#691: Nassim N. Taleb & Scott Patterson — How Traders Make Billions in The New Age of Crisis, Defending Against Silent Risks, Personal Independence, Skepticism Where It (Really) Counts, The Bishop and The Economist, and Much More

Brought to you by AG1 https://drinkag1.com/tim all-in-one nutritional supplement, Helix Sleep https://helixsleep.com/tim premium mattresses, and LinkedIn Jobs https://linkedin.com/tim recruitment platform with 900M+ users. Nassim Nicholas Taleb (@nntaleb https://twitter.com/nntaleb) spent 21 years as a risk-taker (quantitative trader) before becoming a researcher in philosophical, mathematical, and (mostly) practical problems with probability. Taleb is the author of a multivolume essay, the Incerto https://www.amazon.com/Incerto-Fooled-Randomness-Procrustes-Antifragile/dp/059324365X/?tag=offsitoftimfe-20 (The Black Swan https://www.amazon.com/Black-Swan-Improbable-Robustness-Fragility/dp/081297381X/?tag=offsitoftimfe-20, Fooled by Randomness https://www.amazon.com/Fooled-Randomness-Hidden-Markets-Incerto/dp/0812975219/?tag=offsitoftimfe-20, Antifragile https://www.amazon.com/Antifragile-Things-That-Disorder-Incerto/dp/0812979680/?tag=offsitoftimfe-20, The Bed of Procrustes https://www.amazon.com/Bed-Procrustes-Philosophical-Practical-Aphorisms/dp/0812982401/?tag=offsitoftimfe-20, and Skin in the Game https://www.amazon.com/Skin-Game-Hidden-Asymmetries-Daily/dp/0425284646/?tag=offsitoftimfe-20), covering broad facets of uncertainty. His work has been published into 49 languages. In addition to his trader life, Taleb has also written, as a backup of the Incerto, more than 70 technical and scholarly papers in mathematical statistics, genetics, quantitative finance, statistical physics, medicine, philosophy, ethics, economics, and international affairs around the notion of risk and probability (grouped in the Technical Incerto https://www.amazon.com/Statistical-Consequences-Fat-Tails-Preasymptotics/dp/B0CD8X5YC5/?tag=offsitoftimfe-20). Taleb is currently Distinguished Professor of Risk Engineering at NYU's Tandon School of Engineering (retired). His current focus is on the properties of systems that can handle disorder ("antifragile"). * Scott Patterson (@pattersonscott https://twitter.com/pattersonscott?lang=en) is an investigative reporter for The Wall Street Journal, currently based in Washington DC, working on climate and energy policy. His new book is Chaos Kings: How Wall Street Traders Make Billions in the New Age of Crisis https://www.amazon.com/Chaos-Kings-Street-Traders-Billions/dp/1982179937/?tag=offsitoftimfe-20, a profile of the rise of “black-swan traders,” such as Nassim Taleb and Mark Spitznagel, as well as a survey of the many perils the world faces today—and how we might fix them. Scott has covered everything from Berkshire Hathaway to stock exchanges to high-speed traders to the financial regulators. His first book, The Quants https://www.amazon.com/Quants-Whizzes-Conquered-Street-Destroyed/dp/0307453383/?tag=offsitoftimfe-20, describes the rise of mathematical finance and delves into its role in the 2008 financial blowup. Dark Pools https://www.amazon.com/Dark-Pools-Machine-Traders-Rigging/dp/0307887189/?tag=offsitoftimfe-20, his second book, tells how computer traders took control of the U. S. stock market, starting from the birth of computer trading in the 1980s to the explosion of high-frequency trading in the late 2000s. * This episode is brought to you by LinkedIn Jobs https://linkedin.com/Tim. Whether you are looking to hire now for a critical role or thinking about needs that you may have in the future, LinkedIn Jobs https://linkedin.com/Tim can help. LinkedIn screens candidates for the hard and soft skills you’re looking for and puts your job in front of candidates looking for job opportunities that match what you have to offer. Using LinkedIn’s active community of more than 900 million professionals worldwide, LinkedIn Jobs https://linkedin.com/Tim can help you find and hire the right person faster. When your business is ready to make that next hire, find the right person with LinkedIn Jobs. And now, you can post a job for free. Just visit LinkedIn.com/Tim https://linkedin.com/Tim. * This episode is also brought to you by AG1 https://drinkag1.com/tim! 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That’s up to a one-year supply of Vitamin D as added value when you try their delicious and comprehensive daily, foundational nutrition supplement that supports whole-body health. * This episode is also brought to you by Helix Sleep http://helixsleep.com/tim! Helix was selected as the best overall mattress of 2022 by GQ magazine, Wired, and Apartment Therapy. With Helix http://helixsleep.com/tim, there’s a specific mattress to meet each and every body’s unique comfort needs. Just take their quiz—only two minutes to complete http://helixsleep.com/tim—that matches your body type and sleep preferences to the perfect mattress for you. They have a 10-year warranty, and you get to try it out for a hundred nights, risk-free. They’ll even pick it up from you if you don’t love it. And now, Helix is offering 25% off all mattress orders plus two free pillows at HelixSleep.com/Tim http://helixsleep.com/tim. The 25% off offer is valid until September 10th. * [09:44] How Scott and Nassim first connected. [12:02] Why Nassim would rather be remembered as a scholar than a trader. [14:01] You can’t forge a new friendship without breaking a few eggs. [16:22] Silent risk, tail events, and one-trick ponies. [25:56] What prompted Scott to write Chaos Kings? [33:41] Pseudo-efficiency, pseudo-optimization, and pseudo-sorries. [36:49] The joy of writing a preemptive resignation letter. [37:39] Developing resilience against criticism. [40:33] Recurring patterns in successful investors. [44:15] Nassim: contrarian, or simply independent? [46:44] Jiving with skeptical turkeys. [51:53] Living in the polycrisis. [53:54] The precautionary principle. [1:00:07] Fat tails, thin tails, and the COVID vaccine. [1:11:03] GMO risks and Monsanto intimidation tactics. [1:14:45] Implementing the precautionary principle at a large scale. [1:16:49] Uncertainty and the climate crisis. [1:19:45] Convexity in the face of financial crisis. [1:27:12] Are investors overpowered in an interconnected world? [1:31:36] Utilizing the precaution principle in the real world (for better and worse). [1:36:53] The flow-on effect of having skin in the game. [1:39:37] The ponzification of startups and an overdue reckoning. [1:42:51] What convexity at the center of all things conveys. [1:49:27] Where to find Scott and Nassim. [1:50:44] What Nassim is working on now. [1:53:37] New insights from ancient words. [1:57:26] Parting thoughts. * For show notes and past guests on The Tim Ferriss Show https://tim.blog/podcast, please visit tim.blog/podcast https://tim.blog/podcast/?utm_source=podcast&utm_medium=podcast&utm_campaign=podcast-description. 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• 0:00Tim Ferriss?

  This episode is brought to you by AG1, the daily foundational nutritional supplement that supports whole body health. I view AG1 as comprehensive nutritional insurance, and that is nothing new. I actually recommended AG1 in my 2010 best seller, more than a decade ago, The 4-Hour Body, and I did not get paid to do so. I simply loved the product and felt like it was the ultimate nutritionally dense supplement that you could use conveniently while on the run, which is for me a lot of the time. I have been using it a very, very long time indeed. And I do get asked a lot what I would take if I could only take one supplement. And the true answer is invariably AG1. It simply covers a ton of bases.

• 0:42Tim Ferriss?

  I usually drink it in the mornings and frequently take their travel packs with me on the road. So what is AG1? What is this stuff? AG1 is a science-driven formulation of vitamins, probiotics, and whole food sourced nutrients. In a single scoop, AG1 gives you support for the brain, gut, and immune system. Since 2010, they have improved the formula 52 times in pursuit of making the best foundational nutrition supplement possible, using rigorous standards and high-quality ingredients. How many ingredients? 75. And you would be hard-pressed to find a more nutrient-dense formula on the market. It has a multivitamin, multi-mineral superfood complex, probiotics and prebiotics for gut

• 1:23Tim Ferriss?

  health, an antioxidant immune support formula, digestive enzymes, and adaptogens to help manage stress. Now, I do my best, always, to eat nutrient-dense meals. That is the basic, basic, basic, basic requirement, right? That is why things are called supplements. Of course, that's what I focus on, but it is not always possible. It is not always easy. So, part of my routine is using AG1 daily. If I'm on the road, on the run, it just makes it easy to get a lot of nutrients at once and to sleep easy knowing that I am checking a lot of important boxes. So, each morning, AG1. That's just, like brushing my teeth, part of the routine. It's also NSF certified for sports, so professional athletes trust it to be safe.

• 2:07Tim Ferriss?

  And each pouch of AG1 contains exactly what is on the market. Label does not contain harmful levels of microbes or heavy metals and is free of 280 banned substances. It's the ultimate nutritional supplement in one easy scoop. So take ownership of your health and try AG1 today. You will get a free one-year supply of vitamin D and five free AG1 travel packs with your first subscription purchase. So learn more, check it out, go to drinkag1.com/tim. That's drinkag1, the number one, drinkag1.com/tim. Last time, drinkag1.com/tim. Check it out. This episode is brought to you by Helix Sleep.

• 2:52Tim Ferriss?

  Helix Sleep is a premium mattress brand that provides tailored mattresses based on your sleep preferences. Their lineup includes 14 unique mattresses, including a collection of luxury models, a mattress for big and tall sleepers, that's not me, and even a mattress made specifically for kids. They have models with memory foam layers to provide optimal pressure relief if you sleep on your side, as I often do and did last night on one of their beds. Models with more responsive foam to cradle your body for essential support in stomach and back sleeping positions and on and on. They have you covered. So how will you know which Helix mattress works best for you and your body? Take the Helix Sleep Quiz at helixsleep.com/tim and find your perfect mattress in less than two minutes. Personally, for the last few years, I have been sleeping on a Helix Midnight Luxe mattress.

• 3:37Tim Ferriss?

  I also have one of those in the guest bedroom and feedback from friends has always been fantastic. They frequently say it's the best night of sleep they've had in ages. It's something they comment on without any prompting from me whatsoever. Helix mattresses are American-made and come with a 10- or 15-year warranty, depending on the model. Your mattress will be shipped straight to your door, free of charge, and there's no better way to test out a new mattress than by sleeping on it in your own home. That's why they offer a 100-night risk-free trial. If you decide it's not the best fit, you're welcome to return it for a full refund. Helix has been awarded number one mattress by both GQ and Wired magazines. And now Helix has harnessed years of extensive mattress expertise to bring you a truly elevated sleep experience. Their newest

• 4:20Tim Ferriss?

  Collection of mattresses called Helix Elite includes six different mattress models, each tailored for specific sleep positions and firmness preferences. So you can get exactly what your body needs. Each Helix Elite mattress comes with an extra layer of foam for pressure relief and thousands of extra micro coils for best in class support and durability. Every Helix Elite mattress also comes with a 15 year manufacturer's warranty and the same 100 night trial as the rest of Helix's mattresses. Helix is now running their Labor Day sale, which you can take advantage of until September 10th. Get 25% off on all mattress orders plus two free pillows. That is very significant savings.

• 5:00Tim Ferriss?

  That's 25 off because of their Labor Day sale. So check it out. Go to helixsleep.com/tim. One more time, helix, H E L I X, sleep.com/tim. With Helix, better sleep starts now. At this altitude, I can run flat out for a half mile before my hands start shaking. Can I ask you a personal question?

• 5:23Speaker 01

  No, we're just seeing an appropriate time.

• 5:25Speaker 02

  What if I did the opposite? I'm a cybernetic organism, living tissue over metal endoskeleton.

• 5:39Tim Ferriss?

  Hello, boys and girls, ladies and germs. This is Tim Ferriss. Welcome to another episode of the Tim Ferriss Show, where it is my job to deconstruct world-class performers, to tease out the lessons, mental models, and so on, that you can apply to your own lives. This podcast episode is a rare treat, a rare appearance by at least one of two guests. And in combination, I think the conversation provides a lot of insight related to uncertainty, related to markets, related to how to think about risk, how to think about tail risk, how to think about silent risk, and also how to take advantage of some of these things in how you plan your life, your finances, and so on. There's a lot to it, a lot of concepts that you can apply in many domains in life. And let's move on to the bios, shall

• 6:24Tim Ferriss?

  we? The first guest is Nassim Nicholas Taleb, who spent 21 years as a risk taker. That is Quantitative trader before becoming a researcher in philosophical, mathematical, and, in his words, mostly practical problems with probability. Taleb is the author of a multi-volume essay, The Incerto, and within that you find The Black Swan, Fooled by Randomness, Anti-Fragile, The Bed of Procrustes, and Skin in the Game. Thanks to Matt Mullenweg for first introducing me to The Black Swan. These all cover broad facets of uncertainty. His work has been published into 49 languages. In addition to his trader life, Taleb has also written, as a backup of The Incerto, more than 70 technical and scholarly papers in mathematical statistics, genetics, quantitative

• 7:07Tim Ferriss?

  finance, statistical physics, medicine, philosophy, ethics, economics, and international affairs around the notion of risk and probability. These are grouped in the technical Incerto. Incerto is spelled I-N-C-E-R-T-O. Taleb is currently distinguished professor of risk engineering at NYU's Tandon School of Engineering. I believe he's retired. His current focus is on the properties of systems that can handle disorder. In other words, the properties of systems that are, in his phrasing, anti-fragile. You can find him on Twitter at NNTaleb, and that's N-N-T-A-L-E-B, also fooledbyrandomness.com. The second guest is Scott Patterson. Scott Patterson is an investigative reporter for The Wall Street Journal, currently based in Washington DC, working on climate and energy policy.

• 7:51Tim Ferriss?

  His new book is Chaos Kings, subtitle How Wall Street Traders Make Billions in the New Age of Crisis: A Profile of the Rise of Black Swan Traders, such as Nassim Taleb and Mark Spitznagel, as well as a survey of the many perils the world faces today and how we might fix them. Scott has covered a lot. He's covered everything from Berkshire Hathaway to stock exchanges, to high-speed traders, to financial regulators. His first book, The Quants, describes the rise of mathematical finance and delves into its role in the 2008 financial blowup. Dark Bulls, his second book, tells how computer traders took control of the US stock market starting from the birth of computer trading in the 1980s to the explosion of high-frequency trading in the late 2000s.

