a pathway to to better their lives. They're just going to end up on a farm. And what he realized was that if he could identify the smart kids for like three three grand a year, he could uh put them in like a competitive school. So they started these competitive math schools and they got them into IAT and I is this feeder system to like the best jobs in the world. they can go get visas and basically for three three grand he can up the that family's earning power from 10,000 a year to 50,000 a year. So he could 5x and create like you know 50,000 per year for a one time three $3,000 one year um like acceleration in in training and his like admittance rate you know the normal I it's harder to get into than Harvard um than Stanford is hard harder to get into than any uh US college so it's like whatever point whatever percent admissions rate typically and I think his is like 8% or something crazy like you know like a 10x larger uh admittance rate so even that was an a single player game or whatever. And it really got me thinking about this idea of how do you know yourself enough to know what game you should and shouldn't be playing, which is kind of a spin-off of what you're talking about, right? You're
Well, that's like step one.
Yeah. Um I had another uh kind of mentor, this guy, James Courier, he told me the same thing last week. He goes, "I wish somebody earlier in life had told me uh who I really was." I go, "What?" He's like, "I didn't know what he meant." This could go a lot of ways right here. What are you about to say? And he was like, "You know, I played soccer my whole life competitively." And what I realized is like, you know, I was actually not very attuned to playing soccer, but I was actually really good at racket sports. I had long wingspan, good hand eye coordination, and I should have been playing raetball early on. He goes, the same thing happened in my career. You know, I was doing these types of businesses when I really should have been doing this type of thing. It got me wondering, wow, there's probably billions of people walking around who never discovered what game they're actually great at and never got into that game and therefore like kind of life passed them by. Isn't that sort of a a tragedy?
Yeah. Well, like I don't selfishly I don't think about other people. I just think about myself where I'm like where I'm like uh I
Focus on the more important bit me.
But that's but that's what everyone thinks, you know? They think like okay but how does this apply to me? And um I think it was Andrew Wilkinson who told me about that self assessment thing which I really dig.
Uh what's like the when you're like a teen and you're like discovering yourself and you get a little curious. I think we're both a little
Curious here. Yeah.
I'm a little my curious right now.
Well, there's two of us. Therefore, we are by curious.
So, so what game do you think you would be disposed? I don't even know what the options are, right? Like I don't think I'm single player competitive number space game. That's not me, but I don't even know what the menu looks like. Um, so, so what do you think yours is?
Researching. Uh, I I think it'd be like a a new topic and going super deep and obsessing over one topic and coming to a try trying to come to a conclusion,
Right? So, naturally, go run Hampton.
You're describing like sitting alone on a couch with a book and thinking and really like finding your joy and you're you're being the best at that and then you're like, "So, I'm going to go sit in an office with 50 other people and run a community." I uh thank god my my co-founder Joe's the CEO so he runs Hampton but it's when we like are gearing up to launch something new like I'm in my uh zone of genius when I'm like researching how others have done something similar to us and where they failed and when they won and then going talking to experts and weasling my way into conversations of people who have been there done that and being like tell me tell me like the mistakes that I'm going to make
I think you and I are both similar in this weird way. I I thought this was completely normal until somebody pointed out that hey that's probably not super common. I was talking to this guy who's a book developer. One thing this one of the things this guy has done is he's written some of the most popular books as a ghostriter for smart, successful, famous people. Okay, great. So, I'm talking to him and he's like, "Okay, so what's your book idea?" And I'm telling him my book idea and I I talked to him a couple of times over the over a couple of years and so he had seen me talking about a couple of different book ideas and he goes, "You know, maybe we save this for later." He goes, "But I think the most interesting about you is," and I'm like, he pauses and this is very interesting to me cuz this guy's job is to spend time with really smart people and he lets them talk for hours and hours and hours and then he's like, "Oh, the real story here is X." And they're like, "Really that?" And he's like, "Yeah, that's the that's the most interesting part about this." And that's his gift. So he goes, "The most interesting part about you is you have some weird predilction for reverse engineering businesses or reverse engineering." He goes everything you do you seem to reverse engineer as a first like as a first instinct whereas most people I don't think do that and he's like whether it's like something in life you know it could be family oriented you told me this it could be creatively this it could be investment and Sam you're the same way where it's like I think our first instinct when we want to do something is like all right let me go study in history how other people have done this let me go talk to the other people who have already done this and I'm going to reverse engineer based on the principles that they tell me I know what to ignore of what they're going to say I know what to focus in on and I'm going create my own system and my own understanding and then I'll just do that. And I think we both do that as our default mode and it's what we enjoy doing. And I don't think that that's common.
