Tim Ferriss and Shane Parrish Walk Into a Studio
What do you think will happen next?
When you have young kids like I do, certain songs and phrases get stuck in your head, primarily because kids love repetition and thus they end up watching the same shows and listening to the same songs over and over and over. People who have young kids might recognize the subtitle of this piece as being one of the conventions that is used in a popular kids show on Amazon Prime (which is based on a book) called If You Give a Mouse a Cookie. Throughout the show, there are these if-then statements that the characters use as part of the plot. For instance, the classic example, which relates to the title of the series, is “if you give a mouse a cookie, then he just has to have a glass of milk.” What does any of this have to do with the main title of this piece? Well, when I saw that Tim Ferriss and Shane Parish got together to do an interview, I just had to listen to it.
As a podcast host myself, I listen to a lot of other podcasts with the goal of learning how to ask better questions and to be a more effective interviewer. Both Tim Ferriss and Shane Parish have their own pods. For people who are unfamiliar with these shows, Tim’s is called the Tim Ferriss show and Shane’s is called The Knowledge Project. Both podcasts are excellent, not only because they both get super interesting guests to come on, but also because each of them does an incredible amount of preparation before each show. They both also ask great questions. I have found that over time the intuition regarding what the next question should be gets a lot better. I am 40-something episodes in while Tim is almost at 700 and Shane just crossed the 175 mark. There is a lot I can learn from anyone who has done that many interviews so I make it a point to study such people with the goal of improving my own craft.
What was cool about this episode was that, at times, it was unclear who was interviewing who. The show appeared on Tim’s podcast but a number of times, Shane turned around the mic and started peppering Tim with questions. I know there are a million podcasts out there (including mine) so I try not to barrage people with suggestions of other things they should spend their time on. But this episode was a worth a listen. Because I like to be a little bit different (ever the contrarian), when I periodically share books or podcasts or articles that resonate with me, I am going to use my own convention. No, it will have nothing to do with a children’s cartoon. I will highlight things that struck a chord with me as well as something that I disagreed with or a direction I wish the interview/piece had gone.
In my experience, constructive feedback and people’s willingness to challenge my ideas are the primary sources of my self improvement in any number of domains. Just this week I had a chance to listen to Lawrence Hamtil’s new show, Preferred Shares Podcast, and share my feedback with him. He said he found my feedback quite valuable. When I started Compounders I begged people to critique the show. In reality it was hard to get people to give me an honest opinion. But some of the best feedback I got was from Matt Reustle, the CEO of Colossus, which has some incredible shows on its platform, including Invest Like the Best. Also, Ted Seides of Capital Allocators was really helpful with his constructive criticism. Do Tim and Shane need my feedback? Of course not! But hopefully some of my comments on the content will create a spark with my readers. With that, let’s dig in.
Step outside of yourself to mitigate biases
“You tell yourself a story about why sunk cost doesn’t apply in this situation or why you’re not overconfident in this situation. And the smarter you are, the better those stories get and the more believable they get.”
— Shane Parrish
Like the above quote, Shane had some thought-provoking commentary on mitigating biases. Anyone who was read the works of Kahneman and Tversky probably could list 25 or more behavioral biases off the top of their head. What Shane was suggesting is that recognizing that these biases exist and that you may be prone to be influenced by them is not enough to help you make better decisions. Smart people will go down the list of biases and make an eloquent argument for why that particular bias doesn’t apply to them or in a specific situation. To mitigate that, Shane suggests putting yourself in someone else’s shoes. In other words, ask yourself “What would Tim Ferriss do?”, based on what you know about him, if he were in the same position. By changing the frame, you give yourself a chance to recognize if you are indeed making a decision that is plagued by a whole host of biases.
Anyone who knows me, knows that I am a checklist nut when it comes to investing. My old firm had a checklist that we filled out for every company and I added two more on top of that—for good measure— which I used to protect against making a mistake. One is a management assessment checklist where I ask a series of questions to determine if company management and the board are friends or foes. (As my old boss used to ask, “are they stealing for you or from you?”) The second is an overly complicated checklist that is called the Probability of Failure Spreadsheet. It is based on the old Charlie Munger quote where he says, “all I want to know is where I am going to die so that I won’t go there.” I know where my investments go to die (i.e. lose money) so I have a list of all the ways that I have lost money in the past: leverage, secularly declining businesses, partnering with bad management, etc. I try to give each stock investment a score that represents the probability of losing money, based on either the presence or absence of the factors that have caused me trouble in the past.
At the very end of the spreadsheet, I have one last sanity check question I ask myself: “Would Warren Buffett own this company during any part of an economic cycle?” This is my version of WWJD and of stepping outside of myself before making an investment decision. Just that question has been pretty powerful. I could never have predicted that Buffett would buy OXY and it is probably not a company I would care to own. But invoking the idea of what is a Buffett stock—at least in my mind—has really clarified for me the kinds of risk I shouldn’t be taking.
