Episode #465: Jim O’Shaughnessy, OSV – Unleashing The World’s Infinite Potential
Guest: Jim O’Shaughnessy is the Founder and CEO at OSV, which combines Jim’s deeply rooted interest in all things art, science, investing and tech with his long-held desire to establish positive sum scenarios designed to help promising creators and their inspiring ideas succeed, regardless of age, location, job history or level of education. Jim also serves as the Executive Chair at StabilityAI and hosts the popular Infinite Loops podcast.
Date Recorded: 1/11/2023 | Run-Time: 1:16:54
Summary: In today’s episode, Jim talks with us about the third stage of his career with the launch of OSV. Jim walks us through the different verticals, from making documentaries, hosting podcasts, making venture investments, and funding a fellowship program. He walks us through why each vertical is important to him, what he expects in the next year, and why he’s doing this both for profit and for fun.
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Links from the Episode:
- 1:25 – Intro
- 2:25 – Welcome to our guest, Jim O’Shaughnessy
- 3:35 – Jim’s new outlook now that he’s investing his own money
- 11:07 – His focus on novel business models that will work in a digital future
- 17:47 – How the Internet can supply a comprehensive education for free
- 20:03 – A look behind the curtain at his private venture theses
- 26:13 – Common themes in his recent investments
- 30:19 – What Jim’s venture selection process and criteria look like
- 33:52 – Startups can pitch ideas to Jim’s firm: firstname.lastname@example.org and questions to email@example.com
- 35:52 – How Jim’s new O’Shaughnessy Fellowships grants are funding innovation
- 44:05 – How the Fellowship fund works
- 45:09 – Jim’s focus on what can be learned from failures
- 47:34 – The mission and scope of Infinite Films
- 51:05 – Another new project of his: Infinite Media
- 57:28 – Ideas Jim’s working on for curated landing pages to direct users to thoughtful content
- 1:06:54 – Jim’s most memorable investment
- 1:13:25 – Learn more about Jim; osv.llc; infiniteloops.com
Welcome Message: Welcome to “The Meb Faber Show” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.
Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.
Meb: Hello, everybody. We have an amazing show for you today. Our guest really needs no introduction. The GIF master himself, Jim O’Shaughnessy, founder and CEO of O’Shaughnessy Ventures, also known as the worst kept secret of all time. You may know Jim from his prior time at O’Shaughnessy Management or from hosting the “Infinite Loops” podcast or writing one of my favorite books ever, “What works on Wall Street.” I put Jim on my Mount Rushmore of investor educators. He’s also one of the nicest guys around.
In today’s episode, Jim talks with us about the third stage of his career with the launch of OSV. He walks us through the different verticals from making documentaries, hosting podcasts, making venture investments, and funding a fellowship program that pays twice as much as Thiel by the way. He walks us through why each vertical is important to him, and what he expects in the next year, and why he’s doing this for both profit and for fun. Please enjoy this episode with OSV’s Jim O’Shaughnessy.
Meb: Jim, welcome to the show.
Jim: Great to be here, Meb. How are you?
Meb: I’m great. I was actually going to do the “Infinite Loops” intro. I feel like I have it entirely memorized at this point. Welcome to “Infinite Loops.” This is your host. And I can do almost like…
Jim: Well, hello, everybody.
Meb: There you go.
Jim: It’s Jim O’Shaughnessy. But, wait, I’m on “The Meb Faber Show.”
Meb: That’s right. Well, I was going to save you to Episode 500 and try to have, you know, you be the nice round number, but you’re either impatient or really bad at keeping secrets. I’m not sure which it is, but you have all this new, exciting news that slowly started to trickle out over the last few minutes. So, can you keep a secret or what? Like, is this, like, Christmas morning you just open the presents the night before? What’s the story?
Jim: I can keep a secret. I’ve been a fiduciary or was for 35 years. So, oh, man, the stuff I could tell you, but it’s locked under the code of silence. But as far as leaking information out, I’m impossible. Like, if something’s really exciting, I can’t help myself. And so all the leaks come from the top.
Meb: You’ve had this, you know, saddle of other people’s money your, like, whole life, and now you’re finally done with that burden. I mean, what does it feel like? You can light your own money on fire now.
Jim: Exactly. Exactly. It’s only fair. And as you know, I’m a big “skin in the game” type of guy. So, in all seriousness, listen, as you know, you can’t be a fiduciary for a long period of time and then suddenly flip a switch and turn that off. So, there’s no question that it still really guides a lot of my thinking even with what we’re doing at O’Shaughnessy Ventures. But honestly I think it was good training, right, because it tempers enthusiasm. It makes you seek out information which is contrary to your thesis. You really get trained in trying to figure out…it’s like I used to say, “All stocks should be considered guilty until proven innocent,” right? And kind of the same thing here. You want to look for… I’m very enthusiastic about what we’re doing obviously—I wouldn’t be doing it—but you also want to be aware and cognizant of the things that can go kablooey because they do and usually at the worst possible time. In that regard, Murphy was an optimist.
Meb: Last time we chatted, I was like, “Well, maybe Jim’s going to take a little sabbatical, I don’t know, play golf in Florida, at least take a little downtime. But it wasn’t even, like, skip a beat, man. So, for the listeners, you can, kind of, correct me here, but I, kind of, put, from what I know, your career maybe, like, three main acts, right? There’s the young Jim, incredible hair, taking over Wall Street, publishing books, going on Oprah, and then starting an internet company right at the peak of the bubble, selling that company, then doing your next version of O’Shaughnessy, selling that company, and now this third act. But maybe there’s an earlier origin story. You want to give us a little bit of, like, this third piece. What was the inspiration for this, man?
Jim: So, it sounds very woo-woo, but I’ve always kind of believed that you can write your life into existence in a way of speaking. And that’s exactly what I’ve done. If you’re watching this… Do you release in video as well or do you just do…?
Meb: Yeah, as long as you and I don’t embarrass ourselves, we’ll put it on YouTube.
Jim: But, like, I’m surrounded by nearly a hundred journals in which I started keeping when I was 18 and I, kind of, thought of my life that way, like a play in four acts. And I admire your intuition to say Act 3, because that’s what this is. I started thinking about this, you know, a long, long time ago. As a fellow quant, you will immediately understand one of the things that we face as quants, right, is our data sets are virtually identical, right? We’re all using pretty much the same clean data sets to run our tests on, etc. And one of the things that I really was interested in as machine learning and AI started to come online was I was thinking and my thesis was there’s a lot of data that gets discarded from the traditional quant methodology. And I thought, you know, kind of, thinking along the lines of Claude Shannon’s information theory, that information to be real information, it has to be something new. I think he joked that a political speech carries zero information, whereas a poem is filled with information.
