Brendan Moynihan Interview | Full Episode | The Tim Ferriss Show (Podcast)

Tim Ferriss 0:00 Welcome to another edition of The Tim Ferriss Show, ladies and gentlemen. I would like to start this very special episode with two things. First, a quote, and that is, quote, "Be who you are and say what you feel, because those who mind don't matter, and those who matter don't mind," end quote, from none other than Dr. Seuss. Love that quote. Second, just a little bit of trivia. Since the co-author of What I Learned Losing a Million Dollars is our guest today, I thought I would look at the number one million, the denomination one million. It's a big deal in the US and a lot of Western culture. But perhaps you didn't know that the number 10,000 is a very big deal in, for instance, Japan. And when they say, "Banzai, banzai," and they throw their arms up in the air, that is ban- or, like, ichiban, ban, 10,000 years, zai. Banzai, 10,000 years. 10,000 years. So there you have it, a quote and a random piece of trivium that you can play with.

Tim Ferriss 1:04 This episode, we have Brendan Moynihan with us. Brendan Moynihan is a managing director at Marketfield Asset Management, which has $20 billion or so of assets under management. He's also the senior advisor to the editor-in-chief of Bloomberg News. He's an adjunct professor at Vanderbilt University, where he teaches both international finance and investment analysis. And previous to all of that, he spent more than 20 years on Wall Street as a trader and a risk manager. He's written a whole slew of books, mostly on finance and investing, but the one that I want to highlight today is What I Learned Losing a Million Dollars. And as you'll hear in the interview, this is one of the few books in existence that has been [chuckles] praised by Nassim Taleb, who is author of The Black Swan, or is author of The Black Swan, among others. And, uh, it was labeled by him one of the rare non-charlatanic books in finance. What does that mean? Well, I chased down this book when it wasn't in print and read it, and it had a huge impact on me. So much so that it is one of the few books in the Tim Ferriss Book Club. Uh, it is the newest book in the Tim Ferriss Book Club, and there are a million and one ways to make money, and as a result, there are a million and one ways to publish books [chuckles] about varying methods of success, making money, and so on. As it turns out, it's perhaps a much smarter approach to look at the few ways in which people consistently lose money, consistently make big trading mistakes, investment mistakes, business mistakes that cost them money. So if you can identify the principal ways that people lose money, and in this case, the other co-author, Jim Paul, had a, a really dramatic story [chuckles] of losing more than a million dollars, that you can then define rules for yourself that allow you to be a better investor, a better business person, and in general, succeed better in life. Pretty fascinating stuff. So Brendan is our guest today. I hope you enjoy it. As always, this podcast is supported by you guys. If you like these podcasts, both the short in-betweenisodes, the longer interviews, please take a look at the Tim Ferriss Book Club. Just go to fourhourworkweek.com, all spelled out, fourhourworkweek.com/books. You'll find about a half dozen books that have had a huge impact on my life, including this book, What I Learned Losing a Million Dollars. And if you click on those, it'll take you through to Amazon, and that keeps this podcast going, because it does take a lot of time and some capital to put together. So without further ado, I introduce you to Brendan Moynihan. Enjoy.

Speaker 3:42 Optimal minimal. [upbeat music] At this altitude, I can run flat out for a half mile before my hands start to shake. Can I ask you a personal question? Now would seem an appropriate time. What if I did the opposite? I'm a cybernetic organism, living tissue over metal endoskeleton. The Tim Ferriss Show.

Tim Ferriss 4:04 Welcome, everyone, to another episode of The Tim Ferriss Show, and I'm very excited to have Brendan Moynihan with us today. Brendan, how are you?

Brendan Moynihan 4:13 I'm doing well. And yourself?

Tim Ferriss 4:15 Doing extremely well, and I am thrilled to be chatting with you because, of course, I was introduced to your work first through What I Learned Losing a Million Dollars, and I remember being introduced to it by N.N. Taleb or Nassim Taleb, who wrote, of course, Antifragile, then before that, The Black Swan, and then Fooled by Randomness. And one of the lines that stuck out in his most recent book about What I Learned Losing a Million Dollars was that it was one of the rare non-charlatanic, if that's the correct pronunciation, books in finance. And I was hoping before we jump into all sorts of other questions that I'd like to ask, why do you think he said that? Why do you think he used that particular adjective?

Brendan Moynihan 4:58 I don't know. I had never met him when he put the title of my book in The Black Swan, and at that time, he said it was the best non-charlatanic finance book he'd ever read.

Tim Ferriss 5:07 Mm-hmm.

Brendan Moynihan 5:08 And it was actually that mention that caused a little bit of a stir with email for me to reprint the book, so I reprinted the book based on what happened in The Black Swan.

Tim Ferriss 5:17 Mm-hmm.

Brendan Moynihan 5:17 And then a few years later, he was at an interview with a dozen or so journalists at Bloomberg News, and I happened to be a consultant there at the time, and they invited me to sit in on a lunch, and he recognized my name when I was introduced, just because he had put it in his book. So I never really queried him about... I mean, I, I was thankful that he did it because-

Tim Ferriss 5:36 Mm-hmm

Brendan Moynihan 5:36 ... um, he's not known for handing out compliments.

Tim Ferriss 5:39 [laughs]

Brendan Moynihan 5:39 So I was just happy to have... [chuckles] I was happy to have had it, and I wasn't going to jinx it. But we had a very interesting discussion while we were in that room, and it turns out that he's read a lot of the same things that I've read, and so it was sort of a dialogue between him and me while the, the reporters were kinda taking notes, which was very interesting. So I don't know why he did that, but one, I think that- It's because it was an opposite tact in that there's so many books out there on how I made a million dollars in the stock market last year before breakfast. And in the million-dollar book that I wrote, I even go back to try to find out how old is this. And there's a book from like 1881, I think, by James Briskin called The Beef Bonanza: How to Get Rich on the Plains.

Tim Ferriss 6:13 [laughs]

Brendan Moynihan 6:13 You know, I mean, it wasn't the stock market. It was... I guess it was a livestock market, but people have been forever like, "I'm gonna tell you my secrets of how I got rich." I understand that. So I titled this book What I Learned Losing a Million Dollars with my co-author. Again, Jim lost the money, not me. I wanna be clear about that.

Tim Ferriss 6:28 Mm-hmm.

Brendan Moynihan 6:28 But why would somebody reveal their secrets to making it? Why don't we examine what goes wrong? And then if somebody's willing to bare their soul about that and share the mistakes-

Tim Ferriss 6:37 Mm-hmm

Brendan Moynihan 6:37 ... then as a parable, it might have more resonance with people about what not to do rather than what to do. And I think there's a... I'll get into it later, but I think there's a real premise for why it's essential to know the downside rather than all the different ways to make it on the upside.

Tim Ferriss 6:50 Well, I think that we should, of course, explore that. And I think that it's funny when you pointed out, you know, the getting rich on the plains with the beef bonanza because I can imagine for every given market, there's probably an equivalent book. I'd imagine if you go back to Venice [laughs] or if you go to the, the, uh-

Brendan Moynihan 7:06 There was probably one for the tulip mania, you know?

Tim Ferriss 7:07 Right, the tulip mania. I was just gonna bring up the tulip mania. There's probably some type of handbook that people were selling at the time. And what does that indicate is a problem or deficiency with those guides? What makes them charlatans in some cases? Not in all cases, but i- in some cases. What do you think the problems are inherent with such a book?

Brendan Moynihan 7:24 Well, and, you know, I wanna... I mean, yeah. Well, Taleb put the label on there, so I don't necessarily wanna, you know, speak to what his view or perspective was on that.

Tim Ferriss 7:30 Right.

Brendan Moynihan 7:30 But from what I understand, it's that people are holding themselves out as experts with some sort of specialized knowledge or insight-

Tim Ferriss 7:38 Mm-hmm

Brendan Moynihan 7:38 ... that as a high priest class, only they can impart to other people. And there were people who made livelihoods throughout history-

Tim Ferriss 7:48 Mm-hmm

Brendan Moynihan 7:48 ... by being hucksters or tricksters or charlatans. And I think that from my understanding of, of reading Taleb's work, that he thinks that there's a l- you know, a large cottage industry in the financial services industry that does that. They forecast what the market's gonna do or what the economy's going to do. They tell people what they should do with their money or they reveal inside secrets. And I think that he said, you know, if you try to do those or you try to follow those, you might get lucky for a while, but you have to understand that was luck. It was not some special secret formula that you had or got from this person to bring you to that state, so.

Tim Ferriss 8:23 Right.

Brendan Moynihan 8:24 But yeah, no, I think you're right. It is, it happens in every industry, so.

Tim Ferriss 8:27 And I think, you know, the... I've, I've found investing fascinating for so long. When I say investing, it's supposed generally for most people listening to this, that would mean publicly traded equities, for instance, stocks. And I remember the very first stock I ever bought. I don't know if I've ever publicly talked about this. This is my story, of course, not yours, but... And w- and I wanna talk about your background in a second, but the very first stock I bought was Pixar, and I was 15, [laughs] 15 or 16 years old, and it was-

Brendan Moynihan 8:58 Probably the early '90s, probably before.

Tim Ferriss 8:59 Yeah, it, it was '95 perhaps, '96 I wanna say, somewhere in that range roughly. And I was thoroughly convinced the stock would do well, and it ended up doing well, but I didn't have the emotional control to hold it. [laughs] So I s- I sold way too early.

Brendan Moynihan 9:15 Yeah.

