If you have really, really high ambitions, you achieve great things even if you fail. If you have low ambitions, you achieve nothing even if you succeed.
Where do you think the tech sector evolves from here?
Well, that's the trillion-dollar question, right?
Luckily, you manage what, two trillion. So,
When I give presentations at universities, I ask people, hey, anybody here who thinks differently from other people, who kind of think that they are weird, hands up. So, typically less than 10%. I said, you guys, you're great. We'd love to hire you. And then the other 90% is like, you know, sorry guys, you're just like everybody else. You're never going to make much money.
Okay, so I never do politics because my job is totally not political. But if I were like prime minister for a day, I would inject AI everywhere. If you look at the golden ages we've had and you look at, you know, the real powers we've had during the years, you know, Rome, Venice, they were open economies, free trade, free movement of labor, thought, and so on. What they all have in common in terms of the end of the golden ages is...
What are you leaning against right now?
Well, I think the stuff to lean against if you really want to do the opposite of everybody else would be to, you know, do less AI-related investments and more real estate investments.
How do you see real estate playing out?
Well, that's a very tough one, right? But it's not very popular and I see that a lot of big investors are reducing their exposures to real estate. So, that's probably a good sign, right, that there are better times ahead.
What do you think of office? I guess that's the worst real estate class.
It's very bad. It's very bad.
So, you have to think in a way you've had a bit of a perfect crisis there now in that COVID meant that more people were working from home. You had some trouble with, you know, part of the banking system. You had rates being relatively high and so you had a few factors there impacting it negatively.
How do you think about rates? I mean historically there's been a, I think the average is 6% or something somewhere thereabouts and we've been lower than that for almost 20 years now.
Yeah. We have been very low and for a very long period of time. I think there are some structural issues which mean that they probably will be a bit higher than they have been and I think one factor here which people don't talk so much about just now is the impact on climate. So climate is impacting harvests, is impacting prices for a lot of raw materials and impact factors in particular to the food side, be it chocolate, coffee, and so on. Then you got various fires, you just get a lot of impacts from climate on pricing structures. It also hits insurance rates, reinsurance rates, and so on. So that's on the one hand. Now the thing which is pulling in the other direction is of course efficiency gains through AI and you'll have just much more intelligence at cheaper levels, right?
Where do you think the tech sector evolves from here?
Well, that's the trillion-dollar question, right?
Luckily, you manage what, two trillion. So,
It's pretty hot, right? I think we can agree on that. And I think it's quite interesting. So, you have Jensen Huang, the CEO of Nvidia, who goes to Korea, right? He hangs out with the guys at Samsung. They go and have some deep-fried chicken and so when they are photographed in this chicken restaurant the share price of that chicken chain is going up like 20%, right? And the company that actually breeds chicken in Korea is going up a lot and the company that does the robotic arms to actually deep-fry the chicken is also going up a lot. So it just indicates to me that this is now a very, very hot sector when things like that happen.
What would be your argument for the fact that we're in an AI bubble and then against the fact that we're in...
Well, I think, okay, AI bubble, you would look at things like valuations, you'd look at circularity in terms of ownership and vendor financing, these type of things. You'd look at news coverage, you look at things like what happens when they eat chicken at a restaurant. So you just kind of look at how frothy a sector is. On the other side it has huge ramifications for how we live our lives and we see in our firm we are increasing productivity probably by 20% just by utilizing it more and we're just stuffing it in wherever we can and it's making a huge impact.
How does that show up, the increase in productivity?
Well, it shows up in that we do more with the same amount of people. You know, we are keeping headcount now flat and we are just producing more and producing better quality.
What do you think would cause inflation to come back?
Slower world economy, you know, AI leading to more productivity gains, humanoids, so increased use of robotics which is just a cheaper labor supply.
Is AI making decisions now at the firm or is it...
No, there is always a human in the loop but it's helping us. It's supporting our decision-making.
Do you think it'll ever replace humans in investing?
Not in our place. But clearly in some places, right, you have fully automated investment models in a lot of places.
