Transcript: Bill Bernstein on Navigating Uncertainty
The transcript from this week’s, MiB: Bill Bernstein on Navigating Uncertainty, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
~~~
Bloomberg Audio Studios, podcasts, radio News. This is Masters in business with Barry Ritholtz on Bloomberg Radio
Barry Ritholtz: This week on the podcast, another banger, bill Bernstein, neurologist, investor, author. What a perfect time to talk to the author of The Birth of Plenty, and of course, a splendid exchange about how trade has made us all so much wealthier. Really a person who dives deep into the subject matter, understands it better than anybody else and could put it into great historical context. I thought this conversation was fascinating, and I think you will also, with no further ado, my discussion with Bill Bernstein of Efficient Frontier Advisors. So you have such a fascinating career. I wanna, I want to get into some of the details before we start talking about markets and investing. You practiced neurology for, for 20 years. That’s kind of unusual to say. I, I’ve had enough of that. Let me start managing assets. Tell us about that transition.
Bill Bernstein: Well, first of all, it kept me off the streets. And secondly, I’m, I’m easily bored, so I do move from thing to thing and it occurred to me, oh, about 40 years ago that I live in a country that doesn’t have a functioning social safety net. And so I was going to have to invest and save on my own account to accomplish that. And I approached it the way I thought anyone with scientific training would do, which is I consulted the peer review literature, I read the basic texts, I collected data, I built models. And by the time I had done all that, I realized I had something that was useful to other small investors. And so I began to write things up. And I discovered that when you’re writing about investing, one of the key subjects that you have to nail down is the history of finance. If you don’t know the history, you’re dead in the water. You know the, can you spell long-term capital management?
Barry Ritholtz: Just LTCM? Yeah, exactly. You don’t need to spell it. You just,
Bill Bernstein: Yeah. I mean, if, you know, you can, you know, solve differential equations as easily as most people brush teeth, but if you don’t know the history, you’re going to have your head handed to you, which is what happened to them. So I discovered that I enjoyed writing history and so that’s how I segued into, into writing history.
Barry Ritholtz: And footnote Roger Lowenstein, when genius failed, is so instructive, not just because of the things you are referring to, failing to learn from history, the danger of leverage and, you know, tiny inefficiencies. But it was also a cautionary tale that was ignored a few years later led right to the great financial crisis. The same mistakes.
Bill Bernstein: Yeah, there, there’s a historian by the name of Robert Kaplan who said that all of history is half geography and half Shakespeare. And when I heard that it resonated, I realized that investing is the same way. It’s half mathematics and half Shakespeare. And you have to manage, you have to master master both of them. If you can’t master both, you, you’re, you’re dead in the water.
Barry Ritholtz: Literally, my next question, you describe, you describe it as half mathematics, half Shakespeare. Some people would call that art and science. But tell us why you need both compounding and exponential mathematics and the bard to be successful as an investor.
Bill Bernstein: Well, it gets to what I call the prom queen theory of life, which is that if Matthew, wait,
Barry Ritholtz: Wait, the Prom Queen Theory of Life?
Bill Bernstein: Indeed. If you’re the prom queen, then the most important thing in the world is how you dress and how you, how you look. And that’s how you judge other people brains. Athletic ability, political ability don’t matter. Well, financiers are exactly the same way. If you are the peak of your skillset is your quantitative ability. That is how you judge other people. And if other people can’t understand your models, then they’re stupid. Alright. Yeah, you have to, you know, the conceit of finance is that basically the math is all there is to it. And that you don’t have a limbic system. They deny the existence of their, of their emotions and their psychology, and that’s what gets them into trouble. They don’t understand the history and how that, you know, feeds into mass fear and mass greed and mass delusions, which is why I wrote that particular book,
00:04:33 [Speaker Changed] Kind of reminds me of the Richard Feinman quote, imagine how much harder physics would be if electrons had feelings.
00:04:39 [Speaker Changed] Exactly. Yeah.
00:04:40 [Speaker Changed] So, so interesting. So since we mentioned Shakespeare, I have to ask the obvious question. What writers and investors have influenced how you invest and how you write?
00:04:54 [Speaker Changed] Oh dear. Well, Jim Grant, of course, would be at the top of anyone’s list. And then the person who’s right at the top of that list was the, was a Scottish guy who lived almost 200 years ago, Charles Mackay, who wrote extraordinary popular Delusions. And the madness of crowds are actually memoirs of extraordinary popular delusions and the, and the madness of crowds. And he described all of the things that we’ve been seeing, you know, over the past couple of decades, more than 200 years ago.
00:05:23 [Speaker Changed] So those are two well-known names. Jim Grant is really best known as a, a macro analyst and a fixed income investor. How has Grant influenced how you look at the world of, of investing? Well,
00:05:38 [Speaker Changed] He’s also a historian. You know, he’s written several historically deep books, particularly about Bernard Baruch, but he certainly, you know, describes the historical episodes of manias and panics. I guess the other one would be John Kenneth Galbraith, whose history of 1929 crash was non non peril. I mean, it was just absolutely superb. You know, it’s one of those books that you just can’t help but, you know, snickering out loud every you know, with, with every paragraph.
00:06:09 [Speaker Changed] And, and he has probably coined more quotes and phrases
that other people unknowingly steal and don’t credit him ’cause they’re just the
essence of truth and wisdom.
00:06:20 [Speaker Changed] Yeah. Especially, you know, whenever anybody talks about
innovation in finance, he describes it as reinventing the wheel only in slightly
more unstable form.
00:06:31 [Speaker Changed] That’s pretty, that’s pretty amusing. We briefly talked about if it’s in the headlines, if it’s above the fold in the paper, it’s already in price. So you’re a proponent of modern portfolio theory and the efficient market hypothesis. How efficient, how much do market prices truly reflect future discounted cash flow?
00:06:53 [Speaker Changed] Well, Samuelson once wrote, I think in a private letter that the markets were micro efficient, but macro inefficient. And what he meant by that, by micro efficiency was that as the both of us know, it is brutally hard and getting harder by the day to pick stocks in time. The market, if you don’t know that you’re in, you’re in big trouble. But the markets are also can be macro inefficient so the overall markets can overshoot in one direction or the other. It’s very hard to, almost impossible to figure out exactly when that’s going to to happen. You can look at a market that is ebullient and frothy and you can say, I, I know what’s going to happen. I just can’t tell you when. So that to me is, is the best explanation or the best description of macro and micro efficiency There is, but you know, I mean, my message to anybody who’s to, who’s 20 years old or 25 years old and just coming out of their education and think they’re going to be the next Warren Buffet, the bad news is you’re trading against Warren Buffet.
00:07:58 [Speaker Changed] That’s right, that’s right. The, I I have been told that markets can stay irrational longer than you can stay solvent.
