Darren Farber - The Business of Defense - [Invest Like the Best, EP.417]

My guest this week for the third time is Michael Mauboussin. If there is a major question about markets and investing, Michael has usually written one of the best pieces of research on that topic. Today’s conversation is a mix of several of his research pieces, but focuses on the sources of alpha. The framing of the conversation is the brilliant question “who is on the other side” of a given trade. If you are buying, who is selling, and why? Knowing the answer to this question is one key to understanding where excess return comes from. As is usual with Michael, we also explore tons of other interesting ideas that will serve as food for thought. Please enjoy. 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   Show Notes 1:23 - (First Question) – An outline of the syllabus for the course he teaches 4:02 – What are smart people missing when it comes to decision making 5:33 – Why Michael went down the path of defining major investing concepts             7:41 – On the impossibility of informational inefficient markets 9:14 – Beware behavioral finance 12:03 – What are the behavioral errors that people can take advantage of in a trade 15:14 – Timing opportunities             17:25 – Modest Proposal Podcast Episode 17:47 – Where the analytical edge comes from 21:16 – Is there an advantage to exhibit time arbitrage 23:53 – Technical arbitrage 29:34 – What impact do flows into ETFs play on the market 32:25 – Informational edge and how you source that edge 36:39 – Biggest changes that he has seen on the buy side 43:18 -  How would Michael apply this as a sports GM 48:35 – His views on stock buybacks             51:02 – The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success 52:55 – EBIT to EBITDA paper             54:43 – What Does a PE Multiple Mean? 59:28 – The concept of benign myths 1:02:06 – What the future holds of Michael             1:04:17 – The Myth of Capitalism: Monopolies and the Death of Competition   Learn More 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

26 Maalis 20191h 8min

My guest this week is with Annie Duke, and the topic of our discussion is how to improve decision making. We break decisions down into their component parts: values, beliefs, decisions, randomness, and outcomes. After diving into each, we discuss how to make better decisions, how to work in group settings, and how to harness power of tribes and identity to improve our behavior. Annie has thought about this as much as anyone, and her various tricks for getting us to think in probabilities and to stop evaluating decisions based on outcomes that have been tainted by randomness will be useful for anyone listening. Please enjoy. 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   Show Notes 1:23 - (First Question) – Why people don’t take the best investing advice 2:11 – Investing tribes             4:21 – Jay Van Bavel twitter 6:34 – Rule setting as a way of crafting an investment strategy 11:13 – How much control do we have in choosing our values   15:52 – Anatomy of a decision 19:28 – Her concept of resulting 26:47 -  How beliefs impact your decision making 34:28 – Tact’s for making the best decision 42:40 – Ego and decision making 47:06 – People who are exceptional at changing their decision making 48:18 – How often do people who change their decision making, stick with the rules of the game             50:07 – Finite and Infinite Games 50:28 – Psychology of making decision that involves other people 59:20 -  Never close doors on other people 1:01:57 – Best decision that Annie made 1:04:24 – Kindest thing anyone has done for Annie   Learn More 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

19 Maalis 20191h 12min

My guest this week is unique and so requires a short story. I met our guest Michael Mayer because of twitter. I followed and enjoyed one of several pseudonymous accounts that he maintains to experiment with ideas. His various accounts have wide followings. I think many of the best accounts on twitter are anonymous or pseudonymous, and I’ve always made a point to get to know the ones I like best. As it turns out, Michael was also an entrepreneur. He’d been building a new company and was raising a small amount of outside capital. I didn’t invest personally, in part because he raised it so quickly after I spoke with him. Ever since, I’ve gotten to know him better and followed his company, Bottomless, with interest. You know that I am always hyper transparent about any potential conflicts of interest, so it’s worth noting that while I am not an investor in this company, I expect to be at some point in the future. The topic of our conversation is both his social media activity and his company. I am a coffee fanatic, and the problem he is solving is one I live. I order a weekly bag of coffee beans, but I often have too much coffee or run out. Bottomless solves this by shipping you a simple scale which you keep wherever you store your coffee, connect to your Wi-Fi, and set your bag of coffee on. It automatically orders new coffee for you at the right time. Thus the name: Bottomless. If you like the conversation, check out bottomless.com  With this podcast, all I’m really trying to do is find, meet, and learn from interesting people. Michael certainly qualifies. I hope you enjoy this unique episode.   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   Show Notes 2:06 - (First Question) – Why he writes under a pseudonym online 2:58 – Positive impacts of writing this way 3:45 – His background 5:02 – Habits he improved upon 7:03 – Where did his exploration into technology and start-ups come from             7:33 – Algorithms to Live By: The Computer Science of Human Decisions 10:32 – Elements of business that interest him most 13:26 – Building social capital vs the current state of education 17:06 – What information does he like to consume             18:17 – Zero to One: Notes on Startups, or How to Build the Future             18:34 – Jerry Neumann blog Reaction Wheel | Podcast episode             18:39 – Kevin Simler’s blog  Melting Asphalt| Podcast Episode 21:01 – Why the current education system is busted 22:54 – Formation of his business 24:04 – Importance of making things legible 25:54 – On demand delivery vs subscription business models 30:16 – Early day in developing the scale for his business 33:50 – What he learned about coffee roasters 35:29 – thoughts on supplier power 36:17 – The customer relationship 39:50 – Best objections to his business 41:58 – Biggest operational/emotional challenges 42:56 – Best moment 44:39 – Time at Y combinator 46:28 – His unique co-founder story 49:47 – Marketing strategies and acquisition costs 51:37 – The idea of a commercial loop 53:27 – Discarded ideas, such as spaced repetition social networks 57:38 – Having a long-term plan vs reformatting a business into success 1:00:35 – What works on twitter based on his experience 1:03:09 – Most controversial opinion 1:05:59 – Kindest thing anyone has done   Learn More 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