What skills do you think will matter more in an AI world?
Interpersonal skills, the ability to talk to people, the ability to listen, and empathy. I mean these things have always been important but they are just even more important, you know, and I'm just seeing it in so many places. It's really, really interesting.
You talked about the ability to listen, I think, in your Wharton commencement speech.
How would you teach somebody to do that?
Well, that's a tough one. I mean, it can be taught in that you can point it out to people that they talk all the time and they don't listen, right? So, you can say that, but I think we would fall back to how we are generally. And I think it needs to come with some curiosity because if you're not curious, you're not going to listen. So, I think it goes hand in hand with that. I mean, generally you should listen twice as much as you speak, right? That's why you got two ears. But it's super important.
A lot of people think they're listening, but they're not actually listening.
Yeah. They're just processing stuff and can't wait to get to the next questions themselves, you know? So there is little listening.
I spoke to this guy called Saul Perlmutter. He is a scientist. He got the Nobel Prize in physics. And he said, Nikolai, we are now at the stage in the world where we for the first time can solve all the problems. We can solve all the problems. We know how to solve the climate problem. We know how to feed everybody in the world. We have the technology, we have the science. It's just that we don't talk to each other. We don't listen. We don't work together properly. So that's why we need to zoom in, I think.
Would you say that's the biggest problem in society?
I think one of the biggest problems now is the fact that we close up. You know, if you look at the golden ages we've had and you look at the real powers we've had during the years, you know, Rome, Venice, the Song Dynasty, the Netherlands, these places which did really, really well, they were open economies, free trade, free movement of labor, thought, and so on. And what they all have in common in terms of the end of the golden ages is close of free trades, tariffs, end of immigration, end of free thought, the rise of the strong man, attack on freedoms of all types of sorts. And we are seeing that in many places of the world. And that's a negative.
Which one of those concerns you the most?
All the above. For me, it's free speech. It's like that seems to be the big limiter.
Yeah. But you need new ideas, you know, you need to rejuvenate countries and societies. But clearly free speech is important. How do you see the difference between American and European mindsets?
So, this is super interesting, right? And now I'm in New York for a month and, you know, wow, the energy here, the entrepreneurship, the drive, you know, I just get so much energy just living here. Level of ambitions super high. Versus Europe where there is, I mean Europe is a fantastic place too, right, but for different reasons. Culturally incredible, food pretty good in many places but less ambitions. You know, the thing with ambitions, I think it's so interesting, if you have really, really high ambitions you achieve great things even if you fail. If you have low ambitions you achieve nothing even if you succeed. And so having great ambitions is just fantastic.
And you know in America, five, I mean do you think five is a high number or a low number?
Well just generally, number five, high or low?
Well there you go. You think five is low? Okay. You ask a European, is five high or low? They would say it's pretty high. So it's just like, and so the whole concept of growth rates, ambitions, and so on is different. And then of course you work much harder in America. I mean that's just not something I think. It's just like the facts. You got less holiday and so on.
Do you think that it's good or bad?
I think it's both. I think it's good for some things in society and I think it's not so good for the people involved.
It's so interesting because if you think of it from an evolutionary point of view, I mean, evolution doesn't care about you. It cares about the species. And so it would sacrifice you and make you work harder for the good of the whole unit and the survival of the unit. Was it a culture shock when you came to Wharton?
Absolutely. Absolutely. Well, you see, in a way Norway is the opposite of Wharton. Because in Norway everybody's supposed to be the same. You have this thing called Janteloven. It's just like don't think you are fantastic in any way, shape, or form. So you come to, I sit there in a class and it's just like, hey, what do you guys want to achieve in life? And one of my fellow students just hands up, what do you want to do? I just want to conquer the world. And that's kind of a statement which is totally normal, you know, at Wharton, but it's not particularly normal in where I'm from.
How would you change that to add more ambition?
I don't think you can change it. You can't change a nation, but you can change it in your own company, and you can work on the corporate culture, in the firm you work, and you can change it with yourself and your family and your friends. But to change the ambition level of a whole country, I don't think you can do that. It's tough.
