Podcast Summary
Raising Children Beyond Money and Finance: Encourage good spending and saving habits in children, but avoid making money and finance the sole focus. Instill critical thinking and self-control for overall success in life.
Key takeaway from this conversation between Patrick O'Shaughnessy and Jason Zweig is the importance of instilling valuable lessons in children beyond just financial matters. Jason shared that he and his wife made a conscious decision not to make money and finance a major focus in raising their daughters. Instead, they encouraged good spending and saving habits but avoided making it all about the money. Jason also emphasized the importance of critical thinking and self-control in succeeding in the financial markets and investing. He practices these principles daily and encourages others to do the same. Additionally, Jason shared that he has found that daily habits, such as exercising critical thinking and self-control, contribute to overall success in life.
Engage with written material for effective critical thinking and self-control: Actively engage with written material through marginalia and self-reflection, maintain a long-term perspective, and avoid getting swayed by short-term distractions or overreacting to unexpected events.
Effective critical thinking and self-control are essential for success, particularly for investors. The speaker emphasizes the importance of actively engaging with written material through marginalia and self-reflection. He also advocates for maintaining a long-term perspective and not getting swayed by short-term distractions or overreacting to unexpected events. The speaker shares that certain books, such as those by Nobel Prize-winning physicist Richard Feynman, have significantly influenced his thinking and career. These books helped him question the status quo and understand the importance of critical thinking in various fields. The speaker encourages everyone to focus on these two principles to navigate the world effectively and make informed decisions.
The Dangers of Forming Opinions Based on Superficial Factors: Don't judge books by their covers or reputations, instead delve deeper into their content. Seek recommendations from trusted sources for new reads.
People often form opinions based on superficial factors, such as covers or reputations, without actually examining the substance. This was illustrated in a story about physicist Richard Feynman, who discovered that members of a textbook review committee had voted for a book without opening it. Feynman encouraged independent thinking and encouraged readers to delve deeper into the content of books, rather than relying on external factors. When it comes to finding new books, the speaker personally relies on recommendations from trusted sources, and avoids reading finance or investing books when not working. He enjoys a wide range of literature, particularly classic fiction, and is currently reading "Anna Karenina" by Tolstoy and "Life and Fate" by Vasili Grossman.
Seeking diverse financial perspectives: Expand your mind and challenge preconceived notions by reading a variety of financial materials from trusted sources
Constant exposure to the same sources of financial information, especially through social media, can create a dangerous confirmation bias and limit creativity and critical thinking. Instead, it's essential to seek out diverse perspectives from trusted authors and read a variety of materials in different formats to expand one's mind and challenge preconceived notions. The speaker recommends a number of financial writers whose work he admires for its insight, humor, and depth, emphasizing the importance of maintaining a healthy and diverse information diet for investors.
Financial advisory industry disrupted by commoditization and outdated fee structure: The financial advisory industry needs to transition from outdated fee structures to better align with client value, allowing advisors to focus on valuable services like financial planning.
The financial advisory business is facing disruption due to its outdated fee structure and the commoditization of certain services. While financial advisors provide valuable services like comprehensive financial planning, clients often pay a high fee for commoditized portfolio management. Machines can now perform this task more efficiently, leaving financial advisors to focus on their valuable services. However, the current fee structure makes it difficult for clients to pay for what they value, and financial advisors continue to charge for commoditized services. The transition to a more equitable fee structure may take some time, but it's necessary for the sustainability of the financial advisory industry. The increasing popularity of passive investing and the continued growth of robo-advisors suggest that a seismic event or significant disruption may be needed to catalyze this change.
Focusing on Financial Advice vs Portfolio Management: Investors need comprehensive financial advice beyond portfolio management. Competition and education are crucial to help investors understand the value of advice and negotiate fees. A shift from percentage-based to dollar-based fees could lead to more transparency and negotiation.
There is a need for financial advisors to focus more on providing financial advice rather than just managing portfolios. Portfolio management and advice are two different things, and investors often require guidance on various financial decisions beyond just portfolio selection. The industry needs more competition and better education to help investors understand the value of financial advice and the importance of negotiating fees. A potential solution could be to shift from percentage-based fees to dollar-based fees, which could lead to more transparency and negotiation. The speaker, who has advocated for index investing for years, also acknowledged his own evolution in investing philosophy. He started with individual stock investments and made significant profits, but eventually came to appreciate the benefits of low-cost index investing.
From a lucky break to a career in finance: Despite making a profit from a single trade, the speaker acknowledges their lack of discipline and moved on. They're good at finding undervalued securities but struggle with selling. They advocate for index funds and are skeptical of their ability to identify market euphoria. Awareness of various fees is crucial in investing.
Even though the speaker made a significant profit from a single trade in high school, they consider it a lucky break that they got distracted and moved on to other interests, as they might have lost all their money if they continued trading. Throughout their investing journey, they've learned that they're good at finding undervalued securities but struggle with selling. They've also become a financial journalist and advocate for index funds due to professional reasons. The speaker believes that there could be a valuation-based reason to sell during market euphoria, but they're skeptical of their ability to correctly identify such a situation. Overall, the speaker emphasizes the importance of being aware of various fees, including valuation multiples, when making investment decisions.
Beware the blind faith in data: Exercise caution when interpreting data, consider underlying theories and long-term data series, and be aware of potential biases or opposing factors.
While academic research and data analysis can provide valuable insights into market trends and potential investment opportunities, it's crucial to exercise common sense and consider potential biases or opposing factors. The speaker emphasized the importance of having a solid underlying theory and a long-term data series to support any strategy based on data. He also warned against blindly following data without questioning its implications and potential limitations. The speaker's skepticism towards the worship of empirical research stems from the potential for misinterpretation or misapplication of data, which can lead to damaging investment decisions. He concluded by noting that value and high quality stocks, for example, can form opposing pairs, and investors need to be cautious and skeptical when interpreting data that suggests both may outperform.