And so I really wanted to figure out a way, how could I do that kind of research within a company, etc.? Well, that led to a bunch of other things that I always wanted to do and obviously couldn’t do because I was running O’Shaughnessy Asset Management. So, it was kind of like, I don’t know, maybe a seven-year build as I started writing out, you know, for Act 3, here’s what I’d really like to focus on. And pretty much you’ll see it if you go to osv.llc. The verticals that are there are the beginning. There’ll be others, but those are the ones that I really wanted to focus on because, A, they’re going to be a lot fun, which is something that I, kind of, insist upon. I want to really be animated by what I’m doing, but these have been things that I have been fascinated by for years.
Meb: Cool. I mean, pretty soon you’re going to run out of O’Shaughnessy variations of the name. You had, what was it, O’Shaughnessy Capital was the first or no?
Jim: O’Shaughnessy Capital Management was the first. I’ll tell you the story about that. So, when I formed that in 1987, ’88, everything was in meatspace, right? So, literally the brochure for that took, I don’t know, six months, and I actually went to a marble quarry to take pictures of what I wanted to be on the cover of it. And then you had a higher design shop to do it, and you went back and forth and it took forever. But when I was trying to name it, my wife and I were talking and she’s like, “What are your potential names?” And I started listing off some of the names. And, you know, honestly, most of them were horrible. You know, think whatever we thought was cool way back in ’88 or ’87, and those were a lot of the names.
And she looks at me and she goes, “Jim, what did every major financial house on Wall Street, the big ones, when they were formed all that time ago, what were they named?” And I went, “Well, they were named after the partners.” She goes, “And why was that?” And I said, “Well, because they had to demonstrate that not only was their own money on the line, their reputation, their name was on the line.” And she goes, “I think you just answered what you have to call your company.” And I’m like, “I love it.” Because as you know, I’m a “burn the ships” kind of guy. I go all in on everything I do. And so putting my name on it puts me at risk in terms of reputation, in terms of all of those things, and it focuses the mind.
Meb: Yeah. Well, I like it. We’re somewhat running into an issue recently with my company name, which actually preceded me, but there’s, like, three or four variants. Once we just moved in this new office in Manhattan Beach, you have to come see us next time in LA down by the water. We’ll take you surfing. We’ll take you out for a meal or a beverage. But we put up sign, you know, Cambria whatever, and people kept coming by and they said, “Cambria, the hotel company,” and I said, “Well, no.” They said, “Cambria, the granite tabletop company,” because we had mulled wine. It was like a holiday thing. We had mulled wine and cider with whisky if you wanted it. And they kept coming by and I said, “The bad part is that nobody knows who we are. The good part is we get free advertising from these other companies.” So, they get the name behind the sports. One of them was very heavy advertisement, but nobody knows what they do. So, we considered it, but it makes sense to go the route you did.
All right. So, O’Shaughnessy, hard to spell but easy to remember. Sold one, sold two. And here we are now with this new vision. You want to give us the reveal? Tell the listeners what Jim’s got in store because it’s a lot, man.
Jim: So, the reveal is that I have for quite some time been thinking that, kind of, all the old ways of doing things were or are collapsing. Old models for business that used to work no longer work because of innovations and advances in technology and whatnot. And so I started thinking about it and named it the Great Reshuffle where we are, kind of, at an inflection point where everything is changing rapidly, and some people are having a hard time tuning in to those changes. Bucky Fuller had a very charitable way of talking about people who, like, hate the new, right? And he said it isn’t so much that they hate the new, it’s that they’re just not tuned into it yet, right? And he gave some examples, the best of which was, you know, before we invented microscopes, we had no idea that there was an entire different world down there. But even after we got the first microscope, right, and looked at it, holy shit, what the hell is that, right? It took us a long time, 200 years as a society in general to tune in to that.
And so then along came COVID. And a lot of the trends that I had, kind of, listed as probably unfolding over, like, a 7 to a 10-year period got collapsed down into a couple of years because of the lockdown and because of all the changes that it required. And so the thesis is that we are, kind of, at an inflection point, not just in tech, for example, with AI and things like that but in the emergence of a true, sort of, meritocracy of ability to join networks. I always talk about Twitter as being, kind of, the first global intelligence network, or it could become, right? No matter who owns it, it’s install base…
Meb: Or in spite of who owns it, I don’t know which.
Jim: Right, exactly. Well, right. Yeah, in spite of who owns it or is running it, it seems to have become a Schelling point for really clever, bright people. And it became very obvious during lockdown that people could work from anywhere. They didn’t have to commute an hour to an office to sit in a cubicle and, you know, barely even look at the guy or woman next to them. So, in fact, our experience at OSAM was people became more efficient in their work. But, you know, because I thought that that was a trend, we duplicated everyone’s workstation at their home, like, back in 2015. So, we didn’t miss a beat.
But as I watched it unfold and as I watched and talked to people, right, like, I talked to one guy and he goes, “What the fuck am I doing in the airplane, you know, for 10,000 hours a year when it’s almost as efficient to do Zooms and/or other ways of communicating?” Which led me to, kind of, conclude I got my timing wrong. It’s all happening now, and I think that we’re going to see a continuation. I really think that… Like, I’m incredibly bullish on what’s happening because time, space, geography have all collapsed. It really doesn’t matter where you are physically anymore. It doesn’t matter. You could change your digital ZIP code really easily.
It’s very hard if you’re in the middle of nowhere and you want to talk quantum physics with somebody, right, and all your neighbors are, like, talking about bingo or whatever. It’s going to be hard to find a satisfying conversant. Now we have the entire globe, and it has shrunk down to a point where I believe that because networks are going to be more loose i.e. old networks, right, like the old boys club, right, or old girls club, it depended on where you went to school. It depended on, you know, what neighborhood you lived in, what your social class was, all of those things. I think that’s all gone. And one of the things you’re going to be able to see is much greater cognitive diversity and the allowance of letting people who’ve got great ideas into a looser network. And right now, as we’re talking, that is actually happening.
Meb: Well, it’s funny. You know, your most popular tweet, do you know what it is by the way?
Meb: So, your most popular tweet, which is on a network social website or app… By the way, I deleted Twitter app off my phone during the holidays because my wife was in my ear about it, but the problem is you can still access it from a browser. So, I made a separate hack to be able to take a little… I only Twitter maybe on my desktop. Anyway, so your most favorite tweet I think is during the pandemic, but you were talking about how people can access—I mean, this hits all your themes by the way—a lot of the free online coursework from many of the top universities, and I just redownloaded it today. I was looking at all those courses and I was like, “Oh, man, there’s, like, 20 on here I want to take. I totally forgot about it.” But it’s such a good example of, kind of, what you’re talking about. All right, keep going.
Jim: I don’t pay attention to, like, most of the metrics on Twitter. I think number of followers, for example, is a vanity metric and is meaningless because, you know, if you’ve got 100,000 followers and 95,000 of them are bots, it’s not going to help you.
Meb: Or you work in quantitative finance and 98% are male.
Meb: This is the world we chose, Jim. It just is our reality.