12 Maalis 20191h 9min

Peter is a geopolitical strategist who combines expertise in demography, economics, energy, politics, technology, and security to assess an uncertain future. Before founding his own strategy firm, Peter helped develop the analytical models for Stratfor, one of the world’s premier private intelligence companies.   I came across Peter via his books the Accidental Superpower and the Absent Superpower. We discuss America’s changing place in the world and four additional countries poised to do well in the future. Spoiler alert: he believes the U.S. is particularly well positioned.  While we don’t discuss equity markets per se, all of what we talk about will obviously impact companies across the world for the remainder of our careers. Please enjoy our conversation. 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   Show Notes 1:32 - (First Question) – His model of the world 4:05 – What makes for a strategically advantaged country 5:35 – History of the Bretton Woods agreement and the order that it created 8:47 – The security apparatus that has made globalization of manufacturing possible 12:04 – The US’s pullback from being the naval police of global trade             12:08 – The Absent Superpower: The Shale Revolution and a World Without America 14:57 – How energy has played into America’s disinterest abroad 21:52 – Moving towards global disorder 24:55 – Characterizing factors that will impact countries in any collapse 27:38 – How this manifest in physical conflict 32:44 – How the new world order will end the ease of innovation we are accustomed to today 34:13 – What gets the US to reengage before this new world order 38:08 – Demographics that make a country prepared for this, Japan as an example 40:57 – A look at China 43:59 – What the story is about Argentina 45:52 – How North America fares based on their geography and relationships 49:50 – The trader wars that are currently ongoing 52:17 – US political system 56:15 – Most important policy issues moving forward 58:27 – His view on American infrastructure 1:00:33 – Technologies that interest him the most 1:02:55 – What he is watching most closely in his research, starting with media 1:05:59 – What are and should be the countries of the future 1:06:55 – Kindest thing anyone has done for Peter 1:07:32 – Favorite places he’s been   Learn More 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

5 Maalis 20191h 11min

My guest this week is Michael Kitces, who is one of our industries go-to experts on all things financial advise and financial planning. We discuss the past, present, and future of financial advise, financial technology, and investing. If you are a financial advisor or use one, this conversation is full of great history and perspective. Please enjoy. 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   Show Notes 1:08 - (First Question) – History of financial planning/advice model 5:26 – Fee changes in the 1970’s 10:01 – The start of the AUM model 10:44 – Value proposition for financial advisors beyond trading vs robo-advsiors             11:49 – Why Robo-Advisors Will Be No Threat To Real Advisors 18:20 – Why are humans still dominating the space 23:58 – Future of advisor fees 32:50 – Viability of the human driven flat fee model 37:50 – The dominance of flat fee models 43:13 – What services are financial advisors offering to justify their fees 47:17 – Dimensions to divide potential customers 52:20 – Exciting updates on the investment side that will help differentiate managers 55:37 – Any investment function beyond the basics that is intriguing to him 58:45 – Most interesting problems to be solved on the investing and non-investing sides 1:04:52 – Advice for young advisors 1:09:24 – How does he invest his own money 1:11:31 – Kindest thing anyone has done for Michael   Learn More 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