Tim Ferriss 9:15 And what's funny about it is I then went and tried to develop very sophisticated approaches while going to undergrad at Princeton and beyond, very sophisticated approaches to investing, and I've come full circle to where what made me believe in Pixar is what, in some cases, enables me to pick startups [laughs] that I believe in. And, uh, it's just funny how I tried to copy these models that seem to me very sophisticated, and there are some sophisticated models, of course. But there's such a survivorship bias in finance where you have 100 people perhaps who roll the dice, and there are people who don't just roll the dice, but 100 people who roll the dice, and you have the few who survive are the people you hear about, which is also true of, say, startup icons who end up on the covers of magazines after risking it all. And it's a skewed data set. It's a really skewed data set, but I don't want to digress too far.

Brendan Moynihan 10:08 Well, you could say, and you could say the same thing about the S&P 500, which everybody believes is a stock index we've had for, you know, since 1928, but it's not true. You know, it was created in 1957 on March 4th, and, uh, before that it was a 90 stock index.

Tim Ferriss 10:21 Mm-hmm.

Brendan Moynihan 10:21 And, you know, 10 years ago, 40% of the stocks that are in it now were not even in it. And if you go back-

Tim Ferriss 10:26 Right

Brendan Moynihan 10:26 ... 20 years, like 80% of the stocks that are in it now weren't in it. So I mean, even, even the, the gauge by which people are measuring, one, how the market performs, and then how managers perform against that-

Tim Ferriss 10:37 Mm-hmm

Brendan Moynihan 10:38 ... is like, you know, a, a, an elastic measuring tool. It's a rubber band. It's not a, a, a fixed set.

Tim Ferriss 10:44 Right. Exactly. And I think that what's, what's also very common, and then I, I want to come back and give some background on you for people who may not be familiar with your, your background and credentials. But it's very common in the financial markets or any type of investing, I see this a lot in startups, where someone will just as a haphazard scattershot approach invest in, say, 100 companies, and they happen to hit the Google of that decade, and then they paint the bullseye after the arrow has hit. [laughs] And they-

Brendan Moynihan 11:15 Yeah

Tim Ferriss 11:16 ... and they attribute that to skill as opposed to luck. And then what's so ironic about that in the, in Silicon Valley at least, is that they then get a reputation, assuming they can use PR and messaging well enough, for being a good investor, and they start to see better deals, which then becomes this self-perpetuating cycle until the hubris leads to something like massive overspending for a period of four or five years, and then they crater.

Brendan Moynihan 11:41 Right.

Tim Ferriss 11:41 But they create another fund, and then it's back to, to square one, which I, I think also happens quite a bit in hedge funds.

Tim Ferriss 11:47 But for those people who aren't familiar with your background, perhaps you could just tell us a little bit about your history and what led you up to What I Learned Losing a Million Dollars, but also up to the current day.

Brendan Moynihan 11:59 Well, it's not a-an elaborate background. I was, uh, raised in Alabama, and, um, I had the, uh, good fortune to one day in my senior year have Jim Rogers, who had started-

Tim Ferriss 12:08 Oh, wow

Brendan Moynihan 12:08 ... the Quantum Fund.

Tim Ferriss 12:09 Mm-hmm.

Brendan Moynihan 12:10 He's from Demopolis, Alabama. I was from Birmingham. He came and spoke to our senior class, I think out of his fealty toward the state and coming to visit, and I was at the University of Alabama, so he came and spoke. And, um, after class I went up and collared him and said, "Okay, you know, you're a poor boy from Alabama and got to New York. How do I do it?" So he said, "Well, I'm in town tonight if you wanna go to dinner." So I went and had dinner with Jim Rogers when I was still a senior in college. I mean, I was already sort of determined that this is the industry I was gonna get into, but I thought I gotta take advantage of this guy being on the premises to talk to him. So, you know, I learned a little bit from him and struck up a bit of a dialogue. And way back then when there were wood-burning computers and there was no worldwide web, I wrote to him and he wrote to me, or I called him and he called me, and, uh, that kinda got me started. I interned when I was in college at a, a regional investment bank, and then I went to work for them for the first year after school. That was in Nashville, but I wanted to get to Chicago or New York, and I decided on Chicago for the, the futures market. So I went to Chicago. I spent four years there. I learned from a, a pretty smart guy there who'd been around for a long time, and, uh, kinda continued my real-world education rather than going to graduate school. And I got married, had my first son, and wound up working for a guy named Jim Paul for the last year that I was in Chicago. And, um, I had gotten recruited back to Nashville, and it was at that lunch with Jim on my last day of working for him. I was in the, the futures research department at Dean Witter, and the last day of my employ with him, he took me to lunch and he told me the story about, or part of the story about how he'd lost the money. And, um, you know, he said, "Somebody said I should write a book about it." And I said, "Well, you know what? I can do it. I can take your flowery story and marry it with my dry theory." And that was May 31st, 1990. So that was sowing the seeds to,

Brendan Moynihan 13:49 to do the book.

Tim Ferriss 13:50 Now, you have, you have an incredible, just as a side note, memory for dates. Has that always been the case? And it's... And [chuckles] I think you may have mentioned this before, but do you just have a particularly acute memory for facts and figures and things of that type?

Brendan Moynihan 14:04 Yeah, I'm not so good with names, but for some reason the 10 digits aren't as much of a challenge, and they're combinations. So I don't know. I mean, there's some dates I can remember certain things or certain things strike me as important and so I remember them. [laughs]

Tim Ferriss 14:17 [laughs]

Brendan Moynihan 14:18 You know, other things that go in one ear and out the other.

Tim Ferriss 14:21 You had that meeting with Jim and proposed that you could-

Brendan Moynihan 14:26 Yeah

Tim Ferriss 14:26 ... make this book a reality, and how did the book then get written? What did that look like?

Brendan Moynihan 14:30 Well, because it was a lunch, so it was an hour, right? I mean, he just told me kinda the highlights and said, you know, "Somebody said I should write a book." I said, "Well, I can do that." I said, "If you will tell the story to someone who hasn't heard it before so that you will be animated and, you know, full of inflection and just tape record it, send me the tapes, and then I will transcribe it and I will match it in with my theory." And I told him what my theory was and, and I'd worked for him, so he was a little bit familiar with what my approach was. So that was May 31st, and then the beginning of November he calls me and says, you know, "Oh, I can't do it. I'm... I can't. I tried. I can't talk to anybody, so I, I'm gonna mail you a plane ticket and you're gonna fly up here and stay with me for a weekend and I'm gonna tell you the story." I'm like, "All right, great."

Tim Ferriss 15:11 [laughs]

Brendan Moynihan 15:12 So, so the weekend before Thanksgiving in 1990, on a Friday, I flew up to Chicago. He picked me up at the airport. We went to the house. Got there at, I don't know, 5:00, 6:00 or something, and his wife [laughs] said, she goes, "Gentlemen, um, I lived this once. I'm not going to live through it again. I'm going to my sister's. I will see you on Sunday." And she left.

Tim Ferriss 15:33 [laughs]

Brendan Moynihan 15:34 So, so then Jim, like, turns on a Kentucky basketball game or something, and I don't really follow sports, so that was kinda like, okay, I'm gonna burn two hours here, like, you know, doing nothing. I don't really care about this. But so Jim watches the basketball game-

Tim Ferriss 15:46 [laughs]

Brendan Moynihan 15:46 ... and I'm like, okay, great. You know, I'm like, "Okay, I'm ready to get started." And he goes, "Oh, let's watch a movie." So he puts in this movie called Pretty Woman.

Tim Ferriss 15:52 [laughs]

Brendan Moynihan 15:52 Well, I don't really watch movies, so I'm like, I'd never seen this thing. I didn't know what it was all about. So I sit there for like another, you know, I don't know how long that was, two hours. Another two hours of my life I was never gonna get back. So we get to the end of the thing, and I turn... Jim is 50 years old at this time. I turn and look, and the guy is sobbing. He has seen the movie before, okay? And he's sobbing at the final scene of this thing where the guy shows up-

Tim Ferriss 16:15 [laughs] Richard Gere

Brendan Moynihan 16:15 ... at the car, like, supposedly like he's riding a horse and carrying flowers and coming to get this girl or something. I don't know. I was like, "You gotta be kidding me." So anyway, I'm like, "Okay, can we get started in the morning?" So we got started in the morning. I had the tape recorder, had all the tapes, had extra batteries ready to go. This is just a little dictaphone. You know, it's like the size of a, you know, a business card, a little bit larger or whatever. And Jim [laughs] goes to the pantry and pours himself a screwdriver. This is 8:00 in the morning.

Tim Ferriss 16:38 [laughs]

Brendan Moynihan 16:39 I'm like, well, I know Jim had sorta mentioned, like when we went to lunch that day, he was like, "Oh, I think I'll have a drink." I'm like, "Okay, it's lunchtime, and you're going back to work." So, you know, Jim had a screwdriver then, and then Jim continued to drink screwdrivers and just talked into the tape recorder. Well, I asked a few questions here and there, but he basically was just doing a brain dump, and I was just gonna transcribe it all later. So I don't know, maybe 3:00 in the afternoon I kinda give in and say, "Okay, well, I'll have a beer." So I go to the refrigerator and have a beer and, I don't know, after about like an hour and a half of drinking beer, and he's drinking I don't know what by then, I'm feeling a little, like, woozy. I'm like, you know what? I... You've been at this for eight hours. You probably need a little rest, you know. You've been talking and drinking for eight hours, and I probably need to put my head down. [laughs] I mean, this is, this is not, you know, uh, drinking beer-

Tim Ferriss 17:22 [laughs]

Brendan Moynihan 17:23 ... in the middle of the afternoon is not something I really do. So, so I went... [laughs] I was... There was a guest room, so I go to the guest room. About a half hour later he comes in, [laughs] banging on the door. He goes, "Brendan, Brendan, we're in big trouble. We're supposed to meet Pat for dinner in 30 minutes, so we gotta leave right now if we're gonna make it."