Jim: I know, I know.
Meb: Maybe it’s 93% for you, but for me it’s like 98%. So, so be it.
Jim: But that point, that being one of my most favorite tweets, I think it really illustrates what I’m talking about, right? The internet is taking away all of your excuses, and by that, I mean you can get a first-class education for pre, right? Look at what Patrick’s building with Colossus. That is going to, a few years from now, be able to give you a better education than an MBA at a reasonably good college, I think. And we’re only going to see more of that, not less. And in a digital world, this abundance of resources becomes everyone’s. Everyone can access it. Everyone can take all of those courses for free. Everyone can listen to Patrick or your podcast or mine for free, right? Now there are some that charge, fine, but the amount that are absolutely free, nothing barring you from finding that material is endless. It’s literally endless. And it’s only going to get more expensive.
And so I think that this affects, like, virtually everything. How we educate kids today, I think, is really so archaic and based on an agrarian country or one going into industrialization, right? That isn’t the world anymore, and there are schools like Synthesis school, for example. I’m very interested in them where they teach kids how to think rather than what to think.
And so, like, if you and I wanted to, we could spitball it, go back and forth, iterate, iterate, and we could probably come up with, I would bet, like, an amazing year-long course all online. And at the end of it, the person would be as proficient in quant as you and I are. And like, to me, that’s amazing.
Meb: Yeah. No, I hear you. And you’re an optimist. I like to consider myself the world’s biggest optimist on the inside. I don’t come across that way on Twitter often, but at my core, I get excited, palms are sweaty, just thinking about the things you’re talking about. It’s limitless possibility or, as you said, like, just if you want to go out and just grasp it.
So, you’re at this point now, you kind of say, “Okay, we’re at this confluence in time. I’m not just going to take a sabbatical and write another book,” although you might. What are you up to four now, five?
Meb: Okay, but going to start to think about all these things in my head. Let’s open the curtains a little bit. Tell us a little bit about this new ventures that you’re birthing into reality.
Jim: Sure. So, let’s talk about the one I’m probably best known for, which is investing. We started doing private market investing through our family office in probably 2006 or probably ’07, and it accelerated when we had the global financial crisis. And I was thinking, gosh, my largest asset is tied to global long equities. Hm, I might want to diversify a little bit.
So, I love investing in private companies all the way from the “getting started” seed stage through an A or a B round and have been doing it since then. And so we thought, okay, well let’s make it official and get a broader reach. So, we call that… All of our verticals are named infinite because of “Infinite Loops,” right? So, infinite adventures, and we say adventures because that was the original term for venture capital, right? When the guys were… They called them the traitorous eight, and it was a bunch of engineers who worked for Shockley to build transistors. And apparently he was not a great guy, right? He was a micromanager. You know, very, very into himself—shocking—and wanted to take credit for everything. And the team wanted to continue as a team, but they wanted to leave, and they went looking for a company to hire them. And along came a guy, I can’t remember his name, but he’s like, “Well, why don’t you just start your own company?” And this is what’s fascinating to me. This is the late 1950s. The thought of starting their own company did not even occur to them because that was the era that big companies ran everything. We had big company, big government, big labor, etc. And the guy said, “I’ll fund you. It’ll be an adventure,” right? And so thus was born venture capital.
But there’s a second name that I like even more, which is Liberation Capital. That’s what they used to call it. And I love that term because one of the other things that’s changing in this Great Reshuffle is this idea of, you know, companies thinking of their employees as chattel or indentured servants. That is not going to work anymore. And people are just going to say, “Yeah, no spyware on my company-issued computer or phone? Yeah, fuck you. I’m going to go do something else.” And this is concurrent with the ability that everything’s much more mobile. Capital’s more mobile. People are more mobile. People can work from anywhere. And so we’re essentially in that vertical searching out those great ideas that we want to find and fund.
Meb: So, you’ve been doing this for a while, so you, kind of, got the practice of muscle memory of reviewing this. The process up to this point, give us a little light. Was it mostly just like friends and network? You see things come across your plate. You say, “Okay, this looks interesting.” It wasn’t necessarily like a very intentional, outgoing process, or maybe it was because this, sort of, like not preceded, you know, this idea, but it, kind of, laid the groundwork. Is that a reasonable statement?
Jim: That’s fair, but we had a pretty broad funnel because of who we were. We luckily always punched above our weight in terms of people’s awareness of what we were doing. So, we started getting pitches for startups quite regularly well before we even began thinking about, you know, we should diversify into this space. And then of course Patrick with “Invest Like the Best,” the funnel opened even wider, and then “Infinite Loops,” etc. So, as far as that goes, the process was loose connections, right? So, a friend of a friend of a friend said, “Hey, you got to check this guy out. He wants to start a long/short market neutral energy fund.” And we would go and then run a process on, you know, what we thought about the potential for the people, for the tech, for the thesis of the company, etc.
So, I would say that we had the added benefit of, like, thinking like quants, right? So, if you’re like me, you’re always building algorithms in your head, right, because you’re trying to figure stuff out. And, you know, I think it was Wittgenstein who said don’t get freaked out about searching for meaning. Look for use. And that’s, kind of, the way my mind works. It’s always either trying to figure out, is there a problem? If there is a problem, is there a solution to this problem? And I kind of build it algorithmically in my head. So, thinking that way is very, very helpful when looking at private market, new ideas where we don’t have a data stream that is neat that we can interrogate to see whether, you know, buying stocks with the greatest sales gains works or not. But you do have enough, what I would call, semi-reasonable data from your experience pattern of, you know, being alive and doing what I’ve done for the last 30 years and, you know, kind of, saying, “Well, let’s build a heuristic around this, this, and this.” So, that helped us really narrow down the types of companies and people we were interested in working with.
Meb: You can elaborate on this, but I imagine you had a, sort of, filter or themes that you may be particularly looking for. And I know you just talked to Cliff, which hasn’t come out yet, but knowing Cliff, one of the things in his mind is often, like, looking at a lot like the private opportunities or hedge funds is, like, you don’t want the beta, right? You want the weird and different particularly if you’re going to pay up on the fees. So, are there any particular areas that you were drawn to or was it more, sort of, like you’re open and just, kind of, you know, evaluated each on their own merit an offering or stance? Were you just like, “I want to invest in emerging markets,” or, “Hey, I’m only a trailer park guy or space investments”?
Jim: Yeah. No, no. We were more generalist in terms of where we would look, but we wanted to find like, okay, is there something that needs a solution that doesn’t have a good one right now? So, I think of like Jeremiah Lowin’s Prefect, which is basically building much better pipes for all the data that has to flow through companies. And, like, what was available, kind of, sucked, and so we did a deep dive in looking at what was available and we saw that he was right. There was a huge opportunity. There was a huge need. There was no good solution currently that somebody could just take off the shelf, right? And so we found that to be very attractive and that’s gone very, very well.