• 8:33Tim Ferriss?

  And you can find him on Twitter at PattersonScott and on his website, scottpattersonbooks.com. And lest you think this conversation is only about finance, I want to emphasize that very refined thinking in the world of markets and investing really reflects clarity of analysis and concepts that then lend themselves to a very clear

• 8:59Tim Ferriss?

  Scoreboard. And for that reason, it is a fascinating arena within which you can refine your thinking toolkit for many, many, many other things. And we talk about many of these other areas where these things can be cross applied. And now, without further ado, please enjoy a very wide ranging conversation with Nassim Nicholas Taleb and Scott Patterson.

• 9:25Tim Ferriss?

  Well, I'm thrilled to have both of you here. Scott, thanks for making the journey. I can't believe we have the shared history of Hoagie Haven. We might provide that context to people later. An iconic landmark of a spot in Princeton, New Jersey. Nassim, nice to see you.

• 9:40Speaker 04

  Nice finally to be on that side of the microphone.

• 9:43Tim Ferriss?

  Yeah, definitely, man. And I thought we would start with just providing a bit of context for listeners as to how the two of you connected. So Scott, how did the two of you end up meeting?

• 9:55Speaker 05

  So this was the mid 2000s. I was a reporter at the Wall Street Journal. I still am a reporter at the Wall Street Journal. At the time, I was covering hedge funds. And among the hedge fund community, there was this book that a lot of hedge fund managers like to talk about, you know, the secret book that they were passed around that they said was really great. It was called Fooled by Randomness. So I read that book. I thought it was amazing. But a rumor among these hedge funds managers was that the hedge fund that the author of that book, Nassim Taleb, had run a hedge fund, but it had shut down. But nobody really knew

• 10:35Speaker 05

  the truth of whether it shut down or not. So as a reporter, that intrigued me. I think it was actually Neil Chris, a very well known quant hedge fund manager, who put us in touch. I talked to Nassim. I got him on the phone and he said, yeah, we shut down a couple of years ago. But there's a new hedge fund that's starting up by my former colleague, Mark Spitznagel. Maybe you want to write about that. So I had a story that came out in the summer of 2007 that broke the news that Empirica had shut down, at least for the broader

• 11:08Tim Ferriss?

  Public also broke the news that a new hedge fund was launching called Universa. Similar strategy and also that the author of Fooled by Randomness had a new book coming out.

• 11:20Speaker 04

  The Black Swan. Which explained, you know, the transition from the author's trying to transit. I kept begging him, I tell him, no, I don't want to be known as a hedge fund manager. I don't want to be known as a financier, I'm done. I reframe it, so I don't want to talk to you, except if you talk about my ideas. He said, okay, we're going to talk about your ideas. This is why, I mean, I was, I said, okay, on my grave. I don't want to be known as a trader, but as a scholar. And I remember he was, so he's bringing back a portion of life, but it was at the right time. Because he contacted us right before the explosion of 2007. And there's a weird connection right there that I'll mention later to you, right?

• 12:02Tim Ferriss?

  There is a very weird connection to me. And let me ask you, Nassim, what prompted you to make the transition? Maybe it was a long time in coming, but to decide ultimately to step out of trading or being active as sort of a player on the field?

• 12:21Speaker 04

  I knew I'd never stop and I still, in my late 30s, early 40s, I had time to really do something else. And I realized the following, that when I had a position, I could be involved in trading, but I didn't want to be the one flying the plane as a passenger or as a copilot, maybe. At the time, I said, okay, Mark is much more capable of running this because he loves doing it. Okay. And I liked the concepts and the ideas, but didn't like to follow positions. And because it was the minute I would be involved in a trade, it would inhabit me. So I felt that it was, there's something in my brain that was slowed down

• 13:03Speaker 04

  by the fact that I had to worry about something else out of a sense of responsibility. So Mark didn't have that. So Mark had-

• 13:10Tim Ferriss?

  He could compartmentalize.

• 13:11Speaker 04

  He's not, he could compartment, he did nothing else. He, and he was an interested, I mean, he did other things, of course, on the side, as a distraction. So he was a benefit. So I, I wanted to transit out. So I said, okay, I'll take some time off to finish the Black Swan, which I couldn't finish when I was trading. Which actually I started before Fooled by Randomness, incidentally. I started Black Swan and then I said, okay, I'm going to talk about randomness. So I got diverted into Fooled by Randomness. And then I finished The Black Swan. It was almost a 20-year thing. And I realized that I'd like to be a scholar who eats well, who trades once in a while with a sense of... It was like a military person who has an honorary discharge to do other things. And of course, leaves the battleship to those who live for the battle. Okay?

• 13:56Speaker 04

  So that was what happened. And of course, the rest is history, as you know. But let me mention one thing that probably your listeners and viewers don't know. That of all the people that have been on his podcast, I bet you I'm the first one you've met.

• 14:13Tim Ferriss?

  It's quite possible.

• 14:14Speaker 04

  Okay, so you're the first one. I met you before I met him in probably 2001, 2002.

• 14:21Tim Ferriss?

  Around that, around that time.

• 14:23Speaker 04

  And, and the first time we met, we corresponded. I said, oh, this guy has very interesting ideas about hacking things. And then we went to a restaurant, I think on Madison Avenue, and we ate every single egg they had in the store.

• 14:38Tim Ferriss?

  I was a good deal larger at the time. I was in growth mode.

• 14:41Speaker 04

  All the eggs. And for some reason, I mean, they were worried about us. How could people, two human beings, eat so many eggs? So that was my first physical encounter. We were corresponding before and became friends. And there's an interesting scene that we had that I have in my mind when Lehman Brothers went bust. Basically after our, you know, we connected and then he followed our trade. And he wrote about it, actually, about the quality of the trade and the promise of the trade that we're betting on tail events. Before the Lehman crisis. And on that day, when the day Lehman went bust, I was on a plane in Comodocado. I land, and the first thing I got was an SMS from him, because I was meeting you for dinner. And the second thing I got is news that Lehman went bust.

• 15:26Speaker 04

  So from news from Mark, Lehman went bust. It was the two messages. And that night, I think they ran out of pink champagne in the house. We were with Seth Roberts, the late Seth Roberts, a very interesting person who also was studying hacks.

• 15:41Tim Ferriss?

  Mm-hmm. Fascinating guy. Yeah, really genuine, lovely human being. And we did consume vast quantities of alcohol.

• 15:47Speaker 04

  Last time, the time before Romania, we met, it was at his funeral. When he came in and paid for the bill surreptitiously, and I want to retaliate tonight.

• 15:59Tim Ferriss?

  So you will have the comeback opportunity with the bill this evening. And you're right, I mean, there are very few, maybe no other guests who've been on the podcast to predate us meeting in 2001, which is wild. And I was probably 30 to 40 pounds heavier in terms of muscle mass.

• 16:18Speaker 05

  All that hoagie.

• 16:18Tim Ferriss?

  I was all that hoagie, and I was a lot bigger at that time. I have many questions about black swan and also about the trading career, but actually a letter, which I'll come back to, I think you'll get the reference. But first I want to ask just for a backdrop for people who may have no familiarity with quants, with betting on tail events. And you have this book, which covers a lot of these topics in depth. You have multiple books, but in the case of betting on tail events, what is a tail event, broadly speaking? And then what are the different ways one can bet on tail events? And you guys can, of course, pass the mic back and forth, but what are the different

• 17:00Tim Ferriss?

  styles or approaches to betting on tail events?

• 17:04Speaker 04

  The thing I would say before he launches, that the point is not to bet on tail events. The whole idea of the black swan, everything, I've been telling everyone, every person I meet.

• 17:13Tim Ferriss?

  To bet on disruption, on unforeseen.

• 17:16Speaker 04

  To not be harmed by silent risk. That's the idea. The first thing is don't be harmed by it. But of course, you know, given that when we study tail events, you say these people are ignoring these risks, therefore they're risking the system that people generate and don't see, hence you can trade on it.

• 17:35Speaker 05

  Yeah, I mean, there's all sorts of different approaches. And I think it's when you talk about betting on a tail event, I would say that what Universa does and Empirica before that is I wouldn't call that a bet. I would call that a risk management strategy. And that in a way is what differentiates them from other hedge funds and traders who who do what I would call betting, you know, or taking positions based on a belief that something's going to happen. What Universa does is they are constantly taking on positions that will pay off massively in a tail event.

• 18:18Speaker 05

  So their clients are constantly protected. They don't need to make predictions. They never make predictions. It's something that Mark Spisnagle constantly says is that he is shit at forecasting. He's been forecasting a gigantic bear market for decades. He's been right a couple of times, but he, you know, he will admit, you know, I can't predict the timing of it. It's going to happen one of these days. And that's what they provide for their clients is that constant protection. And they do it by buying far out of the money you put options. It's, it's pretty simple. Not easy to implement, I think, which is why you don't see a lot of hedge funds doing this.

• 18:57Speaker 04

  They do, actually they do it. And then they go bust.

• 19:01Speaker 05

  Or they, you know, what happened in the CME, it's very stressful because you can go years without making money in that strategy because it's waiting for an extreme event, a very extreme event. Their strategy is betting on a 20% decline in the S and P 500 in one month, which I think may have happened once or twice. It happened on Black Monday in 1987 in one day. But they don't actually need to have that happen to monetize the strategy. They just need to have a very big decline very rapidly. So that happened in 2008, happened a couple of times in the 2010s and 2020. It happened big time.

• 19:44Tim Ferriss?

  So I imagine, I mean, it's for somebody who's running a fund like this, for you or Mark, that there's the watching the numbers and maybe that form of bleeding chip stress over time. But there's also you have investors who probably in theory are very comfortable with the strategy, but who also panic or have other issues.

• 20:04Speaker 04

  The genius of Universa is that they manage to package a product as insurance that allows the investors. To increase their exposure to the market. So, think about it, the strategy in and by itself is positive, huge return. But it's more interesting is that it was hedging something that went up. What did the stock market do since then? I mean, it went up like Thirty percent? No, no, no, in total, since, say, nineteen, two thousand and seven. Oh, since two thousand and seven, yeah. It went up, say, twofold, maybe, and allowed people to have a larger position, larger exposure to the market than they would otherwise.

• 20:48Speaker 04

  And also, there's a cocktail of other strategies that definitely didn't fare well because they entail diversification away from stocks. So this one allows you to have stocks. So it's very weird because Mark is always bearish on the market, but he provides people a product that couples very well with a very long stock position. That was what was the secret. So, given that it's packaged that way, investors tolerated some drawdown, not too much, on the insurance. You see, while looking at it, you've got to look at, you know, It's an insurance premium. Exactly, versus the insured. Versus, I mean, hey, hey, this is my differential P and L.

• 21:31Speaker 04

  And it's the same thing when I've started trading options, have an option hedged by stock. And sometimes people only look at the stock performance, and some people only have the option performance. But tell them, no, it's inseparable. You see, you got, this is called the delta, right? So, that was how they managed. You have to understand that we are a one-trick or, me intellectually, I'm a one-trick pony. I think of nothing else but tail risk. Everything is packaged around tail risk that I do intellectually. But Universal is a one-trick pony. Only does one trade. So if you do only one trade, and for a couple of decades, believe me, you know the tricks. All right, you know how much to put on, not too much, not too much. You see the idea, if you do just one trade and then people come to you and say, no, that's what we do.

• 22:16Speaker 04

  Why don't you do this for us? No, it's like you're making Maseratis, right? And someone comes to you and say, hey, why don't you make trucks? We don't do trucks, why don't you make bicycles? We don't do bicycles. All we make is one single item, that's it. One single size. And that is the main criticism. One trick ponies. And that's what we're proud about.

• 22:37Tim Ferriss?

  What's the selling point?

• 22:38Speaker 04

  That we are one trick ponies. And whether in my work intellectually was worried about tail risk or whether the implementation of Universa of their ideas, of Mark's ideas, is one thing. It's one single thing. So when you do one thing professionally, you develop some edge.

• 22:56Tim Ferriss?

  Yeah, well, it makes me think of, I'm going to butcher it, but there's a Bruce Lee quote, which says, fear not the man who has practiced 10,000 kicks, but the man who has practiced one kick 10,000 times.

• 23:04Speaker 04

  There you go.

• 23:05Tim Ferriss?

  And let me come back to something that you said, Nassim, which was that a lot of these other shops who maybe attempted something they thought was similar went bust. What were some of the fatal flaws or mistakes that?

• 23:17Speaker 04

  Well, the first one, okay, the first, the first flaw, and this I noticed in our days, a lot of clients that had initially, when we started in Perica, were diverted into other funds who were actually mitigating the strategy by instead of say, you can't buy puts on the S and P 500, you buy puts that are cheaper in some other commodity, you see? And, and hope that they would correlate. So it was, there was dependence on correlation. So I know someone who actually went bust. He said, called overriding the strategy, buying puts on the S and P 500 and selling puts on the German index to collect more cash out of the trade. So that way he say, oh, have more staying power. And his investors were proud, they'll guess what happened?

• 24:01Speaker 04

  The German market went down, the US market, the thing exploded and they were out of business in insurance. Okay, so a lot of our competitors tried to mitigate the strategy. We were absolutely pissed. That's the other thing is that you notice with players in universal, if you see, if you met Mark, you'd understand it. There's no question, that's what we're gonna do, we're not gonna mitigate, no correlation, nothing, just all we do is art show, that's it, that's it. We don't do nothing else, that's it. We don't cook anything else, we don't, no, we don't add mayonnaise, we don't add mayonnaise to our show, we will not add mayonnaise to our show. And in a way, I told you, the long road, not the hack, we didn't hack the trade, the long road is the best. So in a way, I started liking your idea of hacking.

• 24:44Speaker 04

  And until I discovered over time that basically all the things I've enjoyed doing were the things I reversed hacked. So in other words, take the long road, like right now, last week, at the 17 hours of cycling. So that's the long road, that's not a short road. Whereas when we met, I was looking for shortcuts. The university had no shortcuts. And he takes no shortcuts. So I've known you now for 15 years. I know, I met you for 15, 16 years, and I think that shortcuts, and it was very good that he wrote that book for one reason, to put some story and narrative around the idea of precaution and tailor risk for society in general. And also because of fact checking, that document, because a lot of these stories, legends of

• 25:26Speaker 04

  this has happened, this has not happened, it was a perfect fact, because he's fact checking, reflecting, audited results and stuff like that, it was fact checked, so sort of fact checking the importance of tail hedging for society. And that to me is greater than that details, it's like having finally a document of someone who bothered to look at the details and went through a rigorous.