How would you go about it if you had to, if that was your task?
Okay. So, I never do politics because my job is totally not political. But if I were like prime minister for a day...
And your only job just ambition, nothing sort of like...
I would inject AI everywhere. I would just go all in. I would do what they did in Sweden in the 80s, they had something called Home PC, so they bought 800,000 PCs in a country of, I don't know at that stage, let's say it was 6.7 million or something, put them in people's homes and it just increased the digitalization of the country. So now you have Spotify, Klarna, all these things. So is it directly linked? No, probably not. But you know, they increased the digitalization. Now they're doing the same thing with AI. Now they're doing the same in Iceland. In Iceland they just announced a cooperation project with Anthropic where they're basically going to stuff it into all the schools and all that kind of thing. And I think it should be perfect for Norway. Highly digitalized country and where people think it's pretty nice to have a lot of spare time and of course AI helps you with that. And it's a once-in-a-lifetime opportunity. You read the book about Nvidia for instance and Jensen Huang talks about this once-in-a-lifetime opportunity and this is just a once-in-a-lifetime opportunity for people, companies, and countries to pull apart.
And if you don't do that you're sort of going to be left behind. There's two, I mean Alpha School I guess is one of them who's using AI to get curriculum down to two hours a day. The students are getting massively better outcomes and then Synthesis Tutor has created this math program through I think it's kindergarten through grade eight or nine now and the results are like just off the charts. They move kids two standard deviations within like 3 or 4 months. And so we've demonstrated that it's better than teachers. But the impediment to that would be what do you think? Like why wouldn't people do it? What would be the argument against...
I don't know why people wouldn't do it. They should do it. I mean they so should do it.
What's the most important data you look at these days?
I don't have like just one or two data sources. I read just a lot of newspapers and I think what's going on in the world now is just so incredibly fascinating and it's so exciting to be alive, you know, and so I just wake up at 5 and I just spin out of bed. I just can't wait to get out of bed to start to read the papers and then I just start, you know, the Financial Times, Wall Street Journal, New York Times, all these things. And wow, the stuff that goes on now is just incredible things that you didn't think was possible a year ago that's now happening, right? So I was up in a forest a few weeks ago with seven of my best friends and we were predicting, okay, what's going to happen over the next 12 months. So we tape-recorded it and then we were playing our predictions from last year. And you know, these are really clever people and how do you think we did? Terrible. Terrible. Terrible. I mean we were like 80% wrong. You know, we didn't predict that Trump would win the election a few weeks later. We didn't think about tariffs and relationship between the US, Europe, you know, what's going on now in the US, in Europe, in India, in China. We had no clue. And so I think trying to predict in this world is just more and more useless. So what you need to do, you just need to work on speed and agility.
Go deeper on that for a second. How important is speed and agility?
Well, I have a big thing with speed, you know, speed is a mindset. And it is, you know, it struck me again going back to New York, you know, I buy this every morning, I buy this egg and ham roll and just the speed with which they wrap it. I mean, the speed in New York is very high, but speed generally I think is super important. It comes to this first principle: things shouldn't take longer than they need to take. You save time by being fast. So this sounds a bit strange but you know, if I send you an email and you answer within one minute, how long does that email need to be? Two words, right? And I'm impressed because you answer really quickly. If you answer the next day, how long does it have to be? A paragraph. And you answer a week later, it needs to be a page, right? So you just save time by being quick.
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How do you think about urgency? That's one thing we didn't, that was not a word we used when we were sort of like thinking about American versus European mindsets.
Yeah, I just think urgency is, I try to build urgency into most things. You know, in my office, I have this watch, this kind of clock, and it counts down the number of days I've got left in my job. So, it's not because I look forward to stop working because I love my job, but I have this thing on the wall. And so, you come in and say, 'Hey, N, we're going to work on this and I'll sort it by January.' And I said, 'January? Look here. I've got 1,765 days left. We need to do it now.' And then he said, 'Oh, really? You only have 1,765 days left. Yeah, let's do it now. Let's do it now.' So, you just build urgency into these tasks. I love it.