Other things like the long/short energy fund, everything was perfect except we got a clash of people wrong there. And as you know, in a hedge fund, if people aren’t getting along and somebody leaves, that’s it. The investor’s money is the hottest of the hot money. For me, generally speaking, am I sufficiently curious about an area that I’ll, like, dive into the rabbit hole and see what I find? And that animates a lot of our investments now and then as well.
Meb: So, looking at, sort of, the pie chart of infinite adventures, like, what sort of percentage do you perceive will be direct company investments as opposed to, like, funds? Is it meant to be just depending on the opportunity? Is it meant to be 50/50? What’s the kind of approach to it?
Jim: Yeah, so funds will get some attention if we…for example, we just participated in a venture fund called chaotic.capital, and we did that because we like the operators. They are very different than we are in that they love every single toy on the island of misfit toys. And we think that the most interesting stuff, especially going forward, is going to be in the tails, right? It’s not going to be in the main body of the distribution.
Meb: Isn’t that always the case though?
Jim: Well, as you know, and Mandelbrot proved, at least to my satisfaction, that, you know, markets are not normally distributed. They’re chaotically distributed. They’re very peaky middles and very long tails. And that’s why the math for normal Brownian distributions sometimes really blows up in your face, you know, value at risk being the one that I love to hate on when it was all so popular. You know, here we’re going to give you a single number, and that is going to cover every single possibility in terms of what you have at risk. And we all know that that was bullshit. And, like, when that was really popular back in the beginning of the 21st century, like, I think you were in the same boat as me just like… People, you’re absolutely wrong because you’re not taking into account these really long, flat tails. And so, you know, that’s kind of another thing that we’re doing at O’Shaughnessy or infinite adventures.
Meb: And so is the process formalized now? Like, so listeners are like, “All right, Jim, I got an amazing fund or pitch for you.” Like, how do you guys handle what I assume at this point is going to be an enormous amount of inbounds? Like, do you have a team? Like, how are you going to handle this?
Jim: Yeah, we do have a team, and most of the funding through adventures is going to be direct funding to a new company. So, we’re not going to do too many funds. We’re doing funds, as I mentioned, like chaotic.capital just because we like what they’re doing but also because they’re going to find a lot of interesting, deep-in-the-tail type stuff that we’re probably not going to be able to find. So, again, that gets back to network effect, right? And now that we’re in that network, we have access to their knowledge as well. And it can be symbiotic and win-win, right? So, if they find something and we follow on, it just makes for a better situation for us. Are we going to look at only say tech or only financial? No. We’ll look at a bunch of stuff. We have a term sheet that we just signed with a couple of brand new founders who are, you know, tech geniuses and they just came up with a better idea about how you could help boutique retailers get not only a national reach but a global reach without having to hire the full staff to do it. So, if we see something really interesting, we’ll take the meeting.
Meb: Yeah. You mentioned earlier the ones you looked at. So, going forward, is it seed series A, series B? Like, what’s your wheelhouse? What do you want?
Jim: Our hope for wheelhouse is seed and series A. And, you know, we’d like to lead on the seeds because we can take that people where they have to convince LPs that they’re not batshit crazy. We can take those bets and they can’t. We don’t have an agent principle problem here. And that’s very liberating in terms of, you know, what we were just talking about, about fiduciary responsibility and everything. But we’re also happy to follow, right? So, we don’t have any pride about being the author of a good idea. By the way, like anyone who says, “Oh, this is exclusively my idea is smoking something, because if I’m thinking it and you’re thinking it, you know what, there’s a 50 or 100 other clever people thinking it too.” And, like, rather than not acknowledge that, we embrace that. We love that. Now, there might be 100 smart people thinking about it, but there’s 100,000 thinking of all the reasons why it’s stupid or dumb or will never work. And, you know, pessimists sound smart and optimists invent the future.
And so one of the things that we’re looking for is the mindset of like, “Oh, we can do that. Yeah.” And so that can be across industries. So, you know, if you’ve got a great idea for… You know, we were talking about, before we came on air, wouldn’t it be cool for guys like me and you if we could just press one button for our podcast and everything gets done? You know what? That’s a great idea, and I’ll bet we’ll find that company a year or two from now, and it will probably involve AI.
Meb: I mean, it’s getting closer. And, you know, we talked about this before and this applies to public market stocks too, but it’s even more impactful in the private world because you can’t sell it even if you wanted to, which I think is probably a benefit. But we often say this is not a unique insight, but it’s like the one insight that matters is, investing in a lot of these private companies, you have the ability to 10x or 100x because you’re going to be holding them for a long time. And public market investors’ really hard to do to hold something for 10 plus years. And the VCs know this, I think, and it ends up being a huge driving force certainly at the seed in any stage.
All right, well, guys, email Jim with your ideas. Not me.
Jim: Not Jim either. If you’ve got an idea that you want funding for a company, send it to firstname.lastname@example.org. And if you are interested in other things we’re doing, just send it to email@example.com. And we will get back to you for sure.
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We got to save some time for the other three areas because right now we’re on infinite adventures, which I love but that’s only one leg of the table.
Jim: Yeah. So, let’s move on to the one that’s gotten probably the most attention, which is the O’Shaughnessy Fellowships, which are, kind of, like a hybrid idea between what Peter Thiel did, but mine actually came more because I’m a somewhat of a nerd and was reading the myth of Atlantis, and I found that one of the things Atlantis did was send out these 12 explorers, right, to see whether there was knowledge elsewhere in the world that they didn’t know about and bring it back to Atlantis. And so I thought, “I love that idea. Let’s do the same, right?”
I think right now that there is an unbelievable amount of genius in our world. And in the past, geniuses born, live and died, nobody knew who they were. They didn’t probably even know they were a genius, right? They just looked at the world much differently than other people. And now that’s disappeared, that, again, this whole time, space, geography collapsing. We can find them and fund them anywhere. And so we opened this fellowship. We’re going to award $1,200 over the course of a year. It’ll be paid out over the course of a year. No strings. So, they don’t have to sign anything with us. They don’t have to promise us any IP or do anything like that because we want to demonstrate through action, right? Show, don’t tell. Show the world that there, A, is an amazing amount of creativity and innovative thinking going on, especially among young people. Young people are getting a bad rap often, which I think is bullshit. If you just look, we opened the fellowships. In the first, I think, 6 or 7 days, we had 410 applications. And, Meb, we’re not talking about like, “I want to think of a new franchise to sell food to people,” although it might be interesting if it was healthy food.
Meb: Meanwhile, whenever we do the poll, which is like, if you could invest in any private company, it’s like Chick-fil-A is always like the number one. It’s like In-N-Out Burger, Chick-fil-A.
Jim: Right, yeah. And we used to have a…
Meb: Sorry to derail you with my Chick-fil-A.