Tim Ferriss 17:38 [laughs]

Brendan Moynihan 17:38 I said, "No, no, no. No, you may be in big trouble, but I'm not in big trouble. I'm not going anywhere until this room stops spinning, and it's not gonna be any time, you know, soon. So you go have dinner with Pat if you want, but I'm not leaving."

Tim Ferriss 17:51 [laughs]

Brendan Moynihan 17:52 So that was, that was it for the night. I mean, we got eight hours that day.

Tim Ferriss 17:55 [laughs]

Brendan Moynihan 17:55 And then we did probably another nine hours the next day. I wound up with 17 hours worth of tape. That I took back with me, all little micro cassettes. And then I spent Thanksgiving Day, when I wasn't at the turkey dinner, in the office, which was closed, using the secretary's headphones and dictaphone machine where you put the tapes in.

Tim Ferriss 18:19 Mm-hmm.

Brendan Moynihan 18:20 And then you use foot pedals, and you fast-forward and rewind.

Tim Ferriss 18:23 Mm-hmm.

Brendan Moynihan 18:23 And I started transcribing this thing. And then I started spending weekends transcribing it. And I'd never typed, you know, before in my life, so I basically used the Columbus method, you know, hunt, seek, and land, to type this thing out.

Tim Ferriss 18:34 My God, that sounds like a really long process. [laughs]

Brendan Moynihan 18:37 It was. And, you know, it was on a Univac system. Again, there were wood-burning computers. There were no, there were no desktop computers at this place. We're talking about, you know, 1990. I'm sure they existed somewhere, but they didn't exist at this place.

Tim Ferriss 18:49 Right.

Brendan Moynihan 18:49 So, um, then, you know, I took my stuff and started tapping it out on the weekends. And then I started doing nights where I'd work all day, go home, have dinner, put the kids to bed, go back down to the office, work on the computer, add into it. And it took the better... I mean, between the, the research and the writing, and the back and forth, and figuring out how I was gonna organize it, it took me the better part of, of three years, four years to really kinda get it all into, into shape. You know, I don't know if you wanna be bored with the details of... I mean, that was, that was the writing side of it. The, the production side was a little interesting as well, so.

Tim Ferriss 19:19 [laughs]

Brendan Moynihan 19:20 'Cause we did it differently.

Tim Ferriss 19:21 Well, let's talk about it. Yeah. Tell me about it. As a side note, maybe you can answer this at the same time. That is a major undertaking, of course, taking three, four years to do that. I'd be curious also just to hear, and you don't have to do it right now, but perhaps somewhere in your answer, what was the drive to do it? Why did you wanna do this book?

Brendan Moynihan 19:38 Well, I think I've learned since then, because I've written several since, that just sometimes it's like something gets into your head, and you gotta get it out.

Tim Ferriss 19:45 Yeah. [laughs]

Brendan Moynihan 19:46 I mean, I don't know if it's... You know, I'm not an artist by any stretch. My mom was. I did a bit when I was younger. But I guess you get something in your head, and, you know, artists have to kinda get it out. So each of the subsequent books that I did kind of follow the same pattern, where it's like I had this observation, I have something to say about it, I gotta figure out the best way to say it. And then I wanna create a physical product out of it, and then, you know, try to sell it. I mean, it's like-

Tim Ferriss 20:08 Mm-hmm

Brendan Moynihan 20:08 ... you know, we were trying to make a fortune off of Jim's misfortune. And, you know, we didn't necessarily, but it's not a bad business card. You know, we, we, we hand it out, and, you know, it works, so.

Tim Ferriss 20:16 Mm-hmm.

Brendan Moynihan 20:17 But in the course of doing the book, I found out that, you know, the author really doesn't get that much money unless you're like, you know, a really big hitter, and you get an advance, and it's a great book, and blah, blah, blah. I mean, there are a lot of middlemen in between, from publishers to the bookstores, whatever-

Tim Ferriss 20:30 Mm-hmm

Brendan Moynihan 20:30 ... who get... I mean, to the person who gets paid to, you know, do the indexing on the book. You know-

Tim Ferriss 20:33 Sure

Brendan Moynihan 20:33 ... they were getting as much as I was or something. I'm like, "Really?" I mean, I wrote the book.

Tim Ferriss 20:37 [laughs]

Brendan Moynihan 20:38 So, so [laughs] I decided that we're gonna self-publish it. I wrote a letter with a five-page synopsis of the book, and a full copy of the manuscript, and a self-addressed stamped envelope, and sent it out to about 30 people of name in the industry, including Warren Buffett, who wrote back and said, "Sorry, Mr. Moynihan, too many requests, too little time. Warren Buffett." But I got his autograph.

Tim Ferriss 21:02 [laughs]

Brendan Moynihan 21:02 That's nothing else. So we collected quite a few people. Ned Davis runs Ned Davis Research out of Florida.

Tim Ferriss 21:10 Mm-hmm.

Brendan Moynihan 21:10 And, um, Ned put his name on the back cover. Bob Prechter, you know, from the futures industry did. Leo Melamed, chairman emeritus of the Chicago Mercantile Exchange. Ken Fisher out in, uh, your neck of the woods put a blurb on the back cover of the book. So we wound up with a pretty good list of, you know, 8 or 10 people of some name who were willing to read the book and, you know, put a blurb on it.

Tim Ferriss 21:30 Mm-hmm.

Brendan Moynihan 21:31 And then we just got really lucky. I sent out maybe 20 or 30 made-up press releases. I didn't even know what a press release was. But I created one or, you know, looked at one and just made the same thing. So I sent them off to some of the news organizations, and, um, Mark Hulbert at Forbes magazine picked up on it.

Tim Ferriss 21:47 Mm-hmm.

Brendan Moynihan 21:48 And the day we self-published the book, October 5th, 1994, it made a byline on the cover of Forbes magazine above Jack Welch's head that says, "Biggest mistakes investors make. Are you guilty?"

Tim Ferriss 21:58 [laughs]

Brendan Moynihan 21:59 And bang, we were done. We broke even in three months, and then we just had books to give away. And we sold the German rights, and, you know, then we were just kinda off to the races, so.

Tim Ferriss 22:06 Germany's huge. Germany's a big market. And were you selling it at that point? I'm just trying to put a figure on your date.

Brendan Moynihan 22:11 I'm sorry. It was 1-800-something book. I mean, it was-

Tim Ferriss 22:13 Oh, CEO Read or 1-A?

Brendan Moynihan 22:15 I had book jackets. I had P.O. Box 198038, Nashville, Tennessee. People were sending in checks. I'd go down there every day, get the checks, go home, box up books, mail them out. I mean, it was, it was, it was insane, you know? And then Jim would give speeches in the futures industry, and, you know, he'd take a box of books, and he'd, like, sell them one by one. And I mean, it was, it was not our job. We were just, you know, we were just... But we got all the money. You know what I mean?

Tim Ferriss 22:37 Right.

Brendan Moynihan 22:37 It's like we weren't taking... It wasn't like there was a cut, but it was, it was a hobby, you know?

Tim Ferriss 22:42 Yeah.

Brendan Moynihan 22:42 I don't play golf or tennis, so it's like this is what I do with my time, so.

Tim Ferriss 22:44 [laughs] And what did, what did Jim look like? I'm trying to identify. When you-

Brendan Moynihan 22:49 Jim was probably-

Tim Ferriss 22:49 When he's sitting there having those screwdrivers-

Brendan Moynihan 22:51 Jim was-

Tim Ferriss 22:51 ... what, what is he wearing? What does he look like?

Brendan Moynihan 22:53 Jim was, Jim was 6'1", 6'2", probably 170, 175 pounds, lean, angular, may have been blond but starting to go a little bit gray, fair complexion, and a gravel voice from yelling in the lumber pit for, I don't know, 10, 15 years or something. I mean, his voice sounded like gravel in the bottom of an empty coffee can, is what it sounded like.

Tim Ferriss 23:16 [laughs] Yeah, it felt like you did a, a good impersonation, at least based on my reading of the stories.

Brendan Moynihan 23:22 [laughs]

Tim Ferriss 23:23 That's the voice that I'm now gonna have in my-

Brendan Moynihan 23:24 Yeah

Tim Ferriss 23:24 ... in my head when I reread it. [laughs]

Brendan Moynihan 23:27 That's, that's it. Yeah. [laughs]

Tim Ferriss 23:28 What were some of the lessons that he learned or that you heard from him, stories and so on, that you weren't able to include in the book? Are there any other favorite Jim stories that just didn't make it into the narrative?

Brendan Moynihan 23:41 Well, the stories were interesting. The... My view is that, you know, what I presented as the three mistakes that investors and traders make was an overarching perspective from what goes on between your ears that can screw up anybody's specific methodology for how they go about trying to make money.

Tim Ferriss 23:58 Mm-hmm.

