Jim O’Shaughnessy - From Wall Street to Bitcoin

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“The last sustainable edge in investing is human behaviour… because it doesn’t change.”
— Jim O'Shaughnessy

SHOW DESCRIPTION

Location: New York
Date: Tuesday, 22nd Oct
Project: O'Shaughnessy Asset Management, LLC
Role: Chairman & Chief Investment Officer

Jim O'Shaughnessy is a true Wall Street Legend and the best selling author of What Works on Wall Street and Invest Like the Best.

With over 30 years of research in equity returns, Jim O'Shaughnessy is a pioneer of quantitative equity research, with over $6 billion under management.

How he achieved this success is no secret, and his four books share, in detail, what he's learnt along the way. As a New York Times bestseller, he writes on the roles that value, quality and momentum all play in investing.

His grandfather's success sparked Jim's interest in investing. O'Shaughnessy's grandfather built what was, one of the world's largest privately-owned oil companies, before giving away 95% of his fortune. It was family discussions around what to do with that money which got 17-year-old O'Shaughnessy interested in the markets.

In this interview, I sat down with Jim to discuss his career, media power & bias, censorship and free speech, quantitative easing and investing.

TIMESTAMPS

00:04:43: Introductions
00:05:20: Touching on various parts of America and political landscape in the US
00:08:48: Delving into differing media outlets and how technology is significantly changing media 
00:14:04: Jim’s thoughts on free speech and the importance of the First Amendment
00:19:58: Discussing the Overton window and how human behaviour doesn’t change over time
00:25:21: Touching on the US constitution and how we can preserve it in the current day and age
00:27:16: Exploring modern day censorship and the freedom to discuss controversial topics
00:34:00: Touching on the challenges Bitcoin faces and whether there are parallels with banning gold
00:36:55: Delving into Jim’s family and his background to Bitcoin
00:43:00: Touching on the broken financial system and why Bitcoin can solve some of the issues with QE
00:45:52: Discussing quantum computing and how Bitcoin can fork to protect itself from this
00:49:44: Jim’s thoughts on the education system and why he thinks it’s broken
00:55:57: Discussing ways in which we can adapt education and working life to the modern age
01:00:45: Delving into various parenting methods and how parenting changes as children grow up
01:11:01: Jim’s experiences working with his son and the background to his succession plan
01:14:49: Exploring how OSAM are innovating and brining new tools to the market
01:18:00: Discussing the fundamentals for investing, in order to receive long term benefits
01:23:05: Why Jim believes that normal people shouldn’t try to beat the market
01:26:38: Delving into what is coming up for Jim and OSAM, including new products and behaviours
01:31:31: Final comments and how to stay in touch

 

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SHOW NOTES

SHOW TRANSCRIPTION

Peter McCormack: Good afternoon Jim.

Jim O'Shaughnessy: Good afternoon, great to be on your podcast Peter.

Peter McCormack: Yeah, thanks for coming on! You're a bit of a legend, you're also on my friend's show, I'm aware of one of your books, I actually think I've read one of them? I think I did years ago. I was on the red eye last night and I couldn't sleep. I was on the red eye from SF and I was like, "invest like the best", I'm sure I've read it!

Jim O'Shaughnessy: That was my first book.

Peter McCormack: Yeah, I'm sure I've read it. There was a time where I thought I wanted to be a broker from home, sit in my pants and trade money and drive a Ferrari. I think I tried it for about two months and I pretty much lost everything!

Jim O'Shaughnessy: That's the typical story!

Peter McCormack: I don't have the temperament for it, but we were talking before we started. I've been traveling a lot around the States, getting to know the country and like I said, this is my 70th visit. I've been traditionally New York, Vegas, LA, San Fran, Florida, but now I'm spreading out. I've been to Wyoming, which was beautiful.

Jim O'Shaughnessy: Which we were talking about earlier, it's such a beautiful state and I recommended Montana, we just went there. I've been to all 49 States except Alaska. So I got to get there!

Peter McCormack: When are you going to go?

Jim O'Shaughnessy: Probably next year sometime. My wife and I are talking about it. We're going to go to Japan because she's never been, I have. Then she was like, "well we got to knock that 50th state off!" But Montana is very much like Wyoming, I love the Western Athos. They're different people than we are here in New York and it's a breath of fresh air.

Peter McCormack: Yeah, I spent some time up there recently with Caitlin Long, who is a big supporter of the Bitcoin and Blockchain community. She does a lot of work working with legislators to try and keep them away from kind of very restrictive, close minded laws and they've done a lot up in Wyoming. The guy I met, Tyler Lindholm, he's very much a libertarian Republican...

Jim O'Shaughnessy: Yeah, so you and I were talking about that before. I don't really have a party. I think if I'm defined by one thing, I am fiercely anti-authoritarian. I just hate the idea of a self-selected group of people who think they know what's right for you. I avoid politics a lot, because I don't really have a party. Strange days, but I do watch with great interest both here and what's going on in the UK.

Peter McCormack: I watch here with a lot of interest. Actually I think I have more interest here, than the UK right now, which probably will annoy some people. I actually think it comes down to that I almost spend as much time here, as in the UK and I think I'll probably end up here. But I do see that the US tends to lead the world in certain ways and what I struggle with, with politics, is the relationships between politics and media.

Look, you don't want to flip the other way, you don't state controlled media that's worse. But I'm starting to see that there is two forms of media censorship. There's the censorship by the state, if you've got state controlled media, but I actually think politically biased media is a form of censorship as well.

Jim O'Shaughnessy: I could not agree with you more completely! I've been working on a piece that looks at the idea of preference falsification and revealed preferences. So I think the media globally is still trying to adjust to the resizing that the internet put them through, because if you think about it, remember back in the day, they were the fourth estate. They might not make a lot of money, but they had a ton of prestige and now where the best Apple analyst is a blogger and where people call out the media for all of their mistakes.

I think the most famous one was the first one, I think when Dan Rather did the whole thing on George W. Bush about how he got out of the military and presented the letters and everything and then like a half an hour later, there was a guy on the internet saying, "oh by the way, that font wasn't created until 1989!"

Peter McCormack: I need to ask you a question first, which is highly relevant to something that I saw this week. So you mentioned the fourth estate is this a US thing? Because this week I heard Facebook referred to, it might have been Mark Zuckerberg refer to Facebook as the fifth estate and a lot of people were like, "oh, that's very interesting." But I didn't understand what it meant because I've not heard of the...

Jim O'Shaughnessy: That's exactly what it means. So in the US, the fourth estate is usually the term that you use to describe the media, the established media. So the New York Times, the paper of record used to be, the Wall Street Journal, the paper of business, and the fourth estate was there sort of technically to keep the other three in line, business, government, military.

Now what's happened I think, and I don't think this adjustment is done, the internet has so turned everything on its head and personally I think that a lot of good is going to come out of that, but there's going to be some bad as well. You can't have everything be unicorns and rainbows! So what the internet is doing is it is finally harnessing distributed intelligence.

By that I mean, so if I wanted to look something up in 1989, I had to go to the library, I had to know the Dewey decimal system, I had to really be motivated and luckily I was, but there were a lot of folks who weren't. Now that's not true, you want to know something, go on Twitter. You want to know something about finance, go to financial Twitter, which I'm a big part of, you put your question on there and some of the smartest people in finance are going to answer your question for you.

So the empowerment of the individual I think is like a basic good of the internet. Now of course there's a basic bad too, right? It's like somebody was saying to me the other day, "has the world gotten a lot crazier?" I'm like, "no, it's just that that left half of the tail, they never had a microphone!"

They would send a letter to the editor and the editors would pass it around and have a chuckle and then bin it. Nobody heard from that person. Now they've got this huge megaphone that they can use. So it's a bit like, "yeah, they were always there, but now you're hearing from them." But I think curation can solve that problem.

Peter McCormack: Yeah and I think the free news is a bit of a problem...

Jim O'Shaughnessy: Oh, I agree.

Peter McCormack: ... Because it's all then driven by media. I know it was there before and your headline or your front page of your newspaper was your traditional clickbait, "what is the headline?" But that was one headline and you tend to stick to a paper you'd like now, but online there's such low friction to read an article, it's clickbait. I purposely refuse to read anything from Buzzfeed, for example.

Jim O'Shaughnessy: So I've gone a bit further. About 10 years ago I decided that I was going to stop watching all television news because it had become very apparent to me that what had happened was, politics is the new religion and they are all selling dogma. I don't care if you're a conservative and watching Fox or if you're a liberal and watching MSNBC, it's talking points, it's dogma, it is not open-minded, it is doctrinaire and it is, "if you don't agree with us, you're a heretic, burn the witch!" I don't think that that leads to good outcomes.

