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Optionality: How To Make Your Own Luck In Life - Richard Meadows | Modern Wisdom Podcast 269

Richard Meadows is a journalist and author. Life doesn't come with an instruction manual. How to organise our lives to be efficient but have options, to be take advantage of routine and enjoy variety is one of the hardest balancing acts we face. Today expect to learn why you should earn as much money as you can when you're young, how to make life changing choices under uncertain conditions, protect against financial disaster, develop a system to create our own luck and much more... Sponsors: Get 20% discount on the best coffee in Britain with Uncommon Coffee’s entire range at http://uncommoncoffee.co.uk/ (use code MW20) Extra Stuff: Follow Richard on Twitter - https://twitter.com/meadowsrichard Buy Optionality - https://amzn.to/397R4lJ Get my free Ultimate Life Hacks List to 10x your daily productivity → https://chriswillx.com/lifehacks/ To support me on Patreon (thank you): https://www.patreon.com/modernwisdom #finance #investing #lifedesign - Listen to all episodes online. Search "Modern Wisdom" on any Podcast App or click here: iTunes: https://apple.co/2MNqIgw Spotify: https://spoti.fi/2LSimPn Stitcher: https://www.stitcher.com/podcast/modern-wisdom - Get in touch in the comments below or head to... Instagram: https://www.instagram.com/chriswillx Twitter: https://www.twitter.com/chriswillx Email: modernwisdompodcast@gmail.com

Richard MeadowsguestChris Williamsonhost
Jan 14, 20211h 22mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 0:49

    Intro

    1. RM

      My frame for optionality is, well, you can make your own luck. So look for those asymmetric opportunities and just snap them up. Just build a portfolio over years, and, um, you don't know ... You can never be sure if they will pay off, if you take one of these speculative plays, um, and, and probably they won't. Uh, you know, the, the ch- the chances are against you in any given one of them, but the idea is, you're building a portfolio. One of them is gonna pay off at some point in time, um, at which point, uh, you're gonna be okay. So you just keep stacking up opportunities wherever you see them and maximizing your chances of getting lucky. (airplane whooshing)

    2. CW

      Richard Meadows, welcome to the show.

    3. RM

      Thank

  2. 0:49 – 2:38

    What is optionality

    1. RM

      you for having me.

    2. CW

      Pleasure to have you on, man. So, optionality. What is optionality?

    3. RM

      Uh, the simplest definition of optionality is the right, but not the obligation, to take action. So you can do something if you want, but you don't have to. And my argument is that optionality is a pretty good, uh, proxy for human flourishing in general, um, and just being able to maximize your capabilities as a human being, and, uh, y- have, have the, the maximum range of possibilities open to you.

    4. CW

      So would that suggest that naturally, as humans, our level of well-being and flourishing is directly proportional to how many different options we can take in life?

    5. RM

      Uh, I think it's, it's less of, it's less of a quantitative thing and more qualitative. So it's about, uh, the caliber of the options that are available to you. So I'd draw a distinction between having a, a lot of choices in the consumer capitalism, uh, frame, where you can go to the supermarket and choose between, uh, umpteen different varieties of, uh, pasta sauce or laundry detergent, but, like, having high-quality options, uh, is more important. So being able to, uh, you know, work in a career that you, that you find meaningful or satisfying or being able to have good relationships with the people around you, um, that's, that's really the key. And it's not so much about being, sort of floating on cloud nine and being euphoric a- w- all of the time, but also having the right to, to choose to do things that are really hard or that involve some degree of, uh, not necessarily suffering, but perhaps some degree of hardship or sacrifice, um, because it's sort of a, a, a broader definition of human flourishing that goes beyond the simple hedonistic pleasures.

  3. 2:38 – 6:16

    How do you see optionality manifesting

    1. RM

    2. CW

      How do you see optionality manifesting in the real world, then? That's a nice concept, but what, what does it actually look like-

    3. RM

      Mm-hmm.

    4. CW

      ... when it enters our lives?

    5. RM

      Yeah. So I've got a framework for cultivating optionality that basically looks like taking this lens and applying it to all the little decisions of daily life. Uh, so I'll give you a couple of concrete examples. Um, so what we're really looking for, uh, overall is any sort of decision or action you can take that has a, a small cost or a small downside, it doesn't require a lot of money or effort to take out the option, but it leads to an open-ended upside. So it could, uh, it could have basically unlimited possibility and it could be really transformative for your life. Um, so one simple example of that would be, uh, you know, like, uh, emailing someone you admire that takes you two minutes or, um, or, or whatever it might be to pen an email to someone. And amazingly with the, you know, with the, the power of the internet, you can get in touch with just about anyone that you can imagine. And then they might even write you back and it could be the beginning of a mentorship or you could have some kind of relationship or just, uh, find it to be a, a meaningful interaction. So the pos- uh, the, the downside cost there is, um, you know, very small, it's not that hard to do, and the possib- uh, the, the possible, uh, positive outcome is very large or open-ended. So in most cases, nothing will happen, maybe they don't email you back, and that's fine, because you've, you've lost essentially no- nothing. Um, but in the event that they do, uh, there's a, sort of a, the, the potential for transformative upsides. So my idea is to take this framework of optionality, which is a concept from the world of finance and, and just look at the deci- look at a lot of decisions, uh, through this framework and look for those asymmetries. So, uh, what's the downside, what's the upside, and, uh, what can I do that has a pretty small effort and might lead to a, a large payoff? And then just systematically collect as many of those options, uh, as you can and build a sort of portfolio. So even if most of them don't work out, uh, you're sort of constantly, uh, attuning yourself to serendipity and, and luck. You know, it's sort of a, a system for making your own luck. Um, so yeah, I could give more examples of, of those sort of asymmetries if, if you like. Um, there's also, uh, the negative optionality, which is something like being in debt. So if you take on a consumer debt, you have the obligation to do something, but not the right, so it's a, an, an inversion of the original formula. Um, and again, one of the most powerful things I would argue that anyone can do is to, uh, remove those sources of negative optionality in your life. So be extremely cautious of situations where, um, the upside, the possible return, the reward, the bounty is limited, so it's fixed, it's capped, but the potential downside is, uh, is, is bottomless or infinite. So th- this is the, sort of the Russian roulette archetype where you spin the barrel, maybe you win 100 bucks or sort of impress your mates at the bar, but in the event that you lose, you lose everything, uh, lights out. So that's the framework. Um, hunt for the asymmetric opportunities, uh, which are loaded in your favor, and steer well clear of the-... uh, the, the options and decisions which have a negative asymmetry, um, where there's a possibility that it will lead to some kind of total ruin.

  4. 6:16 – 8:22

    Examples of negative optionality

    1. RM

    2. CW

      What are some of the other common situations that you see people getting negative optionality wrong, or that negative asymmetry?