Brendan Moynihan 23:58 So I didn't think that... I mean, I thought I captured it, and then, you know, I buttressed it when I looked up the word psychology in the dictionary, and I found out there's a three-part definition that matches exactly the three parts that I just went through. So I'm like, okay, the light bulb went on over my head, and I just, I went full bore to get that all worked in. I don't know that Jim really revealed anything to me that wasn't in there. I'll, I'll recount one thing that he said to me after I got him the manuscript and he read it. And he goes, "I mean, I know how you got all the story about me and all this." He goes, "But how do you know about all this loss stuff? And what goes on in your head?" And I thought, Jim... I told him, I said, "You're so vain. You think that, like, you're the only person who's lost money, okay?"

Tim Ferriss 24:30 [laughs]

Brendan Moynihan 24:31 I mean, you know, I've lost money, okay? I thought if I lost $15,000 on a trade or over a series of trades or whatever, it's not the same as much as you lost, but you know what? It's the same thing.

Tim Ferriss 24:41 Right.

Brendan Moynihan 24:41 I mean, you're not the only person who's done this.

Tim Ferriss 24:43 [laughs]

Brendan Moynihan 24:43 "Okay. Okay, I get it. I understand." So I'm like... So I don't know that Jim was ever able to incorporate what I was saying into his approaches, because every once in a while, over the course of the three and a half years I was writing the book, he'd call and he's like, "Oh, I did it again. I was up, I was up, and then I lost $20,000." I'm like, "Okay. Well, Jim, I have a book for you to read. It's in manuscript form right now, but in c- I'll be happy to send it to you. That might help you with that problem [laughs] because you're obviously not getting it, you know?"

Tim Ferriss 25:09 [laughs]

Brendan Moynihan 25:10 So I don't know that Jim ever really incorporated it-

Tim Ferriss 25:12 Right

Brendan Moynihan 25:12 ... into his psyche, and he may have been unable to, I don't know. But he had some hilarious stories and, you know, some of them were recounted in the book. Some could not be recounted, you know, [laughs] on a-

Tim Ferriss 25:23 Right, aiming it for family programming.

Brendan Moynihan 25:24 But the-

Tim Ferriss 25:24 Right.

Brendan Moynihan 25:25 The... Well, yeah. And, you know, because the, the names would have to be changed to protect the innocent and all the rest. So no, I think one of the funniest stories that, you know, I've ever heard came out of his mouth [laughs] and it was after he lost some money. So, so he's on the board of governors at the Mercantile Exchange, right?

Tim Ferriss 25:39 Mm-hmm.

Brendan Moynihan 25:39 He's like in the, in the executive committee. They're like six people making the decisions for the exchange, and he drops 1.6 million out of the 1.2 million that he has in 75 days.

Tim Ferriss 25:49 Mm-hmm.

Brendan Moynihan 25:50 So they come in, liquidate the position, throw him off the board, and clear out his office.

Tim Ferriss 25:53 Mm-hmm.

Brendan Moynihan 25:54 So he's like, "Oops." So he goes downstairs to the same restaurant that he took me to have lunch in all those years later, and he's like, "You know, what am I gonna do?" And he says, "Well, you know, the only way to make good on this is I've got about a million dollars worth of life insurance, and the only way to do that is for me to have a few drinks down here at the bar. Everybody knows I drink too much anyway. Then I'll take the Porsche, get out on the interstate out here, and heading home, I'll crank it up to about 100, and I'll aim the car at one of those concrete posts that holds up overhead bridges."

Tim Ferriss 26:24 Oh, my God. [laughs]

Brendan Moynihan 26:26 So, so he goes downstairs and he has his drinks, and he gets in the car, and he gets out on the interstate, and looks in the rear view mirror, and sees the blue lights flashing.

Tim Ferriss 26:36 [laughs]

Brendan Moynihan 26:38 So he pulls over and the cop comes up to the window and says, "License and registration, Mr. Paul. Do you have any idea how fast you were going?" He goes, "Uh, 85, 95." He goes, "Try 18 miles an hour."

Tim Ferriss 26:49 [laughs]

Brendan Moynihan 26:49 "Get out, get out of the, get out of the car."

Tim Ferriss 26:51 [laughs]

Brendan Moynihan 26:52 So he was stuck in first gear. He was a road hazard. It was... So I got pulled over because he's in a, he's in a car that looks like it's going fast when it's sitting still, and he's driving at 18 miles an hour in first gear.

Tim Ferriss 27:03 [laughs]

Brendan Moynihan 27:04 So he said it probably saved his life. And for what it's worth, it, you know, I got a book out of it as well. But that quickly passed from his perspective. He's like, "Okay, I got saved by a guardian angel or something. I'm never gonna do that again." And he went about trying to, you know, piece his life back together-

Tim Ferriss 27:19 Right

Brendan Moynihan 27:19 ... after, uh, after that. But that was one of the sound, most fu- funniest things I've-

Tim Ferriss 27:23 That is hilarious

Brendan Moynihan 27:23 ... I've heard from him.

Tim Ferriss 27:24 And let me, let me add another $15,000 of transmission damage to, to [laughs] the amount of money I need to recoup.

Brendan Moynihan 27:31 Yeah, yeah. [laughs]

Tim Ferriss 27:32 [laughs]

Tim Ferriss 27:33 On the three points that you mentioned, perhaps you could just give a brief mention of those three points. And in general, I'd be curious to hear what you think makes a good investor.

Brendan Moynihan 27:45 Okay. Well, the three points, and again, I kinda backed into it because I had, I had the three things that I was doing wrong. I mean, I sort of, I thought I had it kind of sorted out, and then I wrote the book, and then I realized, okay, this is really about a, a light treatise on the psychology of mistakes that we make. And I thought, "Well, what does psychology really mean?" If I actually see if I can work this into the book.

Tim Ferriss 28:03 Mm-hmm.

Brendan Moynihan 28:03 So if you look up in the dictionary, it says, "What are the mental processes, behavioral characteristics, and emotions of an individual or a group?" So basically, the mental processes are that people internalize what should be an external loss.

Tim Ferriss 28:17 Mm-hmm.

Brendan Moynihan 28:18 Like, if you lose your keys, you don't go through the five stages of internal loss, which is denial-

Tim Ferriss 28:23 [laughs]

Brendan Moynihan 28:24 ... anger, bargaining, depression, right? You, you lost your keys. It's no big deal.

Tim Ferriss 28:28 Right. Right.

Brendan Moynihan 28:29 But when you lose money, people tend to internalize that and they, they tend to equate self-worth with net worth.

Tim Ferriss 28:35 Right.

Brendan Moynihan 28:35 And then they start going through this mental process. So being able to identify and capture that lets you know, okay, this is one of the mistakes that you could be making. You have now internalized something that should be external. Don't be doing this. This is a bad thing, okay? I'm, I'm trying to abbreviate all this obviously.

Tim Ferriss 28:48 Of course. Yeah, of course.

Brendan Moynihan 28:50 So the other one is the behavioral characteristics of, again, the individual or group. And I think that people mistake the venue in which they participate in an activity with the type of activity they're engaged in.

Tim Ferriss 29:01 Mm-hmm.

Brendan Moynihan 29:01 In other words, I think there are five types of market participants. I think there are investors-

Tim Ferriss 29:05 Mm-hmm

Brendan Moynihan 29:05 ... speculators, traders, bettors, people who bet-

Tim Ferriss 29:09 Mm-hmm

Brendan Moynihan 29:09 ... and gamblers.

Tim Ferriss 29:11 Mm-hmm.

Brendan Moynihan 29:11 And depending on which one of those five you are is a function of how you're behaving in the environment.

Tim Ferriss 29:18 Mm-hmm.

Brendan Moynihan 29:18 So there are people who can professionally gamble in Las Vegas, and they have a system into whatever. So they're not really gambling. They've got some sort of system and methodology, and I, I don't really, I don't do that kind of stuff.

Tim Ferriss 29:29 Mm-hmm.

Brendan Moynihan 29:29 But I've read enough about it to where there are people who do this. And oh, by the way, Edward Thorp, an academic, wrote a book called Beat the Dealer.

Tim Ferriss 29:36 Mm-hmm.

Brendan Moynihan 29:36 Made so much money that the Las Vegas Resorts and Hotel Association changed the rules of the game.

Tim Ferriss 29:41 Mm-hmm.

Brendan Moynihan 29:41 So he went out and wrote a book called Beat the Dealer and sold five million copies. And I'm like, "What is, what is up with this?"

Tim Ferriss 29:47 Yeah.

Brendan Moynihan 29:47 This is like, you know, the Beef Bonanza again, right?

Tim Ferriss 29:50 [laughs]

Brendan Moynihan 29:50 I mean, they changed the rules so that he can't use this system, but five million people bought his book.

Tim Ferriss 29:55 Yeah.

Brendan Moynihan 29:55 I'm like raising my hand saying, "I got a book over here. I mean, I'll just sell a million. I don't need five million. Just come buy

Brendan Moynihan 30:00 a million of it."

Tim Ferriss 30:01 Just to, to touch on those labels that you mentioned, because I found-

Brendan Moynihan 30:04 Yes

Tim Ferriss 30:04 ... one of the many eye-opening aspects of the book, because I think you got into at least a handful of those in the book, but how would you, in brief, distinguish those various classes, those five classes of market participants?

Brendan Moynihan 30:17 So investing, according to Adam Smith, is the parting with capital with the expectation of return in the form of interest, rent, or dividends.

Tim Ferriss 30:25 Mm-hmm.

Brendan Moynihan 30:25 Each of those three things are paid on a periodic basis, right? Quarterly, monthly, semi-annually, whatever.

Tim Ferriss 30:31 Right.