Peter McCormack: Nope! You're meant to be the United States and actually what you are is the divided States right now and the division suits, I see two groups of people, people who want power in government and media, the agenda really suits them. The agenda that suits the people is actually everyone coming together and trying to work together.

Jim O'Shaughnessy: So that is such an interesting comment because I was just having a really long conversation with a friend about that and we were both talking because we both travel a lot and we joke that when we leave the New York area, we go to real America! We were talking about that and he said to me, "do you find that your average American just is kind of a go along, get along, let's work things out" and I'm like, "absolutely!"

So I think it's really refreshing. If you're here in New York or the New York Metro area, it's a very different place, as is San Francisco by the way. So, so we get myopic and we think, it's the old New Yorker cartoon of a New Yorker's view of the world and it's New York and then California and everything else is flyover country, well that's absolutely wrong.

When you go to so-called flyover country, is where you're going to find those types of Americans that you're talking about. They don't have time for all of these petty divisions and these ridiculous debates that lead nowhere. They really have that typical American attitude, "let's roll our sleeves up, let's work together, let's get it done, let's move on."

Peter McCormack: That's the great thing about traveling outside of these cosmopolitan cities and going out to, I've been out to Portland this week, as I said to you, I've been out to Wyoming and I'm gradually spreading out. I've been invited out to Montana, one of the big shifts that happened with all this traveling is my opinion on guns changed. I was very, very anti-gun, now, I'm not so anti-gun.

I wouldn't say I'm pro everyone having AR-15, but I understand the arguments and when I went out to Wyoming and spent time with the people there, I was trying to understand what guns meant to them and the part of their life, I was like, "well, this isn't a danger. The danger is for people with mental health problems in cosmopolitan cities."

Jim O'Shaughnessy: Exactly, and it's really such a contentious debate...

Peter McCormack: An un-winnable debate!

Jim O'Shaughnessy: ... But I like you, live in a very cosmopolitan place and guns are not a good idea, especially when mental health is in question. But the thing that I would say is the thing that I have the greatest admiration for in the United States, is the Bill of Rights. You can't criminalize speech here because we have the First Amendment and believe me, if we didn't have the First Amendment, we would have criminalized certain speech here way long ago.

Peter McCormack: You might not know this Jim, I'm being sued in the UK right now for words, for saying calling somebody a fraud.

Jim O'Shaughnessy: That's insane! So I have a lot of business in Canada and I love Canadians. Canadians, Kiwis, Australians, best people on the planet. But I'm seeing that happening in Canada now, where they are letting people sue people for speech and I think that that is the height of insanity. Look, there's a lot of things that people might say that we disagree with, there's a lot of things that people might say that are crazy, but the fact is, the only way you get to sort that out, is to have free and open speech.

Peter Thiels’ guy who runs his investment, Eric Weinstein, has this new podcast called "The Portal" and he had a great episode about preference falsification and that is happening more and more and more, especially in this country, but I'm sure in the UK as well. I talk to younger people especially, because I'm 59 and I miss that. So I don't falsify my preferences.

Peter McCormack: I don't know man, you meme like a champ on Twitter!

Jim O'Shaughnessy: Well I'm a big believer in being who you are! But when I talk to young people and I'll say "okay, so are you ever in a situation where something comes up..." Let's use guns again and let's say you don't like guns, but you believe in the Second Amendment, do you say, "but I believe in the Second Amendment." 

Almost to a person, men and women that I talk to that are, let's say under 40, all have been in situations, not just about guns, but a lot of different things where they say, "no, I basically go along" and I say, "that's really interesting. Why do you do that?" "It's not worth it to be ostracized socially" and I'm a big fan of reading and Orwell, he wanted to call that book the "Last Man in Europe."

Peter McCormack: Did he really? Interesting.

Jim O'Shaughnessy: Yeah and the publisher was like, "no, we can't do that, that's just too much." So 1984, all he did was invert 48, because that's when it was published. So 1984, but I was revisiting that and so "new speak" verses "old speak" and "new speak" is designed to take your conceptual ability to think, even think, about things like freedom away from you.

I think it was Wittgenstein who said, "the limits of my language are the limits of my world" and that terrifies me. So what's happening though, you want to see the results of people falsifying their preferences, look at the guy who's sitting in the White House in the United States right now. Talk about preference falsification!

So I think it gets dangerous, because you can't sit there like the schoolmarm... Taleb has that great peace "intellectual yet idiot" and I reposted it that recently because of some stuff I was working on, got a lot of comments and it's a real problem. You're being sued in the UK because you called somebody a fraud. To me, that is absurd.

Peter McCormack: Well of course it's absurd. It's absolutely absurd! He likely is a fraud and I'm doubling down on it, but I could be now bankrupted just for saying these words. There's been a few things like that in the UK. There was a comedian, I'm not approving of this, I actually think it was just a bit vulgar, but he taught his dog to do a Hitler salute and he got put in prison for it, which is insane. I don't agree with what he did, but I don't think he should be put in prison for it!

Jim O'Shaughnessy: And that's always the thing, right? They'll take some kind of crazy thing like that, that neither you nor I would ever agree with, I think that's horrible, but we'll defend his right to the death to do it. Getting put in prison for teaching a dog a dumb trick, we have to think about these things, that's crazy!

Peter McCormack: Well yeah, like I said, I don't agree with it and I think it's better that it's out there and people condemn him if they don't agree and say, "look, that's a bit tasteless" or "why you doing that?" But if someone wants to find it funny, then so be it. I'm a big supporter of the comedy hall and I think it should be the first bastion of free speech.

Jim O'Shaughnessy: Totally agree, my daughter is a stand-up comedian.

Peter McCormack: Well you have these people in colleges who are having to sign non-offensive agreements and it's just like, well hold on, you can't be offended with comedy. Comedy is about testing you and testing you as an individual. I don't even know what offended means anymore Jim, I really don't. What happens when you're offended?

Jim O'Shaughnessy: Exactly! It's like, you're offended, so what? Just stop being offended and you move on with your life. Ricky Gervais' I love and I look at him as a hero man. The guy is out there, same with Dave Chappelle here in the United States, Jonathan pie in the UK.

Peter McCormack: I like Bill Burr.

Jim O'Shaughnessy: Yeah Bill Burr is fantastic and do you know what? They are the Vanguard. They are like, "no, no, no, we're not doing this. We have to have the right to speak freely and if you get offended, get offended." Who would have ever thought, right? Lenny Bruce, who was a very famous comedian here in the US in the 50s and 60s, died tragically of a drug overdose at age 40, but he got arrested, I don't know how many times because he said swear words on stage. I mean, honestly? 

So people who don't know that, don't know that there was this huge group of people and since we're on comedy will stay there, like Lenny Bruce, George Carlin, Richard Pryor, all of these people broke new ground and they opened up the conversation. We were talking about it the other night and one of the things... I tend to be a really rational optimist and so we were talking about the United States and my daughter was here with her boyfriend and I said, "you know what's really interesting?

When I was born in the United States in 1960, Jim Crow laws were still in effect, that precluded black people from voting in the South." My oldest sister, who unfortunately died, was married to a black guy, an immigrant, and her marriage when she got married was illegal in half of the States of the United States.

Peter McCormack: Did they deal with a lot of abuse for that?

Jim O'Shaughnessy: They lived in a pretty liberal area, Denver, so luckily no. But the point is in 1971, you're a woman, you want a credit card? You have to have your husband's approval. Look at how this country changed, for example with gay rights. l Look at how quickly we were able to adopt a much more tolerant attitude towards a lot of things and I think a lot of that comes, back to comedy, from people kind of pushing the envelope.

They call it the Overton window, I'm sure you've heard of it. So the Overton window moves around a lot, but if you understand history, it always has. So one of the examples I love to give is, I love British history and I love European history in general, and I love Roman history and Greek, but so an example is, in the late 18th century, early 19th century, one of the fashions in Paris was for women to wear sheer tops without bras, so that their breasts were completely visible.

Peter McCormack: Sounds fantastic!

Jim O'Shaughnessy: 20 years later, gone! High necklines, everything demure, the Overton window shifted, fashion shifted. So I always kind of smile when I hear people say, "well we're living in unprecedented times", no, we're not. Yeah, we have a lot of really cool things like the internet, like the raw power of distributed intelligence, yeah, those are great, but look, human behavior doesn't change that often.

I was talking to a European journalist earlier today and I was saying that the last sustainable edge in investing is human behavior, arbitraging human behavior, because it doesn't change. The more history you read, the more you understand this, it's like somebody was bemoaning the fact that, "oh those millennials don't understand the baby boomers and the baby boomers don't understand the millennials.” I laugh!

