Podcast Summary
Principal Asset Management and Nassim Nicholas Taleb discuss adaptability and exploration: Both Principal Asset Management and Nassim Nicholas Taleb emphasize the importance of adaptability and exploration in their respective fields, leading to successful outcomes.
Principal Asset Management, a real estate manager, combines local insights and global expertise to deliver compelling investing opportunities across public and private equity and debt. Nassim Nicholas Taleb, a professor at NYU and author of several books including "The Black Swan," was a guest on the podcast. Known for his advocacy of deadlifting and aimless exploration, Taleb shared that he had recently taken up road biking after a near miss with a truck years ago. Despite their different interests, both Principal Asset Management and Taleb demonstrate the value of adaptability and exploration in their respective fields. Whether it's in real estate or personal pursuits, the ability to pivot and discover new opportunities can lead to success. To learn more about Principal Asset Management, visit principalam.com. And for more insights and conversations, tune in to the Odd Lots podcast.
Balancing Weightlifting, Aerobic Exercise, and Flexibility: Incorporate a balance of weightlifting, aerobic exercise, and flexibility for optimal heart health and overall fitness.
While weightlifting is important for overall fitness, it can have negative effects on the heart. To mitigate this, incorporating a balance of both aerobic exercise and weightlifting is recommended. Additionally, flexibility is an underrated component of a well-rounded fitness routine. Regarding social media, blocking and unblocking individuals is not uncommon, especially for those with a large online presence. However, it's important to be mindful of the potential consequences of such actions. In the context of financial advice, it's crucial to avoid tail risks and fragilities, whether they come from traditional financial institutions or decentralized currencies like Bitcoin. Bitcoin, despite its perceived antifragility, can be just as fragile due to its digital nature and the small number of people controlling it. It's essential to be aware of these risks and strive for a balanced approach in all areas of life.
Recognizing the limitations of Bitcoin: The prolonged period of near-zero interest rates led to the rise of Bitcoin as a speculative asset, highlighting the importance of understanding the underlying risks and being adaptable.
Bitcoin, initially perceived as a transactional and potentially inflation-hedging asset, turned out to be speculative and fragile. This realization came from recognizing the limitations of Bitcoin as a currency, inflation hedge, or refuge investment. The speaker's change of opinion was not about the asset itself but rather about the importance of adaptability and understanding the risks involved. The root cause of the Bitcoin phenomenon was the prolonged period of near-zero interest rates, which created an environment where people sought alternatives to traditional investments. This environment led to the rise of Bitcoin and other speculative assets, but it also highlighted the need for a sound understanding of the underlying risks and the importance of being able to adapt to changing circumstances.
From cash flow to company value: Tech billionaires made fortunes from unprofitable companies, but evaluating new technologies and medical advancements requires different risk assessment frameworks. Vaccines undergo rigorous testing and have fewer unknowns compared to GMOs. Pandemics pose unique risks and require specialized statistical tools and approaches.
The investment landscape has shifted from focusing solely on cash flow and profitability to the potential value of selling a company. This was highlighted by the success of tech billionaires who made fortunes from companies that never turned a profit. However, when it comes to evaluating new technologies or medical advancements, such as vaccines or genetically modified organisms (GMOs), the risk assessment framework is different. Vaccines, like the COVID-19 vaccine, undergo rigorous testing on individuals, and the risks can be more easily assessed compared to GMOs, which have potential systemic risks and long-term unknowns. The rapid rollout of the vaccine and the large number of vaccinated individuals without significant side effects further supports its safety. As a specialist in dealing with fat-tail events, the speaker emphasized the importance of understanding the unique risks and challenges posed by pandemics and the need to adopt different statistical tools and approaches.
Understanding the role of experts and randomness: Experts in predictable fields are trustworthy, but in complex situations, having 'skin in the game' matters most for expertise.
While we tend to be swayed by anecdotes and underestimate the role of randomness in the world, it's essential to understand that not all experts are created equal. The distinction between thin-tailed and fat-tailed processes is crucial. Thin-tailed processes, like vaccine development, are predictable and experts in these fields can be trusted. However, in complex and unpredictable situations, such as macroeconomics or epidemiology, experts may not have all the answers. Nassim Taleb suggests that having "skin in the game" is a crucial factor in determining expertise. Experts with a significant investment or stake in the outcome are more likely to be trustworthy and less prone to making false claims. Ultimately, it's essential to approach information with a healthy dose of skepticism and statistical sophistication, especially in an age where social media can amplify anecdotes and simplistic thinking.
Expertise and credibility are crucial in various fields: Engage with experts, require technical expertise, and avoid rent-seeking behavior to ensure professional accountability and credibility.
Expertise and credibility matter in various fields, including business and academia. The grocer who doesn't understand finance is at risk of going out of business, just as a plumber who isn't an expert forecaster can't predict market trends. Similarly, in academic fields like psychology, while there may be room for debate, the distinction between clinical and academic psychology is crucial. Medicine, for instance, is based on firm grounds and self-corrects, but it's not perfect. In contrast, some professionals, like venture capitalists, may claim expertise in various domains but lack the necessary technical knowledge or publishing record. It's essential to engage with experts and require technical expertise before listening to opinions, especially in professional settings. Additionally, external accountability and adult supervision are necessary to ensure that professions, like DCs, live up to their claims. The discussion also highlighted the importance of understanding the nuances of various fields and avoiding rent-seeking behavior.