Jim: No, no. It’s okay. You just make me think of things we used to do. We used to have a joke portfolio that we called eat, drink, and be merry for tomorrow you die. And it was filled up, you know, with gambling stocks, cigarette makers, booze makers, pharmaceuticals. And as you well know, it fucking killed it. Just every year was, like, first percentile.
Meb: Top 2 French-Fama sectors back in 1920 last I checked were beer and smoke, so tobacco and alcohol.
Jim: There you go. So here are some of the applications. We got one from a guy who is working on open-sourcing quantum computing and his application came with videos of the seminars that he’s run with all of the PhDs in theoretical physics talking about how to do it. Another one is from a South African who wants to research mammal consciousness to see if we can port that over to machine consciousness. Yet another is a… I love this one. It’s from a rocket engineer who wants to set up a course to train other rocket engineers so that we have the best rocket engineers in this particular country. Another wants to start the first venture capital fund in Somalia. So, literally we’re just bowled over. Here’s another. Build 3D human tissue for faster and better medical discovery without invasive procedures on actual living human beings. You can also do that, by the way, with AI. They call it in silico. You build Meb or Jim. You gene map us, and then you recreate us in silico and do all the unspeakable things to our avatar and see what works.
But my point is, like, a lot of cynics were like, “Oh, he’s just doing this for deal flow.” Well, of course we’re going to invest in some of these things but, you know, I’m sure you’re going to find…I know you’re going to find there’s going to be an artist that gets this grant who he or she is going to be working on something really cool that is new in art. So, not all return on investment is money. Like, there is social return on investment, and I’m interested in that. And so I, kind of, take a stoic attitude, which is if I can’t affect something by my actions, right, I don’t let it bother me, right? It’s like I don’t look for things to rail against. I like to look for things to root for as opposed to against. And, like, right now, yes, of course we’re going to invest in some of these fellows. That’s, kind of, one of the points. But another point is we are going to enjoy some social return from the people that we fund because art is fundamental to good human conditions.
Meb: I mean, look, we say this a lot, but having been in the startup world for the past almost decade now, by far the biggest benefit is not to me the actual funding and money spent. Rather, it’s the optimistic enjoyment and learning process. Like, you were talking about space and for a long time years ago, I was like, “Wow, what I thought was that space and aerospace was only the domain of these giant companies, all of a sudden you’re seeing all these small startups have massive amount of success and traction.” And it’s so much fun to just coattail and learn about all these cool new things too. So, it’s fun more than anything.
Jim: And that’s the great watchword here, right? I want to have fun. And to me, having fun is learning new things, meeting new people, meeting really incredible thinkers who think about things in a way I can’t even approach. I mean, how cool is it that I get to talk to all these geniuses all day long and listen to these incredible ideas that they have? So, basically, what we’re looking for, and this applies to everything we’re doing, okay, what we want is to be able to make a difference, right? So, getting back to if I can’t through my own actions affect something, I don’t let it bother me, right? That’s kind of a stoic attitude. But if I can, then I’m going to try to go all in on it if I can.
So, for example, Stability AI, which I invested in, which is an open-source AI company. Why? Because I passionately believe that my grandchildren, you know, I have three who are out of the oven, two coming out of the oven very shortly, so I’m going to have five by the summertime, and I don’t want my grandchildren growing up in a world that’s controlled by a panopticon which only a few people, big, massive corporations, decide what they can and can’t use artificial intelligence to do. I think it’s a public good that the world should have available to it. That’s why I saw an opportunity. Wow, I can through an investment propound on the side of open AI, right, as opposed to close.
And so everything we’re doing, we’re looking for win-win situations, right, because the zero-sum thinking really narrows your aperture to a point where you’re only hurting yourself, I think. If you like mine, mine, mine, gimme, gimme, gimme, you know, and that’s crazy. If you open your aperture, you’re going to realize that there’s more than enough good win-win ideas that everybody can take part in, enjoy, have fun, learn something, gain experience, and at the end of the day win.
Meb: You’re going to do, you said, 12. Is this over five years?
Jim: So, it’s really simple, clean and easy. We’re going to have an annual class of 12 fellows.
Meb: Oh, wow.
Jim: And over the course of a year, we’re going to pay them $100,000 U.S. to pursue their dream, to dive down that deep rabbit hole, to create that thing that’s been just eating at them forever and ever, and life got in the way, right? And so that’s it. Each year there’s going to be a new class of fellows. They’re going to get $100,000 USD over the course of the next 12 months, and we’re going to celebrate and let everybody know, both good and bad, you know, here’s what this fellow did, here’s what she did, here’s the whole thing. We’re going to try to do as much of this as we can in the open, right? By the way, that also goes for everything we’re doing. I’m sure that I will fuck up a ton of things on the investing side, and I’ll share that because another thing I want to do is I want to get people to understand mistakes are really good things if they’re new mistakes. Old mistakes are bad things, right? If you’re making an old mistake that somebody else already made and you could have learnt about, then shame on you. But if you’re making a new mistake, that’s a huge learning opportunity. And I put a piece up that I wrote a while back “Mistakes were Made. (And, Yes, by Me).” This idea that younger people especially have, that everyone is like, “Oh, they don’t want to be seen to fail at anything.” I don’t know a single successful person who does not have some pretty big failure in their past.
Meb: And, sort of, one of the big benefits of being a quant, you and I, we can look to thousands and thousands of failed positions, right, of losers. I wonder how much of that like practice and trend followers, so I’m double these little tiny cuts. And part of it of course is probably age too. But I imagine that it helps us become a little more thick-skinned, I imagine. I don’t know.
Jim: I think so. And I think that also it’s just this idea that I’m really into Shannon’s information theory and what it implies about how we learn and embedded in that theory is the true information generally comes from being mistaken. And when you understand that, you use it as a learning opportunity and something that upgrades your OS so to speak. And so rather than to try to not do something because you don’t want to be seen to fail, right, I fall down all the time, man, and, like, I get back up. That’s the important part. And like, “Oh, I guess I shouldn’t jump on that really slippery rock over there. I won’t do that again.”
But the point is, if we can normalize, and that’s why we’re going to do this publicly, right, if we can normalize the idea that we’re going to screw things up for sure, and we’re going to hopefully learn from those screw-ups and then build on that body of knowledge that everyone can avail themselves up. And more importantly, they can also see, “Well, look at that. He really screwed the pooch on that one. He’s fine and he’s doing something new and whatever.” So, the kind of transparency is really important to us as well win, lose, or draw, right? So, another thing that we’re doing is Infinite Films. Why am I doing Infinite Films? I’ve never made a movie. I have a lot of friends who have made movies and are really good at it whom I’ve learnt from, yeah, but I’ve never done it. Well, one of the reasons I want to do it is because it was always kind of a hobby of mine to write treatments over the years. I’ve got 10 sitting around here, one of which a major director said, “If you write that as a screenplay, I will option and make that movie.” And so I’m going to have fun doing that. Our first thing’s going to be a documentary about David Rooney, a guy who I had on my podcast who is like a Rudy x10. Hollywood doesn’t make Rudy anymore. That’s the movie about the kid who went to Notre Dame, and his determination and persistence finally got him to be able to suit up as a member of the Fighting Irish, right? It’s like an inspirational movie. Hollywood doesn’t make those anymore. We will.
