Full Transcript: Robert Hagstrom & Chris Mayer on General Semantics
Cathedrals, Casinos, and General Semantics
Matt: You are watching Excess Returns. I’m Matt Zeigler. Bogumil Baranowski is back co-hosting with me. Our esteemed, eloquent, and most excellent guests: Robert Hagstrom of The Warren Buffett Way and CIO at Equity Compass, and Chris Mayer, Mr. 100 Bagger himself, co-founder, Woodlock House Family Capital, live and in the flesh.
We’re getting straight to it. This is a continuation of our last episode because Bogumil and I prepped this beautiful outline of all these thoughtful questions, then I think we got maybe four bullet points in on general semantics and Chris’s work on this area. And Chris, I’m gonna make you define this just for a second.
To lead us off here is something that you encounter as an investor, as a thinker, and then it just, even if it doesn’t all click at first, you go, this just makes so much sense. And then it just keeps coming up over and over and over again. Chris, could you just start us off with the highest level — what is general semantics? And then we’re gonna dive right into some questions.
Chris: Yeah, the highest level is it is a way to think about and analyze the language we use and how that influences how we think. And so that’s very high level, simple. And a lot of it stems from Alfred Korzybski, who founded the discipline, although the ideas of course have existed before him, but he kind of systematized it into this little discipline called general semantics. So that’s where we’re at, and we’ve explored a number of things already last time, and I guess we’ll pick it up here.
Matt: Well, let’s pick it up here because between the AI talk, the AI bubble talk, the Mag Seven talk, the sudden working of equal weight S&P 500 and dare I say Russell 2000 names. Start me here. You described this thing called IFD disease — idealism, frustration, demoralization. You say it stems from unrealistic expectations. It kind of feels like there’s some unrealistic expectations in the world right now. What is IFD disease? How do you relate it to what’s going on now?
Chris: Yes. Alright, well, first, IFD disease refers to idealism — I guess I could say that would be, you know, trying to change things you can’t change, or trying to do things you can’t do, or persistently demanding of yourself and the world things that you are unlikely to achieve. So you’ve built up this idealism, and then when those are not met, then you get frustrated. So that’s kind of the progression.
And it makes me think a little bit of Charlie Munger. He always used to say that the secret to happiness was low expectations. Of course, Iki had something similar to that where he said he had a shorthand way of talking about it. He would say that happiness is sort of minimum expectations, but maximum motivation. So maybe you don’t expect as much, but it doesn’t take away from your willingness to give it your all and try. And that’s what happy people are when you think about it. Happy people are engaged, they’re into what they’re doing, and you know, they can’t control the outcome. Nobody can really control the outcome. So that’s what it’s pushing against.
And so how does that come about? You mentioned AI. That’s a great analogy because I think we’re in this phase now where the way people talk about AI, it’s gonna be this completely faultless execution. It’s like it’s being painted as this godlike entity that’s going to be able to do everything. And it seems like every week it just sort of rolls through — which industry is gonna get shot this week? Whether it’s financial services or alternative asset managers or video game makers or whatever. It seems like the
Matt: Entire legal profession.
Chris: The entire legal profession, anybody that’s a broker. Yeah, it’s reaching a kind of feverish pitch. I saw somebody point out that there was a Japanese maker of toilets that was pitching itself as an AI beneficiary. I don’t know how, but this is where we are in a cycle.
Bogumil: I wanna see that.
Chris: But idealism also comes across in lots of ways in investing. I mean, anytime you say something like “this is a no-brainer,” you’re setting yourself up for that sort of thing. Or you say “management is best in class” — I hear that phrase a lot too — or “business is best in class,” almost saying that it can’t mess up. And the reality of course is that things are very messy.
So I would say that general semantics in general teaches us to build our expectations with a lot of margin of error, keep our beliefs provisional, and expect that it’s not gonna be perfect. Things are gonna be a messy process to get where we’re going. That’s what IFD disease is — when you have that ideal path and then you get frustrated.
Bogumil: We’ll come back to AI, but I have a question for Robert. I’m thinking of outperformance. We might have asked you about it in some way before, but I’m thinking idealism and unrealistic expectations. Everybody goes into investing and says, “I’ll outperform the market.” And you wrote about Bill Miller. We talked about Bill Miller on this show a few times. Unbelievable 15-year-long streak, a couple of changes to how that was measured. Even he suggested if it wasn’t December to December it would’ve looked differently anyway. So talk to us about idealism and unrealistic expectations when it comes to the assumption that we can all outperform the market.
Robert: Well, I think by nature we’re all optimistic, right? We believe that we can do well and we can achieve certain things, and you have to have positive mental attitude to be in this business. I think the unrealistic expectation is some idea that you’re gonna do it every month, every quarter, every year consistently. And we know that that’s just not possible unless you’re very, very adept at being able to change your portfolio as many times as the market changes the portfolio in a particular year. So you’re gonna have some periods where the sun is not shining on your portfolio, even though there are still very good investments and good bets.
And the trick obviously is, for me, what we’re doing is trying to set people’s expectations right out of the gates. I’m going to underperform, guys. I underperform 55% of the time on a month-to-month basis. I underperform over the last 12 years 60% on a quarterly basis. I outperform over the last 12 years on an annual basis about 80% of the time. So expect me — I really just beat it into them — expect me to underperform. I will underperform. But it’s not the frequency, it’s the magnitude. Because when we do outperform, we’re adding significant value. And because we’re value investors in a growth space, when we do underperform, we’re just not underperforming as much.
So we’re trying to tell them that through the process, we’re gonna get a positive spread for you. No matter how many times we win, how many times we lose — we’ll make money for you when we win, and we will give back less money when we lose.
Chris: Let me throw out one question, which is: is beating the market the right benchmark? Is that the right thing to think about? Could it be — I mean, we assume the S&P 500 is representative of what a market rate of equity return is, but is that the right benchmark? I’m thinking of a lot of other funds perhaps that have very specialized functions, whether it’s generating income or whether they’re in a specific sector or they’re pursuing a certain strategy, which you might say they succeeded over time even though they didn’t beat the S&P 500. So is that a possibility? What would you say to that?
Robert: Oh, you’re asking me?
Chris: Yeah, I’m just throwing it out as a question. I wonder myself.
Matt: We’re all looking at you, Robert.
Robert: So, you go back to Barron’s and Charles Dow and all those guys, when they put together the very first index — which would be the Dow Jones Industrial Index. Now, it wasn’t investable at that time. You had to buy all the stocks, there wasn’t an index per se, but you started thinking about market returns when they put together this index. And I guess maybe, Chris, it was just a normal reflex to say, okay, these 30 stocks did this. How did you do?
Now, whether that was right or wrong, that’s something that happened a hundred years ago. And then with the S&P 500, I spent a lot of time going through the advent and genesis of modern portfolio theory. I really ought to go back and spend a lot of time on this whole concept, Chris, of why it is that we latched onto indices.