    3. RM

      Yeah. So, in the financial realm, which is my sort of main area of expertise, um, one of them would be something quite boring like, uh, let's say you've got a car and, and, uh, an in the UK, but you drive around without insurance. Um, now, your potential upside from not bothering to take out insurance, I mean, like indemnity or liability insurance, is you're saving X hundred dollars or pounds on the insurance premium, right? Now, the potential downside is that you T-bone someone's Jaguar at the intersection and you're on the hook for, um, you know, whatever it might be, several hundred thousand pounds or you're, you're sort of out of commission altogether. Um, so I think insurance is, like, almost an inversion of the concept of optionality because it protects you against those large downside risks. Uh, another good example might be, uh, during the, you know, the COVID, uh, 19 situation or disaster preparedness more generally whereby, uh, it's helpful to have a bunch of medicines that you need stockpiled and some basic food and water and supplies in the event that something unexpected happens. Um, it costs you very little to take those precautions. I mean, you're going to, you're going to eat the food either way, it's sort of bugger all in the scheme of things. Uh, and in the event that you need it, you're really, really, really gonna need it. So failing to take, uh, simple protective measures like that, I would also argue is sort of a, um, a failure of imagination and a, and a kind of a common risk management mistake where people are just, like, not necessarily thinking about it through this lens of like, there are these big risks out here, do I have an opportunity to mitigate them by taking some relatively cheap, straightforward actions?

  5. 8:22 – 8:37

    Rule of the game

    1. RM

    2. CW

      The number one rule of the game is to never be out of being able to play.

    3. RM

      Exactly right. Yep. Yep. You can take risks, you can lose, it's fine. It's, it's, it's necessary to lose. But you can never lose so bad that you can't come back.

  6. 8:37 – 11:12

    The New Big Short

    1. RM

    2. CW

      Did you see Bill Ackman's trade at the start of this year?

    3. RM

      I don't think so. Tell me about it.

    4. CW

      So it's being dubbed the new Big Short. So obviously the Big Short was that famous film made about the fellow Christian Bale played that shorted the housing market, and Bill Ackman who I'm sure that you know, a very famous short seller on Wall Street, he was the guy that was adamant that Herbalife was a scam and I think he's still short on Herbalife even though he hasn't taken them down yet. The beginning of this year he-

    5. RM

      Mm.

    6. CW

      ... he foresaw that COVID was going to have a significantly bigger impact on the entire world financial market than anybody had priced in. So he took out a very special type of insurance, um, which is kind of like put options, it's, it's a bit sort of complex to explain and I definitely can't do it, but there's awesome YouTube videos out there if anyone wants to dig into it further. But the, the long and short of it is he made more money than the man from The Big Short and the difference is it didn't take him three and a half years, it took him about four weeks. Billions and billions-

    7. RM

      Right. Yeah.

    8. CW

      ... and billions of dollars in the space of about four weeks-

    9. RM

      Yep.

    10. CW

      ... because this man foresaw that. And that's kind of the same, right? Like, the potential risk that he had was to just continue ticking over with this particular type of insurance, but the upside was so asymmetric in his favor that it made total sense.

    11. RM

      Yeah. Yeah. No, that's interesting. So, um, the guy who, uh, who I've learned the most about optionality from is called Nassim Taleb and he's an options trader and he did something very similar during the, uh, 2008-2009 global financial crisis whereby I, I think he was buying, um, put options, I think he was buying out of money puts and he was sort of every day loading up and, and taking these small manageable losses and he could see something bad was going to happen with the build up of accumulation of risk within the financial system. And so when it all went to pieces, uh, you know, everyone lost their shirt except for him because he'd been waiting for just such an opportunity with these small steady predictable kind of losses. And then the upside when it came, yeah, is the same kind of scenario where it's essentially, uh, could, it could run on forever. And so my understanding is that he's, he made his fortune, um, by being a bit of a contrarian and positioning himself to, to profit from misfortune and disaster. Um, so yeah, kudos to, uh, kudos to Bill Ackman too, I have to have a look at that.

  7. 11:12 – 12:09

    Unprotected Sex

    1. RM

    2. CW

      Yeah. He crushed it man, you're going to love that story. Another good example of negative asymmetry would be having unprotected sex or texting whilst driving. Like you're talking about-

    3. RM

      Oh, that's good.

    4. CW

      ... a marginal increase in pleasure for a potential 18 year commitment or a-

    5. RM

      (laughs)

    6. CW

      ... health, a health risk. Um, and then the equivalent for texting whilst driving, like, you know, you're-

    7. RM

      Yeah.

    8. CW

      ... looking at potentially time in jail, a fine at the bottom end or ending some poor person's life because you're not properly looking or for what? For replying to a meme a little bit quicker in a group chat that everyone's going to forget about within the next five seconds.

    9. RM

      Yeah, that's I love that. I wish I'd included the, um, the unprotected sex one in the book, that's fantastic. (laughs)

    10. CW

      It's a-

    11. RM

      Yeah. Yeah.

    12. CW

      ... it's a conversation that we've had a number of times looking for these sort of asymmetric opportunities and avoiding these asymmetric

  8. 12:09 – 16:32

    Negative Asymmetries

    1. CW

      risks. Do you see, um, any asymmetries manifesting more in the-

    2. RM

      Mm.

    3. CW

      ... sort of social realm rather than just in the financial realm? Did you come across any of those?

    4. RM

      Yeah, I have. Um, I think most of them are positive as- asymmetries that you can exploit, but I'd rather, uh, uh, sorry, I'll touch on the, on the negative ones to begin with. So I think, um, the main negative one would be just this, this social contagion effect whereby the people you surround yourself by, uh, are, are responsible. They kind of shape you and mold you, and they shape, they shape your outcomes in a really surprising way just because humans are so malleable and so, um, we're so good at kind of unconsciously imitating one another. So something that I say which might come across as quite mercenary and cruel in the book but I think is a, actually a necessary thing to do is to, um, excise the, the really toxic people from your life if you're unlucky enough to have them in your life, and per- perhaps having taken steps to try and actually help them and do something about it. But, um, yeah, there's, there's this phenomenon whereby things don't get worse in a linear fashion. They tend to, uh, spiral downwards faster and faster. So if you have, if your social group, if your friends or your family or whoever it might be are, are constantly exerting a negative influence over you, the hard and possibly probably correct thing to do is to get some distance from them, um, possi- ... Uh, uh, you know, you may or may not cut them out of your life altogether but definitely sort of, um, acknowledge this idea that, uh, you know, you can, uh, you don't, you don't have to, you don't have to feel obligated to, to be tethered to someone just because you have a shared history indefinitely. And I, I certainly found that quite powerful, um, idea myself having been brought up with the notion that, uh, you know, it, it's like, it's very ... You, you have to love unconditionally f- from now until the end of time for your friends or family, um, and there's no, uh, there's no way to get any distance from that. Um, yeah, and then the, the more positive happy side of the equation is just, uh, it's a big old world and it's never been easier to connect with people, and incredibl- and it, and it's incredibly easy to get in touch with people. I mean, I kind of, I know this, uh, I'm, so I'm a journalist by trade, and, um, it's surprisingly easy to find people's contact details online, um. So it's, it's mostly a question of, uh, I don't know what you'd call it, motivation or confidence or something like that where you can put yourself out there, um, and, and sort of find your tribe of people more easily than at any other point in history. And the manner in which you do so, uh, usually involves something like being good at email or having a presence on Twitter or on, uh, you know, contributing to open source libraries if you're a programmer or inhabiting certain forums. Um, uh, or putting yourself ... The, the, the next level version of that would be changing your geographic proximity, so actually upping and moving to, uh, San Francisco if you're big into tech or New York if you're big into finance or, or whatever it might be, um, and putting yourself in the proximity of the kind of people who you are likely to get along with. So that's, like, not as an attractive an option in so far as it requires you to live in San Francisco, but, um, uh, yeah, there's, there's lots of things that you can do to sort of build social capital, uh, that don't require a lot of effort and that could potentially change your life. And I'm, I'm sort of speaking from experience here, um, having, having done that almost by accident. And I think that people have this idea that you can't really be strategic about things like relationships, like it's somehow, it's, uh, it's gauche or, uh, it's not, it's not the done thing. Um, so I think if you apply this framework where you actually say, "Hey this is impor- important to me. I'm gonna put in effort in a strategic, cultivated, deliberate way," uh, that's really powerful, just having that real- having that realization and thinking more carefully about where you're, uh, devoting your, your time and your energy.