00:08:06 [Speaker Changed] Yeah, that’s, that’s an apocryphal quote from right, from from Keynes. Yeah. Right.
00:08:10 [Speaker Changed] But not really. I don’t, I I don’t believe he ever said
00:08:12 [Speaker Changed] That. No, he, he never,
00:08:13 [Speaker Changed] He certainly never wrote it.
00:08:14 [Speaker Changed] No, he he never said it or, or wrote it.
00:08:16 [Speaker Changed] So speaking of apocryphal times, you have said investors should build their portfolios for the worst 2% of market conditions rather than normal times. Tell us why you believe that and how do we go about accomplishing that?
00:08:33 [Speaker Changed] Well, that’s, that directly falls out of Charlie Munger’s dictum, which is that yes, compounding is magic, but the first rule of compounding is never to interrupt it unnecessarily. And you’re most liable to interrupt compounding to panic and sell during the worst 2% of times. So you design your portfolio for the worst 2% of times, which means that it should be more conservative than you think it should be. The other 98% of the time, and it’s a suboptimal allocation to have less stocks is suboptimal. But what I like to say is that a suboptimal allocation you can execute is better than an optimal one. You can’t execute.
00:09:15 [Speaker Changed] No, no doubt about that. You mentioned someone 2025. There are a number of people who have said, and I’ve been swayed in this direction, Hey, when you’re 20, 25 years old and you don’t need this money for 30, 40, 50 years, do you really need bonds to offset the volatility of equities? Shouldn’t you be a hundred percent equities at that age?
00:09:37 [Speaker Changed] Theoretically, yes. Practically no, because there are a few sent beings in this quadrant of the galaxy that can tolerate a hundred percent stocks.
00:09:47 [Speaker Changed] Huh, really, really interesting. So you mentioned half math, half Shakespeare. Let’s talk about the math side. So when you started looking at investing and bringing a scientific rigor to the process, you created your own set of asset class databases. This is before crisp and, and other widely available databases. Tell us how you went about doing this.
00:10:11 [Speaker Changed] Oh, no, no, I stole it from them. Oh,
00:10:13 [Speaker Changed] You
00:10:13 [Speaker Changed] Did? Yeah. Yeah. I mean, I, I went out and spent full
00:10:16 [Speaker Changed] Disclosure. Yeah,
00:10:17 [Speaker Changed] Yeah, yeah. No, I, I mean, I, I mean, what did I do? I, I went out, I did what anybody would do in that situation, which I spent 90, $95, which seemed like a king’s ransom at the time, right. For the in yearbook. And I transcribed all, you know, 985 data points into a spreadsheet, which I had just learned how to use, you know, sometime around 1990. And then that’s, that was the start of my models and the other people provided me with data. Ken Fisher, bless his soul, supplied me with a fair amount of data and I, you know, impersonated a professional investor at certain large banks and was able to get that sit from them as as well.
00:10:55 [Speaker Changed] By the way, I, I find Ken Fisher to be one of the more fascinating people in finance because he, not only did he bring a writer’s perspective, he, I think he was the wrong, longest running Forbes columnist at like 43 years. Some crazy number writing a monthly column for them. But he was both an investor and a very accomplished business person in terms of like, he was early in direct mail, he was early in the internet. He was early in just as running a business, just throwing stuff against the wall, seeing what stuck and just ab testing, iterating on a continual basis. Long before Google started doing that online. He was one of the early people who developed, here’s what financial asset management marketing should look like.
00:11:51 [Speaker Changed] Yeah, indeed. He did all those things. And he’s also a
superb writer and observer. And I think you interviewed him
00:11:58 [Speaker Changed] TA couple of times.
00:11:59 [Speaker Changed] Yeah. Once or twice, maybe once memorably and,
00:12:03 [Speaker Changed] Well, there was that. Sure. Yeah.
00:12:05 [Speaker Changed] And you know, I, he said something on one of your interviews that, that stuck with me, you know, for the past 20 years, which is that he pays close attention to the headlines because he knows that if something is above the fold, it’s already been impounded into prices and can be safely ignored.
00:12:20 [Speaker Changed] That’s exactly right. I thought you were going in a different direction the first time I, quick fun digression. The first time I interviewed him right in the studio, he was kind enough to do an interview with me in the first year of the podcast, which was, you know, admittedly pretty terrible. I was very rough around the edges and I, it was very formal and rigorous and tell us about small cap and tell us about emerging market value. And it was really on the, you know, just kind of straight down the line and really boring. And afterwards we were having a conversation, how’s the new firm going? Pretty good. We’re a few hundred million dollars, blah, blah, blah. You know, we’re, we come in second very often on some of these big households. And he said to me, wait till you’re five years old and a billion dollars in assets under management and the world will open up to you.
00:13:15 ’cause no one with real money wants to give, you know, a small firm with no history, a big chunk of cash. And we just started talking about how the business ran and how he delegated authority and how he built stuff. And I’m sitting there listening to them, listening to him and saying to myself, idiot, this is the conversation, not the small cap nonsense you just spent an hour chatting about. And when he finished schooling me, I said, can you come back one day and we’ll discuss that? ’cause this is fascinating. And he goes, sure, anytime. So a year later we came back and had the conversation. We should have had. He has always impressed with me with how insightful and unique his perspective is. I mean, we’re all a little neurodivergent. He has his issues. I have mine, but I just find him to be an absolutely fascinating guy.
00:14:09 [Speaker Changed] I mean, if we can get into just a little bit of neurophysiology Sure. Here, there’s something called the default.
00:14:13 [Speaker Changed] Well, you happen to be a neurologist, so let’s, let’s have at it. There’s
00:14:16 [Speaker Changed] Something called the default mode network, which is a part of your brain that becomes electrically active when you’re at rest and which turns itself off when you’re doing any focused task. And it turns out you can locate it anatomically on imaging studies and people who have well-developed anatomically well-developed default node networks tend to be very good at reading other people and have good emotional intelligence. The opposite of that is in people who are on the spectrum, who have small default mode networks and are not good at reading other people.
00:14:52 [Speaker Changed] And so he kind of blunt, and by the way, the firm has done fine, they’ve recovered from his stumble, I don’t know if it was even pre pandemic, and I thought he kind of got slagged by a lot of people, unfairly. The guy’s been a public figure for 45 years. He’s been at least writing in public for all that time. You know, sometimes stuff happens and in, in a sort of social media Gotcha. Environment
00:15:19 [Speaker Changed] Yeah. To say, to say nothing of being a, a spectacularly effective environmentalist.
00:15:25 [Speaker Changed] So on our last interview with him, we talked about all the, the trees and woods that he has purchased and put into permanent conservation. He’s done giant studies on sequoias and redwoods. I think he’s one of the leading experts in a specific type of tree known in the Pacific Northwest. He’s really like a wildly fascinating guy. And I hope people don’t judge him for that. I mean, I don’t know what to call it that politically incorrect snafu. I don’t think he meant it in any other way. And it, you know, they kind of had a reel him in a bit. But the firm is doing fine. His firm is doing fine. And there was like about a $5 billion outflow, but when you’re 105 or $110 billion, all right, you, you gotta dance with who brought you there. He built it up to that. But I, I find him to be really an interesting guy.