• 25:49Speaker 05

  Many hours of interviews. Reviewing documents and.

• 25:53Tim Ferriss?

  Double checking the facts versus anecdote. So what compelled you to write this book? Of all the things that you could write on, why did you choose to write this one?

• 26:04Speaker 05

  The birth of the idea of the book was in early 2020. And we all remember what was happening in early 2020. The world seemed to be unraveling. You know, we had COVID, we had, you know, protest in the streets. We had extreme political uncertainty in this country. Lots of things going on. So the first thing that happened was in April of 2020. It came out that Universa had posted a three month return of more than 4,000% on their positions, which was quite eye catching and got a lot of news. I, you know, reached out to Mark and was like, holy crap.

• 26:49Speaker 05

  What, you know, how do you guys do that? So that happened. And then I came across a paper that Nassim had co-written in January of 2020 about COVID. It was a glaring warning to the world that this virus is very deadly. And people needed to take extreme precautions against what was coming. You know, by social distancing, other things, advice to politicians that they needed to be very aggressive about this. And it kind of occurred to me, I'd known Nassim and Mark for a long time. And I thought, we're in a period of extreme duress where lots of people are just kind of looking really bad. They're collapsing, they're losing money, they're making really bad decisions about

• 27:35Speaker 05

  COVID. Everybody is confused. These two guys seem to be coming out of this insane period, looking very smart. So I thought, what is it about their worldview that allows them to go into a period that makes a lot of people look dumb, look very smart? There's something about that, that can map from what Universa does to what Nassim does. And it's, it's this view of the world of, you know, of black swans, of extreme events, of being prepared for them.

• 28:06Speaker 04

  And know what class of events. You should be prepared against another

• 28:10Speaker 05

  Which he had been thinking about for years.

• 28:12Speaker 04

  So, and pandemics for me was something I was working on since 2007. I even discussed it in The Black Swan. That what you have to worry about is a pandemic before financial meltdown because of connectivity. We're no longer like in the 1800s where, you know, you could have a crisis here and not there. Everything's so connected.

• 28:35Speaker 05

  Yeah, it's exponential.

• 28:36Speaker 04

  And in the financial world and the same thing in the physical world. You see the plague, the great plague, took something like 300 some years to go from Constantinople to Northern England. 300 some years. Today it's just a weekend for the whole thing to spread to the entire planet.

• 28:53Speaker 05

  Flying all Lufthans.

• 28:54Speaker 04

  And Justinian's plague could not come to the Americas. There were no Air France or no ships at the time. And now visibly it's, so what I'm saying is that we are in a different environment. Just like culturally, things can spread. You had the Google effect. The same thing should apply to pandemics. So this is why we were working on, Yanir and I and other people on pandemics. And particularly a fellow who was probably one of the smartest people I've ever met, who was a head of civil service in Singapore at a time and then retired later. And we were all obsessed with a great pandemic that would come. And we thought it was going to be Ebola. So I mean, you had to worry about pandemics.

• 29:36Speaker 04

  And later on, I wrote a scientific paper, a scholarly paper on pandemics that I didn't really finish. And when a pandemic struck, we put it in Nature Physics. And it went counter. Nature Physics is a very prestigious, I guess, scholarly publication. And it silenced a lot of the epidemiologists who were like nitpicking, similar to economists, like nitpicking when you have what I call extreme properties.

• 30:05Speaker 05

  And at the time, in early 2020, you had a lot of epidemiologists, even the WHO, saying, "We don't understand the nature of this pathogen. We need to wait and figure it out." The advice was, kind of like the, um, what's the movie about climate change? Don't look up, where the president is saying, "Let's sit tight and assess." That's what the message was that we were getting from our health authorities in early 2020, was, "Sit tight and assess." And that's a recipe for disaster. Nassim and his group are saying, "Take action now. If you wait around to sit tight and assess, you're screwed."

• 30:44Speaker 04

  Exactly. If you must panic, panic early.

• 30:46Speaker 05

  Panic early.

• 30:47Speaker 04

  If you must panic, panic now. Black and finance, and anything. You get out now. When it was easy, for example, to limit the flights out of Wuhan, or it was, you didn't have to do lockdowns, you could do lockouts. I mean, and there were methods used by the Ottomans.

• 31:04Speaker 05

  By the Ottomans?

• 31:05Speaker 04

  Yeah, to install, the Ottomans and the Austrians had, you know, the world was separate, but they had a lot of traffic, and it went through what they call quarantine spots. So that you would go into a, uh, sort of hospital that has quarantine, and it's seven days one way, nine days the other day. And they would implement that the minute they smelled anything, right? And they had rules. If you come from India, it's more days. The Ottoman had these rules. Didn't come from the Ottoman. It's long experience dealing with pandemics, and how you stem them by stopping them at the border. These things were called lazaretto's. And towns that did not have lazaretto's, Venice, of course, their maritime powers had lazaretto's. They did very well. But Marseille, France, was decimated because they didn't have lazaretto's. So...

• 31:50Speaker 05

  Lessons we need to learn repeatedly.

• 31:52Speaker 04

  We have to learn from history. How people handle that. They cut it in the egg. That's it.

• 31:56Speaker 05

  Yeah.

• 31:57Speaker 04

  And it's easier to track people at the border. And you don't need to have quarantine. You can just test at the border. We didn't test the United States at the border until a year and one month into the pandemic. I don't understand. You have lockdowns, but you don't have lockouts. I mean, just test at the border. Just test people at the border. That would probably reduce. The fellow from Singapore was testing at the border. He said the way to control it is by knowing, especially testing people without they being aware of it. And they started the first thing where you detect temperature before anybody knew about these temperature things secretly at Singapore. So it was.

• 32:32Tim Ferriss?

  I guess they had a warm up with SARS, so they had the thermic.

• 32:35Speaker 04

  Exactly. They had, but he's the one who started it and they were doing it secretly before it became public. So people wouldn't take antipyretic drugs before landing. So the whole idea is that you have to find fixes and they're not complicated. And one analogy I'm going to give, this is the banking system, is that the banking system, banks massively profitable enterprises. They make money off of your float, the money you have left there, the check you didn't cash, right? Or stuff like that. They make tons of money. And guess what? They blow up on the risks that bring them tiny amount of money. You see, selling that option that explodes every 10 years by saying, oh, no, we're in a different environment. It'll never happen. So sitting on dynamite. So that tiny, tiny, tiny tail option is what caused the banking system.

• 33:21Speaker 04

  They lost more money than ever made in history banking in 1982. Money center banks, it is, and did the same 2007. Okay. And a business that's hugely profitable, except for that tail event. So I'm saying that if you just remove that, banks would do well. It's the same thing in society. If you figure out how to remove that tail risk, sometimes not complicated.

• 33:41Tim Ferriss?

  Well, let me ask, I'll stand in for the audience and also for myself and not to throw my audience under the bus. But what are the incentives or the circumstances that prevent them from taking a certain percentage of their assets and allocating it to something like a universal so that they are less at risk in that way?

• 33:59Speaker 04

  They just don't have to do that. They could just avoid some trades. But let me explain to you the dynamics of the bonus system. This led to my book, Skin in a Game, later on. If you have skin in a game, you're going to worry about blow up because it's your money. If you don't have skin in a game, you're CEO of a company or you're a fund manager and any kind of financial venture. What is your incentive? Is to print good numbers because you don't pay for the downside. So you print good numbers, you collect money on the profits.

• 34:29Speaker 05

  Annual bonus.

• 34:30Speaker 04

  And annual bonus. So this I call the generalized Bob Rubin trade, generalized Robert Rubin trade. He made $100 million at Citibank or Citicorp, CD or something. Over 10 years, about 10 years, he collected $100 million compensation. The bank was insolvent in 2008, near insolvent, if it weren't for taxpayer. And it was the last minute. All you had to do was, you know, write an apology letter. We didn't see these events. It was a black swan named after a book by a very, very stubborn man. So something like that. So that's all you have to do is say, I'm sorry. All right, you keep your bonus.

• 35:04Speaker 05

  And I'm in the wrong business.

• 35:05Speaker 04

  Show up to work. So this you can generalize. It's the same thing supply chain. With a supply chain, a lot of firms concentrated everything on one supplier. Instead of being diversified. What did that lead to? All right. Okay, better bottom line, but what I call pseudo-efficiency. Because they're short that option. And it so happened that if their supplier is in Wuhan, guess what? You got a problem. All right. That problem was not, doesn't show in the numbers. It shows after it happens.

• 35:35Speaker 05

  It's the dark side of optimization.

• 35:36Speaker 04

  Exactly. What I call pseudo-optimization. Like if you drive a Ferrari 500 kilometers per hour, you're not going to get there faster than if you ride a bicycle. Because otherwise you're not going to get there.

• 35:51Tim Ferriss?

  Just a quick thanks to one of our sponsors and we'll be right back to the show. This episode is brought to you by LinkedIn Jobs. These days, every new potential hire can feel like a high stakes gamble for your small business. So you want to be 100% certain that you have access to the most qualified candidates. That's why you should check out LinkedIn Jobs. LinkedIn Jobs helps you find the right people for your team faster and for free. Add your job and the purple hashtag hiring frame to your LinkedIn profile to spread the word that you're hiring. Simple tools like screening questions make it easy to focus on candidates with just the right skills and experience. So you can quickly prioritize who you'd like to interview and hire. It's why small businesses rate LinkedIn Jobs number one in delivering quality hires versus leading competitors.

• 36:33Tim Ferriss?

  LinkedIn Jobs helps you find the qualified candidates you want to talk to faster. So post your job for free at LinkedIn.com/Tim. That's LinkedIn.com/Tim to post your job for free. Terms and conditions apply.

• 36:49Tim Ferriss?

  Nassim, I have a question for you about a letter and then I have a question for you about personalities, Scott. So temperament may be another way to put it. So is it true that you wrote a resignation letter your first day at a trading job and put it in your desk drawer? I read this on the internet. I don't know if it's true. You can't believe everything you read, but it was from The Guardian. So I thought it might be credible.

• 37:11Speaker 04

  One thing is actually, as I said, I recommend people do that. I wrote that about the day I started, but I recommend that people, because you feel relief when you do it. Because then you can continue on your job without feeling like someone's controlling you.

• 37:29Tim Ferriss?

  You've got the gun loaded.

• 37:30Speaker 04

  The whole idea of flying behind, you thought about that problem. So you write the resignation letter and you don't date it.

• 37:39Tim Ferriss?

  I'm very fascinated by your ways of thinking, the way that you've embraced different philosophies. And you emailed me an aphorism in 2010. And you can correct me if I get any of the wording wrong, but it stuck with me. This is in 2010. Here's the aphorism or the quote, "Robustness is when you care more about the few who like your work than the multitude who hates it." And then in parentheses, "Artists. Fragility is when you care more about the few who hate your work than the multitude who loves it." And then in quotation marks, "Politicians." Have you always had that type of robustness or resilience against criticism? Is that something that is inborn?

• 38:23Speaker 04

  Maybe because I was never really someone who took, you know, established ideas at face value. So you necessarily have, you know, violate some norms, some thinking norms. And often people protect those norms by, you know, attacking your reputation. And I realized that while writing "Full by Randomness," I say, hey, you're saying that what I'm doing is random, or using the wrong models, it don't work. So they attack your reputation. So I realized quickly, it was time that my reputation was going to be under some kind of fire. And I decided that no, my reputation is how few important people or people who know something about a subject.

• 39:06Speaker 04

  View me. And it's not like I don't care about my reputation. I only care about my reputation in some circles. And it was people I can talk to to try to explain what it's about. And it has worked out. So, but if you have to go defend your reputation and you're doing the right thing, it's too much energy wasted and it's not gonna help. Haters are gonna hate. This resembles another aphorism inspired by Charlie Munger's. One of Charlie Munger's is that you wanna be the most ethical person when people think that you're corrupt, or you wanna be the most corrupt person when people think that you're ethical. Make your choice and use it as guideline. It's the same thing.

• 39:50Speaker 04

  So, except that there's something in between and that there's some people I care about and I want them, you know, to not lose respect for me. Of course, you start with your mother, you have your children, or whatever, your family members. But there are also, there's a lot of people on the planet, and I care about my reputation, but in these circles, not with the general public. So it allows you to take much, much more aggressive positions, which I've done over a long life. And Mark, for example, has a lot of enemies and they're gonna pick on something and you don't care. So you're doing the right thing. And how do you know you're doing the right thing? If people you respect approve of your action, not if the general public does.

• 40:33Tim Ferriss?

  So that segues to my question for you, Scott, which is, in the process of doing all of these interviews and interacting with these various players on the field, these sort of practitioners, these investors and so on, have you identified any patterns that you think, whether nature or nurture, that seem to recur in people who are good at what you describe in the book?

• 41:00Speaker 05

  I would say, I mean, across all three books that I've written, which are generally focused on Wall Street trading hedge fund managers. I've met a lot of hedge fund managers over the years. None like this guy, I have to say.

• 41:15Tim Ferriss?

  We'll probably come back to that.

• 41:16Speaker 05

  But.

• 41:17Speaker 04

  I'm not, I tell you, I don't wanna be identified as a fund manager.

• 41:21Speaker 05

  Yeah, that's true.

• 41:22Speaker 04

  It's an identity thing.

• 41:26Speaker 05

  Many are very focused on making a lot of money. That's a very common trait. I mean, Mark, he talked to me about how, you know, he grew up in the eighties. He identified with Reagan era. It was a time, you know, Wall Street agreed as good. He told me, he's like, did I have a little greed in me? Yeah, I did. It was the eighties. And he grew up in a family that was, uh, his father was a, he was a minister in a church. He was sort of a hippie, didn't believe in pursuit of wealth. Mark took the exact opposite view of that. That was constantly something driving him was the desire to, to make money. A lot of other hedge fund managers I've met over the years, just they have that drive.

• 42:11Speaker 05

  And it's something that many people look at these guys and think, you're worth a billion dollars. You're worth $2 billion and yet you're a maniac. You, you go into work every day and just go crazy. You drive all your employees crazy because you want to be richer than the next guy. I don't think Mark has that, quite that sort of insane level of greed as some do. I'm, I've met Ken Griffin, founder of Citadel, disciple of Ed Thorp, who we talked about, we might talk about later. Cliff Asness, who is a stark enemy of-

• 42:46Speaker 04

  Yeah, friend initially, initially a friend.