I think what happened — my memory is serving me — is that most of the money that was being managed, particularly in banks and trust departments, really wasn’t that aggressive. There was some income for those that needed the income and the capital appreciation went to the remainder accounts, but nobody was held feet to the fire. Then when the competition started to heat up and people started doing money management business and building firms, the only way they could grow their business was to say, “I can do it better than the other guy, or I can do it better than what they’re doing.” And so you had to put a marker down as to what the general market was doing. What you’re doing and what I’m doing, and am I doing it better than what you’re doing? If this is the general market, that’s a thesis — maybe it evolved out of competition to build assets. You had to say that I was better than something. I’m better than you, or I’m better than something. And maybe that’s how the performance index focus all came about. I don’t know. Do you have any thoughts on that?
Chris: No, I think that’s right. I think also, if I remember vaguely, Peter Bernstein may have written about this — or I could be wrong — but I think also it had something to do with Markowitz and the efficient frontier. They needed inputs for that kind of stuff, and it created a market on how to evaluate money managers. I think that had influence as well, but I’m not sure.
Bogumil: If I can — yeah, and I
Robert: I think, you know — I’m sorry. Go ahead, Chris.
Chris: Bogumil’s got wisdom. Let’s go.
Bogumil: I don’t know about wisdom, but I’ve talked to 200 people on Talking Billions, and I asked them a question I really like — it gets to the bottom of what Chris was asking about. I say, “Let’s hold for a second. Let’s assume that the index was never invented, or let’s assume that all of them get discontinued tomorrow. Would anything change about your process? How you manage money for you and your clients?” And people need a minute because it’s such a question they’ve never even pondered — that this doesn’t exist as a benchmark, it just doesn’t exist. And they say no. Most of them tell me nothing would change about how they manage money, how they pick investments, how they build portfolios, how they think about risk. Because at the end of the day — I think that’s where Chris is going with this question — what is the mandate? What are we trying to do? And if the benchmarks got discontinued tomorrow, I think the four of us would continue to do what we do, and I don’t think there would be any difference in what we’re doing.
Robert: Yeah. Warren phrased it perfectly. What he said was, “What if there was no stock market? What if there was no daily price?” Maybe the prices show up once a quarter or something like that. He goes, “I don’t need a stock market to tell me what I already know about the economics of what I own.” He’s measuring economic progress of his businesses, both private and public. And I always think that that was the lightning that he grabbed a hold of — he was simultaneously owning private businesses, charting their progress by the economic returns that they were achieving at Berkshire in the early years: National Indemnity, and you can go down the list, the newspapers and the furniture companies and all that. He was just measuring their economic progress.
And he decided that — even though when he was running the partnership I’m not sure this was deeply ingrained in his thinking — when he started buying stocks, particularly the Washington Post, and it went through ‘73 and ‘74 and got cut in half, he just talked about the economics. He goes, “This is a great business. We’re doing just fine. The market cut itself in half for reasons that we know, but he simultaneously treated his public stocks like his private businesses.” And so he was never beholding to the stock market. He just said, “Look, if my economics in my public companies are motoring along pretty well, I’ll do pretty well.” That is the way that Chris and I invest, and that makes sense. So if the stock market went away tomorrow, it wouldn’t change anything that Chris and I do. We would have private companies and we would just continue to progress the best way we could.
Chris: It’d be easier actually.
Robert: Yeah, for sure. But I do think there’s something in the competition piece — when people were starting to build firms and wanting to gather assets, they had to say, “I’m doing better than something. I’m doing better than you. I’m doing better than this guy.” And then somebody said, “What’s the mark?” And then we had these indices. “Well, I can do better than that.” And that’s how you built businesses by saying, “My product is better than your product, or my product’s better than his product.” And the only way that you could do that in the short run, unless you were gonna run the economics out on it, was by price. We’ve messed this up really big. If you want to talk about how we really have messed up the money management business, we’ve done a loyal, great job of messing it up, for sure.
Bogumil: Robert, real quick — you brought up the daily price quote. I might be in the minority, but I absolutely love that there is a daily price quote because it’s this unique opportunity for all of us to panic together and allow me —
Chris: I was gonna say, where are you going with that? Because I don’t like it often. If we could just have the markets open once a month, that’d be okay with me.
Bogumil: Chris, as a buyer, I love the daily price quote because you can get prices that you wouldn’t get in the private market, you know, to find a motivated seller in the private market. I was just traveling and meeting people who are buying, rolling up private businesses into —
Robert: Warren said the public markets are to my benefit, right. Because in private markets I am not gonna get these exaggerated sell prices that allow me to take advantage of it. It’s actually to my benefit to have this crazy market out there because it allows me to increase my future rate of return based upon the bad behavior of other people. In private markets you don’t get that opportunity. That’s why he was always frustrated — why everybody was swarming to private markets and he goes, “You get a lot more better opportunities in public markets.” I think part of that popularity —
Chris: Of course, part of that popularity is they don’t have those markdowns, right? Private equity — you’re just stuck in this thing and they mark to market with whatever they want almost. And your investors don’t have to put up with the volatility, which I think is the challenge. We can handle volatility, but sometimes —
Robert: Well, clearly. If you wanna go down the rabbit hole — if you look at BlackRock, you look at Capital, you look at all these firms, their earnings per share are going down.
Chris: Mm-hmm.
Robert: Why are their earnings per share going down? People are leaving active management for passive, and that’s cheaper. And then they had to close down the 40 Act, which had higher fees, to do ETFs, which is the product the investor wants — that’s lower fee. So their fees kept going down. And then the assets are leaving because they’re going to hedge funds, and the assets are leaving going to private equity. So if you’re running an asset management business — big business — you look five years out, ten years out, you’re going, “Where does this end?” Because it’s going straight down the hill. Now, the market goes up 15 to 20%, it can help you overcome a lot of that. But it’s going up 5 to 10% per year, average annual return, and you’ve got all this headwind in your face. And then someone says, “Hey, how about we take this private equity that’s got two and twenty, or three and whatever it is, and why don’t we sell it to Mr. and Mrs. Smith and tell them they should have 20% of their portfolio in privates and we can charge these outrageous fees that will help us increase our income going forward.” And lo and behold, I think a lot of them have thrown the Hail Mary pass, hoping that private equity is gonna help bail them out of a steady earnings decline that has been problematic for a lot of these asset managers.
Bogumil: Just for a second, a thought experiment. Let’s assume we have a little lab here — public and private, same approach, buying the same kind of quality businesses you wanna hold over a long period of time, and no leverage for a second on the private side, apples to apples. Given that in the public market you can get a deal — you can be a true value buyer and a growth holder after that — don’t you think that the setup is much more favorable for the public? I understand the fees and the business model, but from the investment perspective, for a return-seeking individual, isn’t the public market set up much better than the private market to get excess returns?
Robert: 100%. Much better businesses, much better economic returns. And as Warren says, not only are they better, you’ve got a bigger menu, you’ve got better economic returns in that menu. And then periodically you’ve got these amazing prices that are only made possible by the bad behavior of other people — freak out, myopic loss aversion — which gives you that. So he said if you go to the private market, the opportunity set there is not as many as in the public market. And if you go to the private market, the economic returns are okay, but like you say, Bogumil, you gotta lever it up.
Bogumil: Yeah.