So the first one is going to be about the man who’s an amazing human being, who I met through Twitter, right, and though an experiment with NFTs. It was really cool the way it unfolded. And that’ll be a documentary but, like, three years from now, my guess is that Infinite Films will be almost exclusively an artificial intelligence movie company.
Meb: Yeah, we can just plug in all your books and white papers and say, “Write a screenplay in Jim’s style, Jim 3000,” and it will come up in your voice.
Jim: But the point there is, who are we going to use to make the doc about David? We’re going to use young people, and we’re going to say, “Show us your work. Show us the things that you’ve done.” And by that, we’re also making it win-win for them because, A, they’re going to own a piece of the movie, right? And I’m pretty good at persuading people to do things, so I think I’ll be able to sell it to one of the streamers. We’re not going for any of the traditional distribution channels. We only are interested in streamers or online, etc., but everybody who works on that movie is going to own a piece of the movie. And if I manage, the budget court’s going to be a micro-budget and obviously we won’t make them sleep in alleyways, but they’re not going to be at the Four Seasons, right? But the point is we’ll provide all the equipment, we’ll provide their travel, their meals, all that. But when you look at the economics of micro cap movies is ridiculous. The return on investment of those that hit is astronomical, but also, even if it’s just a modest success, it’s pretty good too.
Right now, Hollywood is still operated like a medieval guild world, right? You can’t get your screen actor guild card without being in three movies, right? So, it’s like, okay, that’s interesting. So, even if I make a movie with these young people, never do anything with it. Don’t distribute it. Don’t show it. They still get a credit on their resume having made that movie. How cool would it be to be 25 years old and to be able to be listed as director of Born to Fit Out: The David Rooney’s Story? So, we want to find a way to accelerate talent. We want to find a way to magnify it, amplify it, and then make them a super note on our network.
Meb: Is Infinite Media a part of Infinite Films or are these separate?
Jim: No, separate.
Jim: So, Infinite Media is, as the name implies, media-driven. I believe that substacks, podcasts, all sorts of things that aren’t even things yet. But in people talking to people, right? We are storytellers to our core. And as quants, that offends us, and it actually gives us our edge, right, because I used to give speeches saying, “I’m going to tell you a series of stories about why you shouldn’t pay attention to stories when making stock selections.” But the fact is stories are what animate us as a species. And so we’re never going to be all full up, so to speak, on the media side. And I think that, as things morph, everybody has to have a media strategy and/or presence. But one of the things we’re doing, for example, substacks, podcasts. One of the things we’re looking at doing in Infinite Media is both incubating podcasters, substack writers, but building a family where you can pay them a certain sum of money upfront, so that’s, kind of, a win for them. They can continue doing what they love, which is doing a podcast, right? And then we can have an umbrella organization that sells ads for them, that takes care of what producer are you going to use, what tech are you going to use, etc.
But VCs look at, in my opinion, through the kind of Joe Rogan model, right, where, oh, let’s spend $100 million for the biggest podcaster. I think it should be inverted. I think that there are all sorts of incredibly interesting podcasts that are kind of specialty podcasts. I think of fishing as an example. I don’t fish. I don’t know anything about fish, right, or fishing or anything. But when I look at the numbers, the quant side of me, right, I’m like, “Holy shit, people love fishing. They love listening to it. They love watching it. They love all this stuff.” And you start looking at the underlying metrics on some of these specialty, and it doesn’t have to be fishing. Any specialty like the guy building his house, right?
Jim: The numbers underneath those… And by the way, it’s not going to be just podcasts. There’ll be YouTube channels as well. But the numbers suggest that there’s a ton of interest in things that you yourself maybe aren’t all that interested in. And what do they have that’s interesting to someone who’s an investor? They have really low churn. Their audiences are growing. They’re not going hyperbolic, but they’re growing and not churning, turning over. That sounds like a bond to me. If you’ve got a dozen of those and you can have an umbrella organization that takes all the shit that the podcaster doesn’t want to do away, pay them a sum that they’re happy with and can live on, you can get a reasonable double-digit return on your capital outlay. And it’s kind of a bond. You just, you’re in, you’re out, are enjoying a bond-like return from that particular situation.
Meb: So, I think it’s going to end up being more than a bond-like return because you have the potential uncapped upside where you have someone that comes into the fold. We did an investment. It’s an old podcast at this point. I got to check in on how it’s doing, but it was called Podfund, and they had a similar thesis where they were going to invest in a bunch of creators. It was a little weird because it was like an operating company structure. I don’t think they could quite figure out the structure. It matters less to you because you guys can design your own structure. But to me, I was like, “Oh, this is a great idea. I want to belong in this till the cows come home.”
And one of the things we actually tweeted last year… So, you’re going to have to let me know, Jim. I can help here for my day job. But I said about a year ago, I said we were going to start doing some digital ads and experimenting in that world because I want to get educated. And, look, Google, Facebook, Instagram are great, but I would much rather give those advertising dollars to some killer creators. And I actually said young at one point in one of my “we’re hiring” tweets and just got absolutely ratioed, Jim. So, you got to be careful when you say young because people lost their mind. They’re like, “You’re ageist.” I said young and hungry and they went crazy about being… I’m like, “Oh, my God, are you guys kidding me? You’re picking me up on this single word.” And I go, “Okay, fine.” Let me replace young with, “You’re not going to get paid much and hungry.” Now let’s see how many, you know, older folks are really going to want to do this job for no money. But anyway, so I was like I’d much rather this money go to real creators than to the Death Star Facebook where I see my advertisement and there’s 30 comments where you’re like, “Have fun staying poor, idiot.” You know, like whatever it is. So, when you find these and you start funding them, let us know and we’ll sponsor them.
Jim: Awesome, because you took the words right out of my mouth. I would much rather find the creator younger. You know, I’m 62. So, how can a 62-year-old guy be ageist by saying that young people are clever?
Meb: Wait till this gets published. You’ll get a few.
Jim: O’Shaughnessy, hey, fucker, you’re just … only young people…You know, I don’t really care about what people think about me. That’s another nice thing. It’s, kind of, like, “All right, so hate me.”
Meb: But I like that. I mean, to me that feels a lot more tangible and interesting and particularly, you know, than it is going down Facebook or wherever.
Jim: And, kind of, think of it as part of the Great Reshuffle too, right? So, complex adaptive systems, man, all emergence comes from the bottom, not from the top for the most part.
Meb: And so do you have a structure in place or are you going to just play it by ear on the different ways to work with these new creators?
