2min chapter

#680: Richard Koch — Revisiting the 80/20 Principle, The Power of Optimistic Journaling, Studying History to Improve Investing, and The Grand Beliefs of Winners (Plus: The Toxic Beliefs of Losers)

The Tim Ferriss Show

notes

CHAPTER

How to Assign Probabilities to Invest

How do you assign probabilities? I would love to know how you think about that, because this applies not just to investing. We're talking about investing because it is a discrete, explicit way of looking at points on the scoreboard. Imagine if baseball didn't have any statistics, right? It's like, how would you say who was a good player? You track the numbers and you can do that in investing as well.

00:00

Transcript

Episode notes

Brought to you by Eight Sleep’s Pod Cover sleeping solution for dynamic cooling and heating and Wealthfront high-yield savings account.

Richard Koch (@RichardKoch8020) is an entrepreneur, investor, former strategy consultant, and author of several books on business and ideas, including four on how to apply the 80/20 principle in all walks of life.

His investments have grown at 22 percent compounded annually over 37 years and have included Filofax, Plymouth Gin, Belgo, Betfair, FanDuel, and Auto1. He has worked for Boston Consulting Group and was a partner at Bain & Co. before joining Jim Lawrence and Iain Evans to start LEK, which expanded from three to 350 professionals during the six years Richard was there.

In 1997, Richard’s book The 80/20 Principle reinterpreted the Pareto Rule—which states that most results come from a small minority of causes—and extended it beyond its well-known application in business into personal life, happiness, and success. The book, rewritten in 2022, has sold more than a million copies, been translated into roughly 40 languages, and has become a business classic. It was named by GQ as one of the top 25 business books of all time. Richard’s latest book is Unreasonable Success and How to Achieve It.

He has two upcoming books: 80/20 Beliefs, which identifies the very few beliefs in our lives that strongly influence what we do, and, therefore, the results we get, as well as 80/20 Daily, a collection of 365 short daily readings using the 80/20 philosophy to achieve the good life.

Please enjoy!

This episode is brought to you by Eight Sleep! Eight Sleep’s Pod Cover is the easiest and fastest way to sleep at the perfect temperature. It pairs dynamic cooling and heating with biometric tracking to offer the most advanced (and user-friendly) solution on the market. Simply add the Pod Cover to your current mattress and start sleeping as cool as 55°F or as hot as 110°F. It also splits your bed in half, so your partner can choose a totally different temperature.

Go to EightSleep.com/Tim and save $250 on the Eight Sleep Pod Cover. Eight Sleep currently ships within the USA, Canada, the UK, select countries in the EU, and Australia.

This episode is also brought to you by Wealthfront! Wealthfront is an app that helps you save and invest your money. Right now, you can earn 4.55% APY—that’s the Annual Percentage Yield—with the Wealthfront Cash Account. That’s more than eleven times more interest than if you left your money in a savings account at the average bank, according to FDIC.gov.

It takes just a few minutes to sign up, and then you’ll immediately start earning 4.55% interest on your savings. And when you open an account today, you’ll get an extra fifty-dollar bonus with a deposit of five hundred dollars or more. Visit Wealthfront.com/Tim to get started.

[06:18] What3Words.

[12:59] Upbeat fish pond reflections.

[15:04] Journaling toward optimistic investment.

[17:14] Betfair vs. bookmakers.

[27:42] How history ties in with investment strategy.

[33:47] Assigning probabilities.

[36:56] The cows, the stars, and the question marks.

[45:41] 80/20 happiness.

[57:36] A qué será, será quandary.

[1:06:48] Toxic beliefs and terrible templates.

[1:11:24] A meeting with Bill Bain.

[1:14:41] Charm school.