Speaker 1: Pushkin. Hey everyone, and welcome back to Risky Business, our
Speaker 1: podcast about making better decisions. Today I am joined not
Speaker 1: by my usual co host Nate Silver, but by an
Speaker 1: incredible guest, Bill Perkins. Bill is someone who I met
Speaker 1: through the world of poker, but he is actually so
Speaker 1: much more than a poker player. He is a hedge
Speaker 1: fund manager, energy trader, of venture capitalist, an author Diewood
Speaker 1: Zero was amazing book that he wrote that came out
Speaker 1: a few years ago, and now he is also the
Speaker 1: co founder of Skyfi. He also produces movies. I mean,
Speaker 1: I think there are lots of things that lots of
Speaker 1: things that Bill had done, and I've probably forgotten a
Speaker 1: few caps that he's born over the years. But Bill,
Speaker 1: thank you so much for joining us on Risky Business.
Speaker 1: It's such a pleasure to have you here.
Speaker 2: Yeah, it's great to be here. I love talking to you.
Speaker 1: Likewise likewise, you know, it was very funny. We had
Speaker 1: already kind of thought that you'd make a really, really
Speaker 1: good guest, and then Ivan Boski died and he was
Speaker 1: obviously the man on whom the Gordon Gecko character in
Speaker 1: Wall Street was based. And you've said before that Wall
Speaker 1: Street had been kind of an early inspiration for you,
Speaker 1: and I was like, you know what, we really should
Speaker 1: get Bill on on the show. So Bill, we're going
Speaker 1: to talk a lot about risk and about how you
Speaker 1: think about risk and in general, how you've thought about it,
Speaker 1: how your thinking has evolved over your life. But let's
Speaker 1: start at the beginning. So let's go back to New
Speaker 1: Jersey for a while and talk about growing up and
Speaker 1: when you first became aware that you know, life is
Speaker 1: a series of risky decisions.
Speaker 2: Wow, that's a really good question. It's like you're kind of.
Speaker 3: At a subconscious level or intuitive level, you're aware a
Speaker 3: risk even as a kid, right, Like if you take
Speaker 3: the morality out of it, Like there's a cookie.
Speaker 2: In a jar, you're not supposed to go eat it.
Speaker 3: You take the cookie and somehow no camera know nothing,
Speaker 3: but your parents know you took the cookie. Obviously you're
Speaker 3: not smart enough to deduce like it can only be you, right,
Speaker 3: And there's chocolate smudges on your shirt, and so there's
Speaker 3: some sort of punishment associated with that, and you realize, Okay,
Speaker 3: if this is my reward, if I take this risk
Speaker 3: and get caught, there's this punishment as you're being socialized
Speaker 3: into what to do not to do right, and you know,
Speaker 3: kids try it out and test it out, and so
Speaker 3: you're making these intuitive risk reward decisions as a kid, right,
Speaker 3: and the consequences associated with that are actually training you
Speaker 3: in later life to be risk averse sometimes right, even
Speaker 3: if it was socializing you from a bad behavior to
Speaker 3: a good beaver, let's say, not bad behaver, but behavior
Speaker 3: they want you to do versus the behavior you want
Speaker 3: to do right, and you start realizing like, wow, this
Speaker 3: risk it hurts, it feels bad.
Speaker 2: I'm punished, I can't go out.
Speaker 3: I think you know, we all get traded, like trained, like, oh,
Speaker 3: fail bad, right.
Speaker 2: I think there's a lot of yeah, society.
Speaker 1: Society definitely says fail fail e cools bad, right.
Speaker 3: Not until you get sports like baseball where it's like,
Speaker 3: oh it's okay, you bat in three hundred, you're a
Speaker 3: superstar or something like that. But by and large, emotionally
Speaker 3: you're getting trained fail bad right. The shame even in
Speaker 3: you know, like do you ask this girl out she
Speaker 3: says no. You know, you get ridiculed or whatever. And
Speaker 3: there's so many situations in your life where your very
Speaker 3: results oriented, not expected value oriented, not like, if I
Speaker 3: did this one hundred times, am I better off in
Speaker 3: life taking this action even though there's this pain associated
Speaker 3: with these losses?
Speaker 2: Right?
Speaker 3: And so I was fortunate to have a dad, although
Speaker 3: a very tough and hard dad, was very very willing
Speaker 3: to take risks because of the er he grew up in,
Speaker 3: like and very much like, we're already at the bottom, right,
Speaker 3: We're already this has already thought of us. You're already
Speaker 3: you know, not expected to succeed, et cetera. You know,
Speaker 3: he grew up in an era when you know, racism
Speaker 3: was the law. It wasn't just like a thing or
Speaker 3: a feeling or these.
Speaker 2: Group of people was the law. And so he didn't
Speaker 2: give a fuck.
Speaker 3: He was one of those don't give a shit, I'm
Speaker 3: gonna do X, Y and Z people, which kind of
Speaker 3: unshackles you from this kind of emotional risk, aversion right
Speaker 3: in a lot of areas that I got from that,
Speaker 3: which then allowed when I later when my brain developed
Speaker 3: to like, go, oh, what is the expected value of
Speaker 3: this action to actually.
Speaker 2: Have my emotions align up with that? Right?
Speaker 3: So, you know, I find a lot of people they'll
Speaker 3: get the but they still can't stomach the losses right,
Speaker 3: the variance.
Speaker 1: Right, Yeah, I mean I think that from a psychology
Speaker 1: a standpoint, one of the things, and you know, my
Speaker 1: PhD was in risky decision making and one of the
Speaker 1: findings that I come back to over and over and
Speaker 1: over that I find, even me, even though I know it,
Speaker 1: the loss of version is just such an incredibly powerful thing.
Speaker 1: And this, of course is some of Danny Conneman's seminal work.