I like that. That's a really good idea. When I was talking with Charlie Munger about predicting, and he basically said, 'It's a fool's errand. It's better to position and have agility, but you kind of have to mix that with a stubbornness, too.'
How do you think about that?
So I think the most important thing to have in investing is you need to be stubborn but you need to have the ability to change your mind. Very few people have that. Somebody like Stan Druckenmiller has it, but the combination is rare. You need to be stubborn in order to do the opposite of everybody else. And when you do these kind of contrarian investments, there will be periods where everything goes against you and it's stressful but you need to hang in there.
Do you think you can teach people to change their minds?
I think you can to a certain extent, you can teach them. It's easier as you get older I think because you've seen more cycles. But it's difficult to find people who are really contrarian now because you need to live in a space where people don't agree with you and in today's world everybody wants to be liked and have 100 likes on Facebook or whatever. And so to be different from other people is tough. So now when I give presentations at universities, I ask people, hey, anybody here who thinks differently from other people, who kind of think that they are weird, that nobody understands them, hands up. So typically less than 10%. I said, you guys, you're great. We'd love to hire you. Can everybody else put a hands up? And then the other 90% is like, you know, sorry guys, you're just like everybody else. You're never going to make much money, but there is hope. You can change, you know, and I kind of think people hopefully they go out of that room and think, you know what, I want to be different. It's something we should really treasure and love. I, you know, wear it as a badge of honor, right?
Go deeper on that for a second in terms of, I think a lot of people optimize their lives not necessarily to be liked, but definitely not to be, you know, hated or disliked by people.
And that causes all these weird societal distortions. Yeah. You don't have to be disliked even though people disagree with you. But you know, in my mind life is not a popularity contest. So my wife says that, well, only people without friends say that, but I don't think so. I think life is for sure not a popularity contest.
And you're definitely not popular all the time. You have that big number on the screen.
You can't be popular all the time and you have to be used to the fact that whatever, even if you're, by 10% will disagree with you.
Do you read the comments that are negative about you?
But I also don't read the positives.
And I don't believe them. You know, I don't believe the positives. I don't believe the negatives.
So when you read the newspapers, like how do you read them? Are you reading headlines and then if it catches you, you read the article or is there a different way that you skim or process that?
I go through headlines and then I drill down if it's either something I am interested in or something I know I should know more about, or if I'm going to meet somebody who's interested in that particular field or I know somebody who's interested, then I pass it on to somebody else, or if I've met the person or had him on our podcast.
How do you test your assumptions before making a big investment?
So that's where I think we can be better and I think we can develop this and I think by using more of a scientific method, I think we can be better. And I do think that there is something called, I think there is an objective truth. I think there is something which is correct and we need to find it. And so I have much more of an open mind now than I had in the past. I think I listen to more different types of input and opinions and I try not to jump to conclusion.
Has that made you a better or worse investor based on returns?
Well, so I don't run money myself now. I'm running a company where we have a lot of people running money. But for sure it's going to make you a better investor if you take more of the different opinions into the equation. If you are long something, you listen to the shorts and vice versa. I mean, there really is a truth, you know. Don't you think?
Do you think there is an objective truth?
I would like to think so. Yeah.
Yeah. I think that's... But how do we get at that truth is the...
Listening to different types of people.
Yeah. But then you're making a judgment call at some point on what's closer to the truth and what's not.
Of course. And then you have to kind of, well then you link in analysis and pattern recognition and so on and hopefully you get to something which is correct.
I think the source of most of our poor decisions is just blind spots. There's information we're missing. There's something we don't see. And our job is to reduce our blind spots. I don't know if we can completely eliminate them but we can definitely reduce it.
Yep. And then we reduce it through talking to people and getting different perspectives. And it's just like if you and I were standing beside each other right here and you took a photo and I took a photo. Both of those photos are 100% accurate. But if we add them together, we get more of a picture than we do individually because it'll be slightly different because we're standing at slightly different angles with different offsets.
How has your attitude towards risk changed?