Jim: We are going to be flexible because we don’t want to box somebody out simply because we had some stupid rule about, you know, you can’t do this or can’t do that. I’m not a rule guy as you know other than in investing. And I like rules that I get to write, but I know that some of those are dumb too. So, flexibility is built into our process.
Meb: So, for the listeners who aren’t going to apply, they’re not running a fund, they’re not a producer, they’re not a podcaster, but they just are curious and be like, “Hey, I just want to follow along with Jim’s mission and what he’s doing in the next few years.” Are you going to be like updating or doing conferences, talking about your podcast? Are you going to let people following along on…?
Jim: Meb, people are going to be so tired of fucking hearing from me about this because…
Meb: It’s going to be everywhere.
Jim: If we are going to be everywhere, we’re going to do conferences. We’re going to experiment, right? We’re going to try a bunch of different stuff, knowing that a lot of it won’t work. But as far as the communication of what we’re doing, listen, we will be everywhere. And one of the things that we’re working on right now, it probably won’t come out in ’23 because we want it to be really good, is like in this information-saturated age, a place where you can go where you know that the people are good curators of ideas, of podcasts, of substacks becomes a very valuable landing spot.
And so we definitely are going to have that kind of site as well where you can go and pretty much be guaranteed if you have a particular interest in whatever, that you’re going to find really interesting, fresh, different kind of views at that particular thing that have been curated, right? You know, I’ve been practicing it on Twitter for a long time. Whenever I see something that I really like, I put it up. And what’s happened is it’s like anything, right? Nobody notices. Nobody notices. Nobody notices. And then suddenly I’m getting like DMs from substack writers who said, “You know, I got 100 subscribers when you put up my substack on Twitter.” And so I’m also trying to hire against my own kind of interests. And by that, I mean people who have interest in things that I’m really like not that interested in, so that we get good curation there.
My grandson Pierce is running really close for the sports curator. He knows more about sports than any sports guy I’ve ever known, and he’s only 9.
Meb: Well, we got a Ninjago Lego curator with my son when you’re ready. He asked the other day, here’s a film idea for you. He’s like, “Why do all the movies have a happy ending?” He’s like, “I’m so tired of all these shows. They all have happy endings.” I say, “Okay, well, there’s an entire genre.”
Jim: Oh, yeah.
Meb: Movies that you can watch and then you leave feeling totally angry and dissatisfied because it just ended poorly. I mean, for the longest time, this has got to be like five, six years ago on the podcast space. I say, “Please, for the love of God, can one of you podcast apps try to allow episode ratings?” And they all say no. And the Overcast founder was like, “No, people, they don’t care about the ratings. They care about discovery.” And I’m like, “Bro, I don’t need more podcasts.” I follow at this point… You know, we do this weekly human curation for the Top 3. We tracked 150 just investment podcasts. Not even just general. The last thing we need is discovery of new shows. I’m like, “I want to hear the good episodes from the shows we already follow.” And I’m like, “Why would one of you not even run the experiment and just try this out?” On every other app in the world, there’s ratings. On Uber, there’s ratings. On Doordash, ratings. On Rotten Tomato, ratings. Podcast apps, no. Like, who cares if it’s a good show? Like, I have 500 episodes now. Like, where do you even begin? The beginning? Like, there’s probably 50 that are the best 50, but where are you going to find them? It’s impossible. Anyway, rant. I’m at peace with this. I moved on in my life. For a long time, I was very sore about this.
Jim: Interestingly enough, we might have a solution for you in a couple of years.
Meb: A couple years. Jim. You got to work faster than this, man. Come on. You don’t have enough going on. Look, you only have four verticals.
Jim: I will get it for you, Meb, by next week, I promise. No, but similar feeling to yours. A rating system, and it can just be like, as you say, you have 500 episodes, right? Wouldn’t it be cool if somebody could just pick up an app and say, “What are Meb’s 10 most popular episodes?” and then listen to those. It will happen. We hope to be part of the solution there.
Meb: Yeah, cool. Well, I think AI accelerate a lot of these things we’re talking about. I haven’t even opened my notes of what we were going to talk about today, Jim, literally. I had like a whole bunch of… We’ll do a separate show on investing, but what I do want to save a little bit of time for, have we reached the end of the verticals? Do you have two more hidden verticals you’re going to reveal next year? You’re running out of categories.
Jim: Yeah. No, we probably will have one more vertical but more in line with what I just told you about, the curation platform. And that will be fed by the four.
Meb: I said in Twitter, “Chatting with Jim. Nothing’s off limits. What’s the weirdest question I can ask him?” And we’re going to have to skip over a few of these because the respondents took this literally and some of them are just not safe for anything. So, we’ll do a few. Shawna wants to know how your Vikings are going to blow out this year in football.
Jim: Uniquely, uniquely. It’s like a great artist. The Vikings are like great artists in that it has the signature of their particular style, but the painting itself is unique and different. That’s what’s going to happen with the Vikings. They’re going to uniquely fuck it up, and it will be not the same as all the other times that they screwed it up, but that’s why you’ve got to love them.
Meb: One of the responses to the actual question was, “In the most spectacular way.”
Jim: Well, Dan McMurtrie was on my show, and he goes basically I’ve come to believe that the outcome of anything is basically the most entertaining one that is conceivable. So, I like that response.
Meb: He’s focused on Bangladesh, India?
Jim: No, he does two. He’s got a hedge fund, which he’s done really, really well with, and he’s got this Bangladesh BC that OSV is a limited partner in. He’s killing it down in Bangladesh.
Meb: Yeah, I need to coordinate with him offline. All right, another question. Tom Gardner, “From my perspective, Jim’s won in life with family and business.” Says, “Do we think of new problems once our family is taken care of and keep the same level of generalized worry about the future or does it get better once Maslow’s core needs are all fully accounted for?” My God, waiting for the end of the podcast to go deep in the paint there.
Jim: Deep thoughts.
Meb: I’m glad he asked you because I don’t even understand his question. I would have to just be like, “All right, I don’t know what you’re talking about.”
Jim: So, Maslow’s Hierarchy of Needs is the famous pyramid. You know, we want sex and food first. We want shelter and warmth, and then if we’re lucky, we get all the way up to self-actualization and beyond. So, I guess my answer to the question would be it gets better because you do continue to worry about your children and grandchildren. You can’t help it, but if you get wise, one of the definitions of wisdom is knowing what to overlook. And when you are wise in that way, you can overlook a lot of the smaller things that people tie themselves up in knots about. So, once the kids have launched and are doing well… I’m an incredibly lucky person. I have fantastic kids, wife, grandchildren, and as far as I’m concerned, I’ve won the cosmic lottery. But, yes, tell him yeah. When the kids launch and are doing well, it does get easier and you could climb Malow’s Hierarchy of Needs.
Meb: And for the listeners, I was laughing as you were talking about this, who are listening to this on the podcast and don’t have the visual, Jim has fully turned into a VC now because he’s wearing a fleece, I think. So, he’s fully evolved into the next version of Jim The Quant and Jim The VC.