Speaker 1: You know, would you rather have a sure thing or
Speaker 1: you know, be with this loss? There's just something emotionally
Speaker 1: where even though I know what the right answer is, right,
Speaker 1: and I know and I know what I'm supposed to decide,
Speaker 1: there's a part of me that says, yeah, but you know,
Speaker 1: sometimes I just want the share thing. And if that's
Speaker 1: true even on the page, now, let's translate that to
Speaker 1: real life and to our real life decisions. And I
Speaker 1: do think that that's a really big handicap that our
Speaker 1: brains have when it comes to assessing risk and choosing
Speaker 1: things that actually matter for our life life outcomes.
Speaker 2: Yeah.
Speaker 3: I think it's also the scenario dependent. I think some
Speaker 3: of these things are rational, right, Like it depends on
Speaker 3: what loss you're trying to vert. If you're trying to
Speaker 3: not lose this image and you're like the wile risk taker,
Speaker 3: maybe you over index to taking bad risks, right, because
Speaker 3: it's just loss of version. So let's identify with the
Speaker 3: losses right first, and then it's like, wow, I don't
Speaker 3: want to lose this reputation of being this big bad ass,
Speaker 3: I don't care trader. And then you just do the
Speaker 3: riskiest thing exactly, and so now you've done the wrong
Speaker 3: thing by being too risky.
Speaker 1: Right, Yeah, I think you said several things here that
Speaker 1: I would love to dive a little deeper into because
Speaker 1: I think that they should alight on your career. But
Speaker 1: also just a light on risk in general. So people
Speaker 1: have different priorities, right when you're calculating expected value, when
Speaker 1: you're calculating risk, when you're calculating loss, you're not doing
Speaker 1: it in a vacuum.
Speaker 2: Right.
Speaker 1: My calculation is different from your calculation, especially when it
Speaker 1: comes to our lives. So when you said, sometimes it's
Speaker 1: actually quite rational to want to want to, you know,
Speaker 1: avoid a loss, and other times it's not. Are you
Speaker 1: thinking as a trader right at this point? Are you
Speaker 1: thinking as a dad?
Speaker 2: Right?
Speaker 1: Which parts of your life are you talking about and
Speaker 1: I'd actually love to hear more from you on this
Speaker 1: because you've also taken some risks in the past that
Speaker 1: you know, maybe the U of today wouldn't take.
Speaker 3: Yeah, there's definitely you know, I have a saying that
Speaker 3: humans don't net present value well and don't future value well.
Speaker 3: Like our brains aren't really wired for that. They're wired
Speaker 3: for like immediate, what's going on? Now, let me survive,
Speaker 3: let me eat, let me do what's going on?
Speaker 2: You know.
Speaker 3: The first thing about risk reward is getting the variables right.
Speaker 2: Right. If it's like this.
Speaker 3: Decision, like if I'm going to move to the city
Speaker 3: and I get a new job but it pays more,
Speaker 3: but if it doesn't work out, you know, I don't
Speaker 3: know people whatever, It's like, there's a lot of variables
Speaker 3: to figure out. Okay, am I getting how these variables
Speaker 3: switch in the you know, like zero in one case, right,
Speaker 3: And so you know, I think the first step is
Speaker 3: have a methodology to think about these things and then
Speaker 3: you know whether the variables then you know, flip it
Speaker 3: out and that takes time. You know, that's not really
Speaker 3: it doesn't match the guy's like, oh bear run, you
Speaker 3: know what I mean? Cookie eat you know that type
Speaker 3: of thing, right.
Speaker 1: Sure, I'd love to hear it kind of specifically in
Speaker 1: your case. How that's like, how did you go from
Speaker 1: cookie eat, bear run to being someone who actually thinks
Speaker 1: about this in a very logical way.
Speaker 3: In trading, we're all trying to avoid the risk of ruin.
Speaker 3: You know, Sometimes that there's decisions where I'm like, well,
Speaker 3: this is the trade and this is what we do,
Speaker 3: and we we you know, sometimes you get got is
Speaker 3: kind of like the slang use like sometimes you just
Speaker 3: get got. If you're an insurance company, the hurricane's going
Speaker 3: to come, right, But you also have to think.
Speaker 2: About the future expected value.
Speaker 3: Of just being alive in that very positive field, right
Speaker 3: as being an insurance and so the name of the
Speaker 3: game and insurance is to stay in the game. And
Speaker 3: sometimes you have to even if all the analysis says,
Speaker 3: you know, this is the right bet, this is the
Speaker 3: right trade, this is whatever, Like there's another analysis going
Speaker 3: is that the future of the future unknown expected value
Speaker 3: of being alive in this field outweighs this any individual
Speaker 3: bet or risk reward decision, right, And there's so many
Speaker 3: other variables, like well, investors are very very path dependent, right,
Speaker 3: if you lose for three years and then make for twenty,
Speaker 3: you're not going to be around even if you've only
Speaker 3: lost a little bit of money, because you're never gonna
Speaker 3: get to raise of money to get the fun and
Speaker 3: get to capital mass.
Speaker 2: But if you make, you know.
Speaker 3: But if you win for four four years and lose
Speaker 3: for five and you'll still be around.
Speaker 2: Like they're very path dependent creatures.
Speaker 3: So there's just little peculiarities of how the system works,
Speaker 3: how your brain works, how you have to look at
Speaker 3: how other people perceive risk when you're taking risk, Do you.
Speaker 2: Have the right to take the risk? You know?
Speaker 3: Things like that is where I've had to make personal
Speaker 3: decisions about the activities I do as and also like
Speaker 3: trading decisions like, hey, it may even though this seems
Speaker 3: like the right trade and the expected outcome is really high,
Speaker 3: the risk of ruin as at our percent that.
Speaker 2: We can't take and the name of the game is
Speaker 2: to stand the game.
Speaker 1: I think that's a really smart way of looking at this.