And here's an example. Whenever we have someone on the podcast and they explain uh they'll ask for advice or something like that instead of saying like well you should probably raise venture capital or you should you should probably do this. The first question is always like well how would you define success in 5 years? Like what like what what
Yeah. Like what's the definition of success to you? and then let's figure out what the rules will be to the game. Then we will can give feedback. But the reason why I've been always obsessed with this is I've noticed in my company the times that I have issues, which is all the time, uh the times that I have issues,
Yeah. Every time I screw something up every day, uh I uh I'm like, I have to change the business. I have to change the people. I have to change all of these external things. But the reality is, and this is why I think I like capitalism so much, is that the business that you're controlling, if you are controlling, it's just an extension of your personality. So, if you have trust issues, then your your co-workers are probably going to think that you're micromanaging them. If you have trouble committing, then they're going to think that you're absent-minded. The issues that you have in the company, they are an extension of the issues that you have. And vice versa, if you are a kind person, you're going to have a kind culture, I think. And I think that what what investing habits are are just human nature habits. And that's why investing is really interesting. And so even though this study was related to finance, it's the exact same thing. So if you tend to have excessive turnover with your stocks, which is one of the six biases, then perhaps you struggle having steady relationships. If you tend to overinvest uh in like stocks in your home country, which they call a home bias, the likelihood that you have moved from your hometown is actually quite low. And so what I have found is that the best ways to make change in these issues, for one, it's not just reading. And so I wrote down this line which was that um change requires pain, not words. Because according to this study, what they found is once they normalized for education, meaning they took two people who both had business degrees, if that if person number two went and read a bunch of business books, they wouldn't necessarily be a better investor. What they found was that the only thing that made a meaningful difference other than genetics was people who worked in finance. Meaning, you have to like you have to experience a loss like, "Oh, I I did this. I got burnt. I can't put my hand there again versus just constantly reading about burning your hand. You'll still burn your hand. Um even in the book Thinking Fast and Slow, he even says he's like, I'm writing a book on biases, but I suffer from all these same things and I and I have to work on this all the time. And so the best way I think or the I wrote down like four ways that you can like prevent this. But one of the biggest ways to harness this is what Warren Warren Buffett said. He just said actually again we invest in our zone of genius. And what that means is Warren Buffett is a slow and steady type of guy. So he invests in slow and steady typ types of things which would entirely explain why he's adverse to Bitcoin. Which would entirely explain that if he were a type of if he were 18 or 25 nowadays, he probably would not consider having an AI startup that raised lots and lots of VC. The people who do that tend to be the ones who want dopamine a lot faster, who maybe care about glory. And you have to optimize the thing that you're working on for the personality that you have. But the other ways that you get rid of this, I think, is that you have to pre-commit so the future doesn't decide. Basically, don't go to a grocery store hungry. So like when you make a decision, you write it down. Like if I'm going to I'm going to fire this person in month three after hiring them if they don't hit these requirements. Did they or did they not hit the requirements? You stick to it. Not if you're like predisposed to like, you know, not like confrontation. Another one would be to shorten the feedback loop so you're able to like see points of the scoreboard very fast and get new information quick. And the last one, you can't play games where your bias will be fatal. And that sort of means like for me, I'm a control freak. I'm a little bit of a slow and steady type of guy. Raising lots of VC where I'm not in control and I'm expected to go really, really, really fast. That would potentially be a fatal game for me. So I'd be setting myself up to lose.
That's really interesting. So I I like the the two premises you have. One, the problems you see in your situation, whether that's your life or your work workplace, is uh a mirror to the problems you have in your psychology. And then the then the four or five tactics you just described are like, okay, what's the remedy? And and also, you know, the insight, which is I think Morgan Hansel's book is this, which is basically getting wealthy through the money game and investing is far less about strategy and far more about behavior. And it's your own it's your own poor behavior that leads to poor financial results, not poor strategy.
He says it in a much better way, which I stole from him. I wrote it down here. I said, "Personal finance is more personal than it is finance."
