Invest Like the Best with Patrick O'Shaughnessy

This week's conversation is about performance. More specifically, it is about the ins and outs of steady progress and growth. My guest is Brad Stulberg who coauthored the book Peak Performance, which combines research from many fields into a description of how athletes, creatives and others continue to push boundaries in their respective crafts. As someone who is intermittently lazy, the growth equation framework that Brad and I explore has impacted me often since I first read the book several months ago. I hope you enjoy this conversation, which isn't about investing, but which is, at its heart, still about the power of compounding.    Books Referenced Outliers: The Story of Success Peak: Secrets from the New Science of Expertise   Online References Jool Health   Show Notes 1:32 – (First question) – How Vick Stretcher influenced the book, Peak Performance 4:32 – Looking at some of the preliminary research at the science of purpose 7:58 – The idea of a growth equation and the components that can lead to success 11:47 – How the introduction of stress can help in all sorts of creative and entrepreneurial pursuits. 13:39 – The ratio between physical and mental as an impact on this formula 14:56 – Just manageable challenges and the role that they play in the growth equation 18:06 – The idea of just manageable challenges through the example of an athlete 22:19 – Favorite example of a crazy feat of physical performance, stress on older athletes operating at high levels 23:30 – Thoughts about outside influences like mentors/coaches and how they help high performance individuals advance 25:51 – Describe catabolic and anabolic states and why anabolic is so important 29:13 – How the relationship of catabolic and anabolic states also helps the mind 30:47 – How does the idea of practice play into the growth equation 32:49 – Exploring the nuances of practice and why you don’t go all out             32:56 – Outliers: The Story of Success 33:00 - Peak: Secrets from the New Science of Expertise 34:24 – The idea of designing of a day 42:06 – What role can environment play on us 43:40 – How far is it healthy to run 46:25 – How does ego play into all of this 48:06 – The idea of camaraderie and study of Air Force Cadets highlighting this 49:28 – Fatigue and why it is believed to happen in the mind and not the body 54:00 – Most memorable day 55:43 - Method for finding purpose             56:29 – Jool Health 58:26 – Kindest thing anyone has ever done for Brad   Learn More For more comprehensive show notes on this episode go to http://investorfieldguide.com/brad For more episodes go to InvestorFieldGuide.com/podcast. To get involved with Project Frontier, head to InvestorFieldGuide.com/frontier. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag  

Several weeks ago my conversation with Leigh Drogen on quant investing proved timely and popular--because everyone in asset management is facing the rise of big data, and the use of data science in investing strategies. Because of the rise of quants, many are asking themselves how to survive and thrive in a changing industry. In short, how can traditional managers compete with quants? This second conversation with Leigh was set up to answer many of the questions posed in the first one. If quants are taking over, what should other investors do about it? Leigh proposes a method by which old school asset managers can restructure their thinking and their process to compete with and even beat purely quantitative competitors. The method involves pulling the best from both worlds and combining them into a hybrid structure. But it will be impossible without a wholesale change in mindset, which is where we begin. Please enjoy round two with Leigh Drogen.   Links Referenced Revenge of the Humans Part II: A New Blueprint For Discretionary Management   Show Notes 2:14 – (First question) –  What role will ego and mindset play for traditional hedge funds looking to transition into quantitative investing strategies 4:21 – Describes the traditional process that hedge funds use to make investment decisions and how the internal politics can hamper it 6:08 – What value has portfolio managers played at hedge funds traditionally as the quarterback of a fund 9:57 – A look at what Leigh has seen as he sits with teams 12:20 – A look at places that have tried to simply add quant to their firm’s strategies without “tearing it down to the studs” and properly integrating them into the process 15:00 – Leigh is asked to define the basics of a good investment firm’s strategies 16:57 – Strategies for writing down core beliefs, whether it’s for yourself or your firm 17:49 – Exploring the second step, finding a differentiating view and how to succeed with it. 21:43 – The importance of force ranking and structuring the unstructured 26:14 – Building factor models 29:42 – How the portfolio manager position should have less room for subjectivity than at the analyst level 33:44 – Is anyone integrating this kind of high level data at the portfolio manager level into the decision making the way Leigh describes 35:07 – What blind spots are created by systematizing their processes 36:18 – Why much of this applies more to shorter and structured periods 38:23 – Shifting to portfolio constructions and what Leigh would do to create the right mix 43:39 – Shifting to management structures in these firms starting with the role of the CIO 45:24 – Looking at the different quant roles that exist in a firm and what they should be responsible for; data engineers, data analysts, pure quants, and quantitative engineer 48:20 – If you are an undergrad or grad student right now interested in asset management, what are the roles you should be thinking about targeting 49:25 – Why communication skills are still so important, no matter what role you are in 50:25 – With all of the tools and skills that Leigh has at his disposal at Estimize, why not institute an active strategy 52:01 – What has Leigh observed in the dispersion of skill in the Estimized data set 53:47 – What is the relationship between specialization and accuracy among funds 55:29 – The pros and cons of the generalist 56:56 – A look at Leigh’s background into War Theory and what lessons that he still draws on today 1:00:19 – How the field of study around war and battle relates to the investing world   Learn More For more episodes go to InvestorFieldGuide.com/podcast.  For complete shownotes, go to InvestorFieldGuide.com/leigh.  Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub Follow Patrick on twitter at @patrick_oshag