Speaker 1: And now I also understand why you've been successful as
Speaker 1: a poker player, because I think that that's something that
Speaker 1: a lot of poker players. More we can talk about that,
Speaker 1: but more successful than I think people give you credit
Speaker 1: for as a poker player. And I think that a
Speaker 1: lot of poker players understand risk reward, but actually have
Speaker 1: that piece of the puzzle missing, which is that the
Speaker 1: name of the game is to stand the game. And
Speaker 1: a lot of players go broke and they take there's
Speaker 1: this thing in the poker community that this perverse pride
Speaker 1: and oh, I've been broke x number of times. And
Speaker 1: you know, my mentor in poker, Eric Sidell, has always
Speaker 1: told me that I think that he thinks that that's
Speaker 1: not a great way of looking at it. He's never
Speaker 1: been broke, right, that that's not an image you want
Speaker 1: to cultivate. But a lot of players they, you know,
Speaker 1: they take the risks and they don't they don't realize
Speaker 1: that you do have to stay in the game. And
Speaker 1: we don't know their names, right, A lot of a
Speaker 1: lot of the players that we're very promising people don't
Speaker 1: remember who they were anymore. And now some of them
Speaker 1: were very successful and then went broke and then we're
Speaker 1: able to raise the second funds, so to speak, right
Speaker 1: in the poker world. But I think that that's especially
Speaker 1: for people who are in kind of risky professions, and
Speaker 1: who are more comfortable taking risks. I think staying in
Speaker 1: the game avoiding ruin is a really important and often
Speaker 1: missing piece of the puzzle. And it's something that you've
Speaker 1: done successfully professionally, even though you've taken some very big bets.
Speaker 3: Yeah, you know, And my natural inclination is, you know,
Speaker 3: so be it because I have a you know, it's
Speaker 3: I consider it a blessing. But like I have a
Speaker 3: lower I don't give give a fuck. I mean higher
Speaker 3: I don't give a fuck, and lower concern about what
Speaker 3: other people think.
Speaker 2: Like I'm not afraid to look like a clown.
Speaker 3: I'm not afraid to express my view that in a
Speaker 3: controversial arena, I was very very happy broke with no money,
Speaker 3: and so you know, I'm like, I don't want to
Speaker 3: go there, but I'm okay with it. And a lot
Speaker 3: of other people, you know, they avoid certain risks, whether
Speaker 3: it's taking a job or starting a business, not because
Speaker 3: they can't stomach the financial aspects of it.
Speaker 2: They can't stomach the emotional.
Speaker 3: Aspects of it, the shame, the ridicule, the feeling like
Speaker 3: a failure, et cetera.
Speaker 2: I don't care this is the right trade, Like this
Speaker 2: is what we do.
Speaker 3: You know, all boxers get punched in the face, so
Speaker 3: all boxers get knocked down, right, you know risk managements
Speaker 3: like uh, name of the games, stay in a game?
Speaker 1: How did I actually don't know this? How did you
Speaker 1: get into poker? Kind of at the level that you
Speaker 1: that you play because to me, and correct me if
Speaker 1: I'm wrong, it seems like you've increasingly actually taken the
Speaker 1: game seriously. Right, you play for fun, but you also
Speaker 1: have studied, you have coaches, You do want to prove
Speaker 1: yourself as a good player and not just oh you know,
Speaker 1: this is some hedge fun guy who's coming into play poker.
Speaker 3: So I have the curse of two gears zero and
Speaker 3: one hundred, right, like one or two and one hundred,
Speaker 3: Like I don't have this modern gear.
Speaker 2: So for a lot of the early.
Speaker 3: Part of my uh, you know, let's say public uh
Speaker 3: and even private poker thing, it's just like, let me
Speaker 3: have fun, let me, let me goof off, let me
Speaker 3: let me put people in tough spots and just go
Speaker 3: off with the game. And then you know, I got
Speaker 3: a challenged publicly to a heads up match with a handicap,
Speaker 3: and he was such a massive favorite. He was going
Speaker 3: to crush me. But it was a public thing, and
Speaker 3: I was like, oh, okay, let's let's let's see if
Speaker 3: this old dog can learn new tricks. And I put
Speaker 3: it in the work to obviously make that like him
Speaker 3: a massive.
Speaker 2: Underdog for the wager we put on.
Speaker 1: And by the way, you're talking about your heads up
Speaker 1: match with Landon, tis right. Yeah, And he ended up
Speaker 1: taking a buyout, so so you did. You did win
Speaker 1: that match in that sense because he realized that it
Speaker 1: was no longer a good bet.
Speaker 2: Yeah.
Speaker 3: The funny thing is when they structured that that all
Speaker 3: the buyout things, they were worried I would just quit.
Speaker 2: Or not complete the bet.
Speaker 3: They didn't realize like I was going in the lab
Speaker 3: and I was coming to crush, Like I'm coming to
Speaker 3: win this bet outright and take all the money.
Speaker 2: So they they, uh, and you know I was.
Speaker 3: I was two sessions a day playing at night, like
Speaker 3: you know, at least three hours a day.
Speaker 1: Of the only amazing And by the way, and you
Speaker 1: have a job as well, No.
Speaker 2: I have a job.
Speaker 3: So it was it was my my wife did not
Speaker 3: like that because I'd be up to like one am
Speaker 3: hand review, you know, playing playing playing then hand review
Speaker 3: and studying and like beating these things into my head
Speaker 3: so that I could.
Speaker 2: You know, it actually kind of took the fun out
Speaker 2: of poker.
Speaker 3: It was very robotic. You know, a lot of it
Speaker 3: was very robotic with you know, random number generator, this
Speaker 3: seren al comes up. It's like taking a test.