Jim: I need to get one of those back pattern things then, so…
Meb: Yeah, I mean, if it said Netfolio, I would be really impressed.
Jim: I’ve got Netfolio gear around here somewhere, man.
Meb: That’s awesome.
Jim: Oh, wait a minute. Wait a minute. Wait a minute. All right, here we go. You want to go full swag. Here we go.
Meb: Oh, that’s cool.
Jim: There it is, baby.
Meb: I’m too busy. This is from another asset manager, I’m unintentionally advertising.
Jim: And by the way, that is class. I will wear other manager’s fleeces as well.
Meb: This is, like, my favorite little zip. Listeners, it’s Eric Crittenden who’s been on the pod many times who’s having a great last couple years with his managed futures account. All right, there’s a couple more. You can get into these on Twitter if you so choose. Notre Dame, things you think are false, and others you think are true, but we’re going to wind down.
The question we ask everybody now, I think I may know the answer, but your most memorable investment, and you got thousands to choose from—good, bad, and between.
Jim: Wow, again, as a quant, I think of underlying factors. I don’t think about names and things of that nature. Okay, so here you go. Here’s my answer. My most enjoyable two investments have been O’Shaughnessy Asset Management and O’Shaughnessy Ventures.
Meb: Yeah, well, O’Shaughnessy Ventures is two months old. You’re going to have to reflect on this. In three years, you’re going to be like, “Dude, it was a lot.”
Jim: You got to have me back on, and I’ll be just crying, and I’ll be like a shadow of my former self and just say, “Meb, help me. Which one of your funds should I just put all this in?”
Meb: I thought you were going to say it’s like the famous Pearl Jam lyric in Evolution except you did it the exact inverse where he was like, “I was buying stocks on the day of the crash as you were liquidating your puts the day before the crash.” That was the one that I thought you were going to go with. 1987, right?
Jim: Memorable, actually. But, again, it’s great because it illustrates what we were talking about earlier about mistakes, right? So, talk about fucking up. I sold the biggest position of puts I’d ever acquired in my young life the day before the crash, right? And I think I just about broke even on them, because everybody and their brother…because the people don’t remember, many weren’t alive, but the day before the crash was a crash in the terms of the times, right? It was down, like, 100 points or whatever. And everyone was like, “Oh, this is it. This is the capitulation. Blah, blah, blah.”
And I sold the day before what would’ve been a small fortune on the puts. But what did it teach me? It taught me that emotions will always screw with you at the inflection point. And I was a mostly quant. And after that experience, it was like, “You know what? I’ve learnt my lesson. I have to be a quant. I have to ring fence my own emotions, or I’m going to fuck everything up just like everyone else.”
Meb: I don’t think there’s been a single time in my entire life where I’ve been emotionally pulled into a position or a friend has recommended something. And I’m friends with plenty of extremely accomplished discretionary portfolio managers. We’ll be riding a chair lift and say, “What’s your favorite stock now? We’ll chat about it.” It’s like a 90% hit rate that they all just implode. Either way, long/short or whatever, I don’t think it’s ever once worked out well for me, so I’m totally done with it. You know, either that or I’ll be like the tiniest position just to avoid the Bezos regret minimization, so I don’t have to hear about it for the next 20 years, but I don’t think it’s ever worked out for me.
Jim: Yeah. No, no. Never. Have a process. Follow the process. It’s boring. But, you know, it’s like I was pulling out these notebooks because I’m going to digitize them all and then let the AI explain me to me, but the one that I opened up was one that I did a long time ago, and it was basically talking about why you should pay attention to unique strategies as opposed to just buying the market. By the way, as you know, I’m a big fan of, if you just don’t want to have anything to do with the market, sure, buy a global index fund and be done with it, and dollar cost average into it, and you’ll probably do great.
But, you know, between September 1929 and August 1947, the S&P 500 was down real, inflation adjusted, 0.03%, right? So flat. Over the same time period, if you bought simply the stocks with the best six month relative strength and some cheap factors, you compounded at 5.77. If you bought just the highest shareholder yield, you compounded at a little under 3.5%. And then a more recent period between March 1964 and February 1982, the S&P, same deal. Down a scooch, down 20 basis points, compounded, reel, inflation adjusted. Whereas all stocks where the EBITDA to enterprise value was the best compounded at 13.5% over the same time period annualized.
Meb: By the way, there are a couple threads I’ve had in the past month that people actually… I think we may be like… We have to be close to the turn for U.S. versus foreign and everything else. I’ve done a couple… My largest strategy is U.S. stocks. So, listeners, you guys know this, but I had a couple, one, where I was like, you know, I heard someone describe their investment strategy. They said they put all their money in the S&P 500 index fund. It’s very boring. And I was like, “Look, I don’t know what word I would describe, but I would not describe this as boring. Looking at the historical statistics, it went nowhere at some point for 20 years, 40 years, has an 80% drawdown. Like, you can call it a lot of things. You can’t call boring.” My God did people lose their mind. And I was like, “I didn’t say U.S. stocks are bad. I just said I don’t think they’re boring.” Don’t you dare call my index not boring. Like, what? This is the most ridiculous thing I’ve ever heard of in my life.
And then I had one last night where I was like, look, you can actually do perfectly fine taking U.S. stocks off the menu so you can invest in REITs, real assets, foreign stocks, bonds, global bonds, yada yada, and you can match with a diversified portfolio U.S. stocks historically. And, again, people were so angry. They’re like, “No, you have to include them.” Anyway, I just remembered that you mentioned earlier this steel company and business risk. Number one stock in our shareholder yield strategy currently, steel company.
Jim: Yep. So, you got to love it, man. You just got to love it. You got to love it.
Meb: Jim, I love this. I got to go pee. This has been such a great discussion. It seems like you’re living your best life. I’m super stoked for you and the whole O’Shaughnessy crew, and family, and friends. Look forward to hopefully crossing paths on some deals and ideas in the future. Best place to follow you now, the podcast, what’s the website for new ventures?
Jim: It’s osv.llc, and you’ll find almost everything there. Obviously infiniteloops.com is for the podcast, and I’m always lurking on Twitter or pretend to be. I schedule a lot of tweets. That’s my dirty little secret so that people think I’m on there much more than I am.
Meb: Yeah, I do the same. By the way, have you seen what osv.com is?
Jim: I have.
Meb: Tickets. Okay. It’s not yours. Listeners, I’ll bury the lead. You have to go to osv.com and find out for yourself.
Jim: No, no, no, no, no, no, no, osv.llc. Don’t be a bad boy here, Meb.
Meb: Yeah, yeah. Jim, thanks so much. It was a blessing. Thanks so much for joining us today.
Jim: Thanks for having me, Meb. Great to see you.
Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at firstname.lastname@example.org. We love to read the reviews. Please review us on iTunes and subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.