  9. 16:32 – 21:20

    Triggers

    1. RM

    2. CW

      Do you have any triggers that help you to continue doing that in life? One of the things that I often find is I'll come across a concept like this that we're discussing here, or (laughs) pretty much anything else to do with personal growth, and the issue for the most part isn't my buy-in. I fully believe that this could have a really positive impact in my life, but I need to instantiate it somehow. I need to have a trigger or some sort of little mantra or a reminder of some kind that allows me to actually enforce it into reality.

    3. RM

      Mm. Yeah, I mean, I like the idea of, of, uh, chunking down difficult concepts into little mantras that you can remind yourself of. I definitely have a few of those myself. Um, actually I have, like, a, almost like a catchall mantra. I'm not sure if I should even say it out loud, but I, I will.

    4. CW

      (laughs)

    5. RM

      Um, uh, there's a line (laughs) , I hope it doesn't lose its magic juju.

    6. CW

      It won't.

    7. RM

      Um, so there's a line that, that goes, "At first say to yourself what you would be and then do what you have to do," uh, which is from Epictetus. I think, you're, you're sort of big into the, the Stoics, aren't you?

    8. CW

      Mm-hmm. Mm-hmm.

    9. RM

      Um, so you probably be familiar with him, but yeah, it's just this idea of, um, there ain't nothing to it but to do it. So, um, I, I have little tricks like that, but my, my main, uh, my main weapon for making all these trade-offs in a smoother fashion, uh, you know, making these short-term pain long-term gain type, uh, trade-offs is, uh, basically to systematize everything, um. And what I mean by that is, uh, put in place, uh, certain practices and habits and constraints that, um, just make the process of getting to where I want to be, uh, smooth so it doesn't re- require willpower on a d-... daily basis, um, and in the realm of finance, an example of that would be, uh, instead of sort of saying to myself, "I'd like to save X amount of money and I'll, and I'll try really hard not to, not to blow my pay packet," um, just to set up an automatic transfer after payday that goes straight out of the bank account, um, straight into your investment account. And then you have to live on whatever's leftover. And at no point in the process do you feel friction or pain. It's, it's perfectly automated, um, and you get, you just get by and you sort of adapt to the, to the new normal, um, of however much you've, you've left yourself for spending money. Uh, and there's a bunch of tricks like that, um, which I find really useful, um, for both in, both, both practically, in terms of actually implementing these, these, what I think of as trades, um, and psychologically in terms of knowing that, uh, no matter what your outcome is, you're putting in the work. So you're following your system day after day and you're doing the right things. And maybe it will, maybe it won't pay off, um, immediately. You don't know exactly when it will pay off and you don't know, uh, what form, what will the payoff look like, but you can feel good about the fact that you're following your s- your system and you're, and you're stacking up, uh, what I, what I think of as these juicy asymmetric options. So, um, I, I should probably give a concrete example of that as well, which would be something like reading books, I think, has just, like, changed my life probably like no other practice has. And the reason that I like to read books, I mean, apart, quite apart from the enjoyment factor, is that, uh, they're cheap. You can, you can buy them cheap or you can get them from the library for free. And then you don't know what's in there, you don't know what idea you're gonna encounter, what new practice you're gonna pick up and you s- you sort of get to gaze out th- upon the world through someone else's eyes. So that's the small cost and the, and the very large potential upside. And then if you have this practice, just read a bo- just read a, read a fucking book. Like, read a book-

    10. CW

      (laughs)

    11. RM

      ... um, rather than watch TV or something like that. Just, just read a fucking book and then it will pay off at some point. You don't, you don't know how or you don't know w- you don't know what it's gonna be until you, until you get there, and it will, it'll surprise you every time. So the practice is, is really what matters. You don't, y- it's not sort of like you have to see the future and predict that it's gonna be exactly this and this is gonna lead me onto pa- and this is gonna lead me to this path and that's gonna result in this opportunity. Um, if you become the kind of person who does such and such activity, and I'd include sort of reading in that bracket, um, it's gonna pay off. It's, it's just gonna pay off and you can feel good about that.

  10. 21:20 – 28:44

    Why Youre Here

    1. RM

    2. CW

      So much to go through there, man. It sounds like I'm, uh, talking to a kindred spirit here. Certainly one of the things that I've done this year which has made a big difference, a little mantra I've had in my head has been, um, "This is why you're here." So when things get hard or you feel discomfort, the reminder is that that's what you're here for. You're here for the slightly uncomfortable learning experience. It's because you're learning something difficult and worthwhile. You're there for the burn in the gym, you're there for the slight level of hunger or tiredness or whatever it is at the end of the day because you are on a calorie restricted diet or because you've trained hard that day, or whatever it might be. This is why you're here. Lean into your discomfort as if you invited it through the door. And then talking about systematizing some things that you want to do, um, a good hack for that, sleep with your phone outside of your bedroom and don't watch Netflix after a particular time at night. The only choice that you have to do is to read a book or go to bed early. Either way, you win. So those are two ways-

    3. RM

      Yeah.

    4. CW

      ... that I've instantiated, uh, things that I want as long-term lifestyle changes into a daily practice. One thing that I can see as a potential problem here is optionality being polarized with optimizing. Like, if you're always exploring new options, you can't exploit and double-down into certain things. How do you deal with that?

    5. RM

      Right. Yeah. I'm glad you brought that up. Yeah. So that's the, that's the fundamental trade-off, is exploring and exploiting. So, um, well, f- to begin with, I think it's, it's never a bad idea to maintain some level of, uh, optionality. So in other words, to, to devote some small portion of your time to be constantly exploring, um, and opening up possibility, right, until you're on death's door kind of thing. Um, but then, yeah, after a certain point, you do have to switch from, uh, from trying to open up new possibilities to just actually execute on something and, and to grab onto it with both hands. So my model for that is the optimal strategy for switching from exploratory m- mode to, uh, exploit mode is a function of, uh, the volatility of the domain in question and of your timeframe in that domain. So it actually varies depending on what it is that we are talking about. So, um, let's say that you, uh, you kind of, you're in your teens or early 20s and you're, and you're, and you're trying to get a handle on fitness and, uh, nutrition and workouts and stuff. It's a good idea to, uh, try a bunch of things and see what sticks and see what you like and dislike, just again from the point of view of not trying to do battle with yourself and just make life easier on yourself. Um, so that, that would be a point where you want to do a lot of exploration, but obviously you don't want to be that guy who's constantly doing the hot new thing and never actually makes progress with anything, um, a- as, uh, c- the disease of fuck-around-ititis.