00:16:22 [Speaker Changed] Yeah. And, and he has the address here on Lexington so he knows where to send the chocolates.
00:16:28 [Speaker Changed] I think I’m gonna begin with a quote that I stole from Bill to start a chapter of my new book. To the extent you succeed in finance, you succeed by suppressing the limbic system, your system one, the very fast moving emotional system. If you cannot suppress that, you are going to die poor. I love that quote. Is it an exaggeration or, or, or is it accurate?
00:16:55 [Speaker Changed] No, it’s, it’s extremely accurate. Let me tell you a personal story. I have a, a good friend who is a wealthy person and that has enabled this person to have a career in public service. And she’s done very, very well. And one day after I’d known her for many, many years, she told me that her sister was poor, alright. Or did not have a lot of money. And I said, I don’t understand this. Was she disinherited? Did she make the family angry? And she looked at me straight in the eye and she said no, she was afraid of stocks.
00:17:30 [Speaker Changed] Really?
00:17:31 [Speaker Changed] Yeah. And so that’s the difference. If you can suppress that fear, you will do very well. And if you can’t suppress the fear, then you probably will die poor.
00:17:42 [Speaker Changed] So it’s, it’s so fascinating you said that you must have a similar situation. I live in liberal New York, you’re, you live in liberal Oregon, right. But we have clients that are on the left and the right. And so anytime you put out a commentary on con current affairs, not only because you don’t wanna offend half your clients, but because it’s a good analytical strategy to try and go down the middle, be objective and fact-based, but whatever your personal bias is, keep it, keep it out of it. And I wrote something up about what are the best and worst case scenarios about the tariffs. And we’ll talk a ton later about tariffs. But the fascinating thing is, when you look at history and you look at a chart of everything that’s happened, go back a hundred years, go back to 1926, there’s always a reason to sell stocks year in, year out.
00:18:36 There’s always some spectacularly crazy news that says, this is gonna be terrible. I want to sell. And if you’re selling in response to headlines, you know, and you’re gonna wait for the dust to clear by then it’s too late. You’ve missed most of the recovery. How do we deal with that never ending threat, that persistent this time is different sense And current affairs, the headlines today, does it feel like the tariffs are different or is this no different than the great financial crisis? The pandemic, the dotcom implosion go down the list to say nothing of the Kennedy assassination nine 11. Like there are endless reasons to be panicked about what’s going on in the world.
00:19:24 [Speaker Changed] Yes. This time certainly was different. Never before in American history has a colossally incompetent American president tried to crater the economy. And that’s, it’s very different. Do
00:19:35 [Speaker Changed] You think that was his purpose? Is he like, Hey, we cause a recession rates come down and that’s good for real estate or
00:19:40 [Speaker Changed] I I, I think we’ve, we’ve talked about this one. The,
the, the, the Rosetta Stone of Donald Trump is a call in show he did with Howard
Stern, along with his daughter and his son Junior. And, and Howard looked at him and
said, quick multiply six times 17. Alright. None of the three of them could do it.
102.
00:20:02 [Speaker Changed] How hard
00:20:02 [Speaker Changed] Is that? Well, that’s the whole point. And and you know, Don Junior laughed, he thought it was funny. Ivanka said, oh no, you don’t have to be able to do math to do real estate
00:20:13 [Speaker Changed] Or investing for that math.
00:20:15 [Speaker Changed] And but the most interesting response was Donald’s, he said, no, it’s 112. And he argued with Howard Stern about whether it was 102 or 112,
00:20:24 [Speaker Changed] Six times 10 is 60. Yeah, six times seven is 42. Yeah, 60 and 42. I I, I mean that’s how I do math in my head. I don’t know how you do it. Yeah,
00:20:31 [Speaker Changed] Yeah. There’s, yeah, that’s one way to do it. Or you might know that three times 17 is, is 51. Okay.
00:20:37 [Speaker Changed] And then you could double it.
00:20:38 [Speaker Changed] Double it. Exactly. And so this is a math problem that, you know, a a reasonably bright middle school student can handle. None of the three trumps could do it. Okay. And so this is the guy who’s now directing our economy. So that’s different. Alright, well how different was that from nine 11? Alright, nine 11 was sure different.
00:20:57 [Speaker Changed] I, I mean arguably George W. Bush is in the sharpest tool in the, in the box. Barack Obama had no national experience whatsoever. Had no idea how really the national apparatus worked. You could do this on both sides to some degree. You’re saying this time, really there’s
00:21:17 [Speaker Changed] Oh yeah, yeah, yeah. This is, this is this, this is completely, there were, there were adults in the room during the Bush presidency and there were adults in the room during the first Trump presidency. They’re all gone now.
00:21:28 [Speaker Changed] And yet the market continued to go higher during the first Trump presidency, regardless of who was president because
00:21:34 [Speaker Changed] They took him literally, but not seriously.
00:21:37 [Speaker Changed] Other way around other, yeah.
00:21:38 [Speaker Changed] Okay. The other way
00:21:39 [Speaker Changed] Seriously, but not literally. Yeah. This time I think we should be taking him literally, but not seriously.
00:21:44 [Speaker Changed] Yeah, yeah, that’s right. That’s why you got I got it reversed. Exactly. Yeah.
00:21:47 [Speaker Changed] The great, I, so we talked earlier about the efficient market hypothesis. So to be fair to the president, he’s been talking about tariffs his whole adult life. He says tariff is the most beautiful word in the dictionary. He says, I’m tariff man. Why were the markets so surprised by Liberation Day when here’s a guy who has told you I’m going to implement big, beautiful tariffs in my second term. Why did the market have to adjust revenue and earnings expectations down substantially after April 2nd if the market’s so efficient?
00:22:26 [Speaker Changed] Well, I think that the reason why is because he didn’t do 90% of the other things he said he was going to do. He was going to repeal Obamacare and give us a big beautiful healthcare system. He was going to redo our infrastructure. He was going to establish peace in the Ukraine on day one. And I think that, that his
00:22:47 [Speaker Changed] Tariff bring down the price of eggs.
00:22:48 [Speaker Changed] Yeah, exactly. And I think, I think that his, I think that his, you know, promise on tariffs just got put in the bin with the rest of the stuff he, he obviously wasn’t going to do and didn’t do.
00:22:59 [Speaker Changed] I, but I think people did take him seriously. They did expect, you know, the the sort of muscular us foreign policy and, and take tough, you know, a tough stance with, with the Middle East, a tough stance with the Russia, Ukraine war and he’s gonna bring prices down. That’s why I believe most of his non hardcore supporters voted him. I think a lot of people were kind of surprised by what he’s done. Are you suggesting that we should not be long-term investors and, and step aside? Or do we just have to ride this out?