Right. Yeah. Exactly. So, I think that's great. It's also interesting because you said like, you know, the best investors weren't necessarily the ones reading more books. At the same time, all the best investors talk constantly about the books they're reading. And I I actually thought about it while you were saying it. It might be a weird thing. So it might not be that the knowledge in the books is super important. It might be that one of the biggest leaks in investing is too much activity. And the remedy for too much activity is actually to just busy yourself with bridge and books and and uh and playing pickle ball and doing other things so that you are not prone to just sitting there and pushing buttons. Uh because it's the pushing buttons that's the problem. And so it might be that reading it might not even matter what you actually are reading, but just simply that it takes you away from uh constant activity is actually the best part of the the reason why all these great investors read so much. Or put differently, if you found a company that's going well, which that's the situation I'm in. I've noticed the best thing that I can do is to do nothing. Because often times when I meddle, it gets screwed up. Or if you like, let's say that you're trying to get popular on social media and you notice that when you post three times a day, you get growth. It's like just do that. Don't do other things. Like this idea of like it's working, just continue. And that you need something else to do in order to have your playground where you're allowed to mess something up, but don't mess up the main thing. Yeah, there's a great example of this. I just uh picked up um Buffett did an interview with the Bergkshire thing and he talked about this which was like because Bergkshire has I think almost $400 billion in cash and it's just been piling up over the last 5 years and they just haven't deployed it anywhere.
I wonder what that even means. Like where is
They just have $400 billion in like Treasury bills basically.
Wow. I wonder what percentage of like the US Treasury that that makes up.
I don't think it's that much. is trillions in T bills. Um, you know, it's not not zero, but it's not not more than like 5%. So, he he was talking about like, well, well, you know, we we don't do anything unless there's something to do. And he was he was talking about this. There's an uh Jeff Bezos just gave this interview and he said the same thing. He goes, early in Amazon's history, Jeff Wilkey came to me one day and said, "Jeff, you have enough ideas to destroy Amazon." And he goes, "What?" He said, "You have enough ideas per minute, per day, per week to destroy Amazon." I said, 'What do you mean?' He goes, "You have to figure out how to release the work at the right rate that the organization can accept it." Because every time I released an idea, I created a backlog, a queue, a work in process, uh, a distraction, and it was just stacking up. It was adding no value the way I was doing it. In fact, I was creating distraction. So I had to learn how to prioritize ideas better, keeping lists of them, keeping those on myself until the organization was ready for the ideas. And I saw this and I was like, "Oh, like your honor, I plead guilty." Cuz you know the same thing if you're if you're very generative with ideas, feels good. And and the ideas themselves might be great ideas, might be might be a very sound idea. And so it seems like you're doing nothing wrong, but you can literally drown your company in ideas. And I've done this many times, especially like the growth teams or the marketing teams. It's like here's 14 marketing ideas and then every day two more are coming and and then I'm going to send you a tweet about something somebody else is doing that you guys should check out and then I'm going to tell you this and then I'm going to have an event you should go to and then there's this guy you should meet and then there's this thing we should try and then did that ever work? We should try that again. And I can literally suffocate an organization by releasing too many ideas into the org at once.
Right. It's just again like you described like a personality defect that becomes a culture defect, a operational defect.
I read that same quote I think 6 months ago and so my co-founder Joe who's the CEO, we set up this meeting every Thursday and it's the only meeting that him and I have together and it's just where we go through a running list of ideas and it's a he's like just say anything you want. We can say anything. We can talk about anything you want and it's just in this room pillow.
Yeah, we'll talk about anything you want. Uh, I don't think we're gonna do any of it, but maybe we will. But like, let's just we can get it out. And don't slack me any ideas, though.
But he's like, just have a running notion list. Yeah. And and we'll we'll go through any idea that you want and then maybe we'll maybe we'll do something.
I have a different tactic with these research papers, which is I basically read it and then I say, does this serve me? And like if the conclusion of that was that your genetic disposition uh determines half of your financial success, you know, I tend to just throw things like that out the window partially because there are some great lies in statistics, right? Like um Howard Marks, who was on the podcast, described he's like, "Oh, what's the S&P's average annual return?" And we're like, "10%." He's like, "Yeah, but do you know how often 10% happens?" And it was like pretty much never. the actual the actual annual returns vary widely. So it might be the mean, but it's definitely not the median or the mode. And um and so like you have these numbers and you expect it's going to be 9 10% and it's almost never 910%. Overperforms and it underperforms and it averages out to that. And same thing like you know uh many men drown in in the in the pool that was crossing the river that was on average 5t 5t in depth because averages don't tell you so much. And so there's all kinds of these like statistical things that can mislead you that just because something is a norm or an average or was studied once that that's that is I guess I should draw a conclusion from that. And I I'm a big fan of basically like productive placeos. So the question is not what is the situation is what what do I need to believe in order to do the things that will lead to a good result. Right? And so you know I don't need to know everything. I don't need to know even what's right what's true. True. Who cares? What's true? It's what's useful is what matters. And so I try to find what are the beliefs that I need to stuff in my brain that is going to lead to me doing the things I want to do to have the life I want to have.