Brendan Moynihan 30:31 You intend to be parted with that capital for an extended period of time.

Tim Ferriss 30:35 Mm-hmm.

Brendan Moynihan 30:36 Traders are market makers in my mind. They buy at the bid and sell at the offer. It's all they do. They're tr- they got to go home flat and they are very short timeframe oriented.

Tim Ferriss 30:43 Mm-hmm.

Brendan Moynihan 30:44 Very different from the investor.

Tim Ferriss 30:45 Mm-hmm.

Brendan Moynihan 30:46 Speculators buy and sell, go long or go short, not waiting for that dividend interest or, or rent. They are in for the short term looking for the price differential, the price change. So their timeframe is again different from the longer timeframe of the investor. Bettors are interested in being right. You and I can have, there's not really a very politically correct, you know, term for this or updated term for this, but there's a thing called a gentleman's bet, right?

Tim Ferriss 31:06 Right.

Brendan Moynihan 31:07 There's no money involved. This is bragging rights. You know?

Tim Ferriss 31:10 Like trading places. [laughs]

Brendan Moynihan 31:11 I think this happened, you bet, or even bet a dollar, but they took the dollar off the table, be purely a gentleman's bet, right?

Tim Ferriss 31:16 Right, right, right. [laughs]

Brendan Moynihan 31:17 To where you get bragging rights. I was right, you were wrong. You know? And your chest puffs up and you get to make fun of the guy and, you know, whatever, right?

Tim Ferriss 31:23 Right.

Brendan Moynihan 31:24 Or pinky bets, right? You know, you have a pinky bet. There's no money change, right?

Tim Ferriss 31:27 Right.

Brendan Moynihan 31:28 They confuse the profit motive with the prophet motive. P-R-O-P-H-E-T, P-R-O- P-R-O-F-I-T, right?

Tim Ferriss 31:33 Right. Got it.

Brendan Moynihan 31:34 They wanna be right. It's not about the money.

Tim Ferriss 31:36 Right.

Brendan Moynihan 31:36 And then gamblers, that is a disease. There is something wrong there. It is a betting gone amuck. Money is just a ticket to enter. They're there for the adrenaline rush.

Tim Ferriss 31:46 Right.

Brendan Moynihan 31:46 And I don't pretend to be an authority on, you know, what that is, but I'm, it's the other end of the spectrum. But it is one of the categories.

Tim Ferriss 31:52 Mm-hmm.

Brendan Moynihan 31:53 But you can gamble in the securities markets.

Tim Ferriss 31:55 Sure.

Brendan Moynihan 31:55 You can gamble in the commodities markets, in the currency markets, whatever. You don't have to be in a, a gambler casino to be gambling if you exhibit the behaviors. And then I go through what the behaviors are so people can start to recognize and acknowledge what they're, what they're up against. And then the last piece is, you know, what are the, the, the emotions of a group or individual? And again, I'm not talking about being a psychologist or being trained in any of that, but I don't have to be trained in that to know that if your emotions have become involved, what you've done is you have personalized something. You have now made this a matter of pride or embarrassment or shame or something. Emotions are neither good nor bad. They simply are. They just exist. We experience them. It doesn't matter. Making decisions based on emotions is bad and can be problematic.

Tim Ferriss 32:39 Mm-hmm.

Brendan Moynihan 32:39 So in my research and reading, I just found this book from 1905 called The Crowd by a Frenchman, Gustave Le Bon, and he talks about the crowd being the single entity that best exhibits emotional decision-making. So I thought, well, if I can go through this and, and make this part of the construct to explain to people if you're exhibiting these kinds of decisions or these kinds of processes, which is when a crowd forms, a psychological crowd forms and what they do-

Tim Ferriss 33:09 Mm-hmm. Right

Brendan Moynihan 33:09 ... then you'll be catching yourself and identifying that misbehavior and trying not to be making emotional decisions. So that's the, I mean, that's, that's the sort of Reader's Digest version of what are the three things, and then sort of like the beginning bullet points that, that fall down underneath each one.

Tim Ferriss 33:23 And, uh, the crowd sounds a lot like Mr. Market that Warren Buffett talks about who comes into the office every day.

Brendan Moynihan 33:29 Yeah, and Jim Grant too. Exactly.

Tim Ferriss 33:30 Right.

Brendan Moynihan 33:30 Exactly.

Tim Ferriss 33:31 And what have you found among readers or people in general, of course you've had a lot of exposure to market participants both when you've actively traded, but, uh, since the book came out, what have you found has been effective for people or distinguished people who have been able to develop and actually act on the information in the book? Because like you pointed out, I mean, I'm, I'm endlessly fascinated by this even with my own books, whether it's business or sports with 4-Hour Body, whatever it might be. There are some people who put the words into practice and there are others who fail to. And-

Brendan Moynihan 34:07 Right

Tim Ferriss 34:07 ... I'd love for you to comment on how or why the readers who are successful in doing that are successful, if you have any thoughts.

Brendan Moynihan 34:16 I have spoken to a number of people. A lot of people have contacted me over the, over the years. It's been a long stretch. But I think what I've found is because what I try to do is just say, "Well, okay, here are the, here are the problems, but then all right, now what to do about it?"

Tim Ferriss 34:26 Right.

Brendan Moynihan 34:26 And what I lay out in the back half of the book or the back two chapters of the book is, one, having a plan that is developed when you are not in the market. You cannot have a position on when you develop this thing.

Tim Ferriss 34:35 Right.

Brendan Moynihan 34:36 And whatever your methodology is, you know, I mean, there's many ways to make money as there are participants. There are relatively few ways to lose it. I think I've just identified them. Form the checklist, put that on a, you know, the top half of a sheet of paper.

Tim Ferriss 34:48 Mm-hmm.

Brendan Moynihan 34:48 And on the bottom half of the sheet of paper, write out, because you have to have it objectified and down in black and white, write down the if-then statements or scenarios under which you'll pull the trigger to get in a position or get out of a position.

Tim Ferriss 35:02 Right.

Brendan Moynihan 35:02 So that it is now out of your hands. Now, can you violate that? Can you take the piece of paper and throw it away or burn, tear it up or whatever? Absolutely. But until somebody goes, I think, and puts down a checklist and has something to look at and say, "Am I doing one of these three things or the, the little bullet points that fall under each one of those three?"

Tim Ferriss 35:19 Mm-hmm.

Brendan Moynihan 35:19 "Am I succumbing to this?" You know? And, you know, with the pencil start saying, "Okay," you know. And then are you following the bullet points that you've now put at the bottom, which are the if-then scenarios under which you're going to act and pull the trigger on a position in the market. So I think the ones that have, you know, sort of gotten what I was saying, they have written it down. The top half of the sheet of paper is basically, you know, you print it out, right? I mean, and then the bottom half, your plan might not change from one day to the next, but some people print it out every day. Some people just print out the bottom half and say, "Okay, I'm changing the plan to do this. I'll check the checklist. Am I falling into these traps? Am I doing any of this stuff?" And again, it's the propensity for humans to delude themselves and, you know, kinda cheat on that exists, and there's really not a lot, you know, I can do about that.

Tim Ferriss 36:02 Right.

Brendan Moynihan 36:02 But in terms of translating 65,000 words into a single sheet of paper that you can then try to instill it is the way that I've found people use it best. And I do the same thing. I mean, that's, I have a stack of legal pads and I physically write the stuff out every day because then it's not being tapped out on the computer. I literally have to write it out in, you know, capital letters with a pen so that I, I know I'm doing what I'm supposed to be doing.

Tim Ferriss 36:23 And I, I do exactly the same thing typically on a Post-it or an index card, something that's very physically limited in terms of real estate so that I can't have an unending, say, app full of to-do items. I feel like checklists are so undervalued, uh, particularly when people feel that the decisions are simple enough to hold in their working memory. Because [laughs] the first thing, of course, that happens, like you said, you can't really formulate a plan when you have a position, and if you have an emotional response to a position, that working memory is going to be rendered useless

Brendan Moynihan 36:59 Right. There's a reason why telephone numbers are seven digits long, right? I mean, there is a capacity that the brain cannot take in, and this is actually gonna be one of the sections of the book that I'm... I've already written it, but I'm, I'm... the book that I'm working on right now, which is basically concept formation.

Tim Ferriss 37:12 Mm-hmm.

Brendan Moynihan 37:13 So if you, in your mind's eye, if I put up three vertical lines just on a piece of paper, about one inch long-

Tim Ferriss 37:19 Yeah

Brendan Moynihan 37:19 ... you can just glance at that and tell me there are three.

Tim Ferriss 37:21 Mm-hmm.

Brendan Moynihan 37:21 You don't need to count them, right?

Tim Ferriss 37:23 Mm.

Brendan Moynihan 37:23 Now, a five-year-old would have to count them because the five-year-old has not yet figured out how to grasp that much content at a glance and spit out what the answer is.

Tim Ferriss 37:33 Mm-hmm.

Brendan Moynihan 37:33 But if I put 15 of those lines up there right next to each other-

Tim Ferriss 37:38 Mm-hmm

Brendan Moynihan 37:38 ... you would have to count them.

Tim Ferriss 37:40 Right.

Brendan Moynihan 37:40 Now, I could do a little shortcut, and I could do four of the lines vertical and then one diagonal through it, right?

Tim Ferriss 37:47 Mm-hmm.

Brendan Moynihan 37:48 And you're old enough to know that means five. And I could put three of those, and you'd say, bang, 15.