Speaker 1: And just for people who you know, haven't followed your
Speaker 1: your poker career, the way that I have. The hand
Speaker 1: that really stands out to me recently, which I think
Speaker 1: shows that the old bill who who has captured some
Speaker 1: of that fun at the poker table still alive and
Speaker 1: well is when you were playing, I believe it was
Speaker 1: on a stream at the lodge in a large cash
Speaker 1: game and you went all in and you were bluffing,
Speaker 1: and then you said, I have a plane to catch
Speaker 1: because you were going to your your your buddy's wedding
Speaker 1: or something, and so you just you went all in
Speaker 1: and then you got up and you said, let me
Speaker 1: know if he calls or not, and you just left.
Speaker 4: Yeah.
Speaker 3: I actually I was actually finding out whether he called
Speaker 3: or not, watching it on the delay stream while trying
Speaker 3: to get into the FBO like at the gate, like wow.
Speaker 3: And the funny thing is like that, Wow, this is intense,
Speaker 3: like this is real drama because I didn't know what happened.
Speaker 1: And it was real money.
Speaker 2: It was real No, No, it's definitely real money.
Speaker 3: I was so what happened is my friend Andrew Siegel
Speaker 3: was opening first time for Tiffany Hattish as a comedian.
Speaker 3: He's been a real estate guy his whole life. Like, yeah,
Speaker 3: it wasn't a wedding, it was it was it was
Speaker 3: a comedy. So he's like, this is his big debut.
Speaker 2: You know.
Speaker 3: He's like, I've been wanting to go on comedy for
Speaker 3: a while. So I committed to go to his show
Speaker 3: in Arizona. Okay, and we work backwards, you know. Can
Speaker 3: I go to lodges? It's fine. I can play with
Speaker 3: you guys, but I must absolutely meet my wife at
Speaker 3: this time. You can't miss He's the opener. It's not
Speaker 3: you can come late and you catch on the show.
Speaker 3: You have to catch the opener. And I show up
Speaker 3: for my friends. I believe that like half a life
Speaker 3: is showing up Like so in these big, expectedly big moments.
Speaker 3: If I make a commitment, it really takes something very
Speaker 3: serious for me not to show up to you for it.
Speaker 3: And so my priority stack showing up my friend fore
Speaker 3: beats anything. But you know, I'm like last hand guys,
Speaker 3: like I'm stuck. I'm trying to get in there and
Speaker 3: trying to get my money and I'm like last hands guys.
Speaker 3: I let the producers know because they don't let you
Speaker 3: take your phone in outside send the memo when I
Speaker 3: have to go at this time. And so that's what happened.
Speaker 3: And that was the hand and so a lot of
Speaker 3: people's like, did you plan that was angle? I was like, no,
Speaker 3: I had to go, and so I put him in
Speaker 3: the blender with this big bluff, right.
Speaker 2: I know he has, I know he has.
Speaker 3: I don't overpair, and I just I just was like, oh,
Speaker 3: he's going to take a while to think about this.
Speaker 2: I got to get out of here and I just left.
Speaker 2: It's great. It's great TV. I guess you know. I
Speaker 2: know it's great TV because I was watching sweating. I
Speaker 2: was like, wow.
Speaker 3: I just I thought I was like, oh, he's probably
Speaker 3: gonna call, and then he folded.
Speaker 2: It was it was yes, it was.
Speaker 1: A beautiful moment, and you were unstuck for the session.
Speaker 1: We'll be back in a minute.
Speaker 3: You know, I think to look at risk yourself to
Speaker 3: look at variants as well, like singular questions, do you
Speaker 3: take the guarantee or do you go?
Speaker 2: Right? How many?
Speaker 3: Like a casino wants you to play for hours? Right,
Speaker 3: They're not gonna let you put down twenty million dollars
Speaker 3: on what bet? Right like that the variance isn't there
Speaker 3: for them, is too risky for them, right. But if
Speaker 3: you say, hey, I'm going to play twenty million for
Speaker 3: one hundred thousand hands.
Speaker 2: They'll structure that for you. Right.
Speaker 3: And so the question is is in my lifetime how
Speaker 3: many of these type of bets this expected outcome am
Speaker 3: I going to see?
Speaker 2: Am I going to see one? One hundred of them?
Speaker 2: One thousand, ten thousand?
Speaker 3: I think that kind of goes into people's calculus, right,
Speaker 3: it should.
Speaker 2: It should, right?
Speaker 3: And so not just the risk like oh I'm fifty
Speaker 3: point six percent favorite.
Speaker 2: Everything, Let me just risk everything, you know what I mean?
Speaker 3: Like, but like, oh I'm fifty six point six favorite,
Speaker 3: somebody's going to do play this game where you're that favorite.
Speaker 3: They're going to do it a zillion times. And you
Speaker 3: know it's at a unit that doesn't bank ruby but
Speaker 3: it can hurt, you know, like.
Speaker 2: It can handle it.
Speaker 3: And then you get introduced concepts called the Kelly criterion,
Speaker 3: like how much do you wager of your stack of
Speaker 3: your life given your.
Speaker 2: Given the odds, right?
Speaker 3: And the short simple answer is the percentage of your
Speaker 3: bankroll your risk is is the percentage of your edge.
Speaker 3: So it's it's fifty one forty nine. You're risking two
Speaker 3: percent of your bankroll per per incident.
Speaker 2: Right.
Speaker 3: So I think these questions where they say, you know,
Speaker 3: ten million or four million, it's like, my bankroll is
Speaker 3: five grand guy, you know what I mean?
Speaker 2: Like you know, like they're like, I'll take the garantee. Right.
Speaker 3: If you say, yeah, you get to run this scenario
Speaker 3: a thousand times and then we'll add that up. Then
Speaker 3: I think people make a better decision. They'll do the
Speaker 3: math decision, right.
Speaker 1: Yeah. I think that that's a really important point that
Speaker 1: in life we often don't get enough chances for the
Speaker 1: variance to even out because as you know, you know,
Speaker 1: the only the only way to fight variance is through volume, right, So.