00:23:39 [Speaker Changed] No, I, I think that it’s, this time is different in the same way that all the other times were, were different. I mean, you know, October 19th, you know, 1987, boy that was sure different. We’d never seen that before and we’ve never seen it since. And the smart thing to do on October 20th, 1987 was to buy stocks. Right.
00:23:59 [Speaker Changed] So when you see, not that you had time, like I was hoping we would be down, I don’t get excited about down eight to 10%, but down 20% you’ve got my attention. I wanna start legging into more equities. We never quite got there on the s and p. Right. I think were we down 18%, 17%, something like
00:24:18 [Speaker Changed] That. Yeah. And it was the same thing with, you know, late March of 2020. Boy, that was fast.
00:24:22 [Speaker Changed] 34% 17 days. Yeah. So if you were looking for down 20, you got it. You just only had a day or two to react.
00:24:30 [Speaker Changed] Yeah. I, I don’t, you know, I I try to stay away from correction 10% bear market 20%. To me that’s numerology. There’s no difference. A
00:24:38 [Speaker Changed] Hundred you and I know, you know, I, I find the base 10, like wait, you have 10 fingers in 10 toes. So 20% is a bear market. There’s just no data that supports
00:24:48 [Speaker Changed] That. No, there’s no difference between the market being down 19% and down being down 21%. You, you got it behaves the same way in both cases.
00:24:56 [Speaker Changed] Arguably, if, so, maybe I should make our rebalance bans instead of being down 20%, maybe it’s down 16%. So you get executed and then add a second one down 24%. Yeah.
00:25:08 [Speaker Changed] Until you get to, you know, march of, of oh nine two of oh nine. And there you’ve rebalanced, you’ve, you’ve thrown all your cash in three different times
00:25:17 [Speaker Changed] And, but you know, if you’ve thrown away your cash, it kind of works out the, the really, the really strange thing about bear markets, and I’m, my frame of reference is not just 2000 to 2013, but the Dow kisses a thousand in 1966 and it doesn’t get over it on a permanent basis till 1982. And if you just continued to dollar cost average for those 16 years, or from 2000 to 2013, when the market finally got over all its previous highs, that’s when you start to make a ton of money. ’cause that next cyclical, I’m sorry, that next secular move, all those bad buys you’ve made over the past 10 years, suddenly they start flowering.
00:26:04 [Speaker Changed] Yeah. There’s this academic parlor game we’re both aware of, which is, the argument is do stocks get riskier with a longer time horizon? And the correct academic answer is yes they do. But the assumption there is that you’re a buy and hold investor. Alright? But there are other kinds of investors besides buy and hold investors. If you are a, a periodic savory or a young person who’s putting money away, then stocks are really not all that risky for the reason you just gave. On the other hand, if you’re a retiree and you have no more human capital left, then stocks are three mile island dangerous. You are, you
00:26:45 [Speaker Changed] Know, you have to explain what that means to a younger generation.
00:26:49 [Speaker Changed] Yeah. There was a nuclear a, there was a nuclear accident, which was sort of the junior early version of Chernobyl at Three Mile Island outside Harrisburg, Pennsylvania. That was a movie that was, that was parody off
00:26:59 [Speaker Changed] That Jane Fonda.
00:27:00 [Speaker Changed] Yeah, yeah. The the the China syndrome. That’s right. And, and, and so the point being that if you’re an older person, stocks are, are risky. And you could say if you’re, you know, like me, you don’t have a lot of human capital left. Well five out of six times stocks have higher returns and bonds. So even in retirement, I should have plenty of stocks. And that’s like saying that when you play Russian roulette five outta six times, you win
00:27:26 [Speaker Changed] I I guess five outta six times. But that se that that six time is a doozy, isn’t it? E
00:27:32 [Speaker Changed] Exactly. It’s, it’s, it’s all about asymmetric consequences. It’s if you’re, if you’re invested two heavily in bonds and you should have been invested in stocks, well you don’t get to fly first class. You don’t get to buy the Beamer. But on the other hand, if you invest too heavily in stocks and you’re wrong, then you’re bunking with your kids.
00:27:50 [Speaker Changed] Right. If, if you’re an older investor and you don’t have that time horizon. Right, right. Yeah. Someone, someone said to me, can you really look through the next four years if you’re not retiring for 10 or 20 years, or if your kid’s 5 29, they’re not gonna school for 10, 15 years. And that’s the easy question. The challenge is, what happens if you’re retiring in 25, 26, 27, right. In, in the next three years. You know, that sequence of returns problem is, is really thorny. I, I think it was Bill Sharp said, it’s one of the most difficult problems in all of finance. How much do you draw down each year? We all use 4% as an average, but how much do you draw down each year if your first couple of years of retirement is down five down 10 down 20%.
00:28:38 [Speaker Changed] Yeah. There’s this wonder, wonderful little bit of quantitative work done by Mike Hites and wait foul about, you know, the reverse glide slap glide slope, which is you actually raise your equity allocation the further into retirement you get. Huh. And that just, if you think about it logically, it just falls right out of that, your first debt, your first five, 10 years of retirement, you wanna be fairly conservative just for that reason. And then when you’re 80 years old and you know, you’ll be pushing up the daisies in, in five or 10 years, then you can be more aggressive because you don’t need that much of a liability match in portfolio at that age.
00:29:11 [Speaker Changed] Huh. Really, really, really interesting. So you wrote a short book called Deep Risk talking about different types of risk. Explain what is deep risk, what is shallow risk?
00:29:21 [Speaker Changed] Well, shallow risk is the way we normally think about risk. There’s this theoretical finance dogma that risk is the same as variance or standard deviation. And the problem with that is, that’s only true in the short term. Short-term volatility. And short-term volatility is not of any real importance to the long-term investor. The real risk of long-term investing is not having enough assets to pay for your living expenses 5, 10, 15, 20, 30 years from now. So what are the things, what are the, what are the events that can, that can impair that? Well, the big one’s inflation, inflation hyperinflation in particularly is extremely common. It is almost the rule rather than the exception, really. Sure. You, you look, all you have to do is ask yourself what unit of currency that would buy yourself something in the year 1900 can still buy yourself something today. Well the US dollar can, can still buy yourself something. Okay. Can buy you something. A Japanese yen Sure can and, and can’t an English pound can. And a Swiss Franc maybe can buy you a candy bar if you find the right store in Geneva or more likely burn. And, and so, you know, those, you know, there, the, the case of the yen and the, the, the French Frank and the German Lear are much more common than the US dollar and the Swiss Franc and the English pound. Those
00:30:47 [Speaker Changed] J German deutschemark Italian lira. Exactly. Okay. 00:30:50 [Speaker Changed] E exactly. Yeah. I mean you start with, you know, a, a Reich mark in the year 1920 and you know, by 1923, late 1923, you were down to 1000000000000th of its person purchasing power. That’s, that’s hyperinflation. So that’s the rule. So that’s the most common thing that you have to worry about. And that is relatively speaking, the easiest one to defend against. Now there are other three other things that can also, well
00:31:14 [Speaker Changed] Wait, before you go to the other three things, how do you defend against that?