All of my kids are millennials and I've been made an honorary millennial by many people on Twitter, but the joke is that that's been the way it's been from all the way back to ancient Greece! If you go to the original readings and the writings and stuff, it was like, "this new generation, they're crazy!" No, they're not.

Peter McCormack: They're just lived a different life, that's all it is and they will live a different life from their kids. But I do think there's a few things, I don't want to say that we need to be careful because that's almost like I'm saying other people have a responsibility, but one of the things I'm jealous of, being from the UK, I'm jealous of the Bill of Rights.

I'm very, very jealous that you have that because I don't fully understand the history and one of the things I'd like to do is actually find a very good book on the history of the Bill of Rights, how it was debated, how the Founding Fathers agreed on what was important.

Jim O'Shaughnessy: I actually might have a couple of titles for you, but I'm going to have to look them up though so they are right.

Peter McCormack: We'll do that afterwards because I really want to understand it because I do feel like your Constitution is under attack, constantly at the moment and it's really, really interesting.

Jim O'Shaughnessy: It is.

Peter McCormack: One of the things that also crosses my mind is that, does there come a time where it has to be re-debated? So for example, is the Second Amendment, the gun rights, we're in a very different time now, the weapons are very different from then, does it need reconsidering? I don't know. Is there anything built into the US Constitution that allows things to be re-debated?

Jim O'Shaughnessy: Absolutely and that is amending the Constitution. But the Founders made it ridiculously hard to do that and they did that for a reason. We lucked out, again, sometimes it's just luck. We were founded at kind of the height of the age of enlightenment and reason. All the thinking then were the natural rights of mankind, all of those things and all of those things informed our Constitution and as well as a realistic viewpoint about what human beings are all about.

Peter McCormack: But you were being ruled by us, from across an ocean. Once you'd got rid of us, it's kind of like, "well, we don't want to be in that position again. We don't want an authoritarian ruler. So what are the things we can put in place to ensure that?"

Jim O'Shaughnessy: Exactly and so I personally venerate the US Constitution, but I also venerate even more the Bill of Rights because they realized when they read the Constitution, "hey wait a minute, there's a lot of room for interpretation here. Let's take that away. Let's make sure the First Amendment..." I mean to me, the First Amendment is one of the greatest inventions that men have come up with and that is the ability to speak your mind no matter what and not have other people in a position where they can throw you in jail or silence you or do any of that, because again, that's how we learn, that's how we move further.

Peter McCormack: So let me ask you something then with regard to that, because a hotbed of discussion around the First Amendment right now is Twitter, where people are losing their accounts or being banned. I've had a 12 hour ban once, when I had a guy constantly trolling me and I called him a "manjina" and I'm assuming that crossed... Yeah, I know, because I just thought he was being wet, but I assume that crossed some kind of...

Jim O'Shaughnessy: Well given I have a lot of Brit friends, there's a colloquial that in this country is very bad, but in Britain it's not bad at all.

Peter McCormack: Cunt?

Jim O'Shaughnessy: Yes, exactly.

Peter McCormack: It can be bad actually. Do you know what Jim, people are going to hear it. There's two ways and I think Ricky Gervais covered it very well when he explained it. If you're like "he's a massive cunt", he's a terrible, terrible human, but if you say, "oh he's a funny cunt", he's like the funniest person ever. But we just say it all the time. We say it like you say jerk and nobody has a problem with it. I have to hold my lips shut here because I've said it and somebody looked at me like I killed a baby!

Jim O'Shaughnessy: Well you know the old joke about America and the UK, it's two countries separated by a common language!

Peter McCormack: Well wasn't there a guy, once you kicked us out, he just made some amendments to the language. So he got rid of the "u" in color for example, and the "u" in favourite and he changed the "s" in things like centralized to "z". What was that all about? Was that just as you had your own identity?

Jim O'Shaughnessy: I think so, yeah. But back to Twitter?

Peter McCormack: Oh yeah, so back to Twitter. So I got a 12 hour ban and quite interestingly since then, my engagement has dropped as well in certain ways. But I've noticed now that certain people, I mean I don't agree with... It's very tricky actually. Let me say that it's very tricky because if somebody was harassing me on Twitter and abusing me and saying awful things over and over and it was just repetitive, I guess I can block or mute them, but it's not very nice. At the same time, there was the thing put out that was saying that people are now being banned for saying things which are biological fact.

So for example, at the moment a big topic is trans and trans rights, which is great, do whatever the fuck you want. But there are certain people now, who for example, are crossing sports, so there was a man who, and I'll probably get my terminology wrong or pronouns wrong, if there's a listener offended, I apologize, but he became a woman, started fighting MMA and broke someone's skull. There's a rugby player, who broke someone's leg and we really need to be very careful about this.

Jim O'Shaughnessy: Yeah, that's a really sticky wicket, because on the one hand you want to be in favor of people being able to do what they want to do. But then on the other hand, the idea of biological men, who become women, going into women's sports, I mean that's tough. I saw a piece the other day that said, "if we allow this, we're going to wipe out women's sports." It's going to be men's sports and co-ed sports.

Peter McCormack: But the bigger point is that we should be able to discuss this on Twitter and I don't feel like I should be... So I don't think I can go on Twitter now and say, "I think it's a disgrace that this person who is biologically a man, who is now a trans woman", God, I hope I've got this right, "should not be able to do this." I fear that I would get reported and banned and that's where I think liberalism has gone too far.

Jim O'Shaughnessy: Yeah, so one of the things that I do for the most part is I try to take a very stoic attitude towards all things political and I usually don't get engaged there, because it's like the old joke, "don't wrestle with pigs because they like the mud." I don't like the mud, I don't think that I'm helping anyone and I'm certainly not changing anyone's mind.

I read a lot of Marcus Aurelius, I read a lot of Seneca, the Stoics and one of the things that that taught me was, don't concern yourself with anything that you personally, through your own actions, can't change. So if you think about things that way, there's so many things that just suck the energy out of people and their diversions and they're bad diversions at that.

One of the things that I just don't understand, I actually did a Twitter thread about it and I re-posted it because of some stuff I was reading that concerned me, it's basically like, this is not some big conspiracy by society, it's the way society has always been.

They're trying to knock you into a form that is most useful to society and it's not like, "okay, there's a conspiracy." No, that's society! Just choose not to be so knocked. The way I look at it is, don't get diverted by all of those meaningless arguments where no-one is going to change their mind, where people are shouting at each other.

Peter McCormack: I've done it.

Jim O'Shaughnessy: Of course, we all have. But basically what I'll do is I try to avoid all of those because they're just time-sucks and I'm not going to change anyone's mind and nor do I expect that I will.

Peter McCormack: Well, I do it sometimes. I tell you what I do and I upset a lot of Bitcoin people as well doing this, but whilst I have a Bitcoin show, I don't actually make it for Bitcoiners. I think that's where some of them are confused. I make it for people who might be interested in Bitcoin or thinking about Bitcoin and want to come in. It's a very easy, gentle show to come into it, just some Bitcoiners like it. But I use Twitter as a research tool.

Jim O'Shaughnessy: Oh yes, absolutely! As do I, I've got a lot of logics going on.

Peter McCormack: But I will put out something provocative, because I want to see the response and that helps me decide how to make a show or what to make a show about.

Jim O'Shaughnessy: Interesting.

Peter McCormack: So I don't just talk about Bitcoin. I've done a show about guns, I'm talking to you today about the US constitution and censorship, I think these things are very interesting topics, but I really like to challenge them and I really like to put out something that really might even upset people. Not because I want to have a fight, I just want to see where their values are. For example, there's this guy this week called Hotep Jesus, who's a provocateur.

He says some outrageous things and he's got a mild interest in Bitcoin, I'm totally gone on his side, where all the Bitcoiners are going against him and the reason I've gone on his side is that there's going to be lots of people like him who might come into Bitcoin, of all different attitudes and some of them are going to be really annoying and I want to see how Bitcoiners react to them. 

Bitcoiners don't like that I've supported him and I'm going to support him because I want to learn about that. I don't learn anything by just talking to Bitcoiners about Bitcoin.

Jim O'Shaughnessy: Yeah, I'm totally with you. I was on Pomp's show and basically I got to say, "I don't know", I don't know how many times, I should count them!

Peter McCormack: That was a great show by the way.

Jim O'Shaughnessy: Oh, thank you! Look, I'm fascinated by things like Bitcoin, because I don't know... Honestly I see a lot of challenges. Not a good thing because there is a historical precedent when the United States made owning gold illegal.