    6. CW

      (laughs)

    7. RM

      So you have to commit to something. Um, yeah. And then in that particular domain, uh...The volatility is not increasing, so that implies that as soon as you've found something that you are into and that you've- that, that, that you feel good about, you actually sh- basically lock that in and just, uh, uh, get after it, uh, indefinitely. And you can keep trying little things here and there, but you should, you should do just enough exploration to find out about your own personal preferences and what works for you, and then just get after it. So the reason that that is, that, that, that you should, uh, approach it that way is because the human body and the f- the sort of, um, what would you call it? Like, the, the interventions for physical fitness are not changing. Like, the barbell, or well, calisthenics is thousands of years old, and then the barbell, I think, is at least a couple of hundred years old, and dumbbells are- dumbbells go right back to the ancient Greeks. So, um, uh, uh, the body itself, like, it changes in, on an, uh, on an evolutionary timescale, but it doesn't change over the course of, uh, your own life, except in, um, uh, in the sense of aging. So, uh, because the domain is relatively stable, you don't benefit from constantly exploring and seeing if new opportunities are cropping up. Like, it's not like the laws of physics will change one day and suddenly, um, you know, CrossFit will be out and, uh, you know, horseback eagle chase will be in or something. Like, it's, there's, there's, there's no point in, um, positioning yourself for uncertainty 'cause th- there is no real source of uncertainty there. Um, and then, uh, to give a counterpoint of, uh, an opposite sort of scenario, if we talk about career planning, um, the argument that I make is that you have to be open to exploration, uh, much more so than in a domain like physic- physical health because the world is changing, there is a lot of volatility, and you can't necessarily, uh, lock yourself into something and then put your feet up and just explore it, because, um, uh, you know, let's say you, you have this model where you're a specialist, you're very good at one thing, and you have, this is the old model of the, the job for life, 40 years and the golden handshake. Um, you lock yourself into that, you don't broaden your skills, and then the, you know, the robot apocalypse comes along and, and takes your job, or, um... (laughs) Yeah, you know, one of these sort of, uh... I mean, it doesn't even have to be one of these outlandish AI scenarios, just the more mundane reality of industries, uh, collapsing. Um, so you've, you've sort of concentrated all of your career capital in this one domain, and it serves you very well over the short term, and what you can't see in the background is this, is this large accumulation of sort of silent risk. So you might be all right, you might make it to retirement and n- and nothing bad happens. But if your job suddenly gets outsourced to, um, you know, to Bangladesh or, or, or India or whatever it might be, you're screwed, right? You haven't, you haven't sort of diversified yourself. Um, you don't have options. So, um, that's the downside resilience case for, um, always being exploratory in, uh, in a domain which is changing quickly. But the more attractive side of that is the, uh, is looking at the upside, um, you know, like, thinking about merging technologies and merging fields. Things are changing, things change now within, in the course of our lifetimes. I mean, within the course of a, like, a single year or a single, certainly a single decade. And if you have broad set of skills and you are interested, you take an active interest in the world and you're sort of a curious person, you can position your- yourself to benefit from these things. I mean, like, uh, I think we were talking about Bitcoin just before we hit record. Mm-hmm. Like, imagine being one of those guys who was, uh, buying Bitcoin for 30 cents each or whatever because you're a geek and you are interested in this new weird money thing that no one else has ever heard of. Um, just because you, you, you're sort of, um, taking a broad interest in life and not just being like, "Oh, I'm the, you know, I'm the, uh, I'm the chief widget maker at the widget factory, and I'm good at what I do, and I'll never broaden my horizons any further than that." Um, yeah, does that

  11. 28:44 – 33:00

    The Ingredients Of Optionality

    1. RM

      make sense? Absolutely, man. Yeah, totally, totally does. The, um, (clears throat) that insight of optionality being inverse to the level of volatility within the system makes a whole ton of sense. Mm-hmm. And I guess this year- Yeah. ... COVID, uproar, upheaval, it's just the year of optionality. But if the future's uncertain, how do we become more confident about our decisions? Shouldn't we just constantly be worried about the future, especially given that technological change and society's moving so fast now? Mm-hmm. Yeah, I mean, this goes back to what I, what I find to be psychologically comforting about optionality. So at, at this point, it might help to, um, sort of mention my model for what is, what are the raw ingredients of optionality? So I break it down to financial capital or IE, how much savings you have, um, and how little debt you have. Uh, health capital, how fit and healthy and energetic you are. Social capital, the strength and quantity of your relationships. And, and knowledge capital, which is the depth and breadth of your skills and experiences. And, um, if you have, if you focus on all four of those buckets and you, and you're, and you're sure not to neglect any of them, I think you can kind of, uh, feel confident about the future, even though you don't know what's coming, because let's say, uh, 20 years from now, I wouldn't have a clue what I'm gonna be doing in a grain- like, in a fine-grained kind of a sense. I don't know, I don't know what sport I'll be playing, I don't know exactly who my friends will be, um, and I don't know what I'll be doing for work. But it will, in any possible conceivable scenario, it will be extremely useful for me to have all four of those buckets full so that I'm in a good position to execute on whatever makes sense at that point in time in my life and my career and that future version of me. So, um, I find it extremely comforting. I mean-... the, probably the simplest and most obvious version of this is that anyone who's ever been in debt or who's just had a shitty job and sort of struggling to make rent, it's just a horrible position to be in. Like, you feel powerless and, um, you can't relax, and it sort of bleeds over into every other area of your life. And getting yourself in a position where you've cleared your consumer debt, for example, and you've got, like, a bit of an emergency fund in case, um, the shit hits the fan, is just such a, it's such a powerful thing to do. And, um, it doesn't actually, it's, uh, you know, like, it's not changing anything in the sense that, uh, maybe you still work the same job and your life looks more or less the same, but just cycle- even psychologically, it's a powerful position to be in. So yeah, my argument is that if you build up these sort of central assets, um, these real, real core valuable sources of optionality, uh, that alone is extremely comforting. It's never not going to be useful to have a big chunk of change sitting in the bank so you're well positioned. Maybe an investment opportunity comes along. Maybe you're the guy who finds out about the 30 cent Bitcoins, right? Like, maybe, uh, you have a, an idea to start a small business or you want to quit your job and take a sabbatical and launch a podcast or whatever it might be, right? Like, it's always going to be useful. And you, (laughs) like, uh, I don't know, you, you just feel a certain sense of security and possibility when you have all of these things topped up. Uh, so I think that, yeah, the future is kind of scary, but you can, you can take some of the sting out of it and maybe even make it into an exciting thing. That would be the ideal, where you're kind of intrigued about what will happen. I mean, just from like... Yeah, it is, I mean, the world is a fairly wild place right now and if you can, if you can be the perfect stoic and sort of remove yourself from it a little bit, it is almost entertaining, isn't it? Like, it's just so bizarre.

    2. CW

      (laughs) Yeah, it is. I got asked

  12. 33:00 – 34:00

    Being Curious

    1. CW

      on a podcast, I was guesting on someone's show this week, and, um, they asked me, like, "Wh- what do you want to do in 50 years?" Or, uh, "What, what do you want written on your tombstone?" And I've never really been that good at, at long term planning. I think it's a function of being curious. If anyone is super, super curious, you're always aware of just how many things you're not doing rather than the (laughs) things that you are. And-

    2. RM

      Yeah. (laughs)

    3. CW

      ... that to me is just like, I, man, I, I don't know. I get the sensation, I get the impression that when I start a family, I'm currently single and don't have kids, but I get the impression that when I start a family, that's probably going to be a sledgehammer of emotions that I'm not ready for, um, that's probably going to whitewash most of the other stuff that I do in my life. Um, but I might be wrong and given the fact that I don't have that input and I do tons of different things, I was like, "I, I don't know, man." But that, that, you, you've given me a comfort blanket there, man. Like, I've just got options. I've got optionality.