Tim Ferriss 37:52 Mm-hmm.

Brendan Moynihan 37:53 Or I could put the number 15, and putting the digits one and five next to each other is condensing a lot of perceptual data into a smaller mental unit that you can grasp immediately.

Tim Ferriss 38:08 Mm-hmm.

Brendan Moynihan 38:08 That's what your Post-it note is doing with the list, in my mind, and that's what my one-pager is doing in my mind, is that the bullet points are taking this, you know, mass of data that I have, you know, formed in my head, what am I gonna do, what am I not gonna do, and I'm boiling it down so that I can, at a glance, more readily apprehend it and put it to work.

Tim Ferriss 38:25 Definitely. There's a very good writer, also a very good doctor, named Atul Gawande. I don't know if you've ever heard his name, but he's written for The New Yorker and wrote a book called The Checklist Manifesto, and it talked about how just incredibly profound the changes can be when a simple checklist is employed, for instance, for bacterial line infections or preventing bacterial line infections in hospitals. And of course-

Brendan Moynihan 38:48 Oh, yeah

Tim Ferriss 38:48 ... every doctor, every nurse feels like they don't need that type of assistance, but very simple mistakes with extreme consequences are made all the time in hospitals because people are rushed, there are extenuating circumstances, the unpredictable or the unexpected happens, and that's when the obvious becomes not so obvious or it gets lost in the noise.

Brendan Moynihan 39:09 That's probably, you know... And I would imagine that pilots-

Tim Ferriss 39:12 Exactly. Exactly

Brendan Moynihan 39:13 ... are perfect examples of why they are maybe forced to do that. I don't know that much about it, but I mean-

Tim Ferriss 39:18 No, that's, that's a, that's a great example

Brendan Moynihan 39:20 ... there's a reason why they call it a checklist, right? Yeah.

Tim Ferriss 39:21 Right. That's exactly right. And also effectively forcing the checklist to be used because in the case of airlines, for instance, a lot of crashes, when you review the black box tapes, are caused by a reticence on the part of the co-pilot who's oftentimes lower in the hierarchy than the actual-

Brendan Moynihan 39:38 Right. Right

Tim Ferriss 39:39 ... primary pilot of speaking up when he notices or she notices various problems or skipping of the checklist. And you could certainly see how that dynamic would play out if you have, let's say, a spouse who's nervous about a position or an employer who is somehow entered into the psychological dynamic. I wanna come back to your current work and what you're working on, but before we get

Tim Ferriss 40:01 there, which investors have most impressed you or impress you? Uh, whether that's, you know, the Jim Rogers types or others. I'd just be curious to hear which investors have most impressed you over time.

Brendan Moynihan 40:14 Well, again, my history is largely from the trading environment. I traded bonds, currencies, and commodities for, you know, 25 years, and have only recently, in the last couple of years, kind of moved into the equities markets as part of my profession. And this is, you know, probably a, you know, shameless plug or whatever, but I, I work for the two smartest guys I've ever met in my life.

Tim Ferriss 40:34 Mm-hmm.

Brendan Moynihan 40:35 So I feel very comfortable and happy there.

Tim Ferriss 40:37 That's great.

Brendan Moynihan 40:37 In terms of other investors, I do think that in my early years, I do think I learned a lot from speaking with, with Jim Rogers. You know, he said to me one time, he said, "You know," he said, "Short soybeans, and you'll learn more in one week than you will at two years at a business school."

Tim Ferriss 40:51 [laughs] Just by holding that position-

Brendan Moynihan 40:53 And I-

Tim Ferriss 40:53 ... regardless of the market

Brendan Moynihan 40:54 ... so, yeah, so I did. A lo- I was... And by the end of the week, I was down. I did it for five days, and I lost $450. But it was like the longest position I'd ever held, but you know what? I learned a lot. I was probably 24 years old, and I really began to... And I was on my own. I wasn't employed. I was doing my own thing. I was trying to make money doing that, and I learned more in that, you know, doing that. I did learn a lot from... Again, these are gonna be floor traders, a guy named Tom Baldwin in the bond pit in Chicago. I learned a lot from reading about and interviews with these people. Bruce Kovner, um, he was featured in Market Wizards. And so, you know, again, my, my bet was really more on the, on the speculator side, right? I wasn't an investor in that capacity or looking at equities that way. So I think that my perspective and approach were probably a little bit different from what most people maybe in the securities industry, you know, kinda grew up and cut their, cut their

Brendan Moynihan 41:44 teeth on.

Tim Ferriss 41:45 What impresses you about a good trader? What in your mind makes a good trader? Just out of curiosity, because I, I've never participated in the markets that way, but I've seen, for instance, bootleg copies of The Trader, which is about Paul Tudor Jones.

Brendan Moynihan 41:57 Yeah.

Tim Ferriss 41:58 And it can appear very sexy. It's very exciting.

Brendan Moynihan 42:01 Yeah. Um-

Tim Ferriss 42:02 I'm sure a lot of people get, get swept into it that way, but what makes a good trader in your mind?

Brendan Moynihan 42:07 Well, I mean, I think actively being able to take a loss.

Tim Ferriss 42:13 Mm-hmm.

Brendan Moynihan 42:14 You might be in a position and it's against you, and you have a stop further down in the market to, to get you out if it gets down there. But the ability to just turn and just say, "You know what? It's not acting right. I'm not gonna mess with this. I'm not gonna hope for it to go back up to kinda back to break even. I'm just gonna go ahead and get out." And be able to take that loss and just walk away from it-

Tim Ferriss 42:31 Mm

Brendan Moynihan 42:31 ... and not, not relive it, not rehash it, not mull over it, not complain [laughs] about it. And it's difficult because- I think that what happens is, and I point this out in the book that, um, the, the, The Million Dollar Book that we've been talking about, that because we lose points for wrong answers on tests in school-

Tim Ferriss 42:53 Mm-hmm. Mm-hmm

Brendan Moynihan 42:53 ... when we lose money, we must think that we were wrong.

Tim Ferriss 42:57 Hmm.

Brendan Moynihan 42:57 And we really don't like to be wrong.

Tim Ferriss 42:59 Right.

Brendan Moynihan 42:59 No matter what it is we're talking about, none of us likes to be wrong.

Tim Ferriss 43:03 Mm-hmm.

Brendan Moynihan 43:03 So the ability to distinguish that and differentiate that and keep that money loss as an external thing rather than internalizing it, personalizing it, and equating loss with wrong and saying-

Tim Ferriss 43:14 Mm-hmm

Brendan Moynihan 43:14 ... "No, I lost some money." This is not about being right or wrong.

Tim Ferriss 43:17 Mm-hmm.

Brendan Moynihan 43:17 Running a business is not about being right or wrong. It's about making judicious risk management decisions in a condition of uncertainty, trying to speculate, and I mean that with a capital S, running a business, what future demand is going to be, where supply is going to come from, a very dispassionate view of the decision-making process, and to some extent, a healthy disrespect for money.

Tim Ferriss 43:43 Mm-hmm.

Brendan Moynihan 43:43 Money is just a way of keeping score.

Tim Ferriss 43:45 Hmm.

Brendan Moynihan 43:46 It, it to become, you know, the be-all, end-all that, I mean, that, I've seen that get people into trouble. That, that wasn't the exact question you were asking. I've seen that get people into trouble, and I think some of the best traders I've seen, like the money is not, you know, what it's about. It's not what they're, they're doing. They're not flashy. They're not going out and, you know, buying crazy things and-

Tim Ferriss 44:04 Well, I've heard, maybe you can confirm or deny this,

Tim Ferriss 44:08 but I've heard from a number of people that, uh, there are, may not be hedge fund managers specifically, but traders who are playing with huge positions who at numerous points in their careers when they reach a height of anxiety, when they're having panic attacks and are unable to sleep and so on, that their rule is to liquidate all of their positions and start from scratch, which would seem to [laughs] sort of reinforce the keeping track perspective of, of capital in this particular case. I think I may have read that in a book called More Money Than God about, um, a number of the sort of titans of the hedge fund industry. But that's something that I've struggled with, quite frankly, because oddly enough, in the, the highly speculative startup market where I've been very fortunate to be involved with, whether, whether it's Twitter, Facebook, Uber, Evernote, a lot of these companies, it's binary. Once I make a decision-

Brendan Moynihan 45:03 Yeah

Tim Ferriss 45:03 ... I'm pretty much-

Brendan Moynihan 45:04 You're in an illiquid situation. You have to play.

Tim Ferriss 45:05 Exactly. For the most part, you're in an illiquid situation. So I, I have to do all my due diligence, my homework, cross my fingers and place a bet, and then I'm not asked by Mr. Market every morning, "Do you wanna buy? Do you wanna sell? Do you wanna buy? Do you wanna sell?"

Brendan Moynihan 45:17 Right. Right, and you're an investor, and you're, and you're an investor of the longest timeframe that Adam Smith was talking about when he scripted that out because the idea of you waiting for a dividend, whether that comes from, you know, going public or whatever-

Tim Ferriss 45:29 Right

Brendan Moynihan 45:29 ... is a really long time. But no, you're right, and I think that it is. I mean, it ma- you're an investor, and a lot of what I've been talking about, a lot of what the book was about in the specifics of the parable is speculators. But even investors in illiquid securities markets do have the ability to decide, "I do not wanna be in the steel market anymore. I was in the steel business today. I don't wanna be in there by Thursday, and I'm gonna get out."

Tim Ferriss 45:48 Right.