Peter McCormack: Was that Nixon?

Jim O'Shaughnessy: No, that was FDR, that was Franklin Delanor Roosevelt in the 30s. Nixon closed the gold window, different thing.

Peter McCormack: So I'm aware of the Nixon one, tell me about the other one.

Jim O'Shaughnessy: So FDR during the depression decided that to get people to stop hoarding and insisting on gold, he was just going to take away the right to own gold and he did quite efficiently. You were allowed to own jewellery, gold jewellery, but that was it and you went to jail if people found you with gold. So I extend that thinking to Bitcoin and the United States, despite what some people might believe, is still the world's biggest economy and the powerhouse.

If the United States decides for whatever reason that, "you know what Bitcoin, yeah that's illegal. By the way, if we find you with Bitcoin, you're going to prison for the rest of your life." That would put a real crimp in it. Now I've talked to people who have a lot of friends who are really into Bitcoin and know so much more about it than I do, I'm the first to admit my ignorance, and so I asked them these questions because I'm interested and the most common response is, "well no, what'll happen is it'll just move off shore."

I'm like, "okay, make sense, but if it's not available in the world's biggest economy, don't you think that that's going to kind of put a crimp in its style?" I was just recently in Africa and I quipped to my wife, because we were talking about Bitcoin and I said, "when the game guides prefer a Bitcoin transfer to US dollars, then I'll know they're onto something!"

Peter McCormack: Well interestingly, so with my podcasts, all my sponsors are American based. I'm based in the UK and I actually prefer to be paid in Bitcoin, it's very strange, but it just makes my life a lot easier. But there's a whole bunch of game theory or theories about what will happen if the US banned it. Yes, it wouldn't be helpful short term and it could be counterproductive to the US because what's happening is, there was like this dual Bitcoin economy that's growing. So there's suspicion and almost an expectation that Bitcoin is being used to get around sanctions.

Jim O'Shaughnessy: That wouldn't surprise me at all.

Peter McCormack: It would be very hard to stop. You can control the banking system, as the US, but you cannot control Bitcoin. Also, if you ban it, you can keep it in your head because it's numbers. Do you own any Bitcoin?

Jim O'Shaughnessy: I own a Bitcoin hedge fund.

Peter McCormack: Have you ever yourself owned Bitcoin?

Jim O'Shaughnessy: No.

Peter McCormack: I'm going to give you some after this.

Jim O'Shaughnessy: Okay, that's great! The reason we did the hedge fund, so O'Shaughnessy family partners is the kind of family office that owns O'Shaughnessy Asset Management. We have a lot of employees, who also are owners, but we also make a lot of different investments.

So my son Patrick, who has the "invest like the best" podcast, did this great series on Bitcoin and I remember we were at a memorial for my cousin's son who had died tragically, very young and we had like half an hour in the hotel lobby before the bus came to get us to take us to the thing. He had just finished it and I went, "30 minutes, explain Bitcoin to me."

He did a very good job, which actually led to this investment. So one of the things that I like to do is, I'm a big believer that you can intellectually understand things, but unless you put some skin in the game, you're not going to really pay attention. So I said to Patrick, "well, what do you think?" And he's like, "well, these guys who I interviewed, they can also short Bitcoin and the various things." I'm was like, "that's intriguing to me." So that was a couple of years ago, have I learned anything? You know, to be honest, not really!

Peter McCormack: Well if you started a couple of years ago, you would've made money, on paper.

Jim O'Shaughnessy: So what was super funny about it was, we made the investment right before Bitcoin soared. So we're looking at the statement and I'm like, "maybe we should have put some more money in this!" Well then it crashed and the value of our investment actually went below our original investment and now it's above it again. But to me, okay, I've seen stocks do that all my career.

So I'm not learning... It keeps me interested in listening to folks like you and having conversations with people who know far more about it than I do. I think the most powerful thing that we as investors can do is admit, "I don't know." Because when you are willing to say, "I don't know", you learn things because you're not trying to defend a position, you're not trying to say, "gosh, Bitcoin is going to work because X, Y, Z" or "Bitcoin isn't going to work because of X, Y, Z", educate me!

So it's interesting to me because... So I put a thing up on Twitter the other day, that the most successful myth in my estimation is the belief that money has value. If you think about it...

Peter McCormack: I've learned that with Bitcoin!

Jim O'Shaughnessy: Exactly, but if we collectively as a world didn't believe that, we'd still be in huts, we'd still be hunting and gathering! The myth of money, I call it ground state reality, which to me, is what the most people on the planet Earth, wherever you happen to be sitting on planet Earth believe.

The internet by the way, I think is fooling around with ground state reality and I think it's changing ground state reality, but that's a different topic. Anyway, so the first thing that sprung to mind was "wow, money!" I don't know, do you like Rick and Morty? Have you ever seen Rick and Morty?

Peter McCormack: I know it, but I've never seen it. There's a guy who memes Bitcoin with Rick and Morty shows and I've actually recorded an overdub.

Jim O'Shaughnessy: Oh, fantastic. So my friend Dan Jeffries wrote a great essay about Rick and Morty and the meaning of life. He got me turned on to Jed McKenna, the "Spiritual Warfare" guy, really interesting stuff. So anyway, my eldest daughter, I have three kids, so my son works with me at OSAM, I have two grandchildren with him who I adore. It's great to be 59 and have a 5 year old grandson, 3 year old granddaughter! My daughter Kate is an author of children's, or not, she'd kill me for that, middle grade fiction.

She has a book coming out next year and she lives in Berkeley and then my youngest is a stand-up comedian and she's moving to Brooklyn from Chicago and I'm delighted. But Kate, my middle daughter, we were talking about, before I'd read Dan's essay, she's like, "Dad you've seen Rick and Morty, right?" And I'm like, "no, what's that?" Her husband, and she went, "oh my God, you are going to love this show!" So literally I watched all of them in one sitting, you've got to watch it.

Peter McCormack: Now I've got to do it!

Jim O'Shaughnessy: Because there is one bit, and the reason I bring it up, so Rick is this super genius who has figured out how to go through all of the alternate universes and he's hysterical. He's an alcoholic because of the real nature of the universe and so anyway, he gets caught by the galactic authority and they're trying to get his secrets out of him and they can't do it. He outsmarts them and he breaks free with the help of his grandkids.

So they go up to the most important level of the intergalactic thing and he says, "I am going to watch my kids, watch this work. I'm going to destroy the galactic empire." They were like, "what are you going to drop weapons from space? Are you going to launch an all-out attack on all their warships?" He goes, "no, no, no. I like the ideas, but something much simpler, I'm going to destroy them by changing a one to a zero." The one to the zero is the exchange rate on the galactic currency changes, so he changes it to zero, everything collapses!

Peter McCormack: But you're right and I think a lot of people just walk through life just not really thinking about money. I was debating with my friend the other day how outdated the education system is. We don't even teach children about money, like what it is, what it means, how you use it, what inflation means and what it means to save, we don't do any of that.

Jim O'Shaughnessy: Now you're on one of my things that I always get on a soapbox about, because first off, our education system in the United States is the way it is because of farmers and because of industrialization and guess what? They wanted to make sure that people could sit quietly in a room for eight hours, because they were going to do that in the factory. So we are so behind where we should be in my opinion of education and financial education is woeful!

There's a great book called "Innumeracy" by John Paulos, who's a mathematician I would recommend. You brought up inflation adjusting, honestly, people cannot get their head around it. They literally can't get their head around inflation and so I tried all these various ways to do it like, "okay, so it's 1990 and you've got $10,000 and your $10,000 buys a basket of goods that has a 100 units. You give that money to a money manager and 10 years later you've got $20,000 he's doubled your money, wow he's great, right?

Well not really. You've got to see what does that $20,000 buy? If it buys a basket of 90 items? No good!" But it's really funny because of that natural sort of inability to get inflation, guess what government does? I hate to admit it, but they're pretty smart! It happened in this country in the 70s, what did we do?

We monetized the debt and we inflated our way out of the huge debts that the US had and because the US could issue its debt in its own currency, how crazy is that? And yet we'll do it again, it's happening right now with all this QE and blah, blah, blah.

Peter McCormack: I think they're going to struggle with $20 trillion.

Jim O'Shaughnessy: It's insane!

Peter McCormack: Well this is why Bitcoiners love Bitcoin because of one of the most important things is, there will only ever be 21 million. You can't print anymore, so by nature, as more people adopt it, it has more value.

Jim O'Shaughnessy: I agree and that sort of stuff fascinates me. If you reach that tipping point, where the majority are adopting, then you're golden, because then it gets chunked into the part of your brain that the myth that money has value. Then suddenly just Bitcoin is money. I have a question for you.