My guest this week is a version of me—a funnier, cooler version who has a PhD and served as an active duty marine. Lots of you will already be familiar with Wes Gray, and those of you who are not are in for a treat. Wes is the founder of Alpha Architect, a firm which manages quantitative equity strategies for clients using factors like value and momentum. He also advocates for a more concentrated, pure approach to factor investing, which listeners know is music to my ears.While we share a lot of the same views on markets and investing, you will still find this refreshing. The conversation was easy to structure--I just took all the questions clients and prospective investors always ask of me and my firm, and turned them on Wes. These range from very specific questions on quant investing to big existential ones. I listened to this on a long drive home and laughed out loud in the car at least 5 times. You are going to love it all.I close this introduction by offering you an opportunity which is not for the faint of heart. On September 16th, I will be joining Wes and his crew on a 28-mile trek called “March for the Fallen” which is a small but important way of honoring those who have given their lives in service of our country. Wes and I invite you to join as well. If you are interested, check out the post on Wes’s site with all the details. I will link to it in the shownotes at investorfieldguide.com/wes. If you are still interested, then email me with the subject heading “March for the Fallen.” I told you Wes is a much cooler version of me, and true to form he will be doing the hike with a 40-pound rucksack. I will be doing the version without a rucksack. Either way, it will be a day of comradery and remembrance that we won’t soon forget. Join us. Books Referenced The Devil Dogs at Belleau Wood: U.S. Marines in World War I Thinking, Fast and Slow Online ReferencesThe Limits of Arbitrage Show Notes3:07 – (First question) – Exploring the mindset that is ingrained into Marines3:16 – The Devil Dogs at Belleau Wood: U.S. Marines in World War I5:27 – Most memorable experience growing up in the mountains of Colorado6:29 – What experiences in the military have transferred to what Wes sees in the public markets6:48 – Thinking, Fast and Slow7:51 – Wes’s first foray into stocks10:51 – What was the transition into the quantitative investing space12:29 – How Wes would describe quantitative investing and what the landscape looks like today17:10 – What is the nature of the strategies Wes uses, like high-frequency and market-making, and what makes them stand out in those20:57 – What about the human capital arms race in this space and how different firms are attracting the top talent23:21 – What the approach is for Wes and what his research suggests is the best predictor of performance in stocks25:36 – Wes’s approach to portfolio construction33:19 – What is the thinking behind the number of and the size of names in the QVAL ETF36:20 – Why the data suggests momentum is the better pick37:36 – Why price-to-book sucks relative to other value factors39:55 – What things worry Wes about the future of this strategy44:39 – How does Wes think about research and what to explore next.50:05 – Who would Wes have manage his money since he thinks Vanguard is not the best choice57:01 – Exploring his firm Alpha Architect, how it started and has evolved since launch57:39 – The Limits of Arbitrage1:08:15 – How the influx of people to passive investments are impacting the overall market, especially for active investment strategies1:13:13 – Wes’s most memorable day of his career both in the military and as an investor1:17:19– Kindest thing anyone has ever done for Wes  Learn MoreFor more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclubFollow Patrick on twitter at @patrick_oshag

Rishi Ganti, investor in esoteric assets, discusses his core idea of avoiding markets and investing in things without a market. He explores examples of esoteric assets like charter school financing. The podcast also highlights the vastness of the world's asset base and Rishi's inspiring answer about the kindest thing anyone has done for him.