Brendan Moynihan 45:48 So it's a contrast, and I've heard anecdotally about people liquidating all the way down to, to zero. But really I've heard and I've experienced myself just, you know, liquidating down to the sleep level. So here, here's a great-

Tim Ferriss 45:59 [laughs]

Brendan Moynihan 45:59 ... here's a great analogy.

Tim Ferriss 46:01 Yeah.

Brendan Moynihan 46:01 There's a guy who I worked with at the investment bank in Nashville. He's long since dead now, but he was around when the firm started in 1927. So he went through the crash and the Depression working for that firm and was still there in the mid-1980s when I got there, May 13th, 1985. He said, "Brendan, there are only two positions in the market, and it's not long and short." And I kinda looked at him. He said, "It's too little and too much."

Tim Ferriss 46:26 [laughs]

Brendan Moynihan 46:28 So when it's working for you, when the position's going your way, you don't have enough on. And when it's going against you, you got too much on. [laughs]

Tim Ferriss 46:36 [laughs]

Brendan Moynihan 46:36 So will I liquidate down to a sleep level? Yeah, I've done that. I've done that a number of times. Have I gotten completely out when I'm just like, "It's not going, something's wrong. I don't understand what's happening here. The volatility is too much" or whatever. And I've heard this one as well. I mean, th- these are little, you know, cliches that come from the street, but, you know, it's better [laughs] to be a coward and live to fight another day than to die on the battlefield. And-

Tim Ferriss 46:57 Right

Brendan Moynihan 46:58 ... Jim was killing himself on the battlefield by losing that much money in that short a period of time. And so some, you know, but that's it. A trader will take the lump and just say, "Okay, so I lost the money, but I have to stay liquid so I can come back and, you know, try this again if I think I, if I think I have any skill at doing this. I can't make this a matter of being right or wrong and risk all the capital just because there's room to risk it."

Tim Ferriss 47:20 You know, one of the things I really loved about what I learned losing a million dollars, which helped me tremendously, was looking at my internal state, my internal rules, the beliefs, behaviors, emotions as forensically as possible, as objectively as possible to set rules in advance that would serve me so that I wouldn't misbehave and make sort of capricious impulse decisions that would be extremely harmful. And one of the things that that sparked in my mind at least was trying to diagnose those various aspects of your psychology so that you could identify the type of investing that you are best suited to. And in my case, I realized that, and this, this happened after reading Lowenstein's The Making of an American Capitalist about Warren Buffett, where there's a story in that book that roughly, and I'm paraphrasing this, and I might have sort of exaggerated it in my own mind, but Warren Buffett used to come home and then walk up to his office and continue reading annual reports. And at one point, his son had fallen down the stairs and was like sprawled out on the staircase [laughs] with some type of injury.

Brendan Moynihan 48:22 [laughs]

Tim Ferriss 48:23 And he came home, kinda looked at his son oddly, stepped over him and walked up to his office, and then came down a few minutes later and asked him if he was okay. [laughs]

Brendan Moynihan 48:31 [laughs]

Tim Ferriss 48:32 And that to me just seemed perfectly appropriate for him because he's so, he is the Tiger Woods of emotional- Uh, detachment from his investments. And it just struck me that perhaps just like being able to jump from the foul line and, and slam dunk a basketball, that there are people who have these predispositions to be able to do things like that. And I think that you can certainly develop a lot of those skill sets, but for me, I realized that playing in a binary game, namely startups in this case, and there are exceptions, and you can sell or buy on the secondary, and there are fancy things you can do. But in very simple terms, preventing myself from looking at charts was a very, very good idea. It really opened my eyes when reading about obviously the parables and the stories, uh, related to Jim, and then your analysis and dissection of sort of theoretically and practically how you put that into the real

Tim Ferriss 49:26 world. What are your favorite other books on investing? If you had to pick, say, one to three books. If you're like, all right, if you're only gonna read one book, two book, or three books on investing besides this one that I'm looking at right in front of me, what would you say?

Brendan Moynihan 49:39 That's gotta be number one on the list.

Tim Ferriss 49:40 Gotta be number one. So what would the others be? And they don't necessarily have to be books that would be described as on investing.

Brendan Moynihan 49:47 Right. Well, I mean, I think that, um... I mean, I think two books kind of fashioned and got me interested in this at a very early age. The first book I read on the markets was a book called The Money Game by the pen name Adam Smith. Like his name is George Goodman. It was probably written in 1967. It just happened to be on my parents' bookcase a long time ago, and I was probably, you know, fifteen or sixteen years old when I read that. And, you know, then I went to college and kind of, you know, I was g- I was studying finance, so I was sort of already in the industry and kinda getting going. Then I came across another book called Once in Golconda. It's about the, the bull market of 1960s by James Grant.

Tim Ferriss 50:28 Oh, absolutely. I've, I've seen this.

Brendan Moynihan 50:30 Yeah.

Tim Ferriss 50:30 I've seen this book. A- actually, a friend sent it to me as a gift.

Brendan Moynihan 50:33 Just in terms of the cycles of the markets and the economy, it has a broad scope, and so, you know, some of these things have happened before in, in similar ways. They're not all identical, but to try to get some, some history and, and, and perspective that way. And then I've already mentioned the other one, you know, which is, is The Crowd by Le Bon. I think that it's a fascinating book for he looks at how groups of people can get caught up in these mass manias-

Tim Ferriss 51:02 Mm-hmm

Brendan Moynihan 51:02 ... and panics. But what I observed was that those same traits can be exhibited and manifested in an individual in a decision-making process in a, in an environment of uncertainty.

Tim Ferriss 51:15 Mm-hmm.

Brendan Moynihan 51:16 Whether you're in an office with people around you, or whether you're sitting-- I, I work in an office by myself in a home office, so there's no one around. But looking at screens and being inundated with information and news or whatever, that an individual can exhibit those same traits and characteristics that make a group of people lose their individual sense of self-preservation. And for example, after your team loses a sports event, you go out with a whole bunch of people, and you set the town on fire, right?

Tim Ferriss 51:47 Right.

Brendan Moynihan 51:47 And you're like, "Really?" I mean, you would never do that on your own.

Tim Ferriss 51:50 Right.

Brendan Moynihan 51:51 But in the group it happens, and so they, they take actions that are obviously contrary to their individual interests, but they do it because they are swept up in this mania or panic.

Tim Ferriss 51:59 Mm-hmm.

Brendan Moynihan 52:00 And I think an individual can do that, particularly with decisions about money, particularly about in liquid markets, where you're getting constant feedback. Like you said, you wake up every morning, and you're not getting a check from Mr. Market on what those prices are. Or, or, I mean, I don't mean a check. I mean checking the price or getting a reading-

Tim Ferriss 52:14 Right

Brendan Moynihan 52:14 ... on what those prices are. Whereas, you know, I'm getting thousands of price changes a day by looking at screens, and it's like, you know, it's easy for somebody to, to fall into that. And I think that that book does a really good job of providing the, the macro view of what a micro can affect an individual.

Tim Ferriss 52:28 Mm-hmm.

Tim Ferriss 52:29 And I, I wanna be, of course, cognizant of your time. But before we wrap up, I would love to hear you elaborate on what you're currently working on, uh, whether that's the-

Brendan Moynihan 52:40 Okay

Tim Ferriss 52:40 ... the new book or other subject matter, because I know we talked a bit before we recorded about the subject matter, and I, and I found it extremely fascinating.

Brendan Moynihan 52:49 Okay. Well, um, so I'm working on two. One I've had to indefinitely shelve just because I'm too busy with, uh, primary work and things. But I'm writing a book on grammar. I'm assuming you do not wanna hear about that.

Tim Ferriss 52:59 [laughs] The other one, yeah.

Brendan Moynihan 53:00 Right? The other one.

Tim Ferriss 53:01 Yes. [laughs]

Brendan Moynihan 53:01 So I'm writing a book, the working title is, you know, Fooled by Similarity: The Art of Risk or The Art of Risk Management. And it's a look at how thousands of years ago, you know, societies, whether they were tribes or clans or, you know, whatever, they looked out for each other so that if, you know, one guy's crop failed or got eaten by animals or whatever, they, they all would take the numerator, the denominator, and divide the loss and keep that family alive so that nothing bad would happen to them, right? So it was a pretty easy pooling of risk that took place. And, you know, as time marched on, you get into around the sixteen hundred, sixteen sixty, basically you got the early stages of understanding the science and the math of probability. And this came about because a different kind of risk. You know, most risk prior to that was all seen as downside. Something bad happens, that's risk. It's gonna go down, right?

Tim Ferriss 53:47 Mm-hmm.

Brendan Moynihan 53:48 But when they started doing this with games of chance, you now had a man-made environment where something good could happen or something bad could happen.

Tim Ferriss 53:54 Mm-hmm.

Brendan Moynihan 53:54 And so the development of probability in that was an exercise in math.

Tim Ferriss 53:59 Mm-hmm.

Brendan Moynihan 53:59 And it was purely predictive. It is purely predictive. I don't have to take a deck of fifty-two cards and go through all the different combinations and permutations to find out that there are two million five hundred ninety-eight thousand nine hundred and eighty different five-card poker hands, right?

Tim Ferriss 54:16 Mm-hmm.

Brendan Moynihan 54:16 The math will tell me what it is, and it will tell me what the likelihood is of getting any one of those hands or going into the future.

Tim Ferriss 54:23 Mm-hmm.