00:31:18 [Speaker Changed] Well, first of all, in the US we have these marvelous instruments called tips. And all you have to do is worry about, you know, the Department of Labor rejiggering the, the inflation adjustment, which is something to worry about. But of all the worries you can have, that’s a relatively small one.
00:31:35 [Speaker Changed] We went through that with Michael Boskin already rejiggered how we calculate Right. Cost of living adjustments rather than debating this like adults politically, they just made some, I, I’m not a big fan of substitution or hedonic adjustment. When when steak gets too pricey and you substitute chicken, that just means I’ve been priced outta stake. Not that this is the equivalent. Yeah,
00:32:00 [Speaker Changed] EE exactly. I mean it is, it is a problem. But of all of the asset classes that protect you with the greatest charity against the decrement in your future consumption, loss of your future consumption tips do it better than anything else I can think of. Alright.
00:32:16 [Speaker Changed] Stocks really interesting.
00:32:17 [Speaker Changed] Stocks do a relatively good job of it. You know, Elroy Dimson likes to point out that stocks are an inflation hedge simply because of their high returns. But they’re also a claim on real assets. You know, companies own real estate, they own equipment, they have human capital, and those retain real value
00:32:36 [Speaker Changed] Plus stocks are, are their revenue and profits are in dollars. So at least in the us so if there’s inflation, the cost of their goods go up and, and their total dollars, maybe their profits get squeezed. But everything seems to rise in an inflationary environment on the equity side. Right,
00:32:55 [Speaker Changed] Right. And then there’s certain kinds of stocks that are especially good at protecting against inflation value stocks do. Why? Because they tend to be overly leveraged and with inflation, their debts tend to get inflated away. And so that flows to their bottom line. So if you look for example, at the period that we just talked about, from 66 to 82 value stocks actually outperform the market by a, an, an inflation by a very good margin. And then finally, there are commodities producers in an inflationary environment. The petroleum stocks, gold stocks, base metal producers are all going to do fairly well, at least relatively well to the market. And then finally, you know, on the bond side, for god’s sakes, keep your, keep your maturity short. As we found out in 22.
00:33:45 [Speaker Changed] I, I noticed when you talked about real assets, you did not discuss real property. How does real property do as an inflation hedge over time?
00:33:54 [Speaker Changed] It’s pretty good. But what I like to say about real estate is that it’s not an investment, it’s a job.
00:34:00 [Speaker Changed] Yeah,
00:34:00 [Speaker Changed] Sure. If you, if you, if you, if you, if you enjoy dealing with drug adult tenants and fixing toilets, then be my guest.
00:34:08 [Speaker Changed] Okay. I wasn’t, I wasn’t thinking of rental properties. I was thinking of the various REITs and offices and paying a professional to, to manage it. So you’re not getting the 2:00 AM call that the toilet is overflowing.
00:34:21 [Speaker Changed] Yeah. But then by the time you’re investing in public REITs, you’re back in the stock market again. Right.
00:34:25 [Speaker Changed] So there’s no, no difference really. Huh. Really, really, really interesting. I was kind of fascinated by a data point you shared talking about old master paintings. Imagine if you bought a Rembrandt for a hundred bucks and 350 years later you sold it for $10 million. The return was a little over 3% a year. That, that’s astonishing. All these paintings look like they’ve appreciated so much. Tell us about the math behind these paintings that go for 10, 20, $30 million.
00:35:01 [Speaker Changed] Well, it’s really, it’s really not about finance or math. What it’s about is human neuropsychology. We are particularly bad at exponential calculations. And you know, it’s the old thing that even the the they, they knew back in the, in the far east that the, you know, the, the, the emperor asks the, the artisan or the farmer what he wants. And he says, well put one grain of rice on the first square and the of the chessboard. And by the time you get of course to the, to the
00:35:27 [Speaker Changed] Double it each, each square.
00:35:28 [Speaker Changed] Yeah. Yeah. By the time you get to the 64th square, he’s the wealthiest person on the planet. Human beings are not good at that. And that’s all that, that’s a demonstration of, now if you want to get into the academic finance of it, it’s that art has value in investment, has investment value, but it also has a complimentary value, which is a aesthetic return. And Bill Baumel did the research on, on this, the late Bill Baumel of NYU did the research on this and figured out that art had a much lower return than stocks or bombs simply because of its aesthetic return.
00:36:08 [Speaker Changed] Makes a lot of sense. And that’s before we get to the whole survivorship bias that you only see the most famous paintings in the world and their price tag, the tens of thousands of other paintings that aren’t auctioned off each year. We don’t see their returns, so
00:36:24 [Speaker Changed] To say, to say nothing of the maintenance and insurance and security costs of Right. Of keeping the art as well.
00:36:30 [Speaker Changed] No doubt, no doubt about that. It’s funny ’cause you have this whole group of investing books and then you also have this separate group of really fascinating historical books about markets and the economy and global trade. Let’s start with the splendid exchange. I i i it’s so perfect for the moment we’re in. What is the history of, of trade and and how has it helped raise everybody’s standard of living?
00:37:01 [Speaker Changed] Well it just gets down to Adam Smith’s concept of specialization. Nations specialize and nations have, and people have an intrinsic tendency to, as he put it, truck and barter. They wanna trade one thing for another. So, you know, the, one of the great luxury commodities of the 17th century was the pineapple. If you look at the coats of arms of all these European aristocrats, about third to a quarter of them have a pineapple on them. Why? Because they came from the new world. They were incredibly precious. And they were delicious. Everybody in Europe wanted a pineapple ’cause they don’t grow pineapples in Europe. And so different nations have different geographical and intellectual and technological endowments. And it’s if you improve everybody’s standard of living by trading among nations, the things that other nations aren’t good at.
00:37:59 [Speaker Changed] So that seems fair and we all specialize and we all do different things. It makes sense as the US developed computer technology and software that we’re not gonna make furniture or, or fabrics and or sneakers or those sorts of things. But at what point does globalization go too far? At what point have we hollowed out the middle class by outsourcing manufacturing to China and other low cost countries?