Dude, that's so weird that that's your takeaway. I My takeaway is the opposite, which is if these are the facts, then how do I use the facts to continue to get what I want?
First of all, there's like this huge replication crisis where who knows if these are even the facts. And then secondly, even if they were the facts, if the facts start telling me that it's out of my control and that, you know, whatever my DNA was is imprinting, you know, half, it's kind of like, you know, Lloyd and Dumb and Dummer. It's like, so you're saying there's a chance. It's like, oh, so there's still 55% in my control. Fantastic. So it's like, why did I need to know any of that? All I needed to know was that here's the here's the behaviors that lead people to make money. Here's the behaviors that lead people to lose money. Do the ones that make money. Avoid the ones that lose. I think what you're saying is that your genetic disposition is going to like bias you towards maybe failing in a couple of these more than others and be more on guard to those. Is that the takeaway?
Which of those five or six are you most guilty of? Cuz I was guilty of all of those. Every one of those I I do wrong. What do you mean?
I I haven't spent enough time to think about this, but
I'm pretty home country bias. I'm not like buying like industrials in Indonesia,
But that's not I mean I don't think the bias that's not how biases work where it's like you only do these and not all these. Obviously, you do all of them. It's just um what do you skew towards? I would say probably uh uh refusing to sell losers.
You're like, I don't know. I'm pretty good actually.
No, I mean I do what? No, what I'm saying is I do all of them, but I do some more than others. I'm trying to think which ones do I do most.
Mine's definitely the activity one over activity. I don't have that issue, but and I don't have performance chasing. I do like stick to what I know and I I' I've always done that and I do refuse to sell losers. I I get emotional about like the things that I like.
Right. Let me ask you this. You you sold the hustle six years ago. 5 years ago. What was it?
All right. So, let's call it 5 years. Has that performed well? Because obviously you got a huge slug of capital.
Has it doubled in the five years? Are you like,
Well, uh, assume that 80% went into the S&P 500. Yeah, it's double. Uh, is it up 75%. Yeah, I I think the S&P I mean, just whatever the S&P is up, 80% of my portfolio is up that amount.
Right.
And I'm curious how you feel. You know, Howard Barks came on and he said, "Hey, the S&P 500 right now is a bad bet." And so here's you got a guy who's whatever 900 years old who's got all of the experience and all of the knowledge and he says he comes on our podcast and says to our face the S&P is a bad bet right now and he says it's because it's valued at you know 23 times PE ratio or whatever it is on average
That was uh in August that he came on
And he said you know the the 10year um history history tells us the data tells us that the next 10 years will fluctuate between minus two and 2% when the S&P when you buy in at this valuation is it like yeah sure but like but here's my counter argument or is it just like la in my ears is it just I don't know enough I'm just not going to worry about it like for peace of mind like what was your reaction to that
So just I went into the math just so you know the market's up 12.5% since he said that
Yeah he's saying 10 years right so not like a fivemon thing
Um when he says that I think I don't I don't care I think Uh, I know that like I study America. I study history. History will probably continue to re repeat itself for while I'm alive. And if I'm I think America will continue to exist. But the S&P 500 at this point is not an American index. It's a global index. And so I just think that it's just going to keep on going. And I am chasing 8% nominal return every single year. And if I get that, which I feel quite high that I that I will, then I'm very happy and that fits within my personal plan that I set out when I was when I before I sold the
Saying I study history. He's saying the history shows that it's not just 8%. It depends what your entry point valuation is, which makes sense, right? Obviously,
But what but but but he but he didn't say that it's not going to be that way for the next 50 years. What I'm looking at is
You're just saying longer time horizon,
Longer than just a decade. Yes. What I what I look at is to when I'm 100. Basically, when I was 21 years old, I set a target where I want this amount of money while I'm 30. And if I get that amount of money at the age of 30, that will grow 8% a year, which means I can spend this amount on my life and I could still have X, Y, and Z, which I can leave or give away. And I just don't think that what Howard Mark says, which if he is right, it won't break that plan. And as long as that as long as 8% per year over 40 years on average, as long as that happens, which I believe it will, then I am happy.
I love that if you wrote like a book on investing and you like open it up, it would just be like America would be like the the first page, right?
Dude, the S&P 500's not is Apple an American company? Of course not.