Brendan Moynihan 54:23 A numerator and a denominator. Fine. Fast-forward a hundred and forty years. In eighteen eighties, you start getting the development of statistics, which I think got fooled by the similarity of there being a numerator and a denominator. And they started saying, "Well, you know, something happened in the past. There seemed to be like X number of fires in the city about every year." And so they start taking data from the past, numerator and denominator Examined outcome versus possible outcomes and said, "Well, you know, it's happened that many times in the past, therefore it's a probability that will happen in the future." And that's where I think the problem breaks down.

Tim Ferriss 54:56 Right.

Brendan Moynihan 54:56 Is that with probability, you've got class probability. You have a, a, a uniquely defined set of population of possible outcomes, and they form a class.

Tim Ferriss 55:08 Mm-hmm.

Brendan Moynihan 55:09 With statistics, you have cases, and the word case is French, and it actually is the root for the word chance in English.

Tim Ferriss 55:17 Hmm.

Brendan Moynihan 55:17 So these are all chances. And actually, that's a funny story, but I'll just, the sidebar, that in finance, particularly in, in investment, you know, business in the '50s as it became very scientific with Markowitz and the paper that he wrote in modern portfolio theory and so on. In the '40s as they were trying to kind of go through this stuff, two guys were doing work on modern stochastic analysis, and they couldn't figure out whether they wanted to call it a chance variable or a random variable. The word random had popped in because of random Brownian motion with Einstein in, uh, in 1905, and everybody was trying to... You know, you, it makes finance and economics sound scientific if you start [laughs] using words from the physical sciences.

Tim Ferriss 55:53 Right. [laughs]

Brendan Moynihan 55:53 So, so they were trying to settle on should we use chance variable or random variable? You know how they settled it?

Tim Ferriss 55:59 How'd they do that?

Brendan Moynihan 56:00 They flipped a coin.

Tim Ferriss 56:01 That's, that's very appropriate. [laughs]

Brendan Moynihan 56:03 So they wound up with, you know, random variable. My point is that in the social sciences, you have case probability. You do not have class probability. I don't understand why baseball players have a single batting average. Shouldn't they have one for every pitcher that they face?

Tim Ferriss 56:17 Mm-hmm.

Brendan Moynihan 56:17 Shouldn't they have a daytime one and a nighttime one? What are the odds of me getting struck by lightning? Somebody can tell me-

Tim Ferriss 56:22 Mm

Brendan Moynihan 56:22 ... but I would say, well, using statistics, the odds are none, because so far I've never gotten hit by lightning, therefore there's 100% chance that I will not get hit by lightning. So there is some confusion-

Tim Ferriss 56:31 [laughs]

Brendan Moynihan 56:31 ... here, but I think that-

Tim Ferriss 56:32 Well, it's like the turkey, it's like the turkey, uh, in the Black Swan

Brendan Moynihan 56:35 He gets fed every day. That's right.

Tim Ferriss 56:36 [laughs]

Brendan Moynihan 56:37 That's right. [laughs]

Tim Ferriss 56:37 Before Thanksgiving, exactly.

Brendan Moynihan 56:39 That's right. That's right. Unless it's the White House turkey, yeah, you know, it's, he gets-

Tim Ferriss 56:42 [laughs]

Brendan Moynihan 56:42 ... 'cause he gets pardoned. Um, so I think that people are fooled by the similarities between... But similarity is not sameness. You do-

Tim Ferriss 56:50 Mm-hmm.

Brendan Moynihan 56:50 It is not the same thing to do statistical analysis and then try to fast-forward that into the future and say probabilistically this is going to happen. So I have reams of examples, and I won't load the book with that. I'll just do enough to kinda get the point across, where here's a market phenomenon that has worked 100% in the past. It's happened X number of times, and 100% of the time it has been profitable the next week. Okay?

Tim Ferriss 57:12 Mm-hmm.

Brendan Moynihan 57:12 But then if you fast-forward that through time-

Tim Ferriss 57:15 Mm-hmm

Brendan Moynihan 57:15 ... you see it break down and it stops working. And now there's a whole new population that it's dealing with. That is not a deck of cards. That is not a roulette wheel where probability, class probability exists. You're dealing with case probability, and these things are indeterminate. You do not have the prescribed possible universe of outcomes, and I think people, again, get a false sense of security by putting the math to it because there's a numerator, denominator like there is in probability.

Tim Ferriss 57:42 Mm-hmm.

Brendan Moynihan 57:42 And they think that they actually have, quote-unquote, "odds" in their, in their favor, as though they could repeat that thing, that experiment 100 times in a laboratory. They can't.

Tim Ferriss 57:50 Right.

Brendan Moynihan 57:50 They can't. You can't replicate that social science phenomenon in a lab the way you can with the cards, the roulette wheel or, or whatever.

Tim Ferriss 57:57 Right.

Brendan Moynihan 57:57 And then it's chance.

Tim Ferriss 57:58 Which is also i- an issue in mass media where you see journalism or say journalists, not all, but many who misinterpret, say, observational scientific data and conflate it with experimental data where you can actually isolate variables and look at cause and effect. But they take correlation and turn it into causal data.

Brendan Moynihan 58:19 Right.

Tim Ferriss 58:19 And it creates mass hysteria, which then gets put into Wikipedia because it's cited from Magazine X, and it can become a huge disaster for public perception that can lead to things like dietary habits over the last several decades, which contradict, or I should say are contradicted by a lot of the supporting data. So yeah, this is all extremely fascinating, and I think extremely actionable when people are able to digest it in the right format and the right context. And like you said, I think stories and examples are extremely helpful in those cases. To shift gears, I have two more questions for you. Do you read fiction? Do you read any fiction works?

Brendan Moynihan 58:57 No.

Tim Ferriss 58:57 You do not? Okay.

Brendan Moynihan 58:58 No. The last piece of fiction I read was Atlas Shrugged, and I finished it on October 18th, 1987.

Tim Ferriss 59:05 [laughs] Okay. That's a perfect answer.

Brendan Moynihan 59:09 The day before the stock market crashed, because I came back from my honeymoon the day the stock market crashed, and I got fired from my job.

Tim Ferriss 59:15 Oh, wow.

Brendan Moynihan 59:16 'Cause the guy thought it was the end of the world, so he fired us all and closed the business.

Tim Ferriss 59:19 Oh, man. Yeah.

Brendan Moynihan 59:20 I came home and I said, "Honey, I'm home. And I mean, I'm really home. I ain't going anywhere."

Tim Ferriss 59:23 [laughs]

Brendan Moynihan 59:23 "I got nowhere to go."

Tim Ferriss 59:25 Why don't you read fiction? Why haven't you read fiction after that point? I'm just curious. I'm not saying you should or you shouldn't, I'm just-

Brendan Moynihan 59:31 Yeah, I just like facts and figures, I guess. I don't know. I mean, I don't care about stories. I don't... I guess I watched Pretty Woman with Jim. Um-

Tim Ferriss 59:36 [laughs]

Brendan Moynihan 59:37 I probably, I probably watched-

Tim Ferriss 59:38 So do you, do you, do you not watch movies either?

Brendan Moynihan 59:41 No. Well, I, well, I don't have a TV. I, I know I went to movies with my kids when they were young. Like, we'd go family, and it was like a Disney movie-

Tim Ferriss 59:47 Right

Brendan Moynihan 59:47 ... like The Lion King or something-

Tim Ferriss 59:48 Mm-hmm

Brendan Moynihan 59:48 ... which, I mean, I don't, I don't think that was intended for me. Um-

Tim Ferriss 59:51 [laughs]

Brendan Moynihan 59:52 So, so, um-

Tim Ferriss 59:54 No, that makes, that makes perfect sense.

Tim Ferriss 59:56 Last question. If you were to sort of rewind the clock or if you were able to give your 18-year-old self or 20-year-old self one piece of advice, what would it be?

Brendan Moynihan 1:00:08 I would say wait a little bit later to make most of the major life decisions. I think I was probably a little too young when I made a number of them.

Tim Ferriss 1:00:18 Mm-hmm.

Brendan Moynihan 1:00:19 So probably just wait, just get a little bit more maturity before pulling the trigger. So my father died when I was in college. There wasn't really anybody, like, saying, "No, you might wanna hold off on that a little bit. You might wanna think about doing this." I was just basically out on my own kinda doing [laughs] whatever I thought-

Tim Ferriss 1:00:31 Right

Brendan Moynihan 1:00:31 ... was the right thing to do.

Tim Ferriss 1:00:32 Mm-hmm.

Brendan Moynihan 1:00:32 And I was probably a little bit too young and immature for making some of the decisions I made, but-

Tim Ferriss 1:00:36 What types of decisions?

Brendan Moynihan 1:00:38 Oh, I think most of the major life decisions. I think in terms of, you know, moving city, how long do you stay at a job, when you get married, when you have kids, when you buy a house. I mean, I think some of those could have gone on a little bit longer, and I was probably a little bit quick to pull the trigger.

Tim Ferriss 1:00:51 Got it. Well, let's wrap this up here, and, uh, perhaps sometime we can have a part two, but this has been, uh, great fun. So thank you-

Brendan Moynihan 1:00:59 Good

Tim Ferriss 1:00:59 ... very much for taking the time.

Brendan Moynihan 1:01:01 Thanks for having me.

Tim Ferriss 1:01:02 All right.

Brendan Moynihan 1:01:02 Okay, good.

Tim Ferriss 1:01:02 Talk to you soon.

Brendan Moynihan 1:01:03 Thanks, Tim. Bye.

Tim Ferriss 1:01:04 Thanks. Bye. [upbeat music]

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