Peter McCormack: Yeah, shoot.

Jim O'Shaughnessy: So you saw the thing about Google and the quantum computers? What happens when we actually get quantum computers, aren't all of those security protocols of Bitcoin, child's play to a quantum computer?

Peter McCormack: So as my understanding is, is that you can write quantum resistant cryptography.

Jim O'Shaughnessy: Really?

Peter McCormack: Yeah, but it's just like a different form of cryptography. I'd be so out of my depth, but my understanding is that Bitcoin has this thing called soft forks and hard forks. A hard fork is where essentially you have to make a... You know Bitcoin is a chain of blocks?

Jim O'Shaughnessy: I do. While I say "I don't know," I have the basics down.

Peter McCormack: Oh I'm only at the basic still now! That's why a lot of people hate me because they expect me to know so much more. But essentially when you do a hard fork, you're making a certain change to the core protocol and the only way it can be done is with a hard fork. What that means is that the Blockchain splits.

Now if all the miners move over to the new chain, it's not a problem, but some of them might not. Some of them might mine the old chain and then suddenly you have two coins. This is why we went from Bitcoin and now have Bitcoin Cash and Bitcoin SV and all those nonsense coins.

Jim O'Shaughnessy: Because of this reason?

Peter McCormack: Yes. Now as my understanding is, for a quantum resistant Bitcoin, that would require a hard fork. But that's fine, as in that scenario, you're probably fine because if the other one doesn't hard fork, it will be destroyed by the quantum computers anyway. Also my other understanding is that realistically we are decades away from any usable quantum computer.

Jim O'Shaughnessy: Yeah, I think I definitely agree about that.

Peter McCormack: It will be my grandkid's problem!

Jim O'Shaughnessy: Yeah, I always try to stay up on all of that stuff because it fascinates me.

Peter McCormack: So I want to ask something back to you, because the education thing is a really important thing to me. So I've been having an ongoing battle debate between my son and my ex-wife to do with my son's education. He has no interest in biology, physics, all these things he has to do. He's doing terrible.

Jim O'Shaughnessy: How old is he?

Peter McCormack: He's 15. So I had an agreement with him, I said to him, "if you choose not to do your homework or not to do very well in these subjects and not to revise, you won't get in trouble with me as long as you replace them with something else." He didn't, so therefore he has to work at them. But my view being is that, like my theory and the reason the education system hasn't changed is that the way it's currently set up is very easy to measure and to create league tables between schools, and also for political parties to use to say, "well look, we've improved education."

But realistically I think, like one of my friends said, we're still teaching children to memorize facts when they're carrying around super computers in their pockets. With the growth of AI and automation, my view is that we should be teaching a lot more about creativity. We should be allowing our children to spend a lot more time on expressing their creativity. I mean, they get one art lesson a week, yet seven science lessons.

Jim O'Shaughnessy: So yeah, I have very strong views on this. I think that you are absolutely right. I can really only speak to... I know a bit about the UK's educational system and what we think is a private school, is a public school. But here in the United States, the tyranny of measurement, the tyranny of teaching to a test, I think has destroyed and I hope not intentionally, but destroyed natural curiosity, because essentially the minute what you're aiming for becomes something measurable, it ceases to have much value.

So when the Brits were in India and there was a rat problem, people who brought in rat tails showing that they'd killed rats, got paid pound sterling. Well, guess what people did? They bred rats, cut their tails off and brought the tails in and so the rat problem exploded! So one of the things that I am a deep believer in, is you should be absolutely orienting a child's education today towards creativity, towards synthesis, the ability to synthesize ideas.

So I'm 59, I'm older, one of my things was I've memorized a hundred poems when I was 18 years old and so the one part about memorization that I do think is really helpful, is that I have access to lots of things immediately in my mind, that people who haven't memorized. So it's like T S Elliot, "The Love Song of J. Alfred Prufrock", "let us go then, you and I, when the evening is spread out against the sky, like a patient etherized upon a table."

Peter McCormack: That was really cool!

Jim O'Shaughnessy: So bam, if I'm looking for something that I want to make a point or whenever I'm writing something or whatever, the access to all of that, Shakespeare my God, the man was genius, "shall I compare thee to a summer's day, thou art more lovely and more temperate, rough winds may shake the darling buds of May and summer’s lease hath all too short a date."

Now this guy, whoa! He was a genius! But what's cool about it is, because I did that, I get instant access, because I know about it. The thing that I worry about, and I'm sure we'll figure out, is that if you don't have that memory, if you don't have that instant thing that you can grab onto, you might be... So I have a lot of fun with GIFs on Twitter. So there's like two schools of thought, which I just think are hysterical.

So millennials, and it's almost always millennials, the first school of thought is that there's no way it's actually me. I've gotten like impassioned emails generally from people in India, which I find interesting and it's like, "dear sir, I mean you no disrespect, but you are simply too old to be this good at GIFs!"

Peter McCormack: I said it early in our thing, you're a meme King! When I was preparing I was like, "he's not 59, no way, I've seen him meme, he kills it!"

Jim O'Shaughnessy: So the first school of thought is that I've got a huge team of millennials who are doing all this! The one that I really am intrigued by though, and I must admit that I tease some people into maybe saying, "oh, maybe you might be right", is the school of thought that we have some killer AI at OSAM, that I'm just playing with on Twitter, just to see how it works.

Literally those people, they're like, "I knew it!" So I love millennials, I love young people. My grandfather surrounded himself with young people all of his life and it keeps you young. So I have a lot of millennial friends and like one guy was just saying to me, "come on, just tell me" and I'm just like, "I'm going to give you a hint. Here's the hint, I have 30 years more of cultural references than you do." And he went, "oh yeah, I hadn't even thought about that!"

So it's like the, that goes without saying from young Frankenstein, right? So Gene Wilder, great comic, lot of people who are young never saw young Frankenstein, they don't know about Mel Brooks, they don't know about Blazing Saddles, by the way, a movie that could not be made today.

Peter McCormack: Not a chance!

Jim O'Shaughnessy: In fact, most of his movies couldn't be made today. But I know about all of that stuff and so I'm able to just immediately go, "oh, this reminds me of that." But back to education.

Peter McCormack: Well my thing is like, how does it change? Because I don't want to get to a point where they're not learning things they need to learn, they need to go through a process of learning, but I just feel like the balance is wrong. So for example, my problem with testing and exams is this, I've employed people, you have, when you're employ somebody, you don't put them in a room and say, "right, for the next two hours, you can't talk to anyone and you're not allowed a computer or a calculator and I want the answer back."

You give them a computer and you give them a calculator, you give them pens and you give them colleagues and they figure stuff out together and to me, that's the real world.

Jim O'Shaughnessy: That's right and we are not educating for the real world at all. I think that... So one of the things that I've always found to be true, and I'm sure there's tons of exceptions, but the most curious people in the world, are also the ones that I find to be the smartest and that's because they know that they're not that smart. They're wise in the Socratic sense of knowing how little they know.

Peter McCormack: This is why I do this!

Jim O'Shaughnessy: Exactly! You want to call me wise? It's only because I know very little! But I can look it up.

Peter McCormack: Jim, I want to meet as many people as I can from diverse backgrounds and I just want to ask them questions and find out stuff.

Jim O'Shaughnessy: Which is fantastic, I love that!

Peter McCormack: It's the best job in the world!

Jim O'Shaughnessy: Oh absolutely and that's kind of what I do now. I'm so lucky in that most people will take my call. So I have met some of the most fascinating people in the world and learned so much. But that's the thing, right? So Dorothy Parker, who was one of the Algonquin table wits, had a tragic life, but she had quip that was, "the cure for boredom is curiosity. There is no cure for curiosity." And she's right!

If you live your life in constant curiosity, which is where I live mine, it's so cool because you get to learn so many things that you didn't know. The worst thing that we can do and back to education, is to make kids believe that that certification means anything, because it doesn't five years out of college.

So they've done studies on this, if you go to one of the Ivy leagues, like Oxbridge in the UK, here it's Yale, Harvard, Princeton, my daughter graduated from Yale, my other two kids from Notre Dame, so they went to really great schools, so if you get out of the Ivy's, for the next five years you have a huge and massive advantage over people who went to a state school.

You cannot argue it, it's huge, because of the network that you have, because of everything. However, after those five years, guess what happens? That advantage begins to diminish, diminish why? Because you're now being judged on your performance.

Peter McCormack: Well because when you go for that first job, what does it say? It says, "Notre Dame" or it says, "Yale" versus whatever and whatever you've done on the weekend and any kind of volunteering work. But then it's like, "oh, I've worked at X company, I delivered this" and also, people get a feel for you.