I am drawn to a group of investors that I call practitioner philosophers. These are people who have gotten their hands dirty in their respective fields, but despite being doers, they still often sit back and ponder the big questions in business and life.My guest this week is one such practitioner philosopher, NYC based venture capitalist Jerry Neumann. I came across Jerry's essays a year ago, and he is on a very short list of writers whose work I read without fail and almost always more than once.You can think about this conversation on business, investing, and venture capital as a big funnel. We start very broad, discussing where we may be in a large 70-year economic cycle. We then break down the so-called power law which seems to govern venture capital returns and business outcomes. Then we get even more specific, discussing Jerry's process for evaluating early stage companies, and the particulars of what might make a good venture capitalist. I say "might" because as Jerry explains often, nothing is certain, and luck may always play a huge role.I just loved this conversation. It is the type that without the podcast as an excuse would be a very odd and intense one if I were just meeting someone for the first time. You'll find no small talk or even medium talk here. This is a meaty discussion with one of the smartest and most straightforward people I've come across. Books Referenced Carlotta’s Perez - Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages Thomas Hughes – Networks of Power: Electrification in the Western Society, 1880 – 1930Frank Knight – Risk, Uncertainty, and Profit Jeffrey West - Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies Links ReferencedDeployment AgeOswald Spangler About Men; Corporate Man Howard Mark’s 2x2 matrix of superior investment resultsMichael E. Porter - How Competitive Forces Shape Strategy DJ Teece: Profiting from Technological InnovationPorter’s Five Forces Show Notes3:27 – (First question) – Start with Jerry’s essay the Deployment Age and a look at what it means for where we sit today (looking forward as investors)?3:40 - Deployment Age4:26 - Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages9:28 – What time in history can you compare our current deployment age to and what does that say about the next 10, 20, and 30 years?9:40 – Oswald Spangler11:09 – About Men; Corporate Man18:06 - Networks of Power: Electrification in the Western Society, 1880 – 193020:40 - What lessons should venture capitalists make from these deployment age cycles25:27 - Risk, Uncertainty, and Profit26:50 – Howard Mark’s 2x2 matrix of superior investment results32:56 – Nassim Taleb: Powerlaw42:31 – Venture Follow-on and the Kelly Criterion (Jerry's Blog)44:34 - How have you have actually done this, Jerry? What is your process like and your focuses?54:00 – Are there any circumstances where it is wise for friends and family to make venture investments?59:20 - What is this idea of who profits from innovations?56:12 - DJ Teece: Profiting from Technological Innovation1:02:57 – Understanding complimentary assets1:05:06 - Porter’s Five Forces1:09:24 - Are Augmented and Virtual Reality interesting areas for venture capital and why?1:15:28– What makes a successful venture capitalist? What makes you special?1:26:03 – Kindest thing anyone has ever done for Jerry Learn MoreFor comprehensive show notes on this episode go to http://investorfieldguide.com/jerryFor more episodes go to InvestorFieldGuide.com/podcast.To get involved with Project Frontier, head to InvestorFieldGuide.com/frontier.Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.Follow Patrick on Twitter at @patrick_oshag 

A future guest just told me, every band has a song about being in a band, so today I give you my version. I won’t do this often, and only do it this week in case listenership drops due to the holiday—I didn’t want any guest to have a smaller than normal audience. I have now been doing this for almost one year, and have learned a tremendous amount. Since the whole idea behind the show is to learn in public, I am going to share a few of the lessons I’ve learned with you today. I’ll shape it as a top ten list, which ends with a fun story about my recent dinner with Warren Buffett. You’ll notice that many of these are just good business and life lessons applied to something specific: a podcast. I hope you can pull the essence of one or more of these and change how you do things, especially if you create any sort of content as part of your job.