Speaker 3: Yeah, you need a lot of large numbers. And you
Speaker 3: give these single incident questions to people and they're like,
Speaker 3: how do I apply the Crawley criterion when the mount
Speaker 3: we're wagering here is you know, one thousand x my
Speaker 3: bank wroth.
Speaker 1: But so in your professional career, though you've sometimes made
Speaker 1: very big taken very big risks on situations, and you're
Speaker 1: you're someone who trades on information right, and trades on
Speaker 1: events that happen that you see and you believe you
Speaker 1: have more information, you understand them better than other people,
Speaker 1: and so this is not a situation that's ever going
Speaker 1: to repeat, right, Like so for instance, when you in
Speaker 1: two thousand and eight, right with Goldman's acts, like that
Speaker 1: two thousand and eight isn't going to happen again, Or
Speaker 1: when Russia invaded Ukraine. And I talked about this briefly
Speaker 1: in the past, but I think that that's a really
Speaker 1: kind of important recent news event for you where you
Speaker 1: were able to make a lot of money based on
Speaker 1: seeing this reacting kind of taking the information the beginning
Speaker 1: of the COVID pandemic, Like, there are these inflection points
Speaker 1: where something is happening and someone like you, whose job
Speaker 1: is to actually be paying attention to these to these events,
Speaker 1: to macro trends, can make a decision even though you
Speaker 1: know that decision is never going to be repeated, Do
Speaker 1: you risk more of your Bankrell? Do you think about
Speaker 1: those situations differently?
Speaker 3: Well, the way I think about it this way is
Speaker 3: there's the narrative behind it, the story and then the setup.
Speaker 2: And so.
Speaker 3: In my profession, you know, it could be two thousand
Speaker 3: and eight crisis, hurricane, a freeze, et cetera. Where you
Speaker 3: have this certain expected outcome. You know, this is the
Speaker 3: probability event happened, and this is the expected outcome. So
Speaker 3: the narrative may change, but I'm going to get a
Speaker 3: lot of those different things. I'm not going to see
Speaker 3: a two thousand and eight, but I'm going to see
Speaker 3: a two thousand and eight risk reward scenario and ev
Speaker 3: set up again, right, so.
Speaker 2: I will I will get that.
Speaker 3: And you know that one you're gonna get the law
Speaker 3: of large numbers that way, right, You're not gonna get
Speaker 3: not getting the law of large numbers in that narrative,
Speaker 3: but you're gonna get love of large numbers.
Speaker 2: And that's set up for a lot of traders. It
Speaker 2: still hurts, you know, emotionally like that. And that's the
Speaker 2: thing with a you know.
Speaker 3: Risk there's a lot of people who are bright, very
Speaker 3: smart professors, people brightther than me. That can't be traders
Speaker 3: because the emotional UH risk ward does not line up
Speaker 3: with the actual UH frequency of you know, good days
Speaker 3: or qui bets. So like, if I think you've heard
Speaker 3: me say this before, Like they've done studies where the
Speaker 3: average person needs five good events, five to seven good
Speaker 3: events to make up.
Speaker 2: For one bad event.
Speaker 3: Right, So you know people talk about in relationships, like
Speaker 3: if you have a fight and you're in the wrong
Speaker 3: with your woman, you can't.
Speaker 2: Just give roses.
Speaker 3: You have to give a roses for five days or
Speaker 3: five different treats or something like that.
Speaker 2: Right, if somebody lost, you know, had.
Speaker 3: A bad day or whatever, they need five good days
Speaker 3: to like equate to the one the one bad days. Trading,
Speaker 3: that's impossible, right, nobody is above sixty percent in trading.
Speaker 3: When people have that you know, emotional ratio of needing
Speaker 3: five or seven good events to every bad event, it
Speaker 3: just won't work out in tradings. And so that will
Speaker 3: weigh on their cognitive abilities to make rational decisions in
Speaker 3: the future and just drive them crazy.
Speaker 2: It just won't be worth it for them.
Speaker 3: They're miserable, they're angry, it's affecting their family life.
Speaker 2: Et cetera.
Speaker 3: And they're in trading not because they want to punch
Speaker 3: buttons in computer They're there to get money to have
Speaker 3: a good life, and if it's destroying their life, they
Speaker 3: need to they didn't move on.
Speaker 1: Have you become better at managing that emotional side? Or
Speaker 1: is that something that you've always been pretty good at?
Speaker 1: So is that something that you feels like a part
Speaker 1: of your personality or is it or is it a
Speaker 1: skill that you've had to develop.
Speaker 3: I think going back to my father and you know,
Speaker 3: not necessarily worrying about what people think or whether people like, oh,
Speaker 3: you're a loser, you're failure.
Speaker 2: That really helps me because.
Speaker 3: I think people can handle the monetary risk. I think
Speaker 3: it's the emotional risk. And in that emotional risk, it's
Speaker 3: not like, oh I lost a bunch of money. I'm
Speaker 3: an Idiot's like, oh, these guys are going to talk
Speaker 3: about me. They're joking about me. You know, market's cruel.
Speaker 3: People like to talk smack. There's always haters, and if
Speaker 3: you don't give a shit, that kind of disappears, right like,
Speaker 3: it kind of disappears. And I've always been kind of
Speaker 3: you know, fuck it, we're all going to die type
Speaker 3: of guy, like you want to have an adventurous life,
Speaker 3: you want to have a great life, you should be
Speaker 3: doing these things. And so that has helped me if
Speaker 3: I've always had that and I've honed it by like
Speaker 3: reading the stoics and getting other people's take on that
Speaker 3: attitude to actually be even better. Right, we can always
Speaker 3: be a little bit better, And I think the more
Speaker 3: I'm like that, the better trader I will be.