00:38:28 [Speaker Changed] That’s a really good question. And it was highlighted by a series of patient, again, it was highlighted by a series of papers by an economist named David Otter, A-U-T-O-R and his colleagues. And it showed just how badly communities that were affected by Chinese competition were hollowed, hollowed out. Now the problem with free trade is that it’s harms our concentrated and obvious as David Otter found out, but its benefits are diffuse. So a world in which we have to make our own shirts and our own furniture is a world in which the other 350 million Americans who don’t make those things are taxed very heavily. So instead of paying $15 for a shirt, you’re paying $35 for a shirt instead of paying, you know, two and a half dollars for a head of lettuce, you’ve gotta pay $7 for ahead of lettuce. And so that’s a world in which everyone else is impoverished, but in which those costs are much harder to see than the out of work auto worker or out of work furniture manufacturer.
00:39:34 [Speaker Changed] So, so we certainly have problems in, in the United States there’s wealth inequality, there’s income inequality. I think the worst of, of the pandemic inflation is behind us. But we have these real problems with a, which a lot of people are blaming on trade and globalization. What’s wrong with that thesis?
00:40:00 [Speaker Changed] The analogy I like to use is Churchill’s comment about democracy, which is it’s the worst form of government that’s ever been tried except for all the others that have been tried from time to time. I think that’s close to the exact quote. Sure. And so the, the, the alternative to free trade is protectionism. And protectionism as we found out during the thirties, is a disaster in multiple dimensions. What happens when you raise tariffs is what we’re seeing now is in the first place prices go up, seal, you know, auto markers, automakers have to make, pay more for their steel.
00:40:39 You know, people who are making agricultural products and processing food have to pay more for their imported basic inputs. And so domestic prices go up, you get inflation. And we’re already starting to see the expectation of inflation going up. I think the median expectation is now 6.7% in survey data. And once you see the expectation of inflation going up, then inflation goes up. ’cause that’s how inflation is driven. Then you see retaliation, which we’re already seeing in spectacular fashion and you see trade wars. But that is not even the worst cost, cost of protectionism because what happens with, with that is that it inflames international relations. And it was apparent to people in 1945 that one of the causes of the second World War was, was the protectionism of the 1930s. And that gave rise to the new world order that we put in place basically in 1945, you know, with the what came in, what became the World Trade Organization, the IMF and Bretton Woods.
00:41:52 And they did, they said never, never again. This is never going to to happen again. Why did the Japanese attack Pearl Harbor? Well, it’s because we embargoed oil. Alright. And they knew what would happen if we cut off their, their oil supplies. And I, I fear the same thing would happen today. Imagine for example, an inadvertent naval encounter in the Straits of Taiwan between US and Japanese naval vessels. The difference between a peaceful and a non peaceful outcome may very well be the state of mind of the policymakers on both sides whose emotions have been inflamed by the trade ruckus.
00:42:29 [Speaker Changed] Huh, really interesting. So Pax Americana, 80 years of growth and economic success, much of which accrued to the benefit of the US are, are you implying that that is now at risk?
00:42:47 [Speaker Changed] Yes, absolutely. There is a man, very fairly well known economist by the name of Albert Hirschman, who has a fascinating biography. He was Jewish, he was raised in Berlin. Not only was he Jewish, but he was also a socialist. So he fled the Nazi persecution, fought in the French army against the Germans, then wound up in Marsai Spiriting people like Haah RN out of of Marsai into the United, into the United States. And he saw quite clearly that World War II was en large part triggered by the trade frictions of that period. For example, you know, one of the things that inflamed the Germans so much was because they couldn’t pay their way out of the World War I reparations because they couldn’t export
00:43:37 [Speaker Changed] And lords of finance. Li Gu Ahmad’s book goes into great detail about that. Yeah.
00:43:41 [Speaker Changed] And so he wrote about that in 1945 and he says we have to establish a world order in which that doesn’t happen again.
00:43:49 [Speaker Changed] Huh. So here’s the best case scenario and and I wanna talk a little bit about this ’cause splendid exchange and, and Bert of plenty are sort of two sides of the same coin. Best case scenario. This is just a negotiating tactic. We’re gonna cut all these side deals and all this bruhaha, Hey, you took ’em literally, we should have taken ’em seriously. Ha Is there a way out that doesn’t destroy the post World War II order that has a accrued so much wealth to the United States?
00:44:21 [Speaker Changed] It is possible. I don’t think at this point it is probable. I think that so much damage has been done. I don’t think that any, any foreign power is ever going to trust us again. You know, Donald Trump, renegotiates nafta, we get the, the, the U-S-M-C-A
00:44:41 [Speaker Changed] Hi, his new treaty in in Trump one
00:44:44 [Speaker Changed] Time in in Trump won. And then he repudiates that. And you know, let’s say that that a, that a Democrat gets elected into in 2028, let’s assume that you know that, that he not only he or she not only gets the presidency, but also gets a democratically dominated Congress. The other nations of the world are gonna look at us and say, yeah, but we don’t know what, who’s gonna be elected in 2032 or 2036. Right? We can’t trust these people ever again.
00:45:10 [Speaker Changed] That sounds like a worst case scenario.
00:45:12 [Speaker Changed] I think that’s the most, I don’t think that’s the worst case scenario. I can think of worst case scenarios than that, which I’ve just, I described previous to that, right. In terms of geopolitics. But I think that’s the most probable scenario. I don’t think that anyone is ever going to trust the United States again.
00:45:27 [Speaker Changed] So I’m an optimist ’cause I was fortunate to be born when I was where I was into the family. I was, I know that shapes how I see the world. I’m kind of hopeful that the 2026 Congress changes hands, the tariff power is retaken back by Congress, which is within their authority to do. And that whoever gets elected in 28, regardless of which side of the aisle just does a global goodwill tour and kind of rolls back the past four years. Am I being pollyannish about this? Am I, am I too sanguine about the potential to repair the worst damage that you, you’re suggesting? Well,
00:46:11 [Speaker Changed] You and I are engaging in, in a forecasting exercise, which is well beyond computational impasse. Human beings, as Philip Tetlock described, don’t forecast very well, even even the best experts. My judgment, my forecast would be that your scenario is possible but less probable than, than mine. But I wouldn’t be surprised and I would hope that that you’re right. But if you want a worst case scenario, which I think is, is, is probable as yours, the current ructions trashing the, the treasury market, I see rates rising and I see us falling into a, a debt spiral and away we go.
00:46:50 [Speaker Changed] So Ben Hunt of Epsilon Theory wrote a piece a week or two ago called the Car Crash of Pax Americana and lays out that exact case. Nobody wants to buy our treasury. So how do we finance our debt? The dollar, our exorbitant privilege, the dollar as the world’s reserve currency is replaced with a basket of Euro, yen, Juan, things like that. And people just start to realize how good they had it and frittered it away on a very ill-advised policy that the last time we tried it in 1930, Smoot didn’t work out well either. So if that’s the case, why
would I want to own dollar denominated US assets? Isn’t that an argument for Head
for the Hills?