Robert: And then thirdly, the thing that pissed off Warren about private markets is it basically took Berkshire out of the bidding business. As the private equity industry grew and grew and they were swarming to get product — companies and stuff like that — the bidding wars just took him out. He couldn’t do it anymore. The only companies he could buy at that point were actually family-run businesses that needed to settle estates or get liquidity, but didn’t want to turn the business over to private equity because they were gonna fire everybody and change the management. So Warren says, “Hey, if you come with me, I’ll give you a check and I won’t touch your business.” And that appealed to some people — a minority of people. But you’re exactly right, Bogumil. The opportunity set in public markets dwarfs what is available in private markets. But as we well know, myopic loss aversion is an investor’s kryptonite.
They just can’t get over it. No matter how much we preach and talk about it, they just can’t get over myopic loss aversion.
Matt: Mm-hmm. Chris, a question for you, and this is from the founder or company executive perspective, and part of it’s strategic and part of it’s just like, what do you do when founders or leaders make statements like this? I’m thinking of Sam Altman out there saying startups with three people and an idea are getting insane valuations and it isn’t rational. We’ve got Google DeepMind’s Hassabis saying seed rounds at tens of billions with nothing seems unsustainable. What do you do as an investor when you see the strategists saying this back to you? Because maybe this is why BlackRock has a stable coin and a private equity vehicle. Or maybe that’s the Japanese toilet with an AI strategy. What do you do when they’re telling this to you as the investor?
Chris: Yeah, I mean, we talked about IFD earlier. This is a perfect example of that idealism coming through, right? These things — and that manifests in valuations that indicate that people think these breakthroughs are gonna be kind of inevitable and imminent. And we just know from past technology transitions that they are far messier. There’ll be slow adoption curves here and there, there will be uneven — it just won’t unfold exactly as people tend to think at this stage in the cycle. I think there are a lot of parallels with the nineties. You had the whole rush for dot-coms and you had some companies becoming dot-coms that were just almost absurd. But there was this big rush to stake out that real estate and then most of it didn’t work. But then out of that there were of course some very powerful internet franchises, and then the incumbent businesses wound up also taking tremendous advantage of that. The New York Times is doing perfectly fine today and Walmart has a tremendous online presence. So I think that kind of map will play out similarly here.
Some of that Japanese toilet seat AI is kind of like — I’m trying to think, Robert, of some of the more absurd dot-com companies that sprouted up in the nineties. Some of them were basically blank checks almost. It was just gonna have a website to do something. So we’re at that part of the cycle. And I think you just have to realize that we’re at that part of the cycle and not lose your moorings and all the other things we think are important. There still has to be some ROI in what they’re doing.
Robert: When I look at Chris’s IFD here, the middle part is frustration. I think that resonates with me because we talked about Roy Amara and Amara’s Law — whether whatever technology it is, the arc walk, water wheel and steel mills and oil and automobiles — you go all the way up in that, when they were invented, there was a tremendous amount of enthusiasm. “This is gonna change the world.” And then it doesn’t change the world immediately in a very big way for you. And you become frustrated — I would say skeptical. You’re like, “This was gonna change the world. Maybe it’s not gonna change the world. Maybe it’s not gonna be able to achieve all the promises that you told me.” And you become very skeptical. And then the demoralization is that people just bail, they get out.
But Chris is very right. These stylistic curves are not linear — they bounce around a lot — but then you start to get this parabolic thing that starts to move over time as the technology begins to pay. But you were so frustrated and so demoralized, you very rarely will come back to it. It’s dead to you now. “I’ll never invest in another AI stock. I’ll never invest in another dot-com stock.” And then that —
Chris: That’s what we will be in that very interesting period.
Robert: Yeah. And so it seems to me it’s following somewhat this IFD disease. I think where we are now is we’ve got AI fatigue. I don’t know why more of the CEOs aren’t parading out the productivity gains that we’re hearing anecdotally from other people. Zuckerberg talks about the returns on advertising, and his advertisers are saying they are getting returns on their advertising dollar that they have never seen before in history. They’re throwing money at Facebook and Instagram. You see the same thing at YouTube.
I don’t know why they’re not out there trumpeting that — saying, “This is gonna change the ad world,” which it will. Jamie Dimon said on a call in his first quarter, “We spent $3 billion on AI last year and we generated over $3 billion in savings, and we will spend more on AI in 2026.” Well, Jamie, tell me what you did. Give us some tangibility here. What did you spend it on? What did it do? And how has that translated into increasing margins or profits for you? That’s the gray area that people are struggling with. What’s the payoff? What are we getting? Palantir could tell you about things right now — they’re in military and a lot of that could be classified — but there are payoffs occurring right now in AI. But I don’t think the market has its hands around exactly what it is. What is it, what is it growing? We just don’t have enough tangibility on the benefit of AI right now, and people are skeptical. That’s what I think is going on.
Bogumil: And we’re still so early in this whole experience. I’m very curious what we’re gonna learn from it. Robert, I have a question for you. We were talking about frustration here. People check their portfolios every day. You did some research about the disadvantage of checking your portfolios daily — maybe looking at it year over year. I’ve seen research that I actually shared with Matt at some point that showed the performance of stocks from the open to the close and then after hours, basically saying that most of the performance in stocks happens after hours. And if you hold stocks, you can capture it. Talk to me about that. I’m very curious because a lot of people have their phones and apps and you can see prices of your stocks minute to minute.
Robert: Well, we’ll back up just a little bit. It’s a great question. Thaler wrote a paper about this on his myopic loss aversion, and he actually said, how long would you need to not look at stocks to basically erase the myopic aversion penalty that you’re receiving? How long would you not — you can’t look at the stock — how long until you can look at it again, where you get a volatility measure that is equal to the bond market? And it was one year. So already that’s a problem. You can’t look at your portfolio but once a year. But if you look at it once a year, they calculate it over time, you get the same variability as you would in a bond portfolio. So that’s not gonna work. Obviously that’s not gonna work. I’m sorry, Bogumil, I’m not sure where you’re going with the second part of the question when I deviated out there.
Bogumil: No, it’s connected. Go ahead.
Robert: It goes —
Bogumil: No, no, it’s connected because on one hand, I’m looking for an excuse why I don’t check my prices throughout the day — unless I’m buying things, right? And what you talk about is one side of the argument. Additional to that is a study I’ve seen — it’s Bespoke Research that wrote about it — how when you, if you bought stocks at the open and sold them at the close, you basically wouldn’t have any return. Most of the returns come from the after-hours activity. All the earnings releases, all the changes about the business — the big bumps happen overnight, and obviously there are drops as well, but the big up movement. So the study said the best thing you can do is just buy and hold, because buying at the close and selling at the next open is not really feasible with large amounts of money, but you can just basically hold through it. And it rhymes with what you’re saying, which is hold through it and don’t check on it. I think that’s where we’re going with it.
Chris: Right.
Robert: Well, somewhere in this conversation we’re gonna get to, you know, the buy and hold is the compounding, right? And that’s how wealth is built. So you can either buy and hold and compound — as Warren says — that intrinsic value growth of just let ‘em have the money, reinvest it back into the company, keep compounding, do it again next year, keep compounding, do it again. And then at the end, you get to T1 to T10, but around T6 and T7, boy, a lot of money’s getting made on compounding. You don’t see it so much in years one, two, and three.