  13. 34:00 – 35:35

    Opening Up Optionality

    1. CW

      Um-

    2. RM

      Yeah.

    3. CW

      Talking about the absolute fundamentals, what is the fundamental best way for someone to start opening up the optionality they have in their life?

    4. RM

      Um, I think the single most important thing that anyone could do is probably, uh, to attack the financial side of things, only because, um... Well, I'll t- I'll tell you a little story. So, uh, I, yeah, I used to be a business reporter. Um, had a good job, enjoyed it very much, but I was starting to get a bit bored and sort of getting that three-year itch kind of thing. Um, and I, I came across this subculture called Financial Independence Retire Early, or the FIRE movement, and I started getting into their stuff and, um, their main thing is, like, you, you go into a kind of hardcore frugality mode and you think really carefully about what's important to you and, uh, cut out any extraneous spending, repay debt aggressively. Um, so I did that and I, I saved, like, enough, uh, a big enough chunk of change to, um, eventually sort of quit my job, not in a permanent retirement sense, but in a sort of go take a sabbatical and work on other projects sense. Um, and that was like, that was the, the little- the lifestyle experiment that launched a, a thousand ships kind of thing. Like, that was the most powerful move that I've ever made, I think. Um, and that is very accessible to most people. So,

  14. 35:35 – 38:28

    Money Optionality

    1. RM

      um, I think-

    2. CW

      What was the figure? What was the figure that you hit?

    3. RM

      I, I, I hit $100,000, uh, New Zealand dollars, I think. I hit it in the, in the greenback about a, a year later. So, um, yeah, enough money for me to go and travel and, um, do my thing and, uh, have some space to breathe and, and think about other projects, but not enough to retire on permanently. But just the principles of doing that, um, are so powerful and, like, money i- is not quite the same thing as optionality, but it's a, it's a, it's a, one of the most powerful ingredients, because if you have money, again, you have the right, but not obligation, to spend it however you see fit. So you can't buy everything with money, but you can make a pretty good, uh, you can make a pretty good attempt at it. Um, so one underrated way of, well, maybe it's not underrated, but one powerful way of, uh, of having more optionality is to take that, use something like that frugal approach, I think, especially when you're a young man or young woman, um, and you can, uh, you don't necessarily have to have an ex- an extravagant lifestyle and try to keep up with your peers. Uh, you can just sort of, again, it's a short term pain, long term gain thing. You can just, uh...Um, sort of set yourself up to be in a stronger position a little bit later down the track. So, I would highly encourage anyone who's listening to this, who is thinking about, like, they- you don't feel- if you don't feel powerful, if you don't feel like you're in a position where you could, um, where you could take a punt, where you could take a risk and start your own project, or where you could walk away from your job because you don't like your boss or you don't like your coworkers or something, um, yeah, I think if you want to give yourself some power, what you want to do is start being more intentional about your spending. I've got a lot of sort of tips in, in the book. And, um, uh, start trying to build up the net worth, start trying to get rid of debt. And then that puts you in a really strong position. You can, you can walk away from a shitty situation, uh, you can, you can retrain or upskill. You can take a sabbatical to launch your passion project. You can cut back to part-time hours, you know, maybe to spend more time with your family or, or, or put more effort into your health or whatever it might be. Um, and I feel like that's an unusually accessible intervention that a lot of people could use, and, um, with the exception of people who are really doing it tough and they're already sort of living on, uh, living, uh, uh, on the smell of an oily rag, um, the great majority of young, uh, you know, tradespeople and, and professionals could use those strategies to get themselves in a good position. Um, so yeah, I think that's probably the simplest step to, to get started.

  15. 38:28 – 45:04

    Backstory

    1. RM

    2. CW

      I remember I had a conversation while I was on a photo shoot, maybe about six or seven years ago, with this older lady. She's probably about the age that I am now. So I'm 32. She's maybe, like, 32, something like that. She was telling me about her and her husband. And I'd just bought my second house, uh, my first rental. So I, I had my own and then I, I bought a second one for buy-to-let. And she's telling me, "Oh, we've just got our eighth house." And I'm talking about all the different things. And I was like, "Oh, so what's the plan?" And she says, "Well, me and my husband have done all of this. We started a business together. We got married early, at sort of 22. We started a business together and been working on this business and building up this property portfolio along- alongside it. Now we've got the manager that's been with us for ages, she's going to run the business. And we've front-loaded our wealth." And it was that term that stuck with me. She said, "We've front-loaded our wealth acquisition to the point now where we're going to go travel the world for the next four years, and then we're going to settle down and we're going to start a family." And I was like-

    3. RM

      Yeah, that's amazing.

    4. CW

      ... holy fucking shit, that's it. If compounding is the Eighth Wonder of the World, which I think we all agree it is, then front-loading that wealth as quickly as possible... And it's something that I, I ended up doing purely by fortune rather than by design, but it's certainly put me in a, a strong position. Now I have my house plus three other rentals, and I have a, a nice sort of steady pot of cash. And it also means that even my own home, because I let two rooms out to my buddies, even that's paid for. You know, the whole world could go to hell in a handbasket and I'd still... Like it has done, it has done this year.

    5. RM

      Yeah.

    6. CW

      Uh, a- and financially I know that I'm still sorted. And the converse of that is kind of the live young, wild and free advice that's often given to people. And I get that. Like, don't get me wrong, being young is a time for you to adventure and to do new things and to be a little bit reckless as well. But at the top of this episode, we talked about the number one rule of the game is to never be out of playing. And locking yourself in, go- going bankrupt, getting into a business at 23 years old with zero business experience and some shady business partner and having a bankruptcy on your record, or having a terrible credit rating because you've run up a ton of different cars on repayment finance or a bunch of credit cards because you wanted a new 50-inch TV or whatever. You know, upside, 50-inch TV, downside, shit credit rating for the next decade. (laughs) That's a, that's a pretty big asymmetric risk that you've got going on there. So yeah.

    7. RM

      Yeah.

    8. CW

      Certainly... And, and that's the, the beautiful thing about front-loading wealth, is that you front-load... If you haven't done it up until now, now is the time to start. You can be 75 listening to this and you're better off front-loading wealth than you are back-loading it now. I, I had a-

    9. RM

      Yeah.

    10. CW

      Morgan Housel on, guy that wrote The Psychology of Money, and he said that 90% of Warren Buffett's net worth was generated after his 65th birthday.

    11. RM

      Is that right? (laughs) Holy shit.

    12. CW

      That's how powerful compounding is.

    13. RM

      Yeah. Yeah.

    14. CW

      So yeah, man, I'm, I'm, I'm all, I'm all about that front-loa- front-load that wealth. Why didn't you decide, right, I've got my 100,000 here, uh, I'm now going to continue to work and just build up, like, some insane amount of cash and then go for not, not whatever it is, the fi- I can't remember what the first two letters are, retire early. Financial independence, retire early.

    15. RM

      Yeah.

    16. CW

      Uh, why not, like, financial independence, retire at an all right age, but wealthy as fuck?

    17. RM

      Yeah. Well, um, so I could have done that. That was my initial plan. But the problem was that A, I was a journalist and journalists are not really making bank. So it would have been a bit of a slog and I wouldn't have retired super wealthy. I would have been, um, you know, I would have had a pretty spartan existence if I wanted to do the early retirement thing. Which is fine, you know, I'm, I'm actually okay with that. Um, but what I wasn't okay with was sort of having this super distant future-focused, um, idea of distant happiness. So it took me right out of the moment. Because this idea of retire, financial independence, retire early, is like the whole point of the game is to check out at the earliest opportunity. So it's very, it's a very kind of negative framing. Um, work is bad and you must escape, right?