00:47:42 [Speaker Changed] Why Indeed. And that is certainly an argument for
international diversification to invest in countries whose economies are run by
adults.
00:47:51 [Speaker Changed] So once you buy it, the exchange rate no longer matters. If you’re, if you’re purchasing Europe and if you’re purchasing Japan, the, or India or wherever, and there is inflation in the US and there is a decrease in the value of the dollar. It, it doesn’t matter after you’ve made the purchase.
00:48:09 [Speaker Changed] Yeah, there, there, there, there will be damage on a global scale no matter where you invest, but you’ll mitigate the damage by investing abroad. That’s the argument for international diversification. It hasn’t had a lot of fans the past 15 years, but it’s, it’s coming back into fashion.
00:48:24 [Speaker Changed] So yeah, no, you’ve definitely seen this year to date overseas, especially Europe and, and, and even some of the emerging markets start to do much better than they have. What’s fascinating about Splendid exchange is you trace the rise of trade and the benefits of, of a interrelated economy back to the plague, the Black death te tell us how the plague led to changing up trading patterns.
00:48:54 [Speaker Changed] Well, it’s a fairly well established economic historical subject, which is that what the plague did? Is it overvalued labor? A third, a half of the population of Europe disappeared. And so that greatly empowered workers, it drove prosperity. And it also probably, you know, a century, a century and a half later drove the voyages of discovery to the Indies. What were people looking for in the indies? Well they were looking for this really important economic commodity, which was nutmeg, mace, and cloves, which were great luxuries. And it’s what made Portugal wealthy early on and then drove the wealth of the, the Dutch and then finally the, the English.
00:49:35 [Speaker Changed] Huh. That, that’s really interesting. So one of the things you wrote in Explained exchange is trade almost always benefits the nations that engage in it, but only averaged over the entire national economy. There’s always a minority that is hurt by evolving trade trade patterns and they always call for protection. That was very prescient observation. Is that coming true now? If in what you see for the people who are demanding protection from international trade and globalization in the current administration?
00:50:10 [Speaker Changed] Yeah. When trade, when trade opens up, then someone is, is hurt. If you are making furniture in the United States and people in China can make it more cheaply, then, then you can, then you’re going to be hurt as a furniture maker. On the other hand, if you’re a consumer of furniture and there are, you know, thousands and thousands times more consumers of furniture than there are makers furniture, then you benefit greatly from that. But trade always produces losers and winners. And that was part of the fun of writing Splendid exchange was identifying who the losers were three and 400 years ago and 200 years ago and 100 years ago, 400 years ago, the big losers with trade were the people who grew sugar on the island of Madeira, which was a sugar producing island from about the 15th century or actually the 14th century on.
00:51:04 And they made a lot of money until people started growing sugar in the Caribbean and in Brazil and made and sugar producers got clobbered and they demand and get protection. Yes, they did because they were, they were losers in the system and, and in the the 19th century, the big losers and they, they drove a protectionist you still see today were European farmers and was all the fault of Henry Bessemer who produces, learns how to produce or develops a process for, for producing high quality steel, which goes into steel rails, which enables the grain exporters of the American Midwest and of Argentina and of the Ukraine to export vast quantities of cheap grain, which bankrupted European farmers, huh. Who demanded and got protection and they, they have protection even to this day because of that.
00:51:55 [Speaker Changed] And then let’s talk about the birth of Plenty. What is the relationship of trade to all the abundance that we seem to be enjoying or at least up until recently?
00:52:06 [Speaker Changed] Well, yeah, it’s the same basic thing. It’s the ability to purchase things more cheaply than would be available to be available to you from, from domestic producers. It’s that, it’s that simple. The birth of Plenty was really, really though about the four basic preconditions for strong economic growth, which are property rights and capital markets and scientific rationalism and modern transport and communications systems. And so it’s not until you see those four things come together that you see the sort of modern economic growth that’s really only been present for the past 200 years. It really wasn’t until relatively early in the 19th century that this idea that the economy grew per capita GDP grew at one or 2% per year became a reality before 1800 per capita HDP growth was zero.
00:52:57 [Speaker Changed] Wow. That that’s amazing. So before we get up to our speed round, let’s, let’s talk about your next book. What are you, what are you writing now? What are you working on?
00:53:06 [Speaker Changed] I’m still working on it and whether or not I get a publisher for it is, is open to question. I’m, I’m interested in two basic subjects. One is the radius of trust and societal radius of trust that feeds into the strength of institution’s, rule of law, property rights. Why did modern prosperity of, of or prosperity of the modern sort arise in northern Europe and England and, and in Scandinavia and in Germany? Well, it’s because those societies have high radiuses of trust. You tend to trust strangers and the origins of that are just extremely, extremely interesting having to do with prohibitions on cousin marriage. It’s way too complicated to get into. Then the other subject that I’d love to write about is something that I call the paradox of religion, which is that it is very well established that religiosity is beneficial to the individual. People who are religious live longer, they are healthier psychologically, they have better social connections, they’re healthier and happier in every way you’d want to measure.
00:54:13 On the other hand, when you look at the national level, religiosity is inversely correlated with the health of a society. So, you know, obviously the most religious places on earth, Somalia, the Indian subcontinent, you know, Sub-Saharan Africa are also the poorest nations on earth. The richest nations on earth are the ones that are the least religious. What I like to talk about is what I call the Somalia Sweden scale of religiosity. And there’s a concept in economics called the paradox of thrift, which we’re all familiar with. Sure. Which is thrift is good for the individual, it’s bad for the society. And what you see with religion is that it’s the same, the same way religion is good for the individual, but religion is bad for the society overall, for obvious reasons. You get religious conflict. Alright,
00:55:04 [Speaker Changed] Well, well let, let’s break that down. My savings, my thrift is your lost sales. So that’s pretty easy to intuit. Why would my improved psychology and happiness and what have you as, as a religious person end up making the whole country more poor, less wealthy if everybody’s religious?
00:55:27 [Speaker Changed] Because, because it accentuates religious difference, religious and personal differences, if you are deeply religious, you tend to be more distrustful of people of different religions. So, so the societal radius of trust is highest in the least religious societies because there’s less reason for personal conflict.
00:55:47 [Speaker Changed] And, and tell us about what is this radius of trust you keep referring to? Give us a little flesh that out if you would.
00:55:56 [Speaker Changed] Well, the best example I can think of, sort of the most pungent example is what Jared Diamond talks about in his field work in New Guinea, which is that when two new Guinea highlanders from different valleys meet, the first thing they do is they try and figure out how they’re related. Okay, do you know this person, you know that person, this person knew your voice.