Approaching investment strategies with skepticism and understanding: Historical data is crucial, but test strategies outside historical period. Behavioral biases can impact strategy success. Challenges in implementing strategies effectively. Education and long-term commitment required. Active managers can help manage emotions and stay disciplined.
While there are various investment strategies like value and quality, it's crucial to approach them with a healthy dose of skepticism and a solid understanding of the underlying principles. The speaker emphasizes the importance of historical data, testing periods outside the historical period, and the potential for behavioral biases. He also acknowledges the challenges of implementing these strategies effectively and the importance of education and long-term commitment. Furthermore, he highlights the role of active managers in helping investors stay the course and manage their emotions, even when certain strategies underperform in the short term. Overall, the key is to approach investment strategies with a critical and informed mindset, recognizing that there are no guarantees but also potential rewards for those who are willing to learn and stay disciplined.
Patience, resilience, and trust in investing: Successful investors persevere through short-term setbacks for long-term gains, communicate effectively, and build a community around their firm.
Successful investors often encounter high risks and setbacks in the short term, but their long-term success is rooted in their ability to persevere through these challenges. The most admirable investors not only have a solid investment strategy but also prioritize effective communication with their investors and building a community around their firm. One notable example is Joe Rosenfield, who against all odds, held onto Intel shares before it went public, ultimately benefiting Grinnell College significantly despite the initial fears and setbacks. This anecdote underscores the importance of patience, resilience, and trust in the investment world.
Stories of kindness and serendipity: Kindness and chance encounters can lead to professional opportunities. Break out of routines and be open to new experiences to increase chances of serendipity.
Kindness and serendipity can significantly impact our professional lives. The speaker shared two stories where someone's kindness led to opportunities, and the importance of serendipitous encounters was emphasized. The first story was about being hired for a journalism job despite having no experience or credentials, and the second story was about being recommended for a project due to a chance encounter with a former colleague. Robert Merton's book "Serendipity" was mentioned as a reminder that while we can't control luck, we can influence serendipity by breaking out of our routines and being open to new experiences. Personal relationships and chance encounters can lead to amazing opportunities, and the speaker encouraged the importance of making an effort to connect with others.
Embracing the unexpected through serendipity: Embrace new experiences, introduce yourself to people wearing unique colors, and adopt simple rules or habits to encourage novelty for potential good fortune.
Being open to new experiences and taking charge of your environment can lead to unexpected good fortune. This concept, known as serendipity, was highlighted in a story about a woman who, despite facing numerous hardships, considered herself lucky due to her habit of introducing herself to people wearing a certain color. Another way to encourage new experiences is through the use of simple rules or habits, such as an app that rewards you for doing something different each day. This idea was also emphasized in a speech given by Benjamin Graham on his 80th birthday. Ultimately, the goal is to break out of your comfort zone and try new things, leading to potential positive outcomes.
Embracing new experiences with surprise and adventure: Experience new things, like Jesse Eisinger's 'The Devil's Financial Dictionary', for personal and professional growth. Enjoy the journey and appreciate the unique qualities of physical books.
Trying new things, especially with a sense of surprise and adventure, can lead to good outcomes in both personal and professional life. This concept was emphasized by the speaker's experience with the work of author Jesse Eisinger, particularly his book "The Devil's Financial Dictionary." Eisinger shared that he enjoyed writing this book immensely, and it was a source of fun and entertainment for him. The speaker recommended this book as a starting point for those unfamiliar with Eisinger's work due to its educational value, entertainment factor, and accessibility. Additionally, the speaker highlighted the importance of experiencing a physical copy of the book, as its unique design and tactile qualities add to the overall experience. In essence, the speaker encourages embracing new experiences with an open mind and a sense of enjoyment, much like Eisinger did when writing "The Devil's Financial Dictionary."
Exploring the World and Thinking for Yourself: Read Montaigne's essays for self-exploration and critical thinking, particularly for those in finance. Other influential thinkers like Feynman, Emerson, and Taleb encourage independent decision making.
The importance of critical thinking and self-exploration, as exemplified by various authors throughout history. When it comes to the specific book under consideration, it's recommended to read the physical copy due to its unique combination of humor and insight, particularly for those in the financial services industry. If I had the power to choose a book for every 22-year-old to read and absorb, I would pick the essays of Michel de Montaigne. Montaigne's work is a great way to learn how to view the world and think for yourself, even though it may not be fast-paced for some. His influence can be seen in other notable thinkers like Feynman, Emerson, and Nassim Taleb. Each of these authors encourages readers to explore the world and make decisions for themselves, rather than relying solely on experts and conditioning. Montaigne himself chose the word "essay" to describe his short writings, which means attempt, emphasizing the importance of trying and learning on one's own.
The Importance of Seeking Understanding and Making Sense of the World: Seeking understanding and making sense of the world is a fundamental aspect of life. Join Patrick O'Shaughnessy's book club for valuable insights and a full investor curriculum.
Key takeaway from this conversation between Jason and Patrick is the importance of seeking understanding and making sense of the world around us. According to Patrick, this is a fundamental aspect of life, and it's what makes conversations like this one so valuable. For those interested in deepening their knowledge, Patrick also encourages signing up for his book club at investorfieldguide.com/bookclub, where you'll receive a full investor curriculum and regular book recommendations. As always, if you enjoyed the show, please leave a review on iTunes to help spread the word. Thanks for listening!