Jim O'Shaughnessy: Absolutely and you're seeing it happen right now. So there was a kid on Twitter, who put it out there that he wanted to work in programming and because else had access to his Reddit and they saw that he was like this champion gamer and programmer, they offered him a job right there. That's happening more and more and more.

Peter McCormack: I'll tell you a funny story. So I used to have an advertising agency in London, digital side of things and whenever we'd put out a job opportunity for a graduate, we'd get about 80 to a 100 applications and it was really hard to filter them, because you could very easily just go, "well, let's give it to all the people with the highest qualifications and the degrees" and that didn't work.

So what we started to do, was we would just give each CV a very quick look, "did anything stand out?" And then move on, just a very quick look. One day this one comes in and it wasn't a word document, it was an infographic.

Jim O'Shaughnessy: Interesting!

Peter McCormack: I was like what? It was beautiful and I was like, "that's really interesting." So he came in for the interview and he got the job on the spot, because he just thought differently and he was one of my best ever employees. He went on to do some amazing things, great guy, but he blew my mind.

This was one of the things I was trying to get across to my son, like Jim my grades were terrible, like bottom third of the thing, but I've never struggled because I've worked hard and been a bit lucky at time. But I said to him, "if there's something you want to do and you work hard at it, you'll be a success. You want to be an actor, you work hard, you'll be successful. If you want to be an artist, but you've got to put the hours in." He won't do it right now!

Jim O'Shaughnessy: Well again 15, give him time. Our brains aren't fully formed until we're 25 anyway.

Peter McCormack: I don't think mines there yet!

Jim O'Shaughnessy: Mine probably is not either, I'm certain of that! But I think you're on the right track. You need to take responsibility and help your kids along. It's not the state's job, it's not somebody else's job, it's your job. One of the best things that I ever did with my kids was... So I was lucky because my wife and I got married very young.

We were 22 and we had Patrick when we were 24, but we had had conversations about, "what's our goal? How do we want to raise our kids?" We came up with a really simple line, which was, "we want our kids to be great adults." Now if you think about that for a minute...

Peter McCormack: Let them be kids.

Jim O'Shaughnessy: But also, think of how many things it precludes. If you want your children to be great adults, there's no saying "you're going to do this because I'm the father, you're the child and you're living under my roof." That doesn't work! If you want them to be a great adult, what do you do? You get them to present a case to you. So whenever my kids would come to me, I'm lucky in that I'm blessed with a pretty good memory, especially if I've read it and so they would come to me and try to use me as Google before Google.

I have a huge bookcase at my house and what I would say to them is, "the answer is in there, look it up." At the time, they weren't happy about that! But guess what? You got a bunch of incredibly curious, bright people who got used to finding the answers on their own and again, just sort of that simple line of demarcation, "we want great adults", led to behaviors on my part and my wife's part, that A, encouraged certain things like arguing or presenting a reasonable request.

Peter McCormack: Isn't it funny though, that first time when your kids are growing up, you maybe tell them off and one day they come to you with a thing and you're like, "shit, you're right. I'm in the wrong here! Oh God, now how do I deal with this? Do I apologize, do I say I'm sorry, do I tell him to stop being cheeky?" I remember that first happened with my son that was a change and look Jim, I'm learning as a father as I go and my son's my guinea pig for it, because he's my first born. I was 24 like you and I think I'm doing a better job with my daughter and I'm trying.

Sometimes I do the, "you are under my house", but I also get them to challenge authority. My son had this thing at school, I think I might have talked about on the podcast before, but he had a creative piece of work he had to do, it was a monologue and he found one online that he really liked and it was set during the era of segregation in the US and it was a white guy in a factory who was criticizing the fashion and style of black people.

It was a really interesting creative piece, it's a historically creative piece, and his teacher on first review said, "oh, I'm not sure you can do this because we may have some people watching who are black and might be offended" and he came back and said, "oh Dad I'm not sure I can do it" and I said, "well, let's talk about this. Do you want to do it?" And he said, "yes." I said, "why?" He said, "well, I think it's a really good piece."

I said, "well, this is about creativity" and what's actually happening is a form of censorship. So I tried to explain what censorship is and I said to him, "look, you have my permission, if they ban you from doing this, to refuse to do anything." But yeah, he didn't want to do it and he was like, "no Dad, I'm not like you, I don't want to be confrontational!" But I wanted him to have that opportunity to have a think about it.

Jim O'Shaughnessy: And what happened?

Peter McCormack: He ended up doing the piece! Yeah, they allowed it in the end because they realized it wasn't racist, that's the thing.

Jim O'Shaughnessy: But that's interesting to me Peter, because either outcome would have been a great lesson for your son. The outcome of doing it, doing a unique and creative thing and being able to do that, but also denied, father's permission to say, "sorry, you're not going to censor me", that's a nice message too.

Peter McCormack: I tell you what doesn't help though, is I'm separated from his mother and we're very different on our views. I'm like, "challenge authority, you can challenge your mother, you can challenge me, but you can't be rude. You can challenge schooling, you don't have to do anything you don't want to do." Like you say, if you've got a good case.

His Mum's like, "no, he needs his exams" and I think the problem is we're both right. I think he does need his exams and his reports, but he needs a bit of both. It's really interesting! Let me ask you another thing. So you've got a few years on me, you've got 19 years on me, so your son's going to be 19 years older.

Jim O'Shaughnessy: Yeah my son's 34.

Peter McCormack: So yeah, my son's 15. So my Dad told me one thing, is it true you never stop parenting?

Jim O'Shaughnessy: Yes, that's true. So I'm very lucky in that my relationship with all three of my kids is very Pari passu. Believe me, they have every right and take every opportunity to criticize their father! My youngest, my stand-up comedian daughter, I mean literally my wife always knows when I'm on the phone with her because I'm laughing my ass off and it all slams on me, which I think is really funny.

Peter McCormack: So she's moving here you said?

Jim O'Shaughnessy: She is yeah.

Peter McCormack: So next time in New York, I'll maybe get a chance to see her stand up?

Jim O'Shaughnessy: Absolutely! So she's on fire, she got picked for Just For Laughs. So she was one of, at least I was told, that she was one of the first comics to get picked on her first application. So we went to Montreal to see it, it was great, I love seeing all these young people, because they're funny as hell! We were talking about comedy when she was here, she just left yesterday as a matter of fact and it was like, "I can be pretty funny as well" and I had a friend, an old girlfriend say to me, "you use comedy as a weapon."

I'm like, "wow, I hadn't even thought about that" and she goes, "what you do is you say something that's true, that you could never say, if it wasn't funny." So I started thinking about comics like Ricky Gervais, people like Dave Chappelle and you know what, they kind of do! It gives them the ability to bring out things that everyone might be thinking, but no-one's going to talk about unless it's funny. 

So, yes, you never stop parenting, but you do come to see your children as adults, as equals. I elevated Patrick to CEO of OSAM because I knew he's going to do a better job than me, in terms of, he was massively active, tons of ideas and in corporations, particularly privately owned, succession is a huge issue and it shouldn't be.

Peter McCormack: Are you watching the TV show Succession?

Jim O'Shaughnessy: You know, that's so funny that you bring that up because my wife and I watched the first episode and we're like, "these people are awful. We're not going to watch this, this is horrible." So I'm at dinner at Patrick's, he just got back from Africa and Succession comes up and he goes, "hey, wait a minute. You don't watch Succession?" I'm like, "no, we watched the first one and we hated it." He was like, "dad, watch it!"

Peter McCormack: It's genius!

Jim O'Shaughnessy: And so he's got a great batting average with me, because Breaking Bad was another show we started watching, didn't like, Patrick was like, "no, no, you've got to watch it!" Of course, it turns out to be one of our favorite shows. Peaky Blinders, I found it and loved, didn't think my wife would do it and so she's listening to Patrick and he's like, "oh no, that's a great show!" So she's like, "okay, I'll watch!"

Peter McCormack: Handmaid's tale?

Jim O'Shaughnessy: Yeah, so interestingly, we watched the first one, which was kind of fun, but then we started the second season and I'm just like, "urgh"

Peter McCormack: Interesting, I struggled on the first season. It took me like six episodes and I was like, "oh, this is boring." Towards the end it picked up, then I really liked the second and the third one was good, but I actually thought the second was better. But succession, have you gone back yet?

Jim O'Shaughnessy: We're going to start again. But honestly, I thought a lot because I was the Chairman here of the Chamber Music Society of Lincoln Center. It's basically the best chamber orchestra in the world, very proud of them, they're fantastic, our artistic directors are amazing, David Finckel and Wu Han. Anyway, when I became chairman, I said to them, "I will only do this under two conditions.