• 42:49Speaker 05

  Yeah. And I have to say Cliff is a, is a nice guy when you, when you meet him.

• 42:53Speaker 04

  Not a nice guy, but as a friend, I've had friends, well, not nice guys.

• 42:56Speaker 05

  He, he's also got a dark side, also somebody extremely focused on being wealthy, very smart. They're all extremely smart. And I think that's in personalities, that's, uh, I think one of the things that has helped drive my books is these are interesting people. You know, a lot of them are mathematicians, scientists. They come out of university with a different expertise in making money, but then they apply that on Wall Street to making money. So it's a combination of they have to be leaders. They are extremely driven. It baffles me because I'm not like that, you know?

• 43:30Speaker 05

  I have a degree in English and I think that's actually why I sympathize with Nassim's writing so much is I came out of a tradition that, you know, I, you know, love the works of Dostoevsky and existentialism. And, you know, one of my favorite books is The Irrational Man. And I came into Wall Street and started reading about how there's this- Believe that people are rational and the markets are rational and they are predictable because of this. And I thought that is just crazy. You know, to me, I look at financial markets and I see black swans. I see fear and greed. That to me is what drives markets, not rational behavior, rational expectations.

• 44:16Tim Ferriss?

  What are some of the things that make us seem different or unique in those you've interacted with? I have some of my own questions and thoughts on this, but I would love to hear yours.

• 44:25Speaker 05

  He mentioned his contrarian nature.

• 44:28Speaker 04

  It's not a contrarian nature. It's independent.

• 44:30Speaker 05

  I'll let him answer.

• 44:31Speaker 04

  In line with, I mean, people say I'm contrarian. I'm with a conspiracy theorist on many things. I'm against him on many other things. Some are just contrarian because they have a father problem. Okay, so to me, contrarian is an explicit attribute. So but the other thing is I thought it's gonna be about me. It should be about the idea, the precaution.

• 44:53Speaker 05

  He's a lot more interested in literature and philosophy and not financial markets. It's just this thing that drives him. He doesn't look at the stock market page, you know, every day like some people do. He's

• 45:07Speaker 04

  You had to figure out what people envious of. So, you know, if you're in a hedge fund business and you have $500 million in a bank and someone else has $600 million, you're gonna be envious of that person. I was always envious of people had more erudition than me. Okay, so more erudite. And you realize that that's what makes me tick. Being envious is not good, you see. But at the same time, if you figure out who you tend to envy. It's not, I don't believe in this. I say, oh, people having enough. There's someone, you're from East Hampton, the fellow who wrote Catch 22.

• 45:42Tim Ferriss?

  Lot of interesting folks out there.

• 45:44Speaker 04

  Yeah, he met a financier at the time for hedge funds. And the financier said, what is it that about you, because he was an author, a very successful one, what is it that distinguishes you from me? You know, look, he told him, I know the meaning of enough.

• 46:04Speaker 04

  So in other words, you know you're upper bound. And effectively, I don't play that game. I say, you know, there's a meaning that I am literally, and I say envious of people who are erudite. Like if someone knows Latin very well, I'm envious. If someone knows Sanskrit, I'm envious. All right. So that's, and I discovered that early on. So I made money on Wall Street because I wanted to make money on Wall Street, but I didn't think it was worth the effort. And luckily, with a combination of the universal, I had so much leverage, you know, with marketing and all that stuff. So the spillover on me was more than satisfactory. So I have, knock on wood, a lot more than than I wished.

• 46:44Tim Ferriss?

  So part of the reason I'm asking, and we're talking about the ideas, but the person who's acting as the vessel or communicator of these ideas, the developer of these ideas is integrally related to, I think, the sort of totality that I want to explore. So part of what interests me about your story and your thinking is how various inputs have impacted your thinking around not just markets, but other things. So for instance, like the Stoics and the Seneca the younger and so on, or other philosophical inputs, did those come early and then aid you, you think, in your career when you were active in the markets? Or did those come later and you sort of always had a deep interest,

• 47:28Tim Ferriss?

  but were able to explore them at a later point?

• 47:30Speaker 04

  No, it's actually, I was, I started liking the Stoics. And all those people I've talked about, I liked them much earlier on in my life. But I went overboard. For every idea I've had, I did the exact opposite of what one should do is like, if you had an idea, say, oh, I had this idea, right? Is go look, because I don't consider myself so different from others. And then particularly when you look at history, you know, so many tens of thousands of scholars surviving works. So I went back and figured out all the scholars, of these scholars, who had similar ideas or who preceded the ideas. So and who started thinking like that.

• 48:10Speaker 04

  So I went into the empirics, the Eastern Mediterranean, Greco-Leventine, Greco-Roman, mostly using Greek language thinkers. And then, of course, into others about this fundamental skepticism. Because I noticed a lot of people are skeptical, particularly conspiracy theories. They're skeptical of small things.

• 48:31Speaker 04

  But not about big ones, alright? They get taken for a ride. It's find me a conspiracy theorist, or find me someone who's naturally skeptic of all things, and I'll show you a turkey. So, I wanted to find people who are fundamentally skeptic, being skeptic, being skeptic about important things, not about small things.

• 48:48Tim Ferriss?

  What would be an example of a big thing?

• 48:51Speaker 04

  A big thing, like, let me give you an example. I wrote a paper, a paper, it never ended up in a book, on the stock market and religion, alright? It's called The Bishop and the Economist. And I said that those who are skeptical about the existence of God and non-existence of God, skeptical about religious matters, typically tend to be complete suckers when it comes to stocks. They believe in the stock market, or believe in some kind of pseudo-scientific theory on whatever it is, okay? So, but they don't believe in religion, and the reverse, alright? And people who are religious typically, they're harder, and there's some, I don't know, research on that. There's a guy called Bar Lachmi, Al Lachmi, Bar Halachmi, I think,

• 49:35Speaker 04

  who did some studies about skepticism, people go to religion, about affairs, skepticism where it matters. And I wrote about it, I think, in The Black Swan, skepticism where it matters. And I noticed that a lot of these big skeptics were not skeptical of God, and things, anything you can't do anything about, they were skeptical of the charlatan, they're skeptical of things, of someone trying to take advantage of you. That's where you exercise your skepticism. Among the great skeptics, there is a bishop, Uwe, he was probably one of the second most erudite person of his time. Second one, there's a guy called Skaliger. The guy is phenomenal. He could translate into Arabic. He was a Roman authors, Latin authors, and vice versa, okay? Skaliger, Skaligeri.

• 50:20Speaker 04

  There are a lot of, Pierre Bael. Pierre Bael has a lot of works. He's one of those skeptics. Hume was one of those skeptics, but these people preceded Hume. Hume is known because he wrote in a language of a country that had a lot of ships, and a lot of trade, you know, across the world. But a lot of these ideas came from groups of people in France, or among Protestants in France, and what's called the Ephidaeists. Originates, of course, in the Levant. And of course, you have the great Al Ghazal, the Islamic theologian, Iranian origin. Who definitely was showing you how all these arguments are weak, you know,

• 51:00Speaker 04

  could dismantle arguments by showing you could be skeptical about human arguments about God. Okay.

• 51:07Tim Ferriss?

  I think Spinoza is coming out of that same tradition, very skeptical.

• 51:12Speaker 04

  He was skeptical about the text that was, these people say, okay, transcend these texts. Okay. And be skeptical about things that really matter. And there was actually skeptical school of medicine, practicing medicine. So what? I went back through history. Every time I had an idea, I would go back and see in history who preceded me. And sure enough, I haven't done enough because every year or so, I get a letter from someone. Hey, how come you missed so and so? All right. Okay. And sure enough, I go back to the Incerto and I add that person. And this is why it has survived, the five books, the Incerto. But we're not here to talk about these five books, but this book.

• 51:53Tim Ferriss?

  Well, we're going to talk about whatever comes up, but I do want to hop over to you, Scott, and maybe discuss something that you had shared with me as a possible bullet in the prep stages for this conversation, which is related to Polycrisis and the new age of crisis. What does this refer to?

• 52:15Speaker 05

  It's the subtitle of my book. Most people are focused on the first part of the subtitle is how Wall Street traders make billions. Second part is in the new age of crisis. I feel like that hasn't gotten that much attention, but part of what I'm trying to argue is that we are seeing a magnification of extreme events accelerating and overlapping. There's an economist, Adam Toose, who's coined a phrase called the Polycrisis, which he says these crises that are happening on a global scale are interacting in ways that the whole becomes greater and worse, you know, than the sum of the parts.

• 52:55Speaker 05

  So you've got pandemics, you've got economic instability, financial crises, climate change, which is a big focus of mine in my daily job at the Journal, which I think is sort of the big one in terms of the ever magnification of crises that we're seeing, we're seeing in the news every day. And what I wanted to do in the, in the book is look at.

• 53:22Speaker 05

  Several of these crises and think about how we should be approaching them in a sort of a risk mitigation standpoint, using ideas from people like Nassim. I think that the central idea was, as I was talking about the germ of the idea of the book was, can you take ideas that were created on Wall Street for risk mitigation and borrow those and apply those to other forms of risk management? And what Nassim and Mark do is they think about the extreme events and how to protect against them. Nassim co-wrote a paper about this exact issue called the precautionary principle.

• 54:07Speaker 05

  It delineates specific categories of risk that you should take the precautionary principle and apply to. He has some specific ideas and he can talk about it way better than I can, but you know, these are things that can be global, that represent systemic risk to humanity, things that can be exponential.

• 54:25Speaker 04

  Must be fat-tailed, or exponentially.

• 54:28Speaker 05

  Yeah, exponential things that have these properties that you need to take extreme precaution and not take that risk. Basically, don't play Russian roulette with these risks. And that's kind of how the book was structured, was first looking at the growth of the strategy with Mark and Nassim, and then moving on to these other things that the world is facing and seeing if we could think about ways to protect against these risks. Something like climate change, you don't really want to mess with that. You know, it's a bit too late, we still have, but there's still lots of things that we can do. And that's, I think, the book in a nutshell. I was going to mention earlier, when you asked me about the birth of the idea of the

• 55:11Speaker 05

  book, when I first suggested it to Nassim and Mark, Nassim said, no way, I'm not, I have no interest in doing that with you. It took a while. And then you were like, I have these blackened white photos you might want to take a look at. So I had you convinced to do it. It was, it warmed down, I think it was more Mark put the screws on.

• 55:33Speaker 04

  No, no, no, let me tell you what happened.

• 55:35Speaker 05

  I actually don't know. I know that eventually he said.

• 55:38Speaker 04

  The promise from him to not be portrayed to mention that I don't self identify as a finance person. And once he made that promise, okay, I said, okay, now we can talk because finance represents a significant part of my life. But I don't want.

• 55:56Speaker 05

  This has been a theme with Nassim ever since I've known him. So to me, it was like.

• 56:00Tim Ferriss?

  The identity piece.

• 56:01Speaker 05

  Yeah, that he's not a traitor. And I, and I thought I agreed because it's true. It's, he's not been a traitor for a long, long time. And it's obvious where, you know, where his interests are.

• 56:14Tim Ferriss?

  What would it, I have to ask, so what would it mean or feel like for you to be broadly identified as a finance person, but to think of yourself more as a scholar?

• 56:24Speaker 04

  I wrote about it in, in full by randomness, George Soros, and I met George Soros, one of the persons on the planet who impressed me the most, one of those. And I realized that George Soros missed his career. He wanted to be a philosopher and thinker. Okay, he ended up making money and spending too much time in it and wrote drunk articles and books, or one book.

• 56:50Tim Ferriss?

  The.

• 56:50Speaker 04

  So, yeah, it was not, it was not, you know, it was, it was, it was not, not what he wanted out of life. Okay, he's a middle European intellectual who would have liked to be remembered as someone for, who had ideas. And he had, of course, Karl Popper, who he claims was his professor, but it was beyond. So I wrote about it full by randomness. I said, here's this fellow who was, say, okay, but he also does to distinguish himself from other financiers, he is also, or has intellectual aims. I said, I don't want to be that. I want to be someone who produces.

• 57:27Speaker 04

  Intellectual work and who happens to have had contact with reality. Thanks to trading and thanks to Mark and guys, I'm still have some contact with reality. But I'm not cut for that. When I was writing Fooled by Randoms, it was 2019 that I realized I was not. I don't want to be like Soros. Because unlike Buffett and the other people, Soros had an identity crisis. He wants to be known as a philosopher. But that's not, you know, and life, it's a life to control of him. He didn't.

• 57:59Speaker 05

  Buffett told me he wanted to write a book.

• 58:03Speaker 05

  But I, I used to cover him and I was leaving the journal at the time to write my second book and he was like, oh, I really always wanted to write a book and I never got around to it. So there you go with, you know, the Oracle of Omaha.

• 58:16Speaker 04

  Yeah.

• 58:17Speaker 05

  He wants to be thought of as an intellectual too, but.

• 58:20Speaker 04

  Well, I mean, it's not the same, but, but the, the, the Savior Omaha has something that I didn't put in a precautionary principle. But that's probably very inspiring. He understood the asymmetry. If you say no a thousand times, he says no if you doubt. And that's the precautionary principle.

• 58:38Speaker 05

  Could you give people the precautionary principle 101 just to back up?

• 58:43Speaker 04

  Okay, let me ask you, you're at the Ferris flying to go to Mexico. You go to JFK and they tell you they have uncertainty about the skills of the pilot. But we think he's good, but there's uncertainty. What do you do? You're not gonna get on that plane and say, okay, life is too important for me. You'll take a train, you'll take, you walk, maybe you'll ride a bicycle, you know, take a few months. But you're not gonna get on that plane. Okay, you change your plans and say, okay, there are other plans or other countries too and other planes. So

• 59:17Speaker 04

  that's Warren Buffett and his investments. But that's my precautionary principle, the idea that there's an asymmetry. Is that there's a certainty about certain things is not good. So the climate, for example, if you have uncertainty about the climate, stop these models. All right, just don't pollute or, or, or try to use something else, try to mitigate. So that's the first part of it and people get it right away when I give them a story of a plane or I take water, this is glass of water on the table. There's no evidence that it's poisonous. Would you drink it? The wording would spook me. There is no evidence that so, but when you tell them, hey, you know, you should worry about GMOs. This is there's no evidence they're harmful. Yeah, but there's no evidence that they're not harmful.