Speaker 1: Yeah, No, that makes a lot of sense. And it
Speaker 1: also makes sense to me that you would take these
Speaker 1: risks in an area where you have an edge. This
Speaker 1: is information that you know how to act on better
Speaker 1: than almost anyone else. But you wouldn't necessarily take a
Speaker 1: risk that was as big and something else. And this
Speaker 1: is not This is a way of managing I think
Speaker 1: the emotional element. But it's a little bit different.
Speaker 3: Yeah, So the going back to like, you know, risk
Speaker 3: reward and how I think about risk, right, because you
Speaker 3: have to know what's your risk and what's the reward, right,
Speaker 3: And so a lot of times we make decisions and
Speaker 3: trying to quilibrate that it costs all decisions. I use
Speaker 3: a motorcycle. Actually, my friend Andrew was the first one
Speaker 3: who used the motorcycles. Like, I like writing motorcycle. It's
Speaker 3: really nice. You see all around you. You feel empowered
Speaker 3: or whatever.
Speaker 2: But I think the odds are like one in ten thousand.
Speaker 3: You die if you ride a motorcycle for a year. Right,
Speaker 3: That is kind of my benchmark right on. You know,
Speaker 3: I do get this reward, it would be enjoyable, but
Speaker 3: it's not worth the risk. So I apply that to everything.
Speaker 3: So I need to either have a motorcycle type reward
Speaker 3: with less risk right to order to do an activity right,
Speaker 3: or a much greater reward right. And so one of
Speaker 3: those was skydiving.
Speaker 2: Right.
Speaker 3: First time I went skydiving, amazing, adrenaline rush pumped for
Speaker 3: a week. Second time it was great, wasn't amazing? And
Speaker 3: somebody said, you want to go skydiving again? I was like, no,
Speaker 3: the reward is diminished and the risk is still the same.
Speaker 3: I'm not going to skydive me Like it's it's not
Speaker 3: worth it to me anymore, you know. And so I
Speaker 3: use that all the time, Like my friend's like, oh,
Speaker 3: we're going to go jump off this cliff and you know,
Speaker 3: jump into the water over here when we're on vacation
Speaker 3: and I'm looking at the cliff and I'm thinking to myself,
Speaker 3: it's okay, It's like it would be fun but riskward.
Speaker 2: Now it's out there, it's not.
Speaker 3: First of all, it's not as fun as riding a motorcycle,
Speaker 3: and you know, the risk seems weird, and so always
Speaker 3: thinking about the risk reward financially, emotionally, physically, everything at
Speaker 3: the time, well, I think leads you to a happier
Speaker 3: and more prosperous life. Yeah, absolutely, according to your own values,
Speaker 3: right Like some people like I absolutely love riding a motorcycle,
Speaker 3: then it's worth it to them. I tell people like
Speaker 3: I don't smoke cigarettes because the reward of smoking cigarettes
Speaker 3: is like I don't like it enough, right Like I
Speaker 3: don't like to me, it's nasty and whatever, and so
Speaker 3: there's almost very little reward and the risk is very high.
Speaker 3: But if I really love smoking cigarettes, like that fulfilled me.
Speaker 2: It's my fucking cigarett, you know what I mean, Like,
Speaker 2: it's just rich reward.
Speaker 1: We'll be back after a quick break. I want to
Speaker 1: briefly mention just because I think this is a theme
Speaker 1: that informs a lot of what you do. Die with zero,
Speaker 1: because that is kind of an underlying theme of that book,
Speaker 1: and for people who haven't read it, you can of
Speaker 1: course quickly say this thesis although the title of the
Speaker 1: book is the thesis in many.
Speaker 3: Ways, right, right, And so I guess the book is
Speaker 3: about optimizing your life according to your own values. It's like,
Speaker 3: I don't push how you should live. I've thought about
Speaker 3: the mental models you should use in order to get
Speaker 3: the most out of your life, no matter what fulfills you.
Speaker 3: And so the think about the arc of your life
Speaker 3: over time, you know, come to conclusions that your choices
Speaker 3: and your experiences that you have or is your life.
Speaker 2: That's the summation of your life.
Speaker 3: And you know, you think about what fulfills you in
Speaker 3: each time period, and these time periods pass. And so
Speaker 3: if I optimize, if my life is the summation of
Speaker 3: these time periods, and then I want to use all
Speaker 3: my resources that I have, my wealth and health and
Speaker 3: time throughout my life to drive fulfillment.
Speaker 2: How do I think about that? Right?
Speaker 3: And so one of the things you know, we were
Speaker 3: talking about trying to understand risk reward, you got to
Speaker 3: understand variables is when you have an experience, when you
Speaker 3: go surfing, et cetera. It's not just the enjoyment of
Speaker 3: experience at that time. It pays a dividend in the future.
Speaker 3: You talk about it, you make friends, and I call
Speaker 3: that the memory dividend, right, Like accessing that memory produces
Speaker 3: fulfillment now, right, I crassly joke. Anybody who's masturbated understands
Speaker 3: the memory dividend, right, and so they understand it in space, right.
Speaker 3: And so when you invest in experiences, you get dividends,
Speaker 3: whether that you know, going on you know, walking with
Speaker 3: your daughter, doing charitable events, going to clubs, whatever. Most
Speaker 3: of the time you talk with your friends, a significant
Speaker 3: percentage of that conversation is about things that have already happened,
Speaker 3: not things that are concurrently happen and are going to
Speaker 3: happen in the future. And so getting those variables right
Speaker 3: and thinking about, according to my values, what's the right
Speaker 3: risk reward decision, what's the right allocation of my time
Speaker 3: at this at this period of my life? How does
Speaker 3: that How does this counterfactual regret minimization algorithm for net
Speaker 3: fulfillment work? As as I as I progress from my
Speaker 3: life from now to the grave, and so that helps
Speaker 3: me think about do I show up this, per instance,
Speaker 3: fiftieth birthday, Do I do I go to this wedding?