It's a difficult one. I am probably in some ways become more risk-averse. On the other hand, there are some risks I probably take more of now than I did in the past. Right? So people's risk appetite depends on many things. I mean everything else being equal, men take more risk than women, which is why we crash our cars much more, right? Young take more than older people. Extroverts take more than introverts. It's geographically based, right? American people take more risks than let's say Asian people. And I'm sorry, I'm not the one who has invented this, okay? Because I did a degree in social psychology and one of my papers was on exactly this, how is risk appetite linked to the big five. And so as you get older on average you take a bit less risk but as you build wealth you take a bit more risk sometimes. So I'm sorry, this was a long answer. I'm not sure I have a very clear answer here. So risk is interesting, right? So then you talk to some people. So let's say you do private equity and you interview somebody like Steve Schwarzman which we did on our podcast, right? So like, okay, it's really important not to lose money. So you need to really look at the downside. Now in venture capital, it doesn't matter whether you lose money on a lot of stuff as long as you capture the really big winners, right? So you can lose nine out of 10 as long as you get the one, right, which is just like going up like a rocket. The issue here is that the rocket, the entry ticket for the rocket which was $1 million in the past, that's now like $500 million. So that rocket better go up, right?
And you guys do mostly, it's like index plus.
Yeah, we are very index there. We got a really great investment mandate from the minister of finance. It tells us roughly how we are going to be positioned. It gives us a risk budget and then we are pretty close to that and that's important for many things but it's also important because it limits how much money we can lose.
So how does that work in practice? You basically start with 100% in the index and then you're like, okay, well we're going to take a little less of this and a little more of that or...
Yeah, pretty much. So we would have, I would say we have 20% of the capital we would run in a very active way and the other part of the capital will do smaller tweaks.
But you have a lot of money coming in every year I would imagine. It's probably on the order of 100 billion-ish if not more.
Well, it depends on energy prices but generally there's been inflows.
And so do you take that and no matter what the price is, like say today where you have the top seven stocks account for 46% of the US index, how do you allocate that new money coming in? Do you just sort of pop it into the index or...
Kind of. The inflows or outflows are monthly, right? So you get the money on a particular day and then you have to think when do you deploy it into the market. You do it a bit beforehand or a bit afterwards or a bit before and after and we use AI to optimize those type of decisions.
Do you try to front-run index changes?
Using AI I would imagine.
What's gotten harder in investing?
No, everything's gotten harder. I would say what's getting easier is research, right? Because of the deep research functions in some of the models you get incredible, incredible amount of knowledge within 5 seconds. It would take you ages to do that before and it's well structured and you can play around with it and so that's just phenomenal. It's just phenomenal.
How do you think about the rise of passive investing when it comes to retail? What are the pros and cons of that?
Well, the pros is that it's cheaper, so people don't pay that much in fees. It's difficult to beat the market. The negatives is that you will, I mean, they would typically perpetuate bubbles because with more passive money, they go into stocks which have done historically well and they perpetuate the moves.
Is your goal active return, total return, absolute return, or is it sort of relative to the index?
Relative to the index. So we are measured against a reference index which is constructed by the ministry and then we try to beat that. Historically over the last close to 30 years we've had 25 basis points of performance. So you would say, hey, that's not so much. Well, the thing is that if you have a lot of money, it ends up being pretty big absolute amounts.
And when you were running your own fund before that, what was the worst sort of investing mistake that you made and what happened?
The worst mistake was during the financial crisis. We were in a subprime lender and it turned out that there was accounting fraud and it was a big position and that's the worst investment I've ever made. And what I learned was that you don't want to go into dubious business models. And so Brian, you can say, you know, it's not really, certainly the type of company we're invested in, I would say it's not really, I mean, is it ethical to lend money to people who are in a tough situation in life? Well, I don't know. It certainly was a really bad investment. I wouldn't invest in that type of company. Now...
What was the lesson you took away from that? Is it the business model? Is it the...
It's just the business model and it's just, I just don't want to, I just don't think you should profit from people who have a tough time.