Set automatic rules so you stop negotiating with yourself
“Automatic rules turn your desired behavior into your default behavior, and they do it when you’re at your best.”
— Shane Parrish
I love to work out. I truly enjoy going to the gym. So, I don’t have to set an automatic rule, which Shane has, that says “I work out every day.” These days, the fact that I have two young kids makes that hard anyway. But what I liked about what Shane discussed was that if you have a rule that says , “I work out every day” then when the clock hits 4:45pm, you are tired from a long day and you only have 30 minutes before you need to shower and get ready for family dinner, you are not going to start to make excuses for why you should take today off. You are going to hit the weight room or the treadmill for 15 minutes in order to live up to the rule and the expectation that you set. The idea is to make the rule when you have a clear mind and are full of energy so that when you are not at your best, it is easy to simply following the rule. Adding onto what Shane and Tim were discussing, you start to self-identify as someone who works out every day and it makes the urge and your drive even more powerful.
I also have some automatic rules when it comes to investing. For instance, my goal is to look at the prices of the stocks in my portfolio as infrequently as possible. I am firm believer that most of the daily movements of stock prices are noise; there is very rarely any long-term signals embedded in the fluctuations. I recognize that can’t always be the case but my portfolio is constructed with companies that have a high probability of being worth a lot more in seven years. Will I be wrong about some? Of course. But if I am watching the daily price movements I am prone to starting to believe that the market “knows” or is “telling me” something. Accordingly, my rule is to look at the prices of the portfolio stocks only once a day. Like with every rule, sometimes it gets violated but I have found myself being much less concerned with short-term performance because of how infrequently I am checking the daily scorecard.
Write to figure out what you believe and understand
“Writing is the process by which we realize we don’t understand what we’re talking about. And it’s only when you sit down and put pen to paper or even type out an idea that you have, a decision you’re making, an idea you’re wrestling with, that you sort of see where you don’t understand it. And the process of writing is not only refining that idea and helping you reflect on it, but you actually generate new ideas in the process of writing.”
— Shane Parrish
This is so true for me. Through this Substack, I have started writing more and I love it. Sometimes I sit down to write based on a single idea that I thought would make for a compelling piece. It sounds great in my head and then when I put the words on paper, it isn’t convincing or worth reading. It often takes me some time and a lot of words (probably too many) to even know what I believe about the subject or to discover if I have any unique insights. The writing process often leads me to an understanding of my own views that I might not have been able to articulate beforehand—or may even be the exact opposite of what I was planning to say when the idea for the piece came to me. Some people may be able to sit in a dark room and think deeply about their own beliefs. I need to start writing because then, when I see an idea on paper, it allows me to question whether or not I actually believe it and if there is a nuance that I might have been missing.
I know some people find it hard to sit down and write. Just do it. Start with 5 minutes per day and go up from there. I think you will be glad you did it, even if no one ever reads it but you.
Your position matters more than talent or work ethic
“If you put Warren Buffett in a bad position where all of his options are bad—it doesn’t matter how smart he is, it doesn’t matter how Warren Buffett he is—everybody looks like an idiot when they’re in a bad position, and everybody looks like a genius when they’re in a good position.”
— Shane Parrish
Maybe I am nitpicking a bit and focusing on a narrow set of comments within what was a wonderful interview. I will apologize in advance if I am bastardizing what Shane meant to say but the above statement didn’t sit with me that well. Shane made some great comments about how to put yourself in a great position to be successful: sleep enough, eat well, exercise, etc. He also went on to describe how some of the most successful businesses builders and investors put themselves in a position to take advantage of other people’s weak positions. How many times has Berkshire been the only lender or equity capital partner available because most other people were out of capital and/or were too scared to invest? Plenty, and Buffett has made a killing in those circumstances because he had dry powder and wasn’t over-levered himself. However, during the GFC, I am sure there were other people who had capital and could have helped save Goldman Sachs—and made a fortune in the process—but didn’t. They were in a great position but certainly didn’t look like geniuses, especially compared to Buffett. Yes, Buffett was in a great position but he also had the skillset to make what turned out to be the right call.
Also, I am just not sure that everyone looks like an idiot when they are in a bad position. In fact, when you have a weak hand or when the count is 0 and 2 are you are facing Mariano Rivera, that is when talent and work ethic can allow you to stay in the game. Legends are often born from turning a poor position into something the special. Getting back to Buffett, he owned a failing textile company called Berkshire Hathaway. Some people who were in that position would not have been able to salvage the company, let alone go on to create as much wealth as Buffett has. Most people would have been knocked out of the game upon making such a bad investment. But Buffett figured it out and clearly doesn’t look like an idiot in hindsight. I am sure there was luck involved as well, and circumstances matter more than most of us recognize. I just take a more balanced view when it comes to what determines success or failure. Position matters but so do a handful of other things. Plus, some people are clutch and others aren’t. Bill Buckner was in a great position to field that famous groundball but then this happened.
Hoping Shane Parrish’s rabid fans don’t come after me,
Ben Claremon