00:56:18 [Speaker Changed] We call that Jewish geography
00:56:21 [Speaker Changed] Judah. Yes. And so you, you figure that out and the first person who figures out, oh my god, this per this person on the other side of me doesn’t know anything about me, turns around and runs like hell because he knows if the other person figures that out, he’s gonna try and kill him. Okay. Huh. So this is a society where, where people are so mistrustful of people from different tribes that murder is often the result. Wow. Alright. Now in western societies you get at it by what’s called the trust question, which is, and it’s a very, very, very common question in sociological surveys, which is do you generally believe that other people can be trusted or do you endorse the statement that you can’t be too careful about who you trust? And you can measure societal radius of trust that way. And a society in which people say yes, most people can be trusted. And very few people say you can’t be too trusting of people. Those tend to be much wealthier places. Okay. Those are the places where you leave your wallet on the sidewalk by mistake and it gets returned to you.
00:57:21 [Speaker Changed] Sure. Japan is notorious for, for that sort of thing. Exactly. So let me ask you a, a a, an odd question. Can both of those things be true at once? Can you, hey, we’re social primates, this is how we evolved and, and adapted and so we wanna cooperate, but maybe we need to be a little less gullible about people selling us crappy financial products. So are those two things compatible?
00:57:48 [Speaker Changed] Yeah, I mean there, there certainly are exceptions. No matter how trusting you are, you know, you, you, you have to be very suspicious of the people who calls you from a non-identified phone number.
00:58:01 [Speaker Changed] Really, really interesting.
00:58:03 [Speaker Changed] Even, even if you’re a trusting mid westerner from Peoria, you still have to have your guard up.
00:58:08 [Speaker Changed] So I only have you for a short period of time and you’ve done the favorite question so many times, I feel like they’re redundant. So rather than go through all of those, I just want to ask you, tell us what you’re reading now, what are some of your, your favorite books and, and what’s keeping you occupied right here and now?
00:58:26 [Speaker Changed] Well, the person I think who I’ve read more of in the past year than anyone else is a man by the name of Robin. Robin Dunbar, who is an evolutionary psychologist and an evolutionary biologist at, at Oxford. And what he did was he figured out that the size of primates, social groups was directly related to the size of basically the size of their brains, the size of their neocortex.
00:58:54 [Speaker Changed] Meaning the more the, the larger your evolutionary brain has developed, the bigger a circle of friends you could keep clear in your, your head. We’re talking primates up to and including humans. Is that right?
00:59:07 [Speaker Changed] Well, yeah. Up to and including humans now, Dunbar’s number for human beings who have the largest neocortex is the largest brain sizes, if you will, is about 150. And so you and I can keep about 150 people straight and be able to read them and be able to interact with them and have a good social and trusting social relationship with them. And that’s the natural size of the human band. So, for example, when you look at church congregations, when a church congregation gets to be beyond 150, say towards 200, towards 200 or 250 people, it splits because the group can’t cohere. It can’t keep itself, it can’t keep itself together. What is the, the basic military unit that you see around the world in all militaries? Well, it’s the company. Okay. That’s 120, 140 soldiers. That’s Dunbar’s number. And chimpanzees have a Dunbar’s number ’cause they have smaller brains.
01:00:05 So about 50, that’s the size of a chimpanzee tribe or a chimpanzee clan. Lems have very small brains. You can’t keep more than two lems together. Really? Yeah. And so Dunbar has immersed himself of the world of how we keep our social interactions straight, how we juggle them all, and how we’re able to do it. And it turns out, for example, that there are some people who have great emotional intelligence, who can, who have probably have Dunbar’s number of 200 or 250 or 300, that was probably Bill Clinton, you know, bill Clinton. Right. Had this ability to read people when what was said of Bill Clinton that, you know, when you were talking with him, it wasn’t just he was talk you, he was talking only to you, you were the only person in the room. Right. And that’s a person with a high Dunbar’s number, also with a very high, with a very large size default mode network, which we talked about earlier, which is the part of your brain that maintains your social intelligence. So Dunbar has a series of books out, one is called Friends, which I can’t recommend highly enough. And then the other is called The Evolution of Religion, which has to do with, with religious groups and how religious groups cohere and how it has to do with his, with his number. Both absolute, both books are just complete and total brain candy feasts. Really?
01:01:28 [Speaker Changed] Yeah. All right. I’m gonna put those on my list for sure. 01:01:31 [Speaker Changed] And then, and then, and then of course, the person who I, you know, the other two people who I read, read repeatedly over and over again are Joe Henrik, who’s the head of Theoretical biology at Harvard. He’s the guy who wrote the weird book, you know, W-E-I-R-D. Oh, sure. WI, yeah. W-E-I-R-D-A Western Educated, industrialized, rich, and Democratic. And it turns out that most human societies are not weird. Most human societies are traditional societies and that we in Western societies are the weird ones. Huh, fascinating. And, and he’s also the one who’s written about how Radius of Trust evolved, you know, through the prohibitions against Cousin marriage. It’s the Henrick hypothesis, which is a, just a fascinating hypothesis. So those are the kinds of people I enjoy reading. Huh. 01:02:20 [Speaker Changed] Really, really
01:02:21 [Speaker Changed] Interesting. Oh, and then, and then Fiction. Nick Haraway 01:02:25 [Speaker Changed] Don’t know the name.
01:02:26 [Speaker Changed] He’s the pseudonym of, of Jean Le Re Oh, okay. Jean Le Re who of course, is also a pseudonym, and he’s taken up the Smiley series and he, it’s hard to, Ima, you don’t wanna read it because who wants to read a book by the son of a great novelist? He’s better than his father.
01:02:46 [Speaker Changed] No kidding. Yeah. Wow.
01:02:47 [Speaker Changed] That’s amazing. He wrote a book calls Carla’s Choice, which is, you won’t be able to put down
01:02:52 [Speaker Changed] Carla’s Choice.
01:02:53 [Speaker Changed] Yeah. K. If you know if you’re a Smiley fan, you know who Carla is? K-A-R-L-A.
01:02:57 [Speaker Changed] All right. I’m heading that
01:02:58 [Speaker Changed] To Russian. A Russian spy,
01:02:59 [Speaker Changed] Huh? Sounds like fun. Bill, thank you for being so generous with your time. We have been speaking to Bill Bernstein, author of so many fascinating books, the Intelligent Investor, four Pul, pillars of Investor, on and on. His most recent book is on the Delusions of Crowds. If you enjoy this conversation, well be sure and check out any of the previous 500 or so we’ve done over the past 10 years. You can find those at Bloomberg, iTunes, Spotify, YouTube. Be sure and check out my new book, how Not to Invest the Ideas, numbers, and Behaviors that destroy wealth and how to avoid them. I would be remiss if I did not thank the crack team that puts these conversations together each week. John Wasserman is my audio engineer, Anna Lucas. My producer Sean Russo is my head of research. I’m Barry Riol. You are listening to Masters in Business on Bloomberg Radio.
~~~
The post Transcript: Bill Bernstein on Navigating Uncertainty appeared first on The Big Picture.
Recent comments