If you told me a year ago that I’d be learning critical life and business lessons from the founder of a ketchup company, and that thirty to fifty thousand people would listen to our conversation, well, I’d have told you that’s impossible. But the fact that it is true proves many of the points laid out by this week’s guest Scott Norton, co-founder of Sir Kensington’s which was recently acquired by Uni-Lever. Sir Kensington’s, which makes “condiments with character” is no ordinary Ketchup company, and Scott is no ordinary founder.We talk about the most elemental aspects of business: product, relationships, sales, marketing, and culture. I love that we can do so through the lens of such a seemingly simple product, something that we use all the time with our families at a BBQ. Scott’s observations on culture, the importance of relationships in sales, and competitive edge are all memorable. But above all, I’ll remember his line: seek to learn that which cannot be taught. And I will continually return to the mental image of the Temple of Poseidon.Oh, and as a bonus we also talk about biking around Asia, which like all of Scott’s stories comes complete with thought provoking lessons.Enjoy this unique conversation with one of the most interesting people I’ve met on this journey. We begin with the history of ketchup. For comprehensive show notes on this episode go to http://investorfieldguide.com/nortonFor more episodes go to InvestorFieldGuide.com/podcast.Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.Follow Patrick on Twitter at @patrick_oshag Links Referenced They Call Me Supermensch: A Backstage Pass to the Amazing Worlds of Film, Food, and Rock’n’Roll (Movie) Books Referenced Getting to Yes: Negotiating Agreement Without Giving In How to Win Friends & Influence People They Call Me Supermensch: A Backstage Pass to the Amazing Worlds of Film, Food, and Rock’n’Roll (Book) Show Notes2:40 – (First question) – A look at the history of ketchup5:16 – The milestones of ketchup’s history in the US10:26 – What were the early days like to compete in a market where the leaders have such a stronghold on the consumer14:41 – Effective ways to negotiate14:57 – Getting to Yes: Negotiating Agreement Without Giving In16:32 – How may stages were there in the early products19:04 – A look at kaizen and what it means to Scott20:38 – Scandinavian business principles that they bring to the company23:40 – As the company has grown, has Scott seen downsides to the stakeholder model especially when competing against larger companies that use the shareholder model28:19 – How did they use outside capital in getting started31:07 – What was the most memorable story from the early days of disrupting this legacy industry, especially as it relates to the sales of this product 33:30 – How to Win Friends & Influence People33:58 – How do you create trust and show the benefits of your product in sales37:48 – How culture started for the company, how it’s shifted since then and what competitive advantage the right culture creates41:47 – Some of the best outcomes are the result of mindset and culture43:28 – What new frontiers is Scott and the company looking at today51:41 – The power of giving and how it will bring large returns, especially when you don’t expect them as part of the giving53:04 – They Call Me Supermensch: A Backstage Pass to the Amazing Worlds of Film, Food, and Rock’n’Roll (Book and Movie)55:37 – Look at Scott’s decision to bike around Asia and what he experienced during that time1:02:49 – Best advice for someone in their early 20’s Learn MoreFor more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclubFollow Patrick on twitter at @patrick_oshag

Andy Rachleff, CEO of Wealthfront and co-founder of Benchmark Capital, shares insights on venture capital investing and entrepreneurship. He discusses the value hypothesis, growth hypothesis, and the mission of Wealthfront. The conversation also covers strategies for business success, product evolution, and the shift towards active management in investments.

I’ve often joked that this show should be called “this is who you are up against,” because I am so often having conversations with brilliant people across the investment landscape who are effectively my competition and yours. This week’s conversation fits that description because it gives you an inside view into how things work among some of Wall Street’s most competitive investment firms. My guest is Leigh Drogen, who has worked as a statistical arbitrage portfolio manager and who founded and now runs Estimize, a data company which works with some of the world’s largest hedge funds.Our conversation centers on the massive shift from what we call discretionary portfolio management—basically stock picking—to a landscape that is increasingly dominated by quantitative investors of various types. We talk about how any investor might hope to earn alpha, and how doing so is harder and harder.There are so many great stories in this episode, told by someone with the perfect career experience to know how the system actually works. After many episodes where I’ve been learning on the fly about topics like venture capital, permanent equity, or health, this episode marks a return to my world of quantitative investing. I think you’ll learn a lot, and that you’ll likely finish with an even deeper appreciation of just the type of investors that we are all up against. Books Referenced Revenge of the Humans: How Discretionary Managers Can Crush Systematics Links Referenced The Undoing Project: A Friendship That Changed Our MindsForce Rank (App) Founder of Estimize Explains How He Plans To Disrupt The World Of Wall Street Research Show Notes2:45 – (First question) – A look at Leigh’s early career and how he got started in investing3:13 – Revenge of the Humans: How Discretionary Managers Can Crush Systematics8:04 – What happened when things stopped working towards the end of 2007.9:35 – The proper dimensions to separate any sort of potential Alpha edge11:15 – The traits that help a fund perform well11:42 – The Undoing Project: A Friendship That Changed Our Minds14:05 – Force Rank (App)14:49 – How the scientific process plays into Leigh’s research strategies19:18 – Explain what Estimize is and what it does20:55 – How people are compensated for the estimates23:33 – The scale of how many estimates they get per company24:57 – Why you need to be part of this informational arms race if you hope to survive28:30 – What happens if everyone buys Estimize data and the Alpha built into it goes away31:04 – What has been the evolution in these hedge fund platform type companies35:00 – If Leigh was designing a firm from scratch, what would it look like37:25 – Understanding Numerai and crowdsourcing in funds41:41 – What is an example of interesting data set that Leigh as come across45:38 – What is the potential for a hybrid model between a quant only with a discretionary picker.51:35 – How do you know when something is busted or broken?55:33 – Exploring his most memorable individual day in his career – Flash Crash58:16 – With all the algorithms and automation, will we continue to see more of these unforeseeable dislocations like the flash crash?1:01:00 – Bloomberg article about passive investing rates1:07:50 – What is Leigh most excited about the future1:13:15 – Kindest thing anyone has ever done for Leigh           1:13:41 – Founder of Estimize Explains How He Plans To Disrupt The World Of Wall Street Research Learn MoreFor comprehensive show notes on this episode go to http://investorfieldguide.com/drogenFor more episodes go to InvestorFieldGuide.com/podcast.Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub.Follow Patrick on Twitter at @patrick_oshag  