The first is that I will only be allowed to serve two terms, because if I can't get done in five years, which is kind of two years plus a year, then I've failed and you want to get rid of me, because I'm bad! If I've accomplished everything, then you want fresh blood. Secondly, I want my successor to already be picked."

So the woman I wanted to succeed me, named Eleanor Hoover, she's a big wig at Citibank and one incredible woman. I went to her and I said, "look, I'm not taking this unless you tell me you'll take that" and she agreed. The point being, I think that you can screw so many things up by simply not having a succession plan. By making Patrick CEO, which he earned by the way...

Peter McCormack: His show is great by the way, I know his show. But one thing I didn't even think to check, have you actually been on it?

Jim O'Shaughnessy: I have, yes.

Peter McCormack: Do you know what, it just crossed my mind because I'm trying to remember, I've listened to I think three of them and I can't remember which ones, I'd have to go back, but I didn't even think to check. What was that like doing it with him?

Jim O'Shaughnessy: It was fun! Patrick and I really are on same wave length.

Peter McCormack: Very similar then?

Jim O'Shaughnessy: Yeah and lots of differences obviously, but it was fun. We didn't really talk about factor investing or quantitative investing at all, we told stories, which was fun. But he struggled with whether he should have me on or not. He was kind of like, "eh, I'm only having you on because you're my dad. But you did write "what works on Wall Street", which is like a big deal. Would I have you on, if you weren't my dad, of course I would!" He went back and forth, back and forth.

Peter McCormack: I bet that was one of his better shows as well.

Jim O'Shaughnessy: Oh, it was fun, I really enjoyed it. Listen, what I think is fantastic is again, back to succession, by naming Patrick CEO of OSAM, something he richly earned and I'm going to tell you a story about that in a minute, we got rid of anyone's questions about our intentions. We're around, we're not going anywhere! Jim doesn't want to hit up San Tropez and sell the company, we want this to be a multigenerational success story and immediately the market understood that.

It was like, "oh okay, they're not going anywhere." So we've had a great relationship with the Royal Bank of Canada for more than 20 years, I mean amazing handshake deal back in 1997, can you imagine? Fellow by the name of Simon Lewis, who was the head of their asset management, came down and he was like, "all right, we love this", Dave Chilton, the author was the one who showed him "what works on Wall Street" and you've got to remember back then, that was like brand new.

So anyway, did a handshake deal, started with the funds, they're called the O'Shaughnessy Funds up there. So anyway, the Canadians are great people, but especially RBC employees are tough. If you screw something up, you're going to hear about it and more importantly, they're going to say, "you're going to fix this." So they're very tough graders an so Patrick had been working for OSAM for a while and he'd gotten really, really good.

So I was supposed to go up and do a week of presentations up in Canada, if you're RBC, there's going to be 500 people in the room! So I called the head of asset management and I said, "can I send Patrick up?" And he was like, "are you sure?" I went, "yeah, I'm sure" and he goes, "sure." So I go and then call him and tell him. So anyway, bated breath, because they're going to be blunt!

So Doug called me after Patrick got back, because I said to Patrick, "how'd it go?" And he was like, "yeah, I thought it went really well", so okay, good, no obvious blow-ups! Then I got the call from the CEO and he goes, "Jim, I have two things to say to you." I went, "okay." The funds, remember are named O'Shaughnessy Funds and he goes, "number one, when Patrick hits his peak, he's going to be so much better than you at this!"

I was like, "woah, that is music to my ears!" But then the second thing he said, "we can't tell you how happy his name is O'Shaughnessy, because he's selling the O'Shaughnessy Funds."

Peter McCormack: There you go!

Jim O'Shaughnessy: So like I mentioned, we've got a broad employee ownership of the company, but our name is on the door.

Peter McCormack: What does it mean for your time now? Are you able to do more luxury projects?

Jim O'Shaughnessy: So yeah, honestly, I have the massive indulgence of being able to do whatever I want. Patrick runs things day to day, I'm still the Co-Chief Investment Officer, you can't make changes to the strategies without my sign off. I'm Chairman, Patrick reports to me and everyone else reports to Patrick.

But I wanted to also take this opportunity to say, "even though our name's on the door, we wouldn't be what we are without our team." We have been so lucky to have the smartest... That's another one of my things, hire people who are smarter than you are.

Peter McCormack: Somebody said to me, "hire slowly, fire quickly."

Jim O'Shaughnessy: Yes! I've had three of my own companies, I've worked for a big company, Bear Stearns and that is so true because what's interesting is, not only do you know, they know too. They know that this just for whatever reason, this fit isn't working and if you don't immediately address the situation, it festers. So we've been blessed with not getting too many of those wrong and so Chris Meredith, who is my Co-CIO and leads our research effort, he's a genius and figures things out and can code like a coder, but the whole team and the collective brain power that they have brought is just stunning to me, I think it's fantastic.

Then Patrick had this innovation of the idea of O'Shaughnessy Research Partners, where we allow people who don't work for us, to have access to all of our tools and data. Now our data costs millions of dollars a year, so people who aren't in our industry can't do that unless they're independently rich. So our first guy blogs under the name Jesse Livermore, he's anonymous and yet one of the smartest market thinkers I've ever come across.

The pieces that he's written for us have been ridiculously brilliant, back to distributed intelligence. So we've got some ex-Google people, machine learning, they're writing and teaching us about things that I'm in awe about. So I just think that for me, I love where I'm at right now, because every day, I can pursue reading, which I read endlessly, I love learning about new things, Bitcoin, machine learning, artificial intelligence etc.

Then I get to also help people in the industry along, so I enjoy that. It's hard when you're 20 whatever and you're coming out of school and it's like, "what do I do? Who do I talk to? What kind of shop should I work for?" So I've enjoyed very much helping with that, but yeah, I'm very lucky! I can sit and do the podcast with you.

Peter McCormack: I mean, this is awesome. I usually like to get an hour, we're already, an 1 hour 15 minutes. We haven't really talked too much about investing, which is great. I do have a couple of questions thought. Firstly, these are kind of summary questions, but I'm not an investor and I'm certainly not a trader. But are there any key principles of investing that anyone can use in their life that you would say, "look, if you just do these basics, when you retire, you're going to be in a better position than you are now?"

Jim O'Shaughnessy: Yes, absolutely. For the vast majority of investors who aren't investors, who would rather do other things, the best thing to do is set up a retirement scheme, here in the US they are called 401ks, individual retirement accounts etc and methodically put money in no matter what's happening in the market. If you just want to buy the whole market and buy an index, that's fine too, because you're going to get the power of ownership and expanding earnings and all those things, low costs, that's great.

If you want to take a step beyond that, process matters. So if you're looking at a manager who can't easily articulate their process, take a pass, because ultimately what's funny about this is that there are studies from 1971, like IBM looked at their pension managers and what did the best ones have in common? Well, the thing that sticks with me, it was in the Journal of Portfolio Management, but the thing that sticks with me is that they all had a process that they could easily articulate and that they stuck to religiously.

So the enemy is you! There's a cartoon here in the US called Pogo, it's not around anymore, but one of the most famous panels from it was Pogo looking in and saying, "we've met the enemy and it's us." Man, that so true in investing, behavioral biases are rampant, they can't be educated against, which is really interesting.

There's a paper that I reference, you can find it on my profile from a Google talk I did, 45% of investor behavior is genetic and you can't literally change it. So if you're looking for the tried and true principles, the tried and true is find a scheme that makes sense to you, put money from your paycheck in it, start young because the compounding that that allows is extraordinary and pretty much, you're young, you're 40 right?

Peter McCormack: Yeah.

Jim O'Shaughnessy: So even if you haven't done anything in the past, if you start right now doing that and just putting it in, putting it in, sometimes the market is going to be down 30% and everyone's going to be running around with their hair on fire, sometimes the market is going to be climbing and in a bull market and everyone's totally into it, if you just pay no attention, benign neglect, for your average person, benign neglect is the best thing that you could do.

I always say that the four horsemen of the investment apocalypse are fear, greed, hope, and ignorance. If you think about that, only one is not an emotion, ignorance, right? Fear, greed, and hope, they've wiped out more money than any bear market ever because we can't help ourselves. I'm fascinated by this, I've studied it for years and years and years, and my best advice is, understand you're not an exception, you're going to be just as susceptible to this as other people. I would be if I wasn't a quant!