Chris: Mm-hmm.
Robert: And you might say, “Well, I could just trade and get the same returns.” But when you start compounding out five years, six years, seven years, there’s some serious money
Chris: Mm-hmm.
Robert: That is being made by buy and hold. Chris, correct me on this, but I think Warren’s net worth — if you looked at it — 80 to 90% of his net worth is the net worth that he’s accumulated in the last 5, 6, 7 years. I mean, you think about that. He was wealthy in the beginning, but that mega wealth happens later down the road. You have to delay that gratification. You have to delay the desire to take that profit, pocket it, and move on to the next one because you’re just gaining a lot of little bitty profit-taking versus making one bet that then compounds. But you don’t get the full benefit or realization of its benefit until after 4, 5, 6, 7 years. And that delayed gratification, Chris, I think, is troubling for people.
Chris: Yeah. One little anecdote I’ll add to the volatility — a friend of mine told me a story about when he was in Joel Greenblatt’s class at Columbia. The first day, he wrote two numbers on the board, like 50 and 120, and apparently that was the high and the low for IBM that year. And even though you look at the business, of course it hadn’t changed — it didn’t change much at all. They looked at it over a period of years and it was just steady, staff, or whatever. So that’s the point too about those daily prices. It makes it seem like something important is happening every day, and most of the time the business is just plugging right along.
Robert: Yeah, yeah.
Matt: Chris, you’ve got this great story about a guy at a conference. He’s wearing what a banker would probably have if it was well-to-do — suspenders. But in this case it’s a man in overalls. What’s the story with man in overalls? And I know it ties into this delayed gratification thing we’re talking about.
Chris: Yeah. I mean, I’ve told the story a bunch of times. It made an impression on me. I was 32 at the time, I remember it very well. I was at a financial conference — and you know how financial conferences are, everyone’s all dressed up in suits and so on. And this conference, people had to pay a good amount of money to go to. So I remember standing around as you do, talking to people, and this guy came up to me and he was literally wearing overalls. Looked like somebody who came off a farm. And in my mind — I just remember my reaction of just discounting this guy heavily right away. Like, who is this clown? What is this guy doing here? Why am I talking to him? And I remember it didn’t take very long at all for me to realize that this guy was very smart, also very wealthy. Part of the reason he was wearing overalls — he didn’t give a crap what anybody thought. And if I had thought a little more about it, of course I would’ve come to that conclusion. He couldn’t have been just some farmer guy who came in, right? It was expensive to go to this conference, the quality of the people there.
But that always — I remember very much walking away from that conversation and telling myself, I will never do that again. And I will never discount somebody like that just based on how they look or how they dress. And it’s always stuck with me. I always like to tell people about that story. Delaying your reaction as long as possible would’ve helped me in that case.
Bogumil: Robert, as I’m listening to Chris, I’m thinking of Buffett not needing the market’s affirmation and making his decisions — delaying the reaction to what’s going on. People buy a stock, it goes up, they feel better about it. Just as you know, you look at somebody nicely dressed. How do you think about that? Buffett has no consideration for what the market is telling him. He’s doing his thing. It’s such a powerful thing, and he might be among the few that mastered that to a level that few can.
Robert: Yeah. I think Warren got to a level mentally — he probably got it early, in the fifties and sixties with Graham and stuff like that — that you’re in partnership with a maniac. You’re in partnership here with something that is quite irrational and crazy. I thought it was interesting, Chris, that when Buffett gave his last talk at the annual meeting this past year — it was kind of parting words, it was actually in the morning — but he said, “We’ve got this amazing cathedral called capitalism, where it’s a reverent process of trying to figure out what to buy and to own, and products and services and management. It’s a truly remarkable thing, what capitalism has done. And it’s occurred in this cathedral.” And he says, “Unfortunately, we’re living next door to a casino, and we have to go over to the casino to make a transaction.” But then Warren comes right back to the cathedral. He wants to stay in the cathedral and study his companies. And that’s where I think spiritually and intellectually and emotionally he is more comfortable in the cathedral.
Too many people start in the cathedral, but then they run over to the casino and they don’t leave. They’re just hanging out in the casino all the time. And these are Warren’s words: it’s very exciting, they got bells and they got whistles, and money’s being made, and there’s all this action, and they got different products and jazzy things going on, and you never leave the casino. And his parting word was, we gotta spend some time not letting the casino take over the cathedral. And I think we’re on the cusp. I think we’re on a nice edge on some of this stuff.
Some of the work that Mauboussin is doing now — and Chris will get a chance to talk about this in the future — he did a work on the ecology of markets, trying to figure out if strategies were species. So each species has a unique strategy, and its population set was based upon assets under management. So you could do an ecological breakdown of the market. That’s the theoretics that Doyne Farmer did at Santa Fe. Mauboussin is now starting to do the work on actually measuring the change in species — how much money do the different species have. And you would not be surprised that over the last 10 years, the population set for long-term fundamental investing is down eight percentage points. The population set for hedge funds and HFT is up about 8%. So the species is changing, but the species is not changing to being people that would go to the cathedral. The species is changing to people that are gonna spend a lot of time in the casinos. And I’m troubled with that.
The other thing, Chris — and this is interesting, I didn’t know this at all — but since COVID, retail volumes are through the roof. And it’s even grown in the last three or four years. So whether it’s Robinhood or any of the fast-track things like that, boy, they’re just sucking up retail investors left and right. I had a friend of mine — if I told this story, I apologize — who just wanted to open up a Robinhood account, and he bought some Nvidia stock not too long ago. Within five days they called and asked him, did he wanna do an option strategy on his Nvidia now? And he could do it commission-free, because they make their money on the bid and ask of the option. But now he’s flipping options. I went, “Is that really what you decided to do here?” And Mauboussin used a word called “gamification.” Have you guys heard that word?
Bogumil: I was gonna say that.
Robert: Yeah. He calls it gamification. I gotta spend on it. ‘Cause now you’ve got prediction markets in there. You can bet football games and you can do options on video. That’s casino 101. We’re not spending any time in the cathedral. And you wonder, Chris — as the casino grows with more people in the casino and less people in the cathedral — what does this look like somewhere down the road?
Chris: The gamification of markets is troubling. And I am sure you’ve read as well how much volume now is in the hands of bots and passive flows. I mean, it’s an awful lot of the market that is not really based on rational price discovery. So that’s why you see movements in whole industries and a lot of stuff we’ve talked about before about labels. A label gets stuck on a group and they all kind of move. But that also creates opportunities of course for those of us who can separate the wheat from the chaff, so to speak.
But one thing I forgot to tie in — back when we were talking about that, this whole delayed reaction stuff was important to Korzybski as well. That’s what he always tried to push on — not being quick to react to circumstances or to language, to try to withhold your judgment a little bit. And I don’t know if it’s possible, but I like to think it is. And so I aspire to that now — when you read something or hear somebody advance a thesis, you try as long as possible not to react, because that shuts down your thinking. We’ve all had this, right? When you’re having a conversation with somebody and you’re saying something, you can almost tell they’re not listening. They’re just waiting for you to finish so they can say what they want to say. So that’s what it kind of gets at. Sorry if I didn’t mean to tie that —
Matt: I feel called out by your statement, Chris. But I wanna pull out that thread though, because of what you were saying in the lead up there, which is the sit-still thing versus the do-something thing, and part of that’s tied to delaying reaction.