This week’s episode is very unique. It is the first episode devoted to bonds, just not the kind of bonds you are used to. My guest is Ira Judelson, who is the leading bail bondsman in New York City. I met Ira through my friend and former podcast guest Danny Moses, who is also a part of this conversation. I have always had a passion for understanding how different businesses work. In this case, this week we are exploring a different business, but also a different world. Ira’s story is larger than life. He is as authentic and hard working as they come. In both his book and this conversation, there is a lot about family, loyalty, and hard work—principles which really resonate with me. You’ll emerge from this hour with an appreciation of hustle and what it takes to get ahead. I can’t stop thinking about our discussion on how sources of power in any career morph through time, a framework that can help anyone think about their work and where to apply effort. The conversation goes all over the place, but suffice it to say we discuss bond collateral, Dominique Strauss-Kahn, and DMX—and that is but one small fraction. Please enjoy my conversation with Ira Judelson and Danny Moses.   For comprehensive show notes on this episode go to http://investorfieldguide.com/ira For more episodes go to InvestorFieldGuide.com/podcast. Sign up for the book club, where you’ll get a full investor curriculum and then 3-4 suggestions every month at InvestorFieldGuide.com/bookclub. Follow Patrick on Twitter at @patrick_oshag   Books Referenced The Fixer: The Notorious Life of a Front-Page Bail Bondsman   Links Referenced Rao’s Restaurant   Show Notes 1:55 – (First question) – The role that Rao’s restaurant has meant to Ira’s business and career   6:11 – A look at Ira’s bail bonds business and how that industry works             6:22 – The Fixer: The Notorious Life of a Front-Page Bail Bondsman   8:31 – The story of how a pizzeria was a bad piece of collateral   11:10 – How often does Ira deal with bail jumpers   12:10 – What is the size of the open liabilities   13:14 – How long will the open liabilities last   14:55 – Ira’s relationship with his clients and the importance of character in this business   17:46 – the amazing story of how Ira got started in this business   31:05 – His early years of being a bail bondsman and how important his wife was to his success   29:52 – How Ira balances family with this kind of work   32:22 – Ira’s ability to be amazingly efficient on the phone when in social settings and a work call comes in   33:14 – Ira is the fixer   36:40 – Exploring the “Sources of Power” and where the balance for Ira of who he knows vs who he has shifted in this line of work.      38:29 – The importance of intense reliability, consistency and empathy, and why Ira can trust his clients may be considered bad people   30:19 – Two cases where Ira got emotionally involved   47:26 – Why Ira is not worried about people coming after him   48:57 – When a bunch of detainees were wailing to wait an extra day in jail for Ira because his wife was pregnant with their first daughter   54:06 – Ira’s relationships with Ja Rule and DMX   58:32 – What does Ira enjoy most about the business still   1:01:51 – Will Ira ever stop?   1:04:02 – What advice would Ira give to someone early in their career just getting started   1:08:42 – The importance in having a willingness to fail mixed with the passion for what you are doing   1:10:11 – Ira’s health scare and what it taught him about appreciating life