Risky investments during low interest rates: Individuals and companies may make risky investments during low interest rates, but understanding finance and risks is crucial for long-term investments to avoid irrational decisions and potential financial instability.
During periods of low interest rates, individuals and companies may make risky investments, leading to potential financial instability. For instance, Tracy and I starting a company with $20,000 and selling small percentages to others resulted in us having a significant stake in a company worth much more than our initial investment. However, this model can be fragile, as demonstrated by the banking system's response to long-term bond investments during the SVB collapse. Furthermore, individuals with large followings have a responsibility to understand the implications of their words and actions, especially in the realm of finance and technology investments. While both long-term investments and speculative purchases carry uncertainty, the former requires a solid understanding of finance and risks, unlike the latter, which is often considered a gamble. To avoid irrational decisions, it's crucial to ensure a positive expected return on investments.
Ignoring risks can lead to costly mistakes in finance: Deep understanding of financial fundamentals is crucial for success in finance, regardless of new technologies
Focusing solely on expected value and ignoring the risks involved, especially in complex fields like finance, can lead to costly mistakes. The belief that understanding new technologies like blockchain negates the need for a solid financial foundation is a dangerous misconception. The past experiences and knowledge of older generations should not be disregarded. Finance is a complex field that requires deep understanding and introspection, and simplified approaches can lead to misunderstandings of key concepts such as returns, inflation, and monetary policy. Ignoring these fundamentals can result in significant losses and a lack of sophistication in the financial world.
Oldest investors' success based on historical understanding and 360 degree perspective: Experienced investors continue to thrive by combining historical knowledge and a comprehensive view of the market, while tail risk management requires expertise and guidance to effectively mitigate potential losses.
The oldest and most respected investors, like Warren Buffett and Charlie Munger, will continue to prevail due to their historical understanding and 360 degree perspective in investing. Principal Asset Management, as a leading real estate manager, also emphasizes the importance of local insights and global expertise to uncover compelling opportunities for clients. Universal's positioning remains the same, focusing on providing structural services and portfolios to prevent blow ups and eliminate tail risk, allowing investors to make mistakes with their investments. However, the difference between naive and experienced tail risk hedgers is significant, and the execution of tail risk management is complex and requires a lot of experience. Despite the ease of access to data, people are even more naive today and lack the financial certification to price data risk effectively. It's essential to understand that it's your own money, and you want to sleep at night without the fear of losing it all. Just like insuring a house, investing requires insurance against potential losses. The process of buying tail risk insurance has not necessarily become easier or cheaper, but it's crucial to have experienced guidance to navigate the complexities.
Perception of risk and investment strategies differ: Professionals consider tail risks necessary, AI's potential impact questioned, long-term zero interest rates risk overlooked
The perception of risk and investment strategies differ significantly between those managing their own funds and professionals. For individuals, expensive tail risks may deter investment, while for professionals, it's a necessary consideration. Regarding tail risks, some believe we're on the brink of developing AI capable of eliminating life as we know it. However, the speaker is skeptical, viewing AI as a probabilistic machine with known limitations. He also emphasizes the underestimated risk of long-term consequences of zero interest rates, which could negatively impact equity markets if interest rates rise. Lastly, the speaker shared his love for squid ink pasta and recommended the best places to find it.
Understanding Taleb's Criticisms and Insights: Taleb's ideas challenge us to question our assumptions and consider the value of expertise and experience. Antifragile investments, like Bitcoin, react well to market misfortunes.
Our perception of Nassim Nicholas Taleb's ideas may change based on our biases and agreement with his messages. However, it's essential to understand that his criticisms of others often apply to himself as well. The value of his insights shouldn't be dismissed, even if they may seem contradictory or frustrating. Taleb's point about the difference between experts and generalists is insightful – experts, like plumbers, have deep expertise from fixing problems repeatedly, making them valuable sources of knowledge. In the context of Taleb's work, antifragility is about embracing stressors and becoming stronger from them, but it doesn't mean tolerating extreme risks. Antifragile investments react well to market misfortunes, making Bitcoin an excellent example. Ultimately, Taleb's ideas challenge us to question our assumptions and consider the value of expertise and experience.
Exploring the complexities of the world with Nassim Nicholas Taleb: Stay curious and committed to learning in a complex world, as exemplified by Nassim Nicholas Taleb's pursuit of understanding unexpected risks and mastering new skills like cooking squid ink pasta.
While it's impossible for one person to be an expert in everything, the complexity of the world today necessitates an instinct to understand more and more things. This was a theme that emerged during a conversation about the work of Nassim Nicholas Taleb. Taleb, known for his expertise in risk and uncertainty, spends much of his time trying to identify and prepare for unexpected risks. However, there are some things, like the long-term impact of GMOs on agriculture, that cannot be fully understood through statistics or shortcuts. The conversation also touched on the importance of continuous learning and the enjoyment of the journey, as exemplified by Taleb's pursuit of mastering the art of cooking squid ink pasta. Overall, the conversation underscored the importance of staying curious and committed to learning in a complex world.
"Give me that which I want, and you shall have this which you want."