Chris: Mm-hmm.
Matt: I know you’ve got examples. If you have one that comes to mind, great. If not, no problem. But that — when to sit still versus when to do something, when to look at it and say, “No, I need to stay in the church right now” versus “go to the casino” versus “hey, I gotta go to the casino, there’s a great deal on the slot machines or something.” How do you think about the balancing act between flipping through those mental states? Because you can’t just sit still forever and you can’t just keep doing something forever.
Chris: Yeah. I mean, there’s some medium in between, right? You can’t just completely forget about your companies and ignore them because technology has changed, competitive landscapes change, and businesses can be impaired. On the other hand, you don’t wanna react to every spur-of-the-moment concern.
What jumps to mind immediately is what’s going on in software right now — this complete bloodbath in anything related to software. These stocks have all been cut in half or worse it seems. And we’re at the part of the market cycle where there’s not a lot of differentiation between them. If it’s software, it’s all going down. It’s not yet — there will be a part of the cycle where people start to think through, “Okay, well that software is at risk because it’s mainly a user interface, and this one’s not so much at risk because it’s more system of record, and this one may actually benefit from AI and this one won’t.” So that will eventually happen. But right now the market is in the shoot-first phase.
Robert: Chris is 100% correct on software. Where I’m on this — and I’ll pat myself on the back a little bit — we sold our Adobe and Salesforce and ServiceNow in 2024, only because it was kind of a Charlie Munger type thing. You began to look at it, you knew AI was gonna get involved in this, right? You knew it was gonna do something, and I couldn’t figure out what was going to be the scale. And Chris said it right — some of them are gonna get washed out, they’re gonna get competed out. Some of them are gonna morph into something, adapt and stuff. And some are gonna actually benefit. The problem is, right now, Chris, we don’t know who it is.
And so the market — maybe what’s going on — is it’s asking terminal value questions. Most of the time when we do growth investing, the terminal value is what 80% of the intrinsic value of a company is, plus or minus. And the growth rate in the first 10 years is the other part. We spend so much time on the first 10 years. But what Warren says is, “I’m thinking about the terminal value. How long can this thing keep going on? How long can it compound?” A great company is a company that can be great for 20 to 30 years. That’s the terminal value he’s talking about.
When they do the software stuff, they don’t know what the terminal value is. And if you don’t know what the terminal value is going to be, then you’re right, Chris — it is shoot first, ask questions later. Because you’re making bets on terminal value that are different than making bets on growth rates or whether they made the quarter or something like that. So I think the market is struggling with terminal value on these software stocks, and it’s gonna struggle with a lot of things that AI is going to impact, because they just don’t know what the magnitude of the impact is. Charlie Munger would say, do the easy stuff, and the stuff that’s hard and you can’t figure out, put it in the “too hard” pile and come back to it at a later day. That’s kind of what we’re doing with software. We’ll come back to it later, but it’s very hard to figure out right now. Very hard. You might argue that the enterprise stuff — Microsoft, SAP — they’re not gonna rip that out tomorrow for an AI application. But some of this other stuff is at risk for sure.
Bogumil: It’s probably related to that, but Chris — Korzybski had this insight that the problem stems not from uncertainty, but from mistaken certainty wrongly applied. When you look at the markets right now, where do you see the most dangerous certainty that people assume about things?
Chris: Well, we’ve talked about it a lot, but the elephant in the room, of course, is around AI. There’s a certain certainty that the market is building into those expectations. Not only with the companies and their huge commitments of capital — we know they’re spending whatever it is, trillions of dollars over the next several years — and to try to figure out what the economic return on that is, you’re just getting completely massive numbers. So I think we’ve mentioned it before, but it’s kind of like a prisoner’s dilemma. These companies all have to sort of do it. If they don’t do it, they’re gonna be left behind for sure. But if they all do it, they can’t all get an economic return on this spending. Some of them will win and some of them are not gonna get it. So I think that is an area today where there’s quite a bit being priced in that’s not really likely — or maybe even not even possible — to pan out.
And then the flip side of that is that, again as we saw with the internet, a lot of the incumbents wind up being the real winners. And so now we have, not even just in software, but in other industries that are getting punished because of uncertainty around AI, even though they’re using the AI tools themselves. They are the incumbents where they have quite a bit of advantage. They already have the customer relationship. They have a lot of things that give them an instant leg up against the AI-native or startup. So those are areas I think will be most interesting to see how they play out in the next, say, five years.
Robert: I’ll take the other side. There’s certainly gonna be companies in the AI space — some will make it, some won’t — and network effects and things like that, you’ve gotta figure out those that are latching on and gonna stick around. But I think the biggest risk in the market right now, and it’s a severe risk because people don’t perceive it as being risky, is the consumer staples side of the business.
There was an article in the Wall Street Journal yesterday. Walmart has been talked about for a long time. It’s at 50 times forward earnings. Let me say this again. A company that the CEO has already told you — their earnings will come out this week — their online business grows at a high single-digit rate. That’s it. He said, “That’s who we are. We’re a grocery store. Most of our business is groceries.” It’s an 8%, 9% grower. And it’s being priced at 50 times next — Nvidia’s 23 times next. So we know why Walmart goes up and Costco goes up and all these — they’re warm, fuzzy, low-volatility stocks when volatility is high and AI has uncertainty. People are all freaking out. You go to your warm, fuzzy blanket. Well, the warm, fuzzy blanket is massively overpriced right now.
Matt: Hey, you can get a warm, fuzzy blanket at a pretty good price at Walmart though, I’m telling you.
Robert: Yeah, that’s true.
Matt: Just be careful.
Robert: But we did a Mauboussin Expectations Investing analysis and just said, if you reverse engineer — what does Walmart have to grow at for the next 10 years to justify the current price on earnings? It was 19% per year for 10 years. There’s no chance of that. So the Wall Street Journal came out — Chris, I’m not sure you saw it — the most expensive stock right now is trading at 23 times EBITDA. I don’t do EBITDA stuff, but they said the last time it traded at 23 times EBITDA was 1999 going into 2000, when people started going back to the warm and fuzzy one thing when the wheels were coming off the Nasdaq.
Chris: Mm-hmm.
Robert: The earnings per share for Walmart from 1999 to 2010 went up at about single-digit rates. The stock price was $23 at the end of 1999, and at the end of 2009 it was $17.80 — down 20% for the entire decade. Nothing except the dividend. So everybody’s rushed to Costco at 50 times and Walmart and all these warm fuzzies as a place to hide out during the AI volatility. But lemme tell you what, there’s a lot of risk in the warm, fuzzy blanket right now. A lot of risk.
Matt: Yeah. Inside of that. And Robert, I’m sticking with you on this for a second, especially in Mauboussin’s Expectations Investing framework — lovely, if you haven’t read the book, go find the book, look this stuff up. Confidence versus overconfidence. How do you recognize confidence versus overconfidence, and how do you see that come out when you go through a framework like the Expectations Investing process?