Oh my God, I'd fall into every behavioral bias in the world and so my answer to it was, I'm automating a process that I have tested over historical data that works, base rates, batting averages, but for your average investor process, benign neglect, just do it habitually from every paycheck, you'll be fine.

Peter McCormack: A few less coffees?

Jim O'Shaughnessy: No, no, no, that kind of stuff just drives me crazy! It's like, listen, get an investment scheme first, get your paycheck so that it automatically flows in from each paycheck or if you're independent like you, make sure that you set aside X percent and the rest literally takes care of itself. But we are always getting in our own way and we always are like, "oh, but I just saw this guy on financial TV and he said that the crash is coming." Well okay, so let's do our homework. Let's see how many other times he said a crash was coming and how many times was he right? Never! So we have this...

Peter McCormack: Stop trying to beat the market, that's what you're saying. Most of us don't have the skills.

Jim O'Shaughnessy: Exactly. So if you want to beat the market, honestly hire people like us, where there's a process and there are others too, you don't have to hire O'Shaughnessy, there are other quants. My friend Cliff Asness runs AQR and he's a genius and there's all sorts of people that you can hire. But process, empirical evidence is helpful, I mean would you ever go to a doctor and the doctor looks at you and he says, "Peter, I just got these little yellow pills here. I don't know anything about them, but I got a good feeling about these."

You're going to run out of that guy's office immediately! You want double-blind tests, you want long histories, you want batting averages and so if that's what you want to do, then by all means hire somebody who's good at that or get good at it yourself because there's a lot of do it yourself-ers too and they buy things like "what works on Wall Street" "Invest like the best," etc. But all of that is moot unless you can understand you are your own worst enemy, I'm my own worst enemy, it's universal.

It's a universal condition, because we're human beings and because our software systems are optimized to 50,000 years ago, verse the world's society software systems, which are optimized to now. It's like, why are we afraid of snakes? We're afraid of snakes because it's in our genetic code. We are the descendants of the people who ran away, think about that! You're out on the Savannah, you see a bush moving, "I'm going to go see what that is", he gets eaten. 

The guy who goes, "I don't care what that is, I'm running away!" So why do you think we react to risk the way we do? I was reading this guy who was sort of kind of tongue in cheek saying, "I don't know, maybe a hundred thousand years from now, we're going to be terrified of cars when we see them, because they kill a lot more people than snakes!"

So there's this mismatch in human nature, that's why I'm always saying "arbitraging human nature is the last sustainable edge", because everybody thinks they're special. There's a GIF that I use a lot on Twitter, "you are the only exception", no, you're not! You look at surveys and men in particular were the worst. Women make better investors because they're far more willing to admit that maybe, they might be wrong. Guys, we're awful!

You look at driver surveys that you give to a bunch of guys, every one except the more modest is in the top decile, they all are the best drivers and the modest guys put themselves in the second decile. No one's in decile, 3 through 10! We all know from driving that that's not the case. Athletic ability, it's endless. Everybody thinks that they are the shit!

They're not, you're not, I'm not! So if you can get into a mindset that is like, "it's not going to be my hobby, it's not going to be what I'm interested in. I'm interested in doing podcasts and doing creative stuff, digital marketing, whatever, then benign neglect." Make a habit out of putting the money in there, you'll be fine.

Peter McCormack: All right, I think that's some amazing advice. Jim, this is so much fun. I knew it would be! I follow you on Twitter and seeing you meme-ing and everything. I think a nice way to finish out is just, what's coming up? What are the things you'll really interested in right now, the things you're going to be doing, what's coming up for you?

Jim O'Shaughnessy: So lots of really exciting stuff from the company. We debuted what we are calling kind of the first investment operating system. We call it "Canvas" and what it allows you to do is really, really cool. It allows you to customize a portfolio right down to your preferences. So you don't like tobacco, you don't have to own tobacco.

That's the beginning, if you're a taxable investor, it manages to generate consistently, we found through research and we found historically doing it for some of our clients, certain amount of basis points every year just from better tax management, which is fantastic because alpha is getting harder and harder to find.

But it also deals with things like single stock exposure, so it allows you to customize down to Peter, exactly the portfolio that's right for you and we're super excited about it! Patrick debuted it at a conference about a month and a half ago, the response has been beyond our wildest expectations, because it's the next leg, it's where investing is going.

So I'm super excited about that. I tried to do something similar, which we called Netfolio back in 1999 and the tech just wasn't there. The tech is here now and so this is going to be, I think a sea change, because one of the other things that we're trying to do is we talked about behavioral biases, I was trying to figure out a way where we could put behavioral biases in people's favor, as opposed to against them.

One thing that we've learned is that when people take an active hand in designing a portfolio, and it could be something really as simple as," I don't like these five stocks in the S&P, but give me the S&P 495", they are far more willing to stick with it and that's the game. The entire game is getting people to stay in the market no matter what.

Peter McCormack: Patience.

Jim O'Shaughnessy: Patience! So very excited about that. Doing a lot of research into mimetic behavior and how it... So a long time ago I had sat down and I thought, "okay, what is the stock market?" And I found it, I wrote it in something like 1988. What I said was, "the stock market is a complex adaptive system with feedback" and then I added "under heterogeneous conditions, in other words, your opinion's different than mine, it's pretty efficient."

So I might sell you Apple and I'm selling Apple because I want to give something to my grandson. You're buying it because you've got a 15 year old son and you want it to grow for him, but it works pretty well. However, when mimetic behavior starts driving things and mimetic behavior is essentially copying other people, those various viewpoints moved from heterogeneous to homogeneous, everybody's thinking the same.

Think dot-com, think 1987 crash, think 1929 crash and what happens is information cascades happen and they take over and everyone starts doing things exactly the same. So what I'd like to do is find some form of quantitative signal that doesn't tell me it's going to happen, but tells me that it's happened, because the very nature of a black swan, is you can't predict a black swan.

If you can however, find a measurement that you can verify empirically, doesn't say, "oh I'm going to see a black swan now", but says, "oh by the way Jim, you just saw a black swan." That could be very, very useful. So I'm working on that and then I'm toying with writing another book about what you need to be able to traverse and get where you want to get. People talk about things like talent stacks and things like that, I've thought a lot about that.

Peter McCormack: You're not slowing down then?

Jim O'Shaughnessy: No, no, no! I mean, honestly, I'm never going to retire. If Patrick listens to this... Somebody said, "did Patrick see you tweeted that?" And I said, "Patrick doesn't read my tweets!" Anyway. but I'm never going to retire. I had a very successful grandfather and he gave away virtually 95% of his fortune.

He did very, very well during his own lifetime, which I'm incredibly proud of, but one of the things I'm also proud of was, when I was a little kid, I got to have dinner with him twice a week and it was like, "never retire, because when you retire, you're getting ready to die."

Peter McCormack: You need a job where you don't want to retire then! Some people are not going to have that. What I do, I could do forever, I'm having a conversation?

Jim O'Shaughnessy: Yeah and I'm lucky enough that I can be in that position as well.

Peter McCormack: But I think some people probably, my dad was an aircraft engineer, he wanted to retire.

Jim O'Shaughnessy: I get that, but then find another passion or advocation.

Peter McCormack: Golf for him, day in, day out!

Jim O'Shaughnessy: Well okay, so anything! I happen to want it to occupy your mind and I guess golf does.

Peter McCormack: Occupy your mind and just keep moving, I think are the two things.

Jim O'Shaughnessy: Those are the things you got to do, because that's how you stay young and that's why I like young people so much, because they're bursting with ideas and I think that's fantastic. That's where it's at!

Peter McCormack: Well, this has been great honestly, thank you so much. I've really enjoyed this so much.

Jim O'Shaughnessy: As did I!

Peter McCormack: Listen, you should tell people how to find out more about the business and where you are on Twitter. I'll share it out.

Jim O'Shaughnessy: I appreciate it. The business, it's very easy to find us, it's on the web at osam.com. Lots of research there for those people who like that kind of thing. We've got some fantastic research both from our people on the team but also our research partners. You'll be able to check out Canvas, which I was talking about and you can find me on Twitter at @jposhaughnessy. Those are my two main ones and you'll be able to find us.

Peter McCormack: Awesome and I'm going to send you now, I'm going to show you an actual Bitcoin transaction. I'm going to blow your mind. So we're going to do that and then I'm going to head off because I need some sleep! Thank you so much Jim.

Jim O'Shaughnessy: Thank you Peter!

THANKS

A big thanks to my WBD Maximalist Patrons for helping support the show: JP Petit, Logan Shultz, Seb Walhain, Steve Foster, Tony, Gordon Gould, David Burlington, Jesse Powell, Bitcoin Tina, BitHyve and Wiel Menger.

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