Trail Magic - Lessons from Two Years of the Podcast [Invest Like the Best, EP.104]

This week, to mark the two-year anniversary of the podcast, I offer a quick summary looking back and forward.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Patrick O'Shaughnessy?

  I know firsthand how complex the tech stack is for asset management firms. And seemingly every new tool and data source makes the problem even worse, adding more complexity, more headcount and more risk. RidgeLine offers a better way forward. One unified platform that automates away the complexity across portfolio accounting, reconciliation, reporting, trading, compliance and more, all at scale. RidgeLine is revolutionizing investment management, helping ambitious firms scale faster, operate smarter and stay ahead of the curve. See what RidgeLine can unlock for your firm. Schedule a demo at ridgeline.ai.

• 0:36Patrick O'Shaughnessy?

  Hello and welcome, everyone. I'm Patrick O'Neal and this is Invest Like the Best. This show is an open-ended exploration of markets, ideas, methods, stories and of strategies that will help you better invest both your time and your money. You can learn more and stay up to date at investorfieldguide.com.

• 0:57Speaker 02

  Patrick O'Neal is the CEO of O'Neal Asset Management. All opinions expressed by Patrick and podcast guests are solely their own opinions and do not reflect the opinion of O'Neal Asset Management. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of O'Neal Asset Management may maintain positions in the securities discussed in this podcast.

• 1:22Patrick O'Shaughnessy?

  This week, to mark the two-year anniversary of the podcast, I offer a quick summary looking back and forward. Yesterday, I heard about an Appalachian Trail throughhiker named Crow Atoan, or Crow for short. Crow is his trail name, which all AT throughhikers carry. Importantly, you can't give yourself a trail name. Someone else has to name you along the way. Crow's girlfriend's name was Porridge. Another hiker he encountered was named Bear Wrestler, and more on him in a few minutes. Crow was a sobo, a southbound hiker heading from Maine to Georgia. This is a far more unique route, as most throughhikers are nobos hiking north. These hikers maintain a rich culture. Each wears their own trail flare and has their own trail style. They're obsessed with their gear and with food. They developed their own improved walking method to cover ground efficiently.

• 2:07Patrick O'Shaughnessy?

  Hikers typically won't veer far off course, no more than a tenth of a mile for almost any reason. Crow once left a meaningful gift he had received by a riverbed, realized it two tenths of a mile later, and just kept moving. Two exceptions to this rule are to visit a brewery or find some homemade ice cream. Now, there are different types of through hikers. White blazers are hikers who follow the main trail, lit by the famous white blazes marking the way. Blue blazers often go a step further, exploring side trails in addition to the main trail. Green blazers smoke weed the whole time. There are other colorful ones I'll stay away from here because they aren't safe for work. Apparently, you can spot an impostor in a number of ways. My favorite was that anyone wearing big, sturdy hiking boots should be questioned, because most through hikers realize quickly that they're too heavy and opt instead for lightweight shoes.

• 2:52Patrick O'Shaughnessy?

  Crow had a nice pair of ultras. This brings us back to Bear Wrestler. Around a campfire, Bear Wrestler was telling Crow and his girlfriend all about his long trail adventures and feats. But Crow noticed that Bear Wrestler was still chubby, carrying 40 pounds of fat. This is a second way to spot a potential impostor. When hiking intensely for months on end, it is impossible to keep any weight on, so Bear Wrestler was clearly a yellow blazer, which is a type of hiker who drives between trailheads instead of hiking the entire way like purists. As I heard about Crow and his adventure, I was thinking about what to say in this short episode about what I've learned across two years running this podcast. What I quickly realized is how many yellow blazers there are in the world, and that at many times in my life, I too have been a yellow blazer, opting for easier but less

• 3:35Patrick O'Shaughnessy?

  authentic and less interesting routes. The podcast is part of a portfolio of things that I put in place in my life to try to avoid being a yellow blazer, to instead push myself to be more like a blue blazer, exploring anywhere I can. Looking back on the incredible guests I've had, I realize now the common mindset that unites them, and I'd like to highlight that mindset here. Even though my guests have come from just about every conceivable background, investing in otherwise, they are all in persistent and consistent pursuit of original experience. Now, that might sound obvious, but it's quite rare to meet people whose default is to chase original experience. These people stand out quickly to me now, because I can recognize freshness in them, patterns that I haven't seen 10 other times elsewhere.

• 4:17Patrick O'Shaughnessy?

  Now think to myself often, "Am I doing this because it's conventional or because I'm watching what other people do?" I think if you do the same exercise, you'll be alarmed by how often the answer is yes. Diving a bit deeper into what unites so many of my past guests, there are four elements that I see over and over again. The first common trait is deep curiosity. My take on curiosity after meeting all these people is that it works best in two ways: through building units of exploration and through embracing strange intersections. When people ask me what I do, I'll now sometimes just list the actual things that I do instead of a job title. So I say, "I read books, papers, and articles. I run tests on data using many of the same scripts and tools. I have tons of individual conversations with people in nooks and crannies of the investing world.