Robert: I think, obviously, the behavioral mistake is being overconfident. But Buffett says, “I want certainties at discounts.” Was he confident with the certainty at a discount? You’d say yes, he was very confident. Was he overconfident about his certainties at a discount? You could say — well, overconfidence is only bad if you don’t really have anything to back it up with. You’re trying to build the confidence up as high as you possibly can to pull the trigger. What I think happens is people are overconfident without enough quantitative data or enough thinking to substantiate the overconfidence. Anybody can be overconfident. A lot of people are overconfident without that insight.
How we wrestle with overconfidence is we’re just trying to get it to something where we feel highly confident that within the cone of uncertainty, we’ve narrowed it down. And if we’re wrong, we’re not gonna be wrong by a lot, and if we’re right, we’re gonna make pretty good money. We wanna be confident when we make an investment. We wanna feel like we’ve got it, we’ve tapped down, we’ve done the due diligence, we’ve gone through it, we understand it, we’re highly confident. And that speaks to the level of your investment process and due diligence before you pull the trigger.
What’ll happen is oftentimes people don’t do that work, and the first bad day that the stock price goes in, that overconfidence goes to “I’ve made a mistake. I didn’t think about that. I overlooked this. Somebody knows something that I don’t know.” And then, as Buffett says, you’re in a poker game for 30 minutes, you don’t know who the patsy is — you’re the patsy. So we don’t wanna be the patsy. We wanna be pretty good at this. That’s how we think about it.
Bogumil: I like to say that I want to be the least wrong. I don’t have to be right. I just — if I make a mistake, I wanna make a mistake that I can afford. Chris, I have a question for you. General semantics says that everything is connected to everything and we must relate things to their environment. And Robert, you talk about markets as self-organizing systems with no central controller. Chris, can you talk about that? And I’m curious about Robert’s perspective too. Everything is connected to everything — we can’t figure it out in the context of markets —
Robert: For sure. Yeah.
Chris: Yeah. My one of all-time favorite examples of why this is important was when McDonald’s Latin American business went public. Arcos Dorados was the name — “Golden Arches.”
Robert: Mm-hmm.
Chris: And it came off the IPO at a very big multiple because people were just assuming, you know, McDonald’s in the US, how great a business it is. Boy, look at all this space and room to expand and what they can do in Latin America. But of course, it’s a very different environment. You’ve got different countries, different regulations, different currencies. And for years and years it didn’t work at all. So environment is critically important for evaluating investments and thinking through that. And not just present-day environments, but comparing present-day environments to past environments. People do that all the time. Even I’ve done it in this call, talking about the nineties. Of course there are lots of differences between the nineties and now. So you have to be very careful about those kinds of comparisons.
But not only that — everything being connected to everything else means too that seemingly small things on the margin can have impact. There’s a ripple effect, so nothing really happens in isolation. And those are all important ideas to consider when you’re looking at an investment.
Bogumil: People like to dumb it down. When you read an article, it says the market went up because of one thing. It’s much more complicated. We’re trying to find the answer. What’s the one thing that moved the market today? We need to have the answer, and I think what you’re saying is whatever answer you’re getting is not the complete answer.
Chris: Well put.
Robert: Chris did a perfect job of choosing words to give a sense of the reality of markets. If you go back and play Chris’s words, it was a biological metaphor. It was not a Newtonian metaphor. He was talking about everything is connected, and in biology, everything is connected. He talked about non-linear effects in biological systems. In physics-based systems, there are some, but not much. It’s mostly linear — for every action there’s an equal and opposite reaction — that’s how modern portfolio theory was built. Reversion to the mean.
The way I kind of deal with this stuff is that we’re dealing with a living system here. It is a living system that evolves and adapts. It gets fevers and it gets chills. It’s a living human being market. And when you think about Mr. Market as being a living being, not a physics-based clockwork universe, then you begin to understand it a little bit better and are not as surprised about the non-linear effects. Small changes can have big impacts in markets, and sometimes big impacts have no changes. That doesn’t work in physics systems — that works in biological systems. So Chris described accurately: the market is a biological organism.
Matt: Chris, it kind of feels like we as investors — and also as humans — are somehow hardwired to be discontent, miserable, unhappy. We’re gonna chase the other stuff, but it seems like there’s a weird baseline tug that’s going on there. So what’s it matter if you succeed in any way? Maybe I’m tying this back to the beginning a little bit, talking about versus the S&P 500 and whatever else.
Chris: Yeah. I mean, success is an interesting thing when you think about it. What is success? I mean, most people when you just say it — success bundles a lot of things together. Bundles together money and status and some kind of self-worth. But what does success really mean? I mean, a lot of the things that you think are important, or that you value the most, or that make you the most happy, don’t really have to do with any of that. So, what if you don’t beat the S&P 500? Maybe you learned a lot and you had a really good run. That’s fine. I think the key — one lesson from general semantics here — is success is just a word, and you can define what that is for you. And it doesn’t have to be a social consensus of what success is all about.
Bogumil: Robert, how do you think about it?
Robert: Oh, that seems so deep.
Bogumil: We have —
Robert: We have one more that’s deeper. We’re getting into morality and ethics and all this stuff. I didn’t know we were gonna go that far at 10 o’clock this morning. I just do it ‘cause I love it. I love this business because the puzzle always changes. I like solving puzzles. And in a Newtonian world, the puzzle never changes. You do it the same way every single day, day in and day out. And maybe you can find happiness in other avenues of your life, and that makes for a successful life. But I just love the business and I think it’s a fascinating business. And each day I get to solve problems and think about things, and it’s an adrenaline rush that I enjoy. And there are mistakes and there are successes, but overall I wouldn’t change anything over the last 40 years. It’s been a great ride. I just think that building wealth for people and for our families and all that that’s gonna be passed on to generations is a noble act, and I enjoy doing it. That’s where I leave it.
Matt: That’s a great fuzzy blanket of an answer. I wanna thank you for that one.
Robert: That’s a non-answer.
Matt: That’s not a non-answer. That’s a real answer. Chris, take us back all the way to the top — general semantics. We’re recording this, it’s February 18th, 2026. This is a weird point in time. Markets are doing weird things. Technology is just a weird human experience. My life has fully been gamified. What can general semantics help investors with today? What can it help Robert with — with his existential crisis, which we put him into at 10:00 AM on a Wednesday morning?
Chris: I mean, when people ask about a one-phrase encapsulation of everything, I think Korzybski’s popularized phrase — “the map is not the territory” — is pretty good. So the map is not the territory, and that means keeping your abstractions in check and being a little more humble about those maps — what you think you know, whether it’s financial statements or other ideas. So yeah: the map is not the territory. Just be more mindful and thoughtful about what those mean.
Bogumil: Robert, what’s your last big takeaway for the audience after two episodes of general semantics?