Speaker 3: Do I play cards? Or do I watch a movie
Speaker 3: with my wife? Or do I do you know, what
Speaker 3: do I do? In these situations that don't necessarily have
Speaker 3: hard numbers, like a roll of a dice or you
Speaker 3: know what I mean, it's a flush draw and I'm
Speaker 3: forty percent to make it or whatever it is you
Speaker 3: know at the time, or combo draw, whatever it is.
Speaker 3: When you don't have these hard numbers, you have to
Speaker 3: think about the value system.
Speaker 2: What's the risk reward? I will get this, I won't
Speaker 2: get this.
Speaker 3: If I do the ski trip now, I have the
Speaker 3: memory dimbdend for ten years versus investing the money and
Speaker 3: taking two key strip ten years of my life. But
Speaker 3: you know, let's say I'm seventy two ski trips ten
Speaker 3: years from now, it doesn't really make sense. You know,
Speaker 3: I might not be alive, my knees not might work,
Speaker 3: et cetera. If I'm twenty, maybe it does make sense.
Speaker 3: Maybe nose to the grindstone, you know, do something else
Speaker 3: that's not ski related with a group and then taking
Speaker 3: everybody on two ski strips later. Who knows, I don't
Speaker 3: know the answer. It's more of a methodology to think
Speaker 3: about things in order to get the maximum high score,
Speaker 3: and the high score in this case is net fulfillment.
Speaker 1: Yeah, for sure, for sure. I mean some of the
Speaker 1: decisions you've made. One of my favorite things that you've
Speaker 1: done recently in recent years is your purchase of The
Speaker 1: Sugar Shack, which is this iconic painting by Ernie Barnes,
Speaker 1: and you paid a record amount of money for that,
Speaker 1: record breaking for him. And my favorite thing about the
Speaker 1: story was that, so you flew to the auction to
Speaker 1: be there in person with your fiance and apparently before
Speaker 1: the bidding started you told her that, babe, you know,
Speaker 1: if I pass out or anything else happens, just keep bidding.
Speaker 1: Those were your instructions, because you're like, we are winning
Speaker 1: this thing no matter what. Yeah, we talk. You came
Speaker 1: there to buy that painting, and you were bidding against
Speaker 1: George Lucas.
Speaker 2: I think, I don't know, I mean, we think we think.
Speaker 1: You were bidding against someone with a lot of money. So,
Speaker 1: so walk me through though those instructions and that thinking
Speaker 1: that you know, if I pass out, just keep bidding.
Speaker 2: Yeah. So I uh, I wow. I don't get emotional
Speaker 2: about this.
Speaker 3: It was one of the things that I felt was
Speaker 3: like a treasure. I think a lot of other people
Speaker 3: outside of black art collectors or art collectors, are very
Speaker 3: familiar with that painting. They've seen it in Good Times, it's
Speaker 3: been on an album cover, it's it's in the it's
Speaker 3: in the consciousness of America, and it's a unique piece.
Speaker 2: Of American art, not just African American mart but American art.
Speaker 3: Because the narratives in those paintings are only are you
Speaker 3: uniquely American? Right, like an ice skating or eating an
Speaker 3: apple or whatever, that's global, but the themes going on
Speaker 3: in a lot of the African American arts are uniquely Americans,
Speaker 3: like jazz a unique American art form, right. And so
Speaker 3: with this backstory in this culture and this, you know,
Speaker 3: might go like I wanted up one day as a
Speaker 3: kid watching Good Times and seeing that painting at the
Speaker 3: end of you know, every episode that I watched, you know,
Speaker 3: I was like, Wow, I made it. I can I
Speaker 3: wanted this piece, and I'd been collecting Barnes earlier. So
Speaker 3: one of the risks I avoided was being online. I
Speaker 3: didn't want anything go wrong. What if the computer went out,
Speaker 3: or being on the phone, what if the phone went down?
Speaker 3: What if what if you know, the internet service goes
Speaker 3: down or whatever, because I'm on a cell phone. And
Speaker 3: I was like, I can't risk it. I can't risk it.
Speaker 3: We're gonna fly up the day before. So there's one
Speaker 3: risk thing that I eliminated because how am I going
Speaker 3: to feel if like I'm bidding and I don't get
Speaker 3: to buy and then I don't get it. I would
Speaker 3: I would just be distraught. So we flew up the
Speaker 3: night before so we could be there. We walked around
Speaker 3: our galleries, and we show up into the auction house
Speaker 3: and that's all I'm coming to get. I thought it
Speaker 3: was going to go for much cheaper than it then
Speaker 3: it went. But I started to get suspicious when there
Speaker 3: was a film crew filming, like the Barnes on the
Speaker 3: on the thing, and so then the document Cody, the
Speaker 3: guy who did the Genius documentary about Kanye West, was there.
Speaker 3: He's like, he's doing a documentary on Barnes and it's
Speaker 3: in the Night and this is Paintings in the Night auction,
Speaker 3: which is really reserved for higher price art, but it
Speaker 3: has an estimate like of a couple hundred thousand dollars
Speaker 3: and I'm just like, what are they talking about?
Speaker 2: And so I knew something was up.
Speaker 3: I think it was a their psychological employ to get
Speaker 3: a lot of bidders to show up to think that
Speaker 3: they were going to get it going and get the
Speaker 3: crowd going.
Speaker 2: And so I saw myself.
Speaker 3: As as my friend Rick Lowe, who's an artist, ran
Speaker 3: Project row Houses as a genius Arthur Award. I bought
Speaker 3: a piece of art before in two thousand and eight
Speaker 3: financial crisis from another artist called Biggers, and he was
Speaker 3: angry and I said why, And he says, because the
Speaker 3: role of the art to collector is to signal to
Speaker 3: the market that these works are worth preserving. You are
Speaker 3: a steward of these works, right, And so the art
Speaker 3: market sends a signal to the world and everybody that.