• 1:00:01Speaker 04

  Okay, so the asymmetry where you put the burden of the asymmetry on. That's the precautionary principle. But then what we did is we've noticed a lot of people. In fact, it was a counter precautionary principle. A lot of people were invoking it for nothing to say, we're going to have a non naive precautionary principle by delineating the areas where you should exercise such precaution systematically as a planet or as a communal group. And what I'll say, number one, you need fat tails. Now, what does fat tail mean? Let me explain to you. Let's say you go to planet Mars. Okay, Elon would help you get there. You have connection and you have no news from Earth.

• 1:00:44Speaker 04

  And then on the way back, you hear that a billion people died.

• 1:00:50Speaker 04

  Okay. Which one is more likely to be the cause Ebola or car accidents? Ebola. Now, but on a given day, if you hear Joe Smith died today, what's more likely Ebola or a car accident? Car accident. Car accident. That's fat tails, fat tails. You had to identify, do things backwards. If you hear the big thing, where did it come from? And you had to give these, okay? So they have different dynamics because they scale differently. So in the black swan, I showed the difference with the following metaphor.

• 1:01:29Speaker 04

  There are environments where you may have a large deviation. It's not going to be consequential because it can't be very big. So if I take a thousand people and put them on a scale and add to that sample,

• 1:01:43Speaker 04

  the largest human being confined on the planet, how much of the total will he or she represent? Takes thirty basis point, nothing, okay? And then if you go from a thousand to ten thousand, it dilutes completely. So you can have a tail event, that's not going to be consequential. Extremistan is different. Extremistan, if you gather a thousand people and add to that sample, the wealthiest person on the planet, how much of the total will he or she represent?

• 1:02:12Tim Ferriss?

  All of it.

• 1:02:12Speaker 04

  There'd be a running error. There'd be a running error. I mean, they'd be on average on the planet Earth, all right? They'd be in total, maybe they have two or three million in total, and then you have hundred and some billion right next to it. So this is where you have to focus on environment that produces fat tails. And this is what marketed this universal. Universal is named after the universal mechanism that generates fat tails. Okay, that was, that was the name of the car. So everything we're in it, basically intellectually, everything, all details. So we had to identify what produces fat tails. And the financial markets and why it's getting thicker. Fat tails means that you have the greatest contribution comes from smallest number of events. So concentration, like for example, you have a lot of people, all the wealth come from one person.

• 1:02:57Speaker 04

  It so happened that under fat tails, the models that we use for risk management on Wall Street are B S. This is why I have a lot of enemies. This is why I had to protect myself against reputational damage, all right? So because all the economists hate me, all their models are based on that. So what is fat tail? Practically everything in socioeconomic life is fat tailed. What is not fat tailed? Number of calories we're going to eat tonight. How many calories can we have in one day, tonight?

• 1:03:27Tim Ferriss?

  We can only go for the gold, I'd say. I'd say we could each down a few thousand calories a piece.

• 1:03:31Speaker 04

  Two thousand, two thousand. Say I go three thousand for me, all right? I can play with fat and stuff, three thousand. That's nothing. How many calories do I consume a year?

• 1:03:40Tim Ferriss?

  Yeah.

• 1:03:40Speaker 04

  Not a single day is going to make a difference. Can you lose all your money in a single day?

• 1:03:45Tim Ferriss?

  Yes.

• 1:03:45Speaker 04

  There we go. So you have two environment and they're separable. So this is why the universal approach, it makes things separable. Right, the fact that you can identify what is fat-tailed. You identify where models don't work. You can identify what you have to understand. And we have to use more refined tools to figure out stuff. And then also in fatness of tails. Number one, pandemics. Number two, wars. I have a close, close second. Wars and pandemics. Okay.

• 1:04:14Speaker 05

  And so you can use that to prioritize application of the precautionary principle?

• 1:04:19Speaker 04

  Bingo. And let me tell you how. For example, if cancer is thin tails. Nuclear, thin tail. If you could diversify it, it's thin tails. If you can have a thousand nuclear reactors, all right? If you can insure it rather than one, it is thin tail. If you can insure it, thin tail. If you can't insure it, non-insurable, fat tails. So a lot of things that are believed to be very risky, but they're not like nuclear for me. I mean, not for one of my co-authors, but I'll settle it with a beer or what's the English?

• 1:04:54Speaker 05

  Rupert Reed is a co-author of, and also a major character in the book.

• 1:04:59Speaker 04

  Yeah.

• 1:05:00Speaker 05

  He's a very environmentally focused person. He's a leader in climate these days. And yeah, he, he told me that's one thing that he disputed. The precautionary principle paper was.

• 1:05:12Speaker 04

  Which was written with him first, drinking, you know, an English, single malt scotch and an English, in an English pub in somewhere in Northern England.

• 1:05:21Speaker 05

  In East.

• 1:05:21Speaker 04

  Where the portions are like smaller than what they give you for espresso in Italy. You know, the espresso, like you sip them. So the, so we had to have like, again, it's like with you and the eggs. All right. So to go back to the insurable, we don't have to worry about it. And a very simple example I give that when Ebola started or later on, when COVID started, people were using the arguments. Yeah, you know, 3,000 Americans die every year drowning in a swimming pool. That was something by a guy called Dr. Phil. Should we shut down pools? At a time, less than a thousand Americans had died of COVID. And then I followed this, presented the following argument. I said, if I die drowning in a swimming pool,

• 1:06:04Speaker 04

  my neighbor drowning in her or his swimming pool has not changed. If I die of COVID, the odds of my neighbor dying of COVID has increased. So you have that transmission that makes it fat-tailed. That mechanism of transmission. So this is why you cannot compare as basically the press in the beginning, this so-called established press was against our ideas. Because it was racist against China, they could not distinguish between risks of car accidents and heart attacks and risks of things spreading. This is why, for example, I am in favor of vaccines. The risk is thin-tailed and I'm against GMOs because they spread in the environment.

• 1:06:46Tim Ferriss?

  Let me ask you a question, so I better understand. So with the precautionary principle, with the example that you gave of the water, there's no evidence to suggest this water is poisonous. In my mind, I was wondering if somebody could use a similar argument against a new vaccine.

• 1:07:03Speaker 04

  Let me tell you what, the problem is we're not with the vaccines. There are two things. Number one, if someone takes a vaccine and then you have part of the population that doesn't have the vaccine, it's not affected, but there's something more central here. You're comparing two risks. We have COVID versus a vaccine. So you have to compare and we know a lot more about genetic stuff in an individual than we know about how genes spread in a population. And that vaccine story, basically in the beginning, say, why don't you exercise the precaution principle? I say, I have to worry about a pandemic a lot more.

• 1:07:35Tim Ferriss?

  Yeah, in comparison.

• 1:07:37Speaker 04

  In comparison to that, plus very quickly after about a billion people had jabs, I was initially skeptical about the vaccine in the sense that let's wait and see. The story is, are there other ways? Because I'm really worried about COVID and people don't understand that the argument they use exposed COVID is much more dangerous than you think. And the vaccine is what made it tolerable. So when they had a billion jabs, I showed the following thing, that everything that's genetic.

• 1:08:10Speaker 04

  The number of mutations to take place to cause a problem, they have a variance. And if they have a variance, it's as follows. You would see already in a billion people, because of so much scrutiny, you would see that tail risk. To give you an example, Hiroshima, okay? They say on average it took 10 years or 8 years, whatever, to get cancer. No, we saw it in 3 months, 4 months. If you focus on the tail, same as kuru. Kuru takes about 10 years on average, the median, to get kuru from exposure. But you have What is kuru? Kuru is a bad cow disease. Things for which we have data of early exposure and then early disease, only onset of disease.

• 1:08:54Speaker 04

  So I looked at vaccines with all these conspiracy theorists and everything. The focus is enormous and you can see anything. But it follows that class of risks where, you know, you have to have mistakes go and take place in a genetic or DNA or... This is where, after a billion jabs, I said, okay, I'm gonna go for it, okay? And visibly, the risk is much smaller. The risk may exist, but it's much smaller than the risk of COVID. And plus, there are a lot of numbers about COVID people weren't aware of. Number one, something that people didn't think about immediately, is that COVID raised the risk of deaths, your multiple of deaths, beyond the age of 30,

• 1:09:36Speaker 04

  because we don't have much of an effect for younger people, or we don't think so. The force of mortality of the Like all-cause mortality? No, it went up from COVID across the board in the same way. Say, for example, you're exposed to COVID, you have 10% chance of mortality. The 1.1%, 10% increase in all-cause mortality. It's the same for young people. So past the age of 30, it's about the same number.

• 1:10:04Speaker 04

  So it could be 20% more depending on your exposure. So saying it's an old people's problem, they were dying as a multiple of their mortality rate. So I took the social security numbers just to, you know, say, okay, it's not my numbers. Social Security number, look at it. If you're a female, 30-year-old, you have 1 in 700 chance of dying. Male, 1 in 400 chance of dying. That goes up by 10%, okay, with COVID. If you're 80 years old, you have 1 in whatever, it goes up by 10%. Or something, I mean, the 10% depends on the exposure period. But it was almost flat across the population. So I said, okay, do you want to increase your children's chance or young people's chance of death by X percent?

• 1:10:48Speaker 04

  Plus the effect it has on years lost and life expectancy is much more dramatic for a 40-year-old than it is for a 90-year-old. So this is how I looked at it. And of course, by then we had 8 billion traps. So we had the answer.

• 1:11:03Tim Ferriss?

  How do you think about, say, GMOs? This is something I actually don't know much about. But in terms of the precautionary principle and risk assessment, how do you think of?

• 1:11:11Speaker 04

  I mean, a vaccine is to counter a disease. GMO is just like manipulation that people said, oh, we've always manipulated animals. All right, but that's not true. It's sort of like there's a difference between flying and walking. Okay, and the risk you can encounter, you see. The GMO, the way a gene would spread through the environment, uncontrolled spread is a fat-tailed, whereas selective breeding is very slow. As Rupert Rees said, he cited, I don't know who said, that if your horse is blind, make sure you ride it slowly. So there are two classes, like mediocre Stan, extremist Stan. Mediocre Stan, like calories, or extremist Stan, stock market.

• 1:11:55Speaker 04

  Selective breeding versus GMOs. I mean, you're jumping so many steps with GMOs. So it's a different class of risks.

• 1:12:04Tim Ferriss?

  Right, because of the risk of uncontrolled spread.

• 1:12:07Speaker 04

  Exactly, and then you have a blight that spreads like COVID did the whole planet. And we're much more connected than before. Plus, they have never done a proper risk study on GMOs, on the environment, not one. They're saying there's no evidence they're harmful, look, people are eating it. I mean, I'm a scientist, I like to see randomized control studies, I like to see things, like to see something a little more formal than claims. And then you don't realize what happened. No matter what you say about Monsanto, I think will be an underestimation of their evil attribute. Because they really wrecked science. Because they had groups of people who would go and intimidate scientists. And people on a salary, scientists, so afraid to lose their job, lose their postdoc position.

• 1:12:50Speaker 04

  They would contact your boss, they would contact practically everyone. They did that to me, but visibly, it was like water on a duck's back, right?

• 1:13:01Tim Ferriss?

  Why'd they do it to you?

• 1:13:01Speaker 04

  Hundreds of letters to the university.

• 1:13:03Tim Ferriss?

  Because of your commentary on GMOs? Because of the paper.

• 1:13:07Speaker 04

  Paper. And then somehow I used the R-word in the past, in French, it says, it's like, it says like you're a slow-thinking person. The R-word.

• 1:13:19Tim Ferriss?

  I got it, I got it.

• 1:13:20Speaker 04

  And then they would have fifteen letters from mothers of children with special needs.

• 1:13:25Tim Ferriss?

  Yeah.

• 1:13:25Speaker 04

  Who don't like that a professor at NYU would use such language that's insulting to my... The point is, when they showed me the letters, they're different names, but it was like written almost on the same...

• 1:13:38Tim Ferriss?

  Letterhead.

• 1:13:39Speaker 04

  Exactly, and the language was the same. So I realized that was a smear campaign. Plus, there's a lot of other things they did, petitions, all kinds of things, and online harassment. But with me, it didn't work, with others, but the people they select for these things are usually dumb. Think about it, who would engage in smear campaigning? The brightest person you know? No. Okay, so you can play with them. So Monsanto did is to cover up for whatever they're doing via intimidation. They disrupted science. And they made people believe that, hey, no evidence, I'm doing science, this person is confabulator or whatever it's called, the ludite. Okay, yeah, you've been against the fire. No, it's not the same thing.

• 1:14:22Tim Ferriss?

  Anti-science was a comment.

• 1:14:24Speaker 04

  Anti-science, because science, anti-science. And usually, they're never used by scientists. And they had a few scientists who knew nothing about risk probability. So that was, but anyway, we had fun fighting. It was a long fight. But then what happened, they were bought by Bayer and Bayer was more civilized than Monsanto. And then all that disappeared.

• 1:14:45Tim Ferriss?

  So if we, if we zoom out and look at the precautionary principle, how could that be applied on a policy or regulatory level? Like if someone's listening to this and they agree with the premise and they say this makes a lot of sense, how could we implement this on a larger scale level such that we are less vulnerable to, say, possible risks?

• 1:15:13Speaker 05

  Well, actually in Europe, the precautionary principle is widely adapted among international agencies and regulatory agencies. I think that the advance that Nassim and his co-writers made on the principle is that it can be kind of fuzzy. So it can be, seem to be subjective about how you are applying the principle. I think what they did was create a category grouping, which can be used to designate things. And, you know, you could have, I don't know, you could have panels that would look at it using these categories. But I think if it were adapted more widely among regulatory agencies in the United States,

• 1:15:57Speaker 05

  just as a principle, as a way to think about certain kinds of risks, then it could be more generally applied and useful. Like I said, in Europe, they do use it. GMOs are not widely adapted in Europe and primarily because of the precautionary principle.

• 1:16:16Speaker 04

  And they have lobbyists in Europe. I know because they all attack me. I mean, for, so I see them online all the time, coming from Europe, Italy, for example. Italy of all places, you know, that place would damage it big time is a reputationally. If you had GMOs and Italian food in Italy, it had no tourism. But they still have people there trying to sell, particularly that when you sell GMOs, you also can use more roundup.