Robert: I love this topic and thank you, Chris. I came at it differently from Wittgenstein, but words matter. If you’re gonna pick a word, it’s gonna matter, because it’s gonna influence how you think about something. Chris and I have been using the phrase, “It seems to me that Walmart is overvalued.” It seems to me — I’m working on that, so I’m still a student in practice here. But I do think the advice for people is: be careful of how, when you describe something, think about what you’re describing and look at it to see if that’s the accurate explanation. Because there’s more than one explanation based upon what words you may be using or not using. I do spend most of my time thinking about something that I’m looking at and going, “Is something else going on? Is there a different reason? Is there a different explanation? Is there a different description?” I think that’s the way I use general semantics — trying to come at it as many different ways as I possibly can. Not just latch on — we’re lazy thinkers, we know that, System 1, we’re lazy. We latch onto a description and it’s good as gold. We won’t ever change it. And I’m always, as soon as I buy a stock, thinking: is there a different way to think about it? Should I have thought about it differently? So it’s just the mental exercise that you go through. And General Semantics is just a tremendous tool
Bogumil: Mm-hmm.
Robert: To help people make better decisions. So I congratulate Chris and thank him for introducing this into the podcast.
Bogumil: Thank you.
Matt: Thank you. Alright, Professor Chris — grade Robert’s answer to that question.
Chris: A plus, he gets a plus. Yeah.
Matt: Where should people look you up?
Chris: Well, you Google Woodlock House Family Capital, that’s my fund, and you can reach me there. I don’t really put out much anymore these days for public consumption. I also have a Twitter handle but I’m not on it very much — X, as it’s called now. Anyway, that’s where you find me.
Matt: Look him up there. Robert, same question — people wanna find you on the internet, where do you wanna send them?
Robert: The last 12 years, after working at Legg Mason, this company — Equity Compass Investment Management — a bunch of old Legg Mason guys came together and managed money. We’ve got a great little shop, Equity Compass Investment Management. Look it up. You can go through the portfolios, you can go through my commentaries and things like that. That’d be the easiest way to latch on.
Matt: You wanna do it, believe us. Bogumil, thanks for doing this with me. Chris, Robert — you guys are great. There are two of these, so if you only watched this one, go back and find the last episode of 100 Year Thinkers. You are watching Excess Returns. Like, comment, subscribe, all the things below. We are out.
Robert: Mm-hmm.
Matt: It’s fantastic. I love getting together. I know you do too. I wrote down stuff — I don’t even know what I wrote. It’s that thing when you’re in class and you’re just feverishly writing stuff down and at the end you’re like, I don’t even know what’s here. I just hope I captured something. That “it seems like” thing at the end — when Robert is framing this back to Chris and just talking about how he’s trying to make himself do it. I thought that was just — I feel like that’s the way I walked out of the first time I listened to Chris talk to you on Talking Billions about general semantics and then went and read these books. Where did the end of this one find you?
Bogumil: What you just said. I had this feeling with Robert — how he’s that idea that you’re always a student. Robert has read everything there is to read, he has talked to everybody there is to talk to, and he shows up with us and Chris, and he walks away with something that’s new and different that will inspire him, empower him, let him see things differently. And I think that’s the essence of this podcast and these conversations — that no matter how much you think you know, hopefully you have a little bit of space for something new. And maybe you’re open to swapping your previous assumption, belief, understanding, thought, mental model with something better. And Robert is ready for it.
Matt: Robert is ready for it. That is the great thing about both the suspender and the overall — when you remove the need for the belt, it really enhances things. It’s comfortable the entire time. That’s a great thing. I wanted to ask you specifically too about the overalls.
Bogumil: The overalls.
Matt: Not just the overalls. Yes, the overalls. Do you have a pair of overalls? Do you have an overalls passion, Bogumil?
Bogumil: I don’t, but I was thinking — I wrote a piece called “Invisible Wealth,” and it’s something that came up a lot. I was traveling and seeing clients, prospects, fellow investors the last 10 days and got back last week. I’m sitting down with people in all kinds of places having coffees and lunches and dinners, and I’m thinking if anybody’s looking at us, they have no idea who is sitting in front of me. No clue. A lot of those folks came on public transportation to see me. They’re living very comfortable lives, but they didn’t wear the overalls — but they could as well. They don’t really care what other people think of them. They didn’t park their Ferrari in front of the restaurants or the coffee shop, and there’s something powerful about it. There’s a certain level of comfort in who they are, what they accomplished in their life, or what they’re stewards of — if it’s a second, third, fourth generation. They don’t have to show it.
I feel like it’s important to bring it up because we’re living in a culture where all is a show and you don’t even know what’s real. It’s the opposite — the show is not even there, and then you see the real.
Matt: I had this — early on when I started working with clients on stuff, in the good old days when we used to do a lot of house calls —
Bogumil: Yeah.
Matt: You like, you gotta see people. And I remember —
Bogumil: I still do them.
Matt: I do, just not as many — there were multiple of those every week back then. Yeah, of course. So there was just so much more at that point in my life and in the world. And I remember having the thought in my head — this is like 2007 or 2008. I’m like, wow.
Bogumil: Mm-hmm.
Matt: A lot of multimillionaires have old Toyota Camrys.
Bogumil: Yeah.
Matt: They have one of the cars
Bogumil: Mm-hmm.
Matt: That some of my non-multimillionaire friends have. And it’s so interesting that the priority stack — what you decide to display versus not display —
Bogumil: Mm-hmm.
Matt: Becomes — it sharpens the intentionality around some of those things. Wealth can sharpen that intentionality. Not always. We see the other examples — I’m thinking of Richard from the Silicon Valley show. Did you ever watch that show on HBO?
Bogumil: Yes, a startup story. That’s the one.
Matt: I’m thinking about the explanation of car doors when he goes from being a billionaire to being like a multimillionaire. He’s like, “Look at this car, what’s wrong with it?” And he’s slamming the door. “A billionaire’s car — they open like this, they open like this. They don’t open like this.” And I think about that — it can sharpen intentionality, can make it worse. I think the through line in all that is still this delayed gratification idea, though — it’s just delayed in choosing gratification on what terms. Does that —
Bogumil: So the delayed gratification and the delayed reaction that Chris talked about — two things, but very connected at the hip. Give yourself time. And I remember being approached by a young heir of a family. He had a lot of thoughts and questions. We’re having a conversation. I said, “You know, if you walk away from this conversation today — it’s okay to go slow. If there’s one thing you walk away with, it’s okay to go slow.” Because there are moments in life where you feel like you have to rush — make decisions, choices, allocations, hire people, do all those things. You can go slow. Because when you go slow, I think our body, mind, and spirit have a chance to actually process what’s going on. And emotions too. There’s a lot of emotions around money that we talked about. So I like that idea — wait a little bit. A delayed reaction is very helpful in investing and in life.
I think we can avoid a lot of mistakes. If you get upset very quickly, if you respond very quickly, you don’t give yourself a chance to really process what’s going on. I wanna ask you about the casino and the cathedral. It’s at the top of my list of things that I wrote down. I don’t think I’ve heard that before, framed that way. I knew that Buffett is painting the ceiling of his Sistine Chapel, but the idea that there’s a cathedral and a casino — I was just visiting some old European towns and usually there is a bank and a church next to it. And in some towns obviously there were some sort of securities markets too. But I was thinking how the two institutions are always close to each other in many towns. He talks about the casino, and I can’t get it out of my head that you have to go to the casino to buy the shares, but you can go back to the cathedral to remain a patient holder. What did you think of that?