Speaker 2: This is the culture. These are the things that are
Speaker 2: worth preserving.
Speaker 3: Like when you go to see in museums or what
Speaker 3: people commissioned or bought, there are lots of works that
Speaker 3: are not there, right, And the people from a thousand
Speaker 3: years whatever, they decided what was worth preserving. Right, civilizations
Speaker 3: come and go, the art remains, right, And so he
Speaker 3: was pissing.
Speaker 2: I took that to heart, and I was like, I am.
Speaker 3: To be the steward of this work. It is not
Speaker 3: valued properly, right, like, especially what I'm on board. So
Speaker 3: I decided like this, this was it, This is the
Speaker 3: piece I wanted, and I to my I was like,
Speaker 3: I was very nervous. I was like, listen, if anything
Speaker 3: happens to me, just keep bidding, don't worry about me,
Speaker 3: keep bidding, because you know, I was worry about you.
Speaker 2: Whatever. And and then off we went.
Speaker 3: I thought, you can hear the auction, there's like somebody
Speaker 3: did a cut. They're like it's just erupted, like you know,
Speaker 3: hear me go five hundred thousand, you know, just trying
Speaker 3: to like clear the.
Speaker 2: Room, and it just keeps going.
Speaker 3: I'm like, holy shit, you know one, you know, and
Speaker 3: it's just going crazy. So I was like, okay, let
Speaker 3: me get it to a let me scatter the roaches,
Speaker 3: you know, get them out of here.
Speaker 2: And this other bidder.
Speaker 3: They had basically the same idea, but uh, I remember
Speaker 3: during the middle of it, thinking like they would you know,
Speaker 3: between seven and eight million. I took a long pause,
Speaker 3: you know, they wait, and I was like, Okay, what
Speaker 3: am I going to sell in order to buy this thing?
Speaker 2: Like I need to you know what I mean?
Speaker 3: Who am I going to borrow money from in order
Speaker 3: to get liquid to buy this painting?
Speaker 2: And then how high am I?
Speaker 3: You know, like it got into numbers like what am
Speaker 3: I selling?
Speaker 2: How am I going?
Speaker 3: Can I actually pull this off? Type numbers? But clearly
Speaker 3: this professional bidder representative was was like he was getting annoyed.
Speaker 2: It was like because.
Speaker 3: Nobody expected this, Like you ga saw there's this TV
Speaker 3: screen Hong Kong's up there right, you know, the Asian
Speaker 3: bidders and all their agents are kind of looking at
Speaker 3: us in the screen right this big giants it's like
Speaker 3: a big brother screen, a fort wall and this pit
Speaker 3: and everybody's looking at me and looking what's going on?
Speaker 2: And they're like what the fuck is going on here?
Speaker 3: You know, like nobody's and this guy has got to
Speaker 3: be like, who the hell are you? Like this guy
Speaker 3: in like jeans and a ball cabin, you know, just
Speaker 3: never seen you before?
Speaker 2: Who are you?
Speaker 3: And he turns to me, he goes, I'm not going
Speaker 3: to stop bidding, right, He turns to me, turns around
Speaker 3: because I happened to be over here, and he tells me,
Speaker 3: I'm not going to stop bidding, and I said, then
Speaker 3: I'm going to make you pay, you know, and so
Speaker 3: and then off we get again. You know, then the
Speaker 3: rounds kept going, right, that was around seven or eight million.
Speaker 3: You know, It's like, if you're not gonna stop bidding,
Speaker 3: you're gonna pay a lot, buddy, because I want this.
Speaker 2: This is for me, you know. And and and ultimately.
Speaker 3: Fortunately they quit at the number they quit, and it
Speaker 3: was amazing.
Speaker 1: That's it's an amazing story. And but and the outcome
Speaker 1: actually really nicely summarizes so many of the things that
Speaker 1: we were talking about. You know, what you value, how
Speaker 1: how you're valuing kind of the risks and the rewards,
Speaker 1: and that you were valuing this specific painting for very
Speaker 1: different reasons then the professional bidder, who also clearly understood
Speaker 1: that this was a remarkable work but also needs to
Speaker 1: fill in the museum has other priorities. And that kind
Speaker 1: of calculus really really gets to the heart of the thing.
Speaker 1: And I love how you mitigated the risks and you know,
Speaker 1: the keep bidding. You were even you know, mitigating the
Speaker 1: risk of heart attack, yeah.
Speaker 3: Read a heart attack or passing off fate or like
Speaker 3: just hyper like whatever could happen like and I know
Speaker 3: I don't. I don't get nervous, Like I'm not like
Speaker 3: it's like I've gone I've been a situation where you know,
Speaker 3: we've had a massive year. My CFO is like, we're
Speaker 3: gonna have to turn close the fun. We're gonna let people.
Speaker 3: I'm just like, this is what we do.
Speaker 2: I'm going to chop with.
Speaker 3: Of course we made all the money, triple the money back,
Speaker 3: et cetera. But you know, people get really down or
Speaker 3: really nervous or whatever, and I'm just kind of like,
Speaker 3: it is.
Speaker 2: What it is.
Speaker 1: Well, congratulations, I'm going to get that the painting ended
Speaker 1: up in the right hands. Bill, thank you so much
Speaker 1: for coming on Risky Business and sharing your wisdom with us.
Speaker 1: I really really enjoyed this conversation.
Speaker 2: Yeah, thank you for having me. I appreciate it.
Speaker 4: Risky Business is hosted by me Nate Silver and me
Speaker 4: Maria Kanakova. The show was a co production of Pushkin
Speaker 4: Industries and iHeartMedia. This episode was produced by Isabel Carter.
Speaker 4: Our associate producer is Gabriel Hunter Chang. Our engineer is
Speaker 4: Sarah Bruger. Our executive producer is Jacob Goldstein.
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