• 1:16:41Speaker 04

  There's a secondary effect on the soil and it's the same people who are producing both, right? So one could be an excuse to sell the other.

• 1:16:49Speaker 05

  To me, one of the really interesting aspects of the precautionary principle is the notion of uncertainty. So, you know, when you look at climate change, the uncertainty of models has been used as a cudgel by the deniers and by the fossil fuel industry for decades. That there is a level of uncertainty in these predictions. We don't really know how bad it's going to get. You know, we really, you know, we need to sit tight and assess the risks that we're facing. And what they showed is that uncertainty is a reason for taking precaution. Because if you are uncertain about the potential future destruction of or massive degradation

• 1:17:32Speaker 05

  of the biosphere because of polluting it with carbon dioxide and methane and other greenhouse gases, maybe you should stop doing that or realize that you're actually taking a risk. You don't, you don't know what the risk is. So uncertainty is actually a reason for precaution rather than just throwing caution to the wind and just saying, well, we don't know. So, you know, what the hell?

• 1:17:55Speaker 04

  But let me tell you ironically what happened to me. The first time I formulated the argument, it's actually in the Black Swan second edition. And I was with David Cameron on stage and I said, we have uncertainty about these models. So avoid these models and just don't pollute. And the paper I later rewrote with my friend Janir and others by saying, the more uncertainty there is in a model, the more you have to be, it's just like the more uncertainty you have about the skills of the pilot, the more.

• 1:18:22Speaker 05

  Cautious you should be.

• 1:18:23Speaker 04

  Exactly. You should take another plane. So what happened the next day, 20 newspaper articles in the UK calling Taleb, Black Swan author is a climate denier. Okay. Trying to convince Cameron, probably had the cottage industry of modelers who would be out of business if you follow these principles. So it's not like we got heat, a lot more heat from the left. Than from the right.

• 1:18:47Speaker 05

  But why were they calling you a denier if you said?

• 1:18:49Speaker 04

  They they they used me verbatim without following the whole argument. And they say, well, he said that. And I basically named them by names and I went after everyone of the 20 journalists. I wrote to every journal, explained to them what I said. And I say they cited me out of context. And I wrote a chapter in Skin in the Game about how much a debate, an honorable debate is, is where you represent the person's opinion, like what Karl Popper would always very faithfully represent the person's position and then attack it, whereas they were taking selected.

• 1:19:21Speaker 05

  Cherry picking and then creating a straw man argument.

• 1:19:24Speaker 04

  Exactly. And that's for you would say, give me a letter written by an honest man and I'll get him held, huh? So the problem that that you have with the climate is that a lot of people have an interest in complicating the story. In fact, you just say, okay, let's forget about fossil fuels. Let's pollute with other things. Just like I say, if a drug is dangerous.

• 1:19:47Speaker 05

  You say the dangers in the dose.

• 1:19:49Speaker 04

  Sorry?

• 1:19:49Speaker 05

  The dangers in the dose.

• 1:19:51Speaker 04

  The nonlinearity. We put that in a precautionary principle. The nonlinearity, the convexity, that's the theme of anti fragile, the convexity.

• 1:19:58Speaker 05

  Because in dosing the atmosphere with carbon dioxide, you're going to end up with a very bad outcome eventually.

• 1:20:06Speaker 04

  Exactly. So so give me, let me give you an example to go back to before when we're talking about when I used GMO versus selective breeding, telling you why speed and fragility. An example I use in an anti fragile. If I bang a car against a wall at one mile per hour, a hundred times, okay? It's not going to be the risk of you're banging it once at a hundred miles per hour. Okay, so this is where if you have acceleration of harm, like if I jump 10 feet, I'm harmed more than twice than if I jump five feet. So we showed where in the presence of acceleration, what to do. And that part of the paper was never understood because people don't understand convexity.

• 1:20:49Speaker 04

  Although anti fragile is currently my most successful book. It's read more in 2023 than it was in 2013, the second year publication. So same with Black Swan. I know Black Swan is read more now than it was a year after publication. But in spite of all of these arguments being presented, people couldn't grasp our paper. I discovered why. Something I figured out only recently. When I talk to young people, 23, 24, they know exactly what I'm talking about. Their parents are the problem.

• 1:21:25Tim Ferriss?

  So what is convexity, just to refresh?

• 1:21:29Speaker 04

  Okay, so again, we're going to talk about Universa or other things embedded in a Universa story. But that the convexity is if the market goes down 10%, you make a million dollars. If it goes down 20%, you make 10 million dollars, you have convexity. And this is what everything is based on. Well, the general, sorry, yeah, they would call it convex and concave. And probably the best illustration is how we fared in 2007. And I explained it in a black swan, right before it happened. I looked at the risk of Fannie Mae by a deserter who, you know, left Fannie Mae and distributed the risk reports, okay? We looked at risk of Fannie Mae and noticed that if the market, say, an interest rate

• 1:22:14Speaker 04

  or mortgage premium or something like that is increased by 100 basis points, they lost X. 200 basis points, 20 times X. 300 basis points, I said, they're sitting on a barrel of dynamite in the black swan. 2007, five months later, okay, this started going on. And eventually they lost, they booked 600 billion dollars losses. Why? They said, oh, they reacted to me by saying, oh, we monitor our risk. We have 15 PhDs, okay, 15 PhDs, 15 trillion PhDs. It's not going to help you with this. So this is convexity on the losses and we're doing the reverse on the profit side. And there've been some, a lot of people got upset the way Mark presents the numbers.

• 1:22:59Speaker 04

  He writes to his investors, you know, you're fired with the SEC, all the numbers are available. They tell them, listen, we made 4,000% on your maximum loss, okay? Whereas if you invest in the S and P, you can lose 100% of what you have. So the return that you have on that maximum possible potential loss. In other words, when you go to bed in the evening, all you could lose is that much. And how much these options were explosive on the maximum loss. All right?

• 1:23:23Tim Ferriss?

  Yeah.

• 1:23:24Speaker 04

  So that was

• 1:23:25Tim Ferriss?

  Asymmetry.

• 1:23:25Speaker 04

  Sorry?

• 1:23:26Tim Ferriss?

  The asymmetrical.

• 1:23:27Speaker 04

  That was the asymmetry, the four thousand some percent. But that's not the first time it happened. Nobody noticed. When I was trading, and I discovered that with, before the crisis in nineteen eighty seven, there was a Plaza Accord where a bunch of people got together secretly on a Sunday and then made an announcement, we're gonna support the currencies against the dollars. The dollar is too expensive. You had a huge move. I was at work, we had a tiny risk. The explosion of my P and L. Okay, they brought detectives or inspectors to figure out why the P and L is so large for that so little risk. Because you had your maximum risk, all you could lose is, say, X thousand dollars, and the P and L exploded. That's how it works.

• 1:24:10Tim Ferriss?

  It's in the book, by the way.

• 1:24:11Speaker 04

  They couldn't believe it, right? So I decided, okay, I'm gonna make a living out of that.

• 1:24:18Tim Ferriss?

  Now, when you say exploded, this is in a bad way or a good way?

• 1:24:21Speaker 05

  Good.

• 1:24:21Tim Ferriss?

  Good way. I see. The P and L.

• 1:24:23Speaker 04

  Yeah, so the P and L was too large for the risk. They say we're supposed to only take

• 1:24:28Speaker 05

  You said your computers couldn't handle the numbers.

• 1:24:30Speaker 04

  Yeah, no.

• 1:24:30Tim Ferriss?

  So for them, it's like, it's high risk, high reward. How are you getting low risk, high reward?

• 1:24:36Speaker 04

  No, no. They said, you made too much money. You gotta be taking risk. You're hiding something from us. And the computers would take something like ten hours at a time to compute the P and L. At the end of the P and L. You see, so every time, go redo it and stuff like that. And I was frustrated because they couldn't understand it. They couldn't understand it. But this is, the same thing happened to Mark.

• 1:25:00Speaker 05

  This is the trade that they did for, you know, that's the beginning of the trade that became Empirica Universa. Something like, I remember when I was talking to Mark back in two thousand eight, I think he would never tell me this now. But I was trying to figure out how they had such incredible returns. And he gave me an example of a trade that they made. And I forget the timing, but it was like a July two thousand eight S and P five hundred put option. Betting on a twenty percent decline in the S and P five hundred, bought for two bucks. After the crash, he sold it for 60 bucks.

• 1:25:41Speaker 05

  That's the kind of convex exponential return that you do not get in any other kind of trading. And you take that $2 option, you magnify it over millions and millions of dollars, you get 4,000% return.

• 1:25:56Speaker 04

  Yeah, but they're even more dramatic than $2 become $60 because there was, you always look at how people have lost money because when you read, you know, reports and stories, they hide the losses because nobody's going to write a book on how they lost all this money. It's always invariably the same. There was a story of volume investors, I think, they're selling out of the money options on gold and they're selling for 5 cents and end up have to buy them for $40. And then there's a neither-hoffer story, same story, where they're liquidated and what, he blew up, I mean, he blew up many times, but that one time, you can see the prices, it sold them for 5, 10 cents. And then he had to buy them back and I was buying them back to $40. This is what I noticed.

• 1:26:38Speaker 05

  It's called selling volatility.

• 1:26:40Speaker 04

  Selling out of money, tales, selling rare events, you know, and you don't need a lot of deviations, if people panic, they pay anything because, or sometimes they're forced to because they, you know, the clearinghouses or counterparties cannot handle the risk. They say, I'm going to close you out, sorry. And you close out, there's no liquidity. It's like the famous saying, sell everything. And then the clerk, I told you sell everything, why are you not moving? Said, please tell me to whom, sir? I say, let's see.

• 1:27:12Tim Ferriss?

  Let me ask a question that's been sort of percolating in my mind, and it may not be a good question, but I'm curious. You mentioned Soros and I don't know that much about Soros, I've never met him, but I want to say Soros is also known as the man who broke the Bank of England, right? Or the British pound. So one of my questions is, in this increasingly interconnected world where the equivalent of the Black Plague, whatever that might be, and it could be in pandemic form or otherwise, instead of taking 300 years is over a weekend in terms of spread and things are so interdependent, is there the temptation and the risk of investors catalyzing more crises or different types of crises, not just, I don't want to say being spectators, but there's one thing to

• 1:27:57Tim Ferriss?

  have an investment methodology that has certain...

• 1:28:03Tim Ferriss?

  Premises and so on that then results in a windfall return at a certain point in time with tail events. But I'm wondering if, I mean, it seems like there are hedge fund managers, I'm not saying this is where you are, there are investors out there and hedge fund managers who take very active roles in companies, let's just say that they want to take a position, and activist investors and so on. And I'm wondering if investors will be able to do more damage as the world becomes more interconnected.

• 1:28:32Speaker 05

  I think that it's possible. I see the damage coming from negligence and bad risk taking that ends up creating a contagion effect, just the same thing that we saw in

• 1:28:45Tim Ferriss?

  Not among investors, but like in the banking?

• 1:28:47Speaker 05

  Yeah, banking, or hedge funds, or crypto. I think that financial markets over the past 20 years, and increasingly with electronic trading, are more and more interconnected than ever. You know, this is something I got in my second book about high frequency trading is how you could see the potential risk of some giant move in, say, a derivative contract, or an index, something overseas, because trading machines are correlating all these assets globally electronically at hyperspeeds, microseconds speeds, that you could see something move very rapidly into all sorts of asset classes in a way that

• 1:29:31Speaker 05

  is impossible to stop because it's so fast. That could be triggered by a trader, or it could be triggered by a computer just going bananas.

• 1:29:41Speaker 04

  We have noticed very early on in the 90s, a phenomenon that international diversification was no longer diversification. Why? Because of that integration, globalization, a lot of the things pulled people out of poverty. But a lot of things happened with it. Number one, you can't diversify anymore because of stocks collapse here, as we saw in 87, collapse everywhere for large deviation, and now for mild deviation starting in the 1990s. And also, I mean, the funding disappears everywhere, or comes everywhere. So this property of globalization is similar to the one that came with it, is that we're going to have shortages. And then gluts.

• 1:30:24Speaker 04

  Now in a phase of between shortage and glut. But shortages can be very deep. Where containers go up 10 times in shipping, a container. And you're gonna have a lot of the reverse happening. Because I've never seen shortages without gluts. I've seen gluts without shortages, but never shortages of glut. But they're very deep. We didn't have that before. We all depend on... The world's getting bigger and bigger, but it's like a large movie theater. With the same door. You see, it's the size of the door that matters when you want to get out, not the size of the theater. So the supply chain is narrow. And getting narrower, and it's got narrower.

• 1:31:06Speaker 04

  Now probably you'll expand and branch out and we'll have a better networks. But people will not understand that. This is, this is why people like to sell tail events, because it costs money. To diversify your sources of, you know, whatever. And your supply, and it also costs money to hedge tail risk. Or you think it costs money. You have the illusion. And sure enough, you realize that if a hedge is expensive, we, you know, think of absence of hedge. How much more expensive it is.

• 1:31:36Tim Ferriss?

  So what's your perspective on the capacity of investors to catalyze greater risk? Not necessarily the systemic risk-taking, although this is certainly a factor of, say, the banking sector or fill in the blank. But very well-funded investors who are looking for black swan or black swan-like opportunities. Their ability to create a self-fulfilling prophecy in a sense.

• 1:32:08Speaker 04

  As they say, predictions are self-fulfilling and they're also self-cancelling. See, early on, the self-fulfilling, people get on the bandwagon. And then sure enough, that's how sort of the glut takes place after the shortage. But one thing, you know, that's quite, what should realize was the structure of the world in which we live. That although history is not indicator...