    18. CW

      Mm.

    19. RM

      So, um-I wasn't prepared to keep doing my job, which I was no longer wildly interested in, for 10 or 15 more years, um, to get to the point where I could retire properly, because I had all these other things that I wanted to experiment with. And also, I was in- I hadn't done my overseas experience, which is a sort of grand tradition in New Zealand. You have to go out and have your gap year or- or whatever and do the banana pancake trial and that sort of thing. Um, so I didn't want to squander my youth and my mobility and, um, and sort of lock myself into this future thing. So, I just decided, like, "I'm going to- I'm going to pull the plug right now. Um, this is enough to make some big changes to my life and, uh, you know, maybe look for some higher leverage opportunities." So, um, uh, you know, like, being a salary earner is fine, it's great in some wa- in many ways, it's sort of comfortable when you have that stability, um, but I think I like that Naval line that, you know, the way to get wealthy is to own something, is to own a piece of something, like you with your houses or, you know, you with your podcast or, um, you know, you own a stake in a business, you start your own business, you... And the fundamental difference there is, you capture the upside, right? Not your boss, not the shareholders of the- the conglomerate that you work for. Um, possibly there's, uh, there's a, there's a stronger element of downside risk and it's a bit more of a speculative play, but you get to capture all the gravy. So, that's- that's like... I mean, thank God that I did quit my job and go off and wander and sort of, um, try some of these higher leverage, uh, more speculative plays because that's actually how, um... You know, the other path would have been okay. I could have gone back to work and, um, had a pretty good existence, but, like, now I'm financially independent, just having, um... without having to work full time or do anything

  16. 45:04 – 47:28

    Roots of Leverage

    1. RM

      that I don't want to do.

    2. CW

      What are the, um, what are the roots of leverage that you- you have favorited over the last few years?

    3. RM

      So, investing is my main thing, and that is how I've also sort of generated, um, uh, most of my wealth, um. So, what I'm looking for is, again, asymmetries. Um, I don't know if you want to get into investing at all, um, but, um, yeah. Like, looking for neglected opportunities and things that kind of intersect with my own skill set or experience or, um, uh, like, things that are available to me that aren't necessarily available to everyone else, so... But I'm not talking about S&P 500, which every man and his dog can go on and- and trade. Um, things where you have some insider knowledge or you have a personal connection, um, and therefore there's an opportunity there might be an asymmetry to exploit. Um, and then the other things would include somewhat entrepreneurial ventures like, uh... Not... Yeah, I don't know if I'd call them entrepreneurial, but, uh, writing a blog, uh, writing this book that I've just finished, where you are having a punt. You're, uh... You know, you- you... The downside cost is the time it takes you to write the thing and, you- you know, sort of pay for various expenses, and then you give yourself a shot at, again, collecting quite a large upside, whether that comes financially, um, which is, uh, infamously difficult to make money through books, but you- it's always possible that you get the- the sleeper hit or the runaway hit. Um, and then also in terms of, um, creating other opportunities, so broadening your reach and your audience and, um, you never know who's going to read it and who's going to get in touch. So, uh, yeah, I've been... Yeah, I- I suppose I spent my sabbatical, uh, collecting those kind of options, like, uh, meeting new people and, uh, trying some uncertain ventures, uh, that don't have a steady paycheck associated with them. And then, uh, yeah, I've just been lucky that some... my stable of options have started paying off. Um, interestingly, after I'd written almost all of the book, so, um, this is not a sort of one of those things where you create a cute story after the fact to explain, uh, your success. Like, I didn't know that this would happen, but I was putting myself in the best position possible for it to happen.

  17. 47:28 – 48:44

    The Elephant in the Room

    1. CW

      I love it, man. Speaking in Naval language, you're leveraging on media and capital, and the one that I feel like Naval actually misses off, which is kind of the- the social/network/reknown effect, um, and it's a kind of a combination of all of those. Is there an elephant in the room? Talking about what you've just brought up there and then the point I made before about front loading your wealth, is there a bit of an uncomfortable elephant in the room that there is... if you want to have a family, there is a little bit of a time bracket on this, that we need to spend a little bit of time avoiding debt and accruing fat stacks of cash? We also know, for most of us, we don't want to be a parent to a newborn child at 50, so there is a kind of a window in terms of long term lifestyle design that we need to slot ourselves into, and for women the window perhaps is made even smaller. Although, a statistic from 2019 in the UK, more women had children over the age of 40 than under the age of 20 that year.

    2. RM

      Wow.

    3. CW

      Pretty cool stat.

    4. RM

      Yeah.

    5. CW

      But you- you under- you understand the paradigm I'm

  18. 48:44 – 53:14

    The Good News

    1. CW

      talking about?

    2. RM

      I do, yeah. So, you're absolutely right, but I think the- the- the good news is that it's not necessarily a bi-phasic thing where you're in this mode now and then you switch to this mode after a certain point or because you're having a family or whatever it might be. You can sort of-... move in and out of different modes. I'd probably, again, go back to the exploring and exploiting thing, um, or you know, m- risk on or risk off modes. Uh, and you can, you can do it, like, multiple times throughout a lifetime. So, um, my preferred model is, for a young, a young person, um, first spend some time actually building some career capital. I reckon that's always the way to go. And what I mean by that is accumulate some skills, get paid to be less dumb basically, get a, get a regular job.

    3. CW

      (laughs)

    4. RM

      Um, you know, like, you, you'll also meet people through the job hopefully, um, and make s- repay your student debt if you have, if you have one, or at least have a, have a crack at it. Get some capital together.

    5. CW

      And also learn how the workplace works as well. Learn how to have a disagreement with your boss, learn what it is to get up at 7:00 A.M. every day, etc., etc.

    6. RM

      Yeah. Yeah, and maybe get a taste for what you don't want (laughs) in life too, I suppose. Um, yeah, like, it's that thing, I don't know, if, yeah, if anyone who's ever done, like, manual labor or, uh, maybe worked in a, um, hospitality or in a restaurant, I think, um, if you're in a shit job, um, not that I'm saying all those jobs are shit, I just mean if it happens to be a shit, a shitty version of that job, um, that's pretty good motivation, right? (laughs) Like, um, you don't wanna, you don't wanna, uh, you don't wanna think of yourself, like, 40 years from now doing the same thing. So I think there's sort of a character building element to it as well, um, where everyone should really have to do, have to do that. But anyway y- so y- you go through a phase where you're trying to be useful and, you know, you're young and dumb, you don't know anything, like, just pick up, pick up skills, become useful. Then maybe you do your, um, exploration where you start, maybe you go out into the world and you take risks because you don't have the mortgage necessarily, you don't have kids at that point. This is, it's not a surprise that so many entrepreneurs are, um, in their, even in their late teens or early 20s. Like, it makes perfect sense. Then if your ambitions don't work out and you want to have a family or whatever, you can take risk off, you can, um, you know, sell your business if you've got it started or just sort of, sort of work a, a regular salaried job and, uh, and, and step things back. But that's not the end of the road. So interesting, uh, statistics, I think the most successful entrepreneurs tend to be in their 50s or, um, certainly older. Like, the Zuckerbergs of the world are actually, um, there's a lot of them, but that doesn't actually necessarily, uh, relate to their success, and it might even be the opposite. So I think-

    7. CW

      Oh, dude, they're, they're in-

    8. RM

      ... that-

    9. CW

      ... they're incredibly rare. There's a, a really famous diagram floating around a couple of years ago where it was talking about the founders of some of the biggest companies in the world and when they founded the companies, and it was like Bill Gates in his 50s and Steve Jobs in his ... and blah, blah, blah, blah, blah, blah. The only reason I can see that we have adolescents worth billions and billions of dollars is a function of the fact that Silicon Valley's valuations of companies has become completely detached from their actual worth, and it's more a quirk-

    10. RM

      Mm-hmm.