Matt: So I have heard that before and it’s very possible I’ve gotten it from one of them. It’s also very possible that this is in one of Robert Hagstrom’s books or somewhere where he explained this. I’m gonna tell you why.
Bogumil: Yeah.
Matt: It’s because I grew up there. There’s a street not far from where I live now, couple towns over, and I don’t remember which edition of the Guinness Book of World Records this was in — in like the nineties, early two-thousands. But it was there, in one of these. And the first time I encountered this metaphor, all I could think of is this street. Because the street goes — both sides of the street — denominational church. So it’s whatever variation of Catholicism, this variation of Protestantism. It goes: denominational church, funeral home, and effectively like VFW or Union Hall.
Bogumil: Mm-hmm.
Matt: With the idea being that if you were like a Polish Catholic or something like that — here’s your church, here’s where you’re gonna go after work to get drunk, and here’s where you’re gonna go when you die. And both sides of the street were organized this way.
Bogumil: Mm-hmm.
Matt: And it was in the Guinness Book of World Records for being like the largest concentration of these three very bizarre places all in one spot.
Bogumil: Mm-hmm.
Matt: But I always thought it’s kind of like your entire life is held in these three places. You’re gonna go to work, you’re gonna celebrate with your friends, you’re gonna repent on Saturday or Sunday or whatever time you go to your church or a mass or your synagogue or whatever. And then eventually you’re gonna be buried and the community’s gonna come together, mourn you, and then go back to the tavern to drink. And you kind of need all those places. You can’t just have one place. If there’s only a church but there’s no funeral home or there’s no hall — how does it become a reinforcing communal act? So framing it that way and reminding yourself you need all this stuff next to each other — I’m like, this is so obvious to me, but it’s so rare we talk about it on these terms.
Bogumil: I hear you. And I might have read it in Robert’s book somehow, forgot it, and I’m glad he brought it up.
Matt: I don’t know where I got it from. I was just like, oh, I love this metaphor because it reminds me of that street near where I grew up.
Bogumil: And it is very true that we need different services throughout our life. I’ve never been — or I don’t recall being — inside of a casino in my life. And if I was, it wasn’t a memorable visit. I got to see the beautiful casinos in Europe.
Matt: You’ve never even like walked through a floor of a casino? No. I hate casinos personally. I have an aversion to them. They make me —
Bogumil: I have physically — I have no recollection of walking. I’ve never been to Las Vegas either, but I’ve seen the beautiful Monte Carlo Casino from outside. A beautiful building that’s been featured in so many movies, and I only know the interiors from James Bond movies. I think it says something about me that I don’t have to go to a casino. It just doesn’t appeal to me.
But I wrote in my books how people told me that the stock market is a casino. Maybe because I was coming of age and learning and going to school at the time when the dot-com bubble — which we talked about today — burst, and my professors likely lost a lot of money in the process. And they, the last place they wanted us to look for opportunity was anything related to the stock market. Until Peter Lynch’s book, I thought it’s just a casino and there’s no way you can win. It’s just — you bet on things and they work or they don’t work. Nobody told me it’s just a place. The way Robert described today — you go buy an ownership of a business. And then go home.
Matt: Yeah, you leave. You don’t live in that place.
Bogumil: You don’t linger until they send you option trading ideas and all those things. By the way, I have Spencer Jakab on the show this week on Talking Billions, and he wrote a book about the GameStop Revolution — how the little guy was supposed to take on Wall Street. And from his research, he shows us what we already know, but he did it in a wonderful way and in a much more detailed form — what actually happened, how the little guy got fleeced again. And I think that’s the point that Robert was bringing up — that people get sucked in to this gamified experience thinking that it’s all about the activity, but it’s not. It’s about buying and holding the right thing over a long period of time. We’ll keep repeating it until it sticks.
Matt: We’ll keep on repeating it. We’ll keep on discussing it, and I think this is part of the human condition. Tack this to the wall — this is the human condition to think about all of these experiences, to look at it. I just started a book — it’s called The Score. It’s by C. Thi Nguyen — I can’t remember his first name. It’s about the gamification of everything.
Bogumil: Yeah.
Matt: And I’m reading this book and I’m like, this is like Nir Eyal writing about habits and how we form habits and basically habit loops inside of apps and things like this, probably 10-plus years ago. This is an extension of that book in my head. And he’s talking about Duolingo and trying to learn a language and then realizing how the gamification shaped his learning curve and didn’t necessarily help him learn, but it certainly kept him engaged. And what does that mean when we do that to everything? This is probably the most important question to be looking at
Bogumil: Yeah.
Matt: In our modern times. And to hear Chris and Robert wrestling with it with as much perspective and context as they have — it’s an amazing thing.
Bogumil: It’s related. And I have this thought — how in my lifetime, I’m 45, how much of my living experience has moved from physical to online. And some of it I think is good. Some of it I have some hesitation about. But only recently I had to change an account or something with a public utility — gas, one of the properties I had to help with. Anyway, I had to go in person. There was something not right online, and it reminded me — it brought me back to the time when I used to go to a post office. I might have told this story to a few friends — and you’d fill out a paper form, they would tell you you did it wrong, you had to wait in line again, you know, paying for gas or electricity was a whole deal 25, 30, 40 years ago.
Anyway, I was in line. I was holding a number and I was talking to a person for the first time at a public utility that I haven’t done in years, and it brought back all those memories and this huge gratitude that I don’t have to be doing this. Because I talked to public utilities in Brussels, living in Brussels and in Paris — Engie, the electricity utility — where I stood in line and I was treated as the smallest human being on earth, unimportant to the public utility because they are the ones providing power.
Anyway, I thought the experience moved online so that I don’t have to feel very small when I wait in line. I can go online and have the service taken care of, everything taken care of, without me interacting. And I think there are huge benefits that a lot of things moved online, but I think it’s also a dangerous territory because once you are online, they’d love to have you online. The gamification part kicks in, and what was good is turning against us. And I think it’s an interesting point that both of them brought up — how do we interact with that casino, whatever it is in your life, but don’t get played by it? And I think it might become harder and harder going forward than ever before. I don’t have an immediate fix here, but just being aware that you might be being played — I think that’s what Spencer Jakab in his book told us. And it’s a good reminder when we are interacting with those things online.
Matt: It most certainly is. Alright, we can talk forever — which is clearly not a problem, it’s a feature, not a bug. We’d keep you online forever watching Bogumil and I talk forever if we were lesser humans, but we’re not. You’re watching Excess Returns. Make sure you check out Talking Billions — Bogumil’s wonderful show — Bogumil Baranowski on Substack too. Bogumil, thanks so much for doing this with me today.
Bogumil: Thank you, and I hope everybody’s listening to this on a beautiful walk in nature, among the trees or on the beach. That’s the image I have in my mind.
Matt: Or maybe you’re in Walmart picking out a fuzzy blanket. We’re gonna send one to Robert. We gotta get it monogrammed for him or something. I’ll talk to you real soon.
Bogumil: Thank you.