• 1:32:30Speaker 04

  For many things, because we live in times of different connectivity and stuff like that. The rules of what can go wrong are very simple. It's like as with pandemics, the Ottomans and Austrians figured it out, or Lazaritoss. Okay, it's simple, right? The Venetians were experts at it. The rules are very simple. There are not that many of them. When we talk about precautionary principle, a lot of people have the illusion that it multiplies into zillions of regulations. No. One comment I'd like to make about regulators, like European regulators. They're great at being regulators. Those are the regulators for pleasure. And if you put 200,000 people in Brussels, you know, of course, they have great fresh fries

• 1:33:13Speaker 04

  and beef tallow and whatever, good duck fat, whatever. But at the same time, what comes with it is these people are going to regulate you out of existence on things that are trivial. They like to do the trivial because it's easier to sell. So they regulate vacuum cleaners, all right? They want how much energy should be or the speed of your windshield wiper on a farm tractor if it has a windshield, that kind of things. But they can't control the borders. And they didn't think of COVID. Of all the people we spoke to, because a lot of people tried to talk to me about risk, thinking that, you know, we should talk to someone like me about risk. Okay. And usually I get upset because, hey, where's the next black one? You're not getting it.

• 1:33:56Speaker 04

  The Singaporean government, they didn't feel very well with COVID as much as they did before, I think, maybe because my friend was gone or something. But they knew, they said, okay, what can go wrong? And let's reverse engineer our hedge, the reverse of what you think, and build things in a way to withstand that kind of shock.

• 1:34:15Tim Ferriss?

  Are there other examples outside of Singapore? I'm very interested in Singapore and I guess who is it? Lee Kuan Yew and the entire story of Singapore is pretty wild. Any models or leadership outside of Singapore, not necessarily related to COVID, although it could be, that you think does a good job of applying precautionary principle or working backwards in the way you described?

• 1:34:35Speaker 04

  All traditional societies are traditional communities, like Italy with the GMOs. And although people online may say, oh, this is anti-scientific, they know it's, science is not about that, for example. So it depends on which domain. There's some domains, some people are good at some domain, not others. Like Russia was very good at some classes of risk, but not visibly. At others, it depends on countries like Italy got paranoid about nuclear. There's one attribute of our environment that we should realize is the non-trivial effects of propaganda on the mind of people, particularly ones well organized.

• 1:35:16Speaker 04

  The KGB was not very good at spying, we discovered, but was very good at disinformation. So everybody panicked about the nuclear because they didn't want Reagan to put ballistic missiles in Germany. And they infiltrated, Putin knows something about it when he was in Germany, infiltrated all these green movements by directing the Greens against nuclear, for example. So I truly think that we're suffering a lot from this disinformation up to today when people worry about some risks, not others.

• 1:35:52Speaker 05

  Another example of that is Germany with Fukushima.

• 1:35:55Speaker 04

  Yeah.

• 1:35:56Speaker 05

  That freaked out over something that actually didn't kill people, shut down their entire nuclear program and in its place opened up a bunch of coal-fired power plants.

• 1:36:07Speaker 04

  Yeah.

• 1:36:08Speaker 05

  Which is, you know, obviously much more direct risk to humanity than nuclear power plants that don't kill people.

• 1:36:18Speaker 04

  The radiation in Chernobyl, I knew that when I was running the Black Swan, didn't talk about it because I know it was dicey, was lower than that in Utah. But it's not the point, it's Chernobyl is too big. If you make small reactors, let them blow up. So what happened if you could, because of convexity? You see, one reactor is vastly more dangerous than 10 small ones, and the 10 small ones are not likely to blow up at the same time. I don't know if one reactor, how, what's the, what's the factor, you know, what's the multiplier, but there are non-linearities. But definitely when you have a lot of small ones, they can blow up at different times. One time, you know, about our previous conversation, when you say the banking sector, banking sector is very safe for one reason, it's a utility.

• 1:37:02Speaker 04

  With high-paid bankers living around here, you see, have big Soho lofts, $10 million Soho lofts, basically is a utility because they don't let it go under. It's not the one you gotta worry about.

• 1:37:16Speaker 04

  It's the saving it again that you have to worry about. The effect of saving it, like we saved it in 2008 with what? The government debt and it exploded. And then again, in 2020, they bought so much commercial paper and so many things. Again, all these things aimed at saving the financial system, bank wise, have spillover effects, but they're going to save the bank system because you cannot operate without it. Plus, another thing has happened is that banks used to take a lot of risk. Since 2008, the risk has migrated from banks to hedge funds. Now, it's less concentrated, but it still can be concentrated.

• 1:37:54Tim Ferriss?

  In what way can that be concentrated?

• 1:37:57Speaker 04

  In other words, he has a friend who has a big fund that's larger than a lot of banks. I'm not mentioning names, right? So you have a lot of big hedge funds, but I guess they can be diversified. Hedge funds have skin in the game. In other words, the owner of the hedge fund has money in it, unlike a bank where you just have the upside, not the downside.

• 1:38:18Tim Ferriss?

  Of course, long-term capital management is the counter example.

• 1:38:22Speaker 04

  No, no, it is. The people, the skin in the game is a disincentive, of course, but it also, skin in the game is a filter. So where are the people from? Is anybody from locked up capital management still around?

• 1:38:34Tim Ferriss?

  Last I heard, John Meriwether was, 10 years ago, was trying to start a hedge fund.

• 1:38:39Speaker 04

  There you go. So if you can't recover, the skin in the game is falling effect. There's a reason you don't see crazy drivers, too many crazy drivers, is because they're dead. Because you inflict risk on others, but you experience the same risk. So you tend to exit the pool.

• 1:38:54Tim Ferriss?

  So it seems then, maybe I'm misunderstanding, but that the migration of risk-taking to the hedge funds, assuming that the GPs or the people running the fund have sufficient skin in the game, would seem to be a net positive.

• 1:39:10Speaker 04

  Hedge funds are okay, but we have had the risky part, the ones that are most fragile, the private equity. And of course, by far, uh, people who need funding. Because I don't know if you realize, but we had, since we had our three bottles of pink champagne, or it was like a four bottle, whatever, a lot of pink champagne to celebrate Lehman's departure, right from his town. Since then, we put interest rates at close to zero. So when I was a student and everything, for me, an investment was something that generates cash flow. So you build something that generates cash flow. So you value cash flow and/or residual value at the end. Okay. And that's what can have, you can tolerate negative cash flow if you're gonna get some later on.

• 1:39:55Speaker 04

  So it was like us, if you discover gold later on, there's a, so the business model was cash flow based, with a short term or long term cash flow. The world has changed, all right, in the funding world. What is the game now is who you're gonna sell your company to.

• 1:40:11Tim Ferriss?

  I see. So you're talking about startups in this case?

• 1:40:13Speaker 04

  Exactly. Startups or a lot of investments, eh, you buy an apartment, you buy a house, you buy a building, you buy something, or you invest in some crazy idea. And someone was contacting me about LLM models, you know, ChatGPT, by saying, oh, we have this startup, I'm investing in this startup. And looked at the rationale, and then he said, yeah, I'd be able to sell it. And within two years, I said, listen, this is a trap. Okay. So companies, so even Twitter was operating on a following modus. We go to the market, okay, as a cash machine. So you don't even have to generate cash. So basically, everything was, came from, it has Ponzi characteristics. Someone else will buy our company, or we're packaging a company to sell it to someone else.

• 1:40:56Speaker 04

  Okay, now, that started before the great financial crisis, but was very moderate. And of course, it took place during the crazy period of the internet bubble, and then died. So we had had episodes of that effect. But now, it's ingrained, and people have now for 15 years of low interest rates. You have people in their 40s who have never seen interest rates. And they don't know how to behave, they don't know how to invest. So I think the most fragile part today is not the banks, of course, as we said. And it's not hedge fund, because they're sort of like mature adults, typically. It is those startups. And then the VCs and eventual capitalists, but eventual capitalists actually,

• 1:41:38Speaker 04

  played quite a nasty game, because they cashed out, all of them are rich on companies that never made a penny. You see, I know a lot, there's a lot of, think how many billionaires you have and Silicon from Silicon Valley, alright, whoever made a penny. It's valuation, maybe, as you say.

• 1:41:56Tim Ferriss?

  Yeah, yeah, there's, there's a lot to that game. The, I will say also, I think there are going to be tremendous fatalities in the next probably three quarters in the startup world, because there's been a lot of contraction of funding, which I think is ultimately probably a good thing, but a lot of these companies are raised.

• 1:42:15Speaker 04

  It's not a good thing, it's a necessary thing.

• 1:42:17Tim Ferriss?

  Yeah, no, that's, well, right, I mean, it's the calling of the herd, so I think we're gonna see a lot of it.

• 1:42:21Speaker 04

  But, but, but think about it, this will, finally we'll get waiters, because we have shortage of waiters. Okay, we, we finally will get wait, I mean, you go to restaurants and, and, and they can't, you know, they have one waiter for the whole room, and they said, we'll get more waiters, we'll get more people who, you know, will help you, you know, mow the grass and stuff. I mean, we've got a lot of, a lot of supply of.

• 1:42:43Tim Ferriss?

  Former, former startup founders, serving you, you're Negroni, we'll see how it shakes out, I'm curious to see. Maseem, are there any ideas, concepts you would like to discuss, is there anything that we've missed? Ed Thorp, could always talk about it.

• 1:43:00Speaker 04

  No, I mean, convexity is at the center of things, so I started writing on convexity, or studying convexity, you know, after, between the time we had the.

• 1:43:11Tim Ferriss?

  The eggs and the champagne.

• 1:43:13Speaker 04

  The eggs, no, no, the, the eggs, the eggs was 2002, 2001, 2002, and since then, I had some, some 80 scientific papers, so my, my enemies, they don't know how to handle it, because they can't say, no, it's not science. So anyway, so I think the, the central thing for me is convexity, and it led me into papers in oncology, in medicine, because again, oncologists know stuff, doctors know stuff, the language they use did not accommodate this notion of convexity, 10 times 1, the non-linearity, they sort of suspected it, but it was not formalized, so I just published something in oncology. We did a lot of stuff in epidemiology on tails. So convexity on tails, convexity is the most important.

• 1:43:56Speaker 04

  For example, people don't realize that convexity means you like volatility. Concavity, you don't, on the zone where you're convex. And people miss the point that was already mentioned in a paper I wrote before COVID on citing sources for lung ventilators. If you give someone a dose of 100%, the person may die. But if you give that person 80%, 120%, they have much higher survival rate. Why? Because they like volatility.

• 1:44:27Tim Ferriss?

  Like heart rate variability.

• 1:44:28Speaker 04

  Like heart rate vari- When I wrote anti-fragile, I was writing between 2009 and 2012. Nobody believes in heart rate variability. You see? They thought you need a steady heart rate. It's a predictor of death. So it's the same thing for a lot of things where you have, that's a convexity effect. So that's sort of what I'm focusing on now. Is these convex responses, convex stuff, applied to fields where, you know, they need to be applied, like medicine. And the same thing with nutrition. Nutrition figured out early on intermittent fasting. Why? It's a convexity thing. Instead of having a dose throughout the day, you have it and it's a different response. But there's a limit. You'd rather have your calories, a concentration limit. You'd rather have your calories, you know, once a day is okay.

• 1:45:13Speaker 04

  Once a week, not so sure, you see? So there is an optimum thing. It's the same thing can be generalized to other things. This is what I'm working on. And it's taken me a while. All that comes from optionality, option trading.

• 1:45:25Tim Ferriss?

  Does it make sense for people to become familiar, even if they never engage with options in some basic education in options trading? Or would you say skip that and study?

• 1:45:35Speaker 04

  Skip that because they're going to sell options. But I would say, they used to say nine tenths of option players will be sellers. I think it's 99 out of 100. It's so appealing. If someone's going to give them the story, you sell options, you have steady income. There's nothing people like more than steady income. And the reason, Mark is in business, because he's the only person I know who doesn't care about the psychological prop up of having steady income. Because everybody else has a steady income, they would debase the trade to have a steady income. And sure enough, you get steady income by selling the tails. And that is generalized. To give you an idea, companies that have steady income are short an option somewhere.

• 1:46:16Speaker 05

  Say that one more time.

• 1:46:17Speaker 04

  Companies that have steady income are short an option somewhere. You see, so it's not trading options that will help you, it's looking at optionality in business and in places who will short that optionality, that you can have two funds, they all have now same return. One fund can have a lot of short options and one fund can be robust. You won't be able from the outside and security analysts have no idea.

• 1:46:44Speaker 05

  Weapons of mass destruction, that's what Lauren Fugge called them. Ordinary people should stay away from these derivatives contracts. And it's one of the things that I had to deal with this book was with my editor and people who I've interviewed me since then is everybody wants to know how to do the universal trade. You know, mom and pop, how, how, how do you, how does mom and pop protect themselves against these things? Because, you know, in the book, I warn these downturns are very bad for your portfolio. This, these are the things that kill you. You know, if you go down forty, fifty percent, you know, this is something that Mark talks a lot about. You lose fifty percent to get back to where

• 1:47:28Speaker 05

  you were before it happened, you have to make a hundred percent. So these are the things that you really want to protect yourself against. And my editor was like, well, he wanted to know for his, because he was getting scared. How does ordinary person do this? How do they protect themselves against these big events?

• 1:47:44Speaker 04

  My answer is an ordinary person should focus on her or his business. A dentist should focus on dentistry, not trading gold. You see, I mean, my experience, you see people whose business is not the finance. And they think that they've got to make money out of their checking account. So what happens is they have so much scrutiny by their own business. Say they run a bakery, they know the suppliers, this guy pays, this guy, they know all the risks. And then they blindly put their money into something they have no idea what's going on. So this is where the sucker, you know what I'm saying, is domain dependent. Some people are skeptical in one area, but don't transfer to the stock market. It's the same thing. So there's something about the stock market, particularly with the weakness of religion,

• 1:48:29Speaker 04

  that makes people believe in stories of returns, but not believe in theological arguments that we've had for 2,000 years. So it's the same thing. Tell people, listen, what do you do? Oh, I have a bakery, focus on baking and then and use your money to preserve. That's not your business. So this is where you tell the pop and mom, you don't tell them how to do universal trade. You tell them.

• 1:48:51Speaker 05

  They can't do it.

• 1:48:52Speaker 04

  Yeah.

• 1:48:53Speaker 05

  The problem is.

• 1:48:53Tim Ferriss?

  Well, I mean, I get the, you know, after being in Silicon Valley for 17 years and having some pretty good luck with startups, I get the question like, how can I invest in early stage startups? I'm like, don't, do not, under any circumstances, do that. It's like, unless you're living in the middle of the switch box and you're dedicating your time to that, do not do it.

• 1:49:15Speaker 04

  Unless you're a trader, don't trade.

• 1:49:16Tim Ferriss?

  Yeah.