    11. CW

      ... of the particular way that our economy is set up at the moment, i.e. Silicon Valley doesn't know what the fuck it's doing and is just chucking-

    12. RM

      Yeah.

    13. CW

      ... chucking money at anything that moves in a desperate attempt that it's going to go to the moon. So yeah, I, I, I-

    14. RM

      (laughs)

    15. CW

      ... I totally agree, man. You can win at almost every stage of life now. And, you know, there's-

    16. RM

      Yeah.

    17. CW

      ... these kids, these, like, seven, nine ... I remember this seven or eight-year-old who had a YouTube channel reviewing toys and he's like one of the biggest YouTubers in the world a couple-

    18. RM

      (laughs)

    19. CW

      ... of years ago. Uh, and you can flip that round to the, the Warren Buffett story where you make 65 per- or you make 90% of your net worth after your 65th birthday, you know? Like there, there is a-

    20. RM

      Yeah.

    21. CW

      ... full lifetime of success opportunities, and you really, as long as you're never out of the game, you only need to hit that moon shot once, ideally earlier on-

    22. RM

      Yeah.

    23. CW

      ... because then you get more time to enjoy it, but you only need to get it right once.

  19. 53:14 – 55:19

    Richards Personal Plan

    1. CW

    2. RM

      Yeah. Yeah. No, you're, you're absolutely right. Um, I mean, my own personal plan was if my little ventures didn't pay off, um, I was, 'cause I do quite wanna have a family at some point, I thought that I would, uh, return to the workforce and, you know, have a reasonable job and a good career and maybe do the kids and house and family thing. Um, and then, yeah, at some distant point down the track, uh, save up, uh, another stack of cash or get in a, get in a good financial position and then go and do something wild again, you know? Like, go, uh, try and start a company or, uh, you know, sell everything and go traveling or whatever it might be.

    3. CW

      I think, dude, I, I-

    4. RM

      Um-

    5. CW

      ... think that kind of, whatever you'd call it, that second, second youth when the kids leave home, I think we're gonna see that more as we've got, uh, more frictionless travel, people who've grown up with a traveling mindset and a, an entrepreneurial mindset. Rather than the kids leaving home-

    6. RM

      Mm-hmm.

    7. CW

      ... and your parents retiring to the country, it's like the kids leave home and your parents retire to five different countries a year, Airbnbing their pla- (laughs) their way, their way around the world doing all of the stuff-

    8. RM

      Yeah.

    9. CW

      ... they just didn't quite have time to complete when they were 25. Um, and I-

    10. RM

      Yeah.

    11. CW

      ... I think that's gonna be super cool. I certainly, you know, given my wanderlust, and it sounds like you've got the same, that would absolutely-

    12. RM

      Mm-hmm.

    13. CW

      ... be something that I would be looking to do. Like, not just going away on-

    14. RM

      Yeah.

    15. CW

      ... wanky DFDS Seaways tours and cruises, which, like, everyone's mum, (laughs) mum and dad seem to be obsessed with at the moment.

    16. RM

      (laughs)

    17. CW

      Like, you know, g- go in and heading off to all the countries that you didn't get a chance to, or going on an expedition or going dog sledding, you know, all that sort of stuff. I think that-

    18. RM

      Yeah.

    19. CW

      ... hopefully we'll, we'll see that and it'll be a really, it'll be a really fucking cool world (laughs) if that was the case. And it's also gonna plug a ton of wealth and income into-... more varied countries. You're going to take wealth that's being created in the developed world and pu- plug it into the developing world in a really nice way.

  20. 55:19 – 56:24

    Optionality Principles

    1. RM

      Mm. Yeah, that's right. It's, it's even doable with kids in tow. I mean, I don't know how much of a, sort of a logistical mission that is, but when I've been wandering around, I've met a bunch of families who are actually doing the nomadic, digital nomad lifestyle, um, with their kids. And it's k- it's pretty cool for the kids because they get to, you know, like I'm thinking of this family who have got two young boys and the boys are in a Thai school learning Thai, um, at this formative age. And that's normal for them. That's their life. Um, so yeah, I think that can be ... That's even a possibility as well, is to make it sort of a-

    2. CW

      So many options.

    3. RM

      ... a multi-generational thing. (laughs)

    4. CW

      So many options, Richard. All right, so you've got, um, you've got these 10 principles for optionality. And we've kind of gone through a few of them, but there's some in here that I think are really cool. So can we do a, sort of a quick fire and have you just explain some of these to us?

    5. RM

      Yeah, of course.

    6. CW

      Perfect. So number two, uh, sorry, number three, beware of geeks bearing formulas.

  21. 56:24 – 59:44

    Financial Models

    1. CW

    2. RM

      Yeah. So, um, there's a ... Okay. So in the world of finance, uh, people love to come up with very fancy models that they think have some predictive power about what's going to happen to the stock market or oil or Bitcoin or whatever it might be. Um, and they use these models to decide how much risk they're willing to take in, in terms of asset allocation and timing and all these kind of decisions that they have to make. Um, now when people do that on their own behalf, that's okay. You know, you can be a trader, you can, you can go on WallStreetBets, you can, you can have a play. And if you screw up, then because, you know, because you, your Fibonacci retracements, uh, were wrong or whatever-

    3. CW

      (laughs)

    4. RM

      ... um, like that's on you. And, and, um, and y- you know, maybe it's a learning experience or something, right? But the, the d- the danger is that everyone has exposure to the financial system as a whole, and people who are making these kind of decisions, uh, on your behalf, because, uh, you know, they're investing your retirement fund for you or, uh, pension fund or, um, whatever it might be. So, um, there's this tendency throughout human history, but especially in the financial realm, to sort of put, have, uh, have too much confidence in these, uh, in these predictive models, which only ever offer a very simplified version of a, of like a complex chaotic system. And then when the models are wrong, uh, things work out very, very badly. So during the, the GFC for example, actually during the credit crunch, um, yeah, th- uh, there's this, the story I recount in the book where the Goldman Sachs guy whose fund has just lost 30% or something is saying like, "Oh, this was a, a 20, it was a 25 standard deviation move, um, outside of our models, and it happened multiple days in a row. Like, um, it's a, it's a total freak accident." Um, a- and the funny thing is that like these freak accidents happen all the time. And it's not that, it's not that the universe is just, um, sort of taking the piss, it's the, that the models are broken, the models are, are wrong. Um, so the, the, the more general, uh, lesson to sort of extrapolate out from that is just, um, if you are making any kind of decision that's based on, uh, an equation or a model, also very popular in the financial in- independence retire early movement, um, just don't put all your, don't put all your faith in it. Just, uh, remain open to the possibility that you might be wrong or that your model might be wrong and sort of plan, uh, accordingly. Um, because historically, if you sort of trust in the numbers too much, like s- you know, so-and-so is a sure thing, uh, you will be, uh, you will be proven wrong, uh, in a, in a sort of a devastating fashion. So yeah, that's the story behind that one.