26 Helmi 20191h 16min

My guest this week is Alex Danco. Alex is a member of the Discover Team at Social Capital, has a background in biology, and has written about all things tech and business. While Alex is only 30, it seems like he has spent decades thinking about all the topics that we discuss, from changing business models, to railroads, to the shift from products to functions, and the rise and fall of asset bubbles. I hope you enjoy this wide ranging conversation.  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   Show Notes 1:15 - (First Question) – A look at his day job on the discover team             2:20 – 40 problems doc 4:27 – How companies get on the list and the turnover 5:21 – Hardest problem they are looking at…housing 11:37 – The investment component that fixes housing 15:35 – Where we are in the technology cycle in the view of abundance vs scarcity 20:54 – Change in distribution and the business vs utility business idea. 28:40 – Bifurcation of small and larger businesses 32:48 – New forms of scarcity today 38:31 – The trend of massive company incumbency 41:07 – The utility of bubbles 49:08 – His favorite bubble 51:18 – Challenges and nuances of bubbles             53:35 – Zero to One Notes on Start-Ups, or How to Build the Future 1:02:22 – Future for VC funding in Silicon Valley 1:04:07 – Advice for business builders             1:08:23 – The Three True Outcomes 1:13:04 – His background in biology and innovation in that space that is coming 1:19:46 – Company examples that are of interest to him and that encapsulate his way of investing 1:24:56 – Kindest thing anyone has done for Alex   Learn More 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

12 Helmi 20191h 29min

My guest this week is Keith Wasserman, co-founder of the real estate investment firm Gelt. This was my first fully dedicated conversation on direct real estate investing, so we cover many different topics, including the pros and cons of different types of real estate, current valuations, risk vs. reward, tax protection, and the most interesting emergent areas.   You can tell Keith is an entrepreneur at heart so I enjoyed his energy and all that he has learned. Please enjoy.   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   Show Notes 1:15 - (First Question) – Their interest in apartments and mobile homes as investments 2:32 – The returns spectrum for different classes of real estate 4:03 – His early entrepreneurial ventures and the start of Gelt 7:45 – Don’t be afraid of negotiating 8:34 – Going through early deals in real estate 11:57 – How he determines when it’s time to sell a property 14:13 – How do they think about taxes in their investment offerings 16:57 – Depreciation strategies in real estate investing 18:27 – The evolution of the types of real estate properties they’ve invested in 21:41 – Most important factors when evaluating a building to invest in 23:50 – Barriers to entry 25:41 – Changes in his cost of capital 28:51 – Cost of debt and deciding how much to put into a building 30:33 – A look at the competition 34:51 – Effective marketing strategies 37:07 – How demographics impact their strategies 39:11 – The co-living space 40:34 – Cloud kitchens and how he would invest in these 46:11 – How autonomous vehicles will impact real estate 47:52 – Pros and cons of developing new properties vs buying existing ones 49:59 – Early stage investing interest 53:48 – Favorite business/entrepreneur story 55:10 – Advice for younger entrepreneurs 57:09 – Kindest thing anyone has done for Keith   Learn More 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

5 Helmi 20191h

My guest this week is Alex Mittal, co-founder of Funders Club. Following past guest Jeremiah Lowin, Alex is my second elementary school friend to appear on the podcast—a trend I hope continues. Funders club is a unique venture firm, because it is build around a network of investors and entrepreneurs who submit deals for consideration and invest together. But as you’ll hear, Alex and his co-founder Boris aren’t just building an open platform for early stage investing: they also then take a very traditional venture approach, making investing decisions themselves when it comes to building a centralized portfolio. Our conversation is about what Alex has learned investing in almost 300 early stage companies over the past 7 years. Please enjoy.   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   Show Notes 1:30 - (First Question) – Inception of the Founder’s Club             1:36 – Jeremiah Lowin Podcast Episode 3:59 – How the process of their platform works 5:40 – Role of the network in Founders Club setup and success 8:26 – What he has learned from all of the data he has access to 16:00 – Early stage investing and finding the sweet spot 22:17 – What makes a really intriguing bad idea 25:23 – Why he remains so excited about Ethereum 31:18 – More bad ideas             31:55 – Apoorva Mehta on How I Built This Podcast 37:15 – Thoughts on retail and logistics and how they fit his Venn diagram of boring and crazy 43:13 – Chip and electronic design 45:47 – Companies that are not just increasing efficiencies but actually making foundational changes             45:54 – Energy and Civilization: A History 52:34 – What does he look for in founders             55:26 – Pivot or Fail 57:05 – Kindest thing anyone has done for Alex   Learn More 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

29 Tammi 20191h