• 1:49:17Speaker 04

  Unless you're a baker, don't bake. Unless you're a dynamite maker, okay, don't make dynamite and stuff like that. It's elementary.

• 1:49:27Tim Ferriss?

  This is Scott, the new book, Chaos Kings, How Wall Street Traders Make Billions in the New Age of Crisis, is available or all fine books can be found. And you can find you online, scottpattersonbooks.com, on Twitter, at PattersonScott. And the same, where would you like people to engage with you if they engage with you? Or with your books, understanding that you have begun work on these various, I suppose, parts of your multi-part essay at different points in time? Is there a place where you would suggest people engage with your work first? I suppose it depends on their orientation.

• 1:50:02Speaker 04

  I think fooled by randomness is the one that people like the most. The blacks want what they slight the most. And anti-fragile is the one they misuse the most.

• 1:50:13Tim Ferriss?

  Misuse?

• 1:50:13Speaker 04

  Misuse, yeah, because they say, oh, yeah, the virus, you get stronger. What doesn't kill you make you stronger. I know, but what kills you doesn't make you stronger. I mean, they're not getting it right. Like, the first thing to be fragile, to be anti-fragile is first you have to eliminate fragilities. You see, that's the first rule, you tell risk, you don't open it up. So I don't know, but I would say full by randomness is a good start. Or if you're a lawyer, skin in the game. I have no idea because I'm not thinking in terms of my past books. I'm thinking about the book I'm writing now.

• 1:50:44Tim Ferriss?

  Yeah, what are you working on now?

• 1:50:45Speaker 04

  Well, yeah, two things, a technical insert or second volume, which is all scientific papers around these points. And I'm working now on a book that is pretty much like structured, like an ancient Roman Latin treatise, a language treatise. Okay, with questions and stuff like that. And it's liberating to be able to write without having the narrative. Just boom, point blank. And in it, I cover all these points. Question, what is convexity? And I've decided to do all of that in one book. And it's going to be called Pincipia. For example, why the risk of an individual getting this doesn't translate into a collective risk in the same way.

• 1:51:27Tim Ferriss?

  Right, this swimming pool versus.

• 1:51:29Speaker 04

  Stuff like that. And also why you can generalize, a lot of it has to do with scalability. People have the idea that we should have a virtuous individuals to have a virtuous society. Typically, if you force, no, there's a lot of greedy individuals can build a virtual society. That's the Adam Smith argument, or I said one Malbranche. So the idea of scalability, for example, is the most misunderstood thing. Like a town is not a small village. I started the topic in antifragile, but how things scale differently. So a town is not a large village. A country is not the same as a municipality. And why, for example, you could be libertarian at the national level and autocratic at the municipal level.

• 1:52:14Speaker 04

  You see, or communist in the kibbutz, but libertarian at the state level. You could have a lot of these gradations, so things are more complicated. Among these things, I debunked in it. And then finally, one idea that also the explosive structure in it. On the main difference between BS and non BS, what I call verbalism.

• 1:52:32Tim Ferriss?

  A BS as in bullshit?

• 1:52:35Speaker 04

  Yeah.

• 1:52:36Tim Ferriss?

  Yeah, okay, I was just making sure I'm understanding.

• 1:52:38Speaker 04

  Verbalism and nonverbalism, what is not BS? Because a lot of scientific papers have BS and a lot of casual things don't have BS. So I'm exploring all of these in a volume. I may call it Summa or Principia to give it a narrower title.

• 1:52:52Tim Ferriss?

  Yeah.

• 1:52:53Speaker 04

  Principia. Or Summa, or Principia in certorum, or something.

• 1:52:59Tim Ferriss?

  What, so what characterizes non BS, I have to ask?

• 1:53:03Speaker 04

  I have rigidity of meaning. The rigidity of meaning. I learned that from arbitrage trading. I learned a lot of things from trading. And arbitrage trading, the law of one price, like if you combine things, you should, they should have the same price here, Singapore, or downtown, uptown, combination, that you should have no arbitrage. I can't really buy, I used to do arbitrage. I started doing arbitrages, like buy an option with this, this converted to a cross and end up with something cheaper than some other one I would short and then you get it. So it should not have the law of one price. It's the rigidity of meaning. Whatever words you use, always refers to the same thing. That's what my criterion rigidity. By the way, I cite you in my new book.

• 1:53:45Tim Ferriss?

  Well, hopefully it's a good citation.

• 1:53:46Speaker 04

  You call retrospective, what you call bigger tearing.

• 1:53:49Tim Ferriss?

  Mm hmm. Oh, yeah.

• 1:53:50Speaker 04

  Okay, so in other words, I have a so-called retrospective bigger tearing. I have one section is on scalability and one section is on the passage of time, how we don't get time right. And in it, I explain why, for example, it is improper to blame someone, past individual, retrospectively, for values we have today where we didn't have then. You see, it's like, for example, Aristotle did not like, he was, you know, male Chauvinist, Chauvinist. I'd say, okay, is it, was it, it is wrong. Yeah, we know now, but he didn't know. You see, he didn't know. It's just like saying, okay, why don't we blame it from not using a computer? Okay, there's no computer at the time. So you gotta look at these terms. It should not flow back values backwards.

• 1:54:33Speaker 04

  But effectively, the Talmud, which I've been studying for a while, had a lot of things on it. And I'm gonna tell you what it has on it. It says, so for example, they say Noah was virtuous for his day. Someone pointed that to me in a Talmud. Twitter is very helpful, but I like these ancient texts to see how they, they would judge their own, effectively, when in 18th century, they had different values than the 15th century. And how did they judge them? And at the same time, people, the wise people know that, hey, they did not, it was not part of the customs at the time.

• 1:55:07Tim Ferriss?

  How did you decide specifically on the Talmud? Because that's not your upbringing.

• 1:55:12Speaker 04

  No, it's because I like Aramaic, which is closer to my native language, the Levantine dialect, Aramaic, and then started having interaction on Twitter with people who are Talmudic scholars.

• 1:55:23Tim Ferriss?

  Based on the interest in the language?

• 1:55:25Speaker 04

  No, I put something in there. No, my interest in language, I have interest in ancient languages, more than interest in ideas, but I'm poor with languages. So it's not taken me anywhere except exploring texts. And I'm enjoying stuff, so you could have a collection of ancient wisdom in a Talmud embedded in a Talmud that is very interesting because it's monumental work.

• 1:55:49Tim Ferriss?

  I'm just wondering, I guess, in addition to or amongst the different sacred texts or scriptures that you could study, why that stands out?

• 1:55:59Speaker 04

  No, what stands out really is more like someone like Aquinas, the Summa Theologica, because it's written by one person, whereas a Talmud is a concoction of opinion on opinions, all right? But I like the Talmud only because I have the privilege of understanding Semitic languages. So I'm enjoying it more for linguistic stuff, just for the fun of it. And it's fun to read something and you understand. This is why, plus, it is effectively a body of work that's quite monumental, you know, that took centuries to build, a collection of scholars, talking about scholars and discussing one another over time. This is why I like, I like about Aquinas is took a topic and boom, put everything in it, all the questions and answers you can have in it. They question themselves.

• 1:56:43Speaker 04

  So this is why I'm much more impressed with Aquinas as an individual. I can never imitate Aquinas. So I could be as a scholar, like one of those who contributed to that Talmud, you know, or one of small contributors, not Talmud, that collective piece of work.

• 1:57:00Tim Ferriss?

  I'm jealous of your ability to engage with the Semitic languages and just be able to access some of the text in its original form. I'm very jealous of that.

• 1:57:10Speaker 04

  No, I enjoy that. I don't do as well with Greek as I should, ancient Greek. I can do better with modern, but Latin is easier than the Semitic language. But the grammar is more complicated than Aramaic and Latin.

• 1:57:23Tim Ferriss?

  Well, we could go down that rabbit hole. Maybe we save that for the next round. I know we have food and booze to get to. But Scott, is there anything else you'd like to mention before we wrap up? Anything that maybe we didn't get to or anywhere you'd like to point people that I didn't mention? Or the next book that you'd like to give a teaser for? Anything, anything at all that you'd like to mention before we wrap up?

• 1:57:43Speaker 05

  No, we've covered a lot. Really appreciate you taking the time. Appreciate Nassim taking the time. I don't know about my next book. I mean, I'm right now just completely immersed in this climate world. And last year, the Biden administration passed the Inflation Reduction Act, which has nothing to do with inflation. But that thing is sending shockwaves through the climate technology world in ways that's just, it's kind of mind blowing. And it's changed the game for America, at least, and its attempt to catch up with what China started more than 10 years ago to develop these technologies. But it's going to take a while.

• 1:58:25Speaker 05

  But in my opinion, it's, it's pretty necessary to start doing that.

• 1:58:29Tim Ferriss?

  Yeah, I find the entire space super fascinating. And I know we were talking about the ideas in the current books. We didn't allocate a lot of real estate to that particular topic. But you know, I was thinking about what you were mentioning about climate change and some of the challenges in engaging different parties. And what I've found, I live in Texas, right? A lot of people engaged in the hydrocarbon businesses and so on. And I've spent time with a lot of these people who are not stupid. There's some very smart people, but there are You study the incentives and you see certain behaviors, you looked at the sort of incumbent interests and where I have found productive conversations to be had is if I avoid certain types of language. So for instance, if I don't mention climate change, but I say, let's put

• 1:59:11Tim Ferriss?

  aside the question of whether humans are causing this or not, which is very painful for a lot of people to do, but it's a great way to fight, you know, but if I'm like, look, let's put that aside and just look at extreme weather events and look at some of the upside potential with some of these technologies and like where they could find incentives, like financial incentives outside of some of their current sandboxes. I've had pretty good luck engaging people with that. I don't always have the most compelling opportunities to immediately present them necessarily, although there are, I mean, quite a few out there.

• 1:59:47Speaker 05

  I've been working on some stories about climate technology in Appalachia. So I've had a lot of conversations with Republican lawmakers in states like West Virginia about efforts to bring in renewable energy into the state. And you can have perfectly rational conversations with them and they love it. And you don't talk about global warming or, you know, climate change. You talk about energy and you talk about how, you know, why would we not use this new form of energy that's actually cheaper than everything else? Wind and solar. And they get that. They're like, we're energy people. We understand it and they're embracing it.

• 2:00:31Tim Ferriss?

  Yeah, I think energy independence is sort of a

• 2:00:35Speaker 05

  That and competition with China.

• 2:00:37Tim Ferriss?

  In competition. Well, I guess we can, we can say that for a round two, but really appreciate the time from both of you. Took a ton of notes. For people listening also, we'll have show notes linking to everything that we mentioned as usual at tim.blog/podcast. So you'll be able to find references and links to certainly everything I have in my notes and a lot more that came up in conversation. Any last parting words, gentlemen?

• 2:01:03Speaker 04

  You're not gonna play with dinner this time. I'm paying.

• 2:01:06Tim Ferriss?

  Okay, agreed.

• 2:01:08Speaker 04

  Last time, he went and paid.

• 2:01:12Tim Ferriss?

  No games. I won't skulk off and surreptitiously pay for anything. So on that note, off to dinner we go. And thank you very much, guys. And to everybody listening, thanks for tuning in.

• 2:01:24Tim Ferriss?

  Hey guys, this is Tim again. Just one more thing before you take off, and that is Five Bullet Friday. Would you enjoy getting a short email from me every Friday that provides a little fun before the weekend? Between 1.5 and 2 million people subscribe to my free newsletter, my super short newsletter called Five Bullet Friday. Easy to sign up, easy to cancel. It is basically a half-page that I send out every Friday to share the coolest things I've found or discovered, or have started exploring over that week. It's kind of like my diary of cool things. It often includes articles I'm reading, books I'm reading, albums perhaps, gadgets, gizmos, all sorts of tech tricks and so on that get sent to me by my friends, including a lot of podcast guests.

• 2:02:07Tim Ferriss?

  And these strange esoteric things end up in my field, and then I test them, and then I share them with you. So, if that sounds fun, again, it's very short, a little tiny bite of goodness before you head off for the weekend, something to think about. If you'd like to try it out, just go to tim.blog/friday. Type that into your browser, tim.blog/friday. Drop in your email, and you'll get the very next one. Thanks for listening. This episode is brought to you by Helix Sleep. Helix Sleep is a premium mattress brand that provides tailored mattresses based on your sleep preferences. Their lineup includes 14 unique mattresses, including a collection of luxury models, a mattress for big and tall sleepers, that's not me, and even a mattress made specifically for kids.

• 2:02:50Tim Ferriss?

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• 2:03:34Tim Ferriss?

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• 2:04:19Tim Ferriss?

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• 2:05:02Tim Ferriss?

  the daily foundational nutritional supplement that supports whole-body health. I view AG1 as comprehensive nutritional insurance, and that is nothing new. I actually recommended AG1 in my 2010 bestseller, more than a decade ago, The Four Hour Body, and I did not get paid to do so. I simply loved the product and felt like it was the ultimate nutritionally-dense supplement that you could use conveniently while on the run, which is, for me, a lot of the time. I have been using it a very, very long time, indeed. And I do get asked a lot what I would take if I could only take one supplement. And the true answer is invariably AG1. It simply covers a ton of bases. I usually drink it in the mornings and... Frequently take their travel packs with me on the road.

• 2:05:47Tim Ferriss?

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• 2:06:29Tim Ferriss?

  Now, I do my best, always, to eat nutrient-dense meals. That is the basic, basic, basic, basic requirement, right? That is why things are called supplements. Of course, that's what I focus on. But it is not always possible. It is not always easy. So, part of my routine is using AG1 daily. If I'm on the road, on the run, it just makes it easy to get a lot of nutrients at once and to sleep easy knowing that I am checking a lot of important boxes. So, each morning, AG1. That's just, like, brushing my teeth, part of the routine. It's also NSF certified for sports, so professional athletes trust it to be safe. And each pouch of AG1 contains exactly what is on the label, does not contain harmful levels of microbes or heavy metals,

• 2:07:13Tim Ferriss?

  and is free of 280 banned substances. It's the ultimate nutritional supplement in one easy scoop. So take ownership of your health and try AG1 today. You will get a free one-year supply of vitamin D and five free AG1 travel packs with your first subscription purchase. So learn more, check it out. Go to drinkag1.com/tim. That's drink A-G-one, the number one. Drinkag1.com/tim. Last time, drinkag1.com/tim. Check it out.