    5. CW

      Around about once every decade as well.

    6. RM

      Yeah, yeah, yeah. I mean, it will, it will happen in your lifetime. Yeah, for sure.

    7. CW

      Number five, generating better options is much more important than trying to make perfect decisions.

  22. 59:44 – 1:21:18

    Daily Life

    1. CW

    2. RM

      So if you think about when you go, you're going through daily life and you're just presented with this massively expensive array of options, and I mean expensive in terms of attention and, uh, and, uh, mental bandwidth, um, and the vast majority of them just don't matter. So we're sort of blind to them because we are so used to it. But like, what clothes you wear, what exactly what brand of cereal you're, you're eating and all the product selections that you make, the, the route that you drive, the people you associate with, the emails you check, the websites you look at, blah, blah, blah, blah, blah. Like if you add, add all of that up, um, we're talking about like millions of branching paths in front of you at any given point in time. You could order anything you want. Um, you could look at any website on the entire internet or watch any TV show or, or film. So, um, a lot of people try to optimize, uh, those branching, uh, trees of possibility. So sort through the umpteen different, um, brands of, of detergent and figure out the exact best one for me. Or, um, you know, like find out the exact TV show that I should watch or, uh, you know, like basically putting a ton of thought into these decisions that don't have any sort of asymmetric payoff because, you know, you, you choose the, uh...... you choose this brand of laundry detergent over that one, like, it's not going to be sort of wildly exciting either way, and your whites are whiter or whatever. Um, so the point that I'm making there is that you don't need to worry about the vast majority of those, of choices that are presented to you in, in daily life. You're much better off sort of pruning quite a lot of those pathways and trying to put your, channel your efforts into, uh, looking for the actual asymmetric opportunities that are going to be powerful to you. So, uh, instead of, um, so, uh, instead of walking down the breakfast cereal aisle and trying to decide which type of cereal you should eat, the, a high- a- a higher leverage option to be thinking about is like, um, "Do I want to be eating cereal?" Or, you know, like, "Do I want to have breakfast at all? What is the concept of breakfast?" Like, is this just a- a myth sold to us by Mr. Kellogg or whatever? Right, so, like, um, um, the point being not that you should skip breakfast, but just that, like, uh, maybe that's a, maybe that's a more, um, interesting, uh, potentially rewarding option to think about than, like, the very specific, uh, difference between one brand and the other, instead of scrutinizing ingredient panels and that sort of thing. And my sort of-

    3. CW

      So I suppose... Go ahead, sorry.

    4. RM

      No, go on.

    5. CW

      Going one level of abstraction back-

    6. RM

      Oh, okay. I was just going to say that, um, my, with my, with my tinfoil hat on, um, my conspiracy theory is that, like, I don't know if this is an- an- a- an exact deliberate ploy or not, but, um, when- when you have all these options sort of dazzling you, you're- you're essentially trapped, and this is the, this is what the, this is what the consumer capitalist system wants from you, is to keep you obsessing over this narrow range of standardized options so that you don't make the big, uh, high leverage decisions to, uh, you know, stop consuming in certain ways or, um, uh, change up your- your life in a more meaningful way, because you're just constantly trying to make these low level, boring, um, low payoff decisions. Sorry, go on. You were going to say something.

    7. CW

      Uh, yeah. So the illusion of choice that we're given a- as a consumer still traps us in the matrix of making decisions as a consumer. It doesn't actually allow us out of the maze, it just gives us different flavors of cheese within it.

    8. RM

      That's... Yeah, I love that. That's a great way of putting it.

    9. CW

      Um, one of the things I thought, first off, a good heuristic I suppose would be to take one step of abstr- abstraction back from the question that you're asking and just think about it from first principles about like, "Do I need to do this? Do I need to do X?" Uh, well, I get my car cleaned every Saturday. Okay, well, like, could- could you get away with cle- getting it cleaned every other Saturday? Do you actually need to get it cleaned at all?

    10. RM

      Mm-hmm.

    11. CW

      Like, what's gonna hap- could you get it cleaned every six months? Is there a different way that you can getting cleaned? Can you go for a machine? Is there a hand wash? Or this, that, and the other? Another thing that it made me think about is a Naval quote, "Play stupid games, win stupid prizes." And that very much, I think, talks about the... It- it speaks to a number of different things, but one of them is the obsessing that we happen to have over easy decisions, because it allows us to push away the difficult ones. So I'll never forget, uh, this was when I was, like, maybe 23, 24. So I'd... You know, I was on my way to buying my first house, and I was the director of a pretty successful events company, and I had a fair bit of money behind me, and I remember I was, I must have spent five minutes debating between two different types of yogurt based on the deal that was on. It was like, four for three pounds or like, like seven for eight pounds, but they were different yogurts and there were some different flavors, and this one's, "Ooh."

    12. RM

      (laughs)

    13. CW

      "This one's got a little bit more protein," and, "Oh, there's a little bit more trans fats in the other one." And I remember I had to take that step back, go one level of abstraction away and go, "Chris, what w- what on earth are you doing? Like this is, this is absolutely insane. In the time that you were here, you could have gone home and done something with far more leverage that would have genuinely added value to your life." But it's because I hadn't made the decision around which mortgage broker I wanted to use or because I hadn't d- you know, the- the hard, the hard thing, I hadn't sent the application off to whatever lawyer company.

    14. RM

      Yeah.

    15. CW

      That's what I was hiding from. And-

    16. RM

      Yeah.

    17. CW

      ... I- I really... That "play stupid games, win stupid prizes" also ties into... It- it's a really easy way to identify the negatively asymmetric games that we're talking about. So a stupid game is, is unprotected sex. A stupid game is texting whilst driving. A stupid game is putting your entire net worth-

    18. RM

      Mm-hmm.

    19. CW

      ... into some expert algorithm trading advisor that some kid on Instagram's decided to tell you that you should use. And another one of those-

    20. RM

      (laughs)

    21. CW

      ... the most, the most obvious one which really struck home at me that when I realized it was, what is the prize you win for always responding to messages within 24 hours? Because we all do that, we all check our inboxes, our social media, Instagram, Twitter, Facebook, whatever it might be, TikTok. Like, we all... I don't even, I don't know if TikTok has a inbox. We all check those. But what's the prize that you get for being the fastest replier in the lands? Like, genuinely-

    22. RM

      (laughs)

    23. CW

      ... these people, especially as you start to accrue a little bit of social capital and you get more incoming than you have outgoing, and most of the incoming is people wanting something from you, whether it be an answer to a question or just the sense of belonging to do whatever. Like, that's cool, and satiating that desire is- is- is- is fine and it's a nice way to connect. But what's the prize that you win for being the fastest person on the trigger for that? It's absolutely nothing. It's noise, not signal. And that-

    24. RM

      Yeah.

    25. CW

      ... that-

    26. RM

      Well, actually, the surprise that you win is that people expect that from you as well in the future, and then it sort of becomes a, a trap of your own making.

    27. CW

      It's a curse.

    28. RM

      So, yeah, you-Yeah. Yeah, I mean this is- that's my, that's my excuse for why I only reply to emails once a week or something. Thanks. Thanks for-

    29. CW

      Good.

    30. RM

      ... giving me that excuse.

Episode duration: 1:22:01

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