• 5:01Patrick O'Shaughnessy?

  I talk to clients and prospects. I write letters and white papers." These are my units of exploration, and I expect that I'll keep repeating each of them forever. I have no clue where that might lead, but I'm confident that through curiosity-fueled repetition, I'll find good stuff. My close friend and most frequent podcast guest Brent Bishore has looked through 12,000 business deals. Talk about repetitions. I think curiosity and the interesting investing opportunities that it creates is just a set of habits. Finding the right habits, the right units, if you will, is a great start. I also often see what I call strange intersections. Picture a Venn diagram with tiny but interesting overlaps. Some of the most intriguing things I've learned about live in these strange intersections. For example, Ali Hamad and Sabhneet Singh, who are partners at a firm called CoVenture

• 5:46Patrick O'Shaughnessy?

  and both were guests, have found interesting overlap between the worlds of lending, technology, and old-world businesses. Whether it be Shu Returns Online or Watermelons, they've found unique ways to lend at high rates on unique platforms enabled by technology. I often see people using seemingly unrelated interests, ideas, or strategies together to produce something different. I encourage everyone to think about the strange ways of combining their areas of expertise and of interest. The second common trait after curiosity is persistence through randomness. Sometimes when I talk with people about the importance of curiosity, they say it sounds too easy and too fun. The good news for the skeptics is that more often than not, it's not fun. It's a total slog. When I looked back recently, I found I only finish one in seven books

• 6:31Patrick O'Shaughnessy?

  that I start. Even most that I finish aren't all that great. Put differently, I read an incredible amount of mediocre books to just find one that might make a difference. This happens everywhere. The vast majority of data and ideas that we investigate at O'Shaughnessy Asset Management, for example, go nowhere at all. I think most people will agree that the journey of discovery is often tedious, filled with dead ends, and above all, totally random. My favorite example of this persistence through randomness was my conversation with Josh Wolfe, which I recommend in its entirety. One of my favorite phrases picked up in the past few years is the Shanggon phrase, "hitashkuma," which I learned from Rainius Emflongo, one of the top trackers in Africa. What it means is, "We will find it," and Rainius will keep muttering it when he loses his track and struggles to find the next one.

• 7:16Patrick O'Shaughnessy?

  Everything is hard, and usually much harder than we can fathom. All the best people I've met through the podcast just don't let that stop them. They also seem to develop an awareness of this constant difficulty and just become used to it. Now, this second trait, persistence through randomness, is perhaps my favorite way to test for yellowblazers. There are many people in the world of business and investing who can talk extremely well. But if you keep peeling back the onion, asking more and more specific questions of a yellowblazer, you'll find nothing original. But when you do hit on something several layers down that you've never heard before, that, to me, is a mark of persistent inquiry on the part of the person I'm asking. That's the kind of person I'm after. The third trait is risk management. It's tempting to view uncertainty as a sort of risk, but I think that's a large mistake.

• 8:00Patrick O'Shaughnessy?

  All the good stuff is found in places that hasn't already been mapped. In fact, to take the idea of original experience a step further, what is common across the people I've met is not just having the experiences, but then bringing some sort of order to the chaos they find in uncertainty back to others. This isn't risk, in my opinion. If anything, not seeking out chaos is what's risky. But then there are the conceivable risks, things that could go wrong that we can list ahead of time. On this front, guests were often very thoughtful, developing plans to be deployed when specific risk scenarios played out. I loved Mike Zapata's story about the darkest night. He and his SEAL team would prepare and practice every tiny detail of a mission, creating plans for all risks, then wait to attack until the darkest night they could,

• 8:44Patrick O'Shaughnessy?

  because even though the conditions were hard and the dark, their preparation and risk mitigation would shine in that difficult environment. More specific to investing, many of my guests have a clear focus on downside risk protection. Several people have ...told me that there are common ways that things go wrong, but many more and unknowable reasons that things go right. So instead of trying to predict what will work, focus on avoiding the common pitfalls. My favorite example again came in Africa, being told 100 times not to run when lions charged us. It's a common and known risk factor. Each of our guides have been charged more than 50 times, but one that was easily mitigated. If you don't run, the lion will stop short and not maul and eat you. You just have to have that lesson beat into your brain 100 times ahead of time because the basic instinct, as is

• 9:27Patrick O'Shaughnessy?

  so often the case with investing, is to run. For the fourth common trait, we return to our through hiker Crow one last time. I heard Crow's story from my friend Bill, who picked up Crow hitchhiking to give him a quick ride into town. Bill offered to buy Crow dinner. He accepted with a huge smile, telling Bill, "Wow, that is some real trail magic right there." Trail magic is my favorite piece of lingo in the through hiking culture. Hikers tell endless stories about trail magic, which is what they call the acts of kindness and goodwill bestowed upon them by strangers along their journey. Food, shelter, a quick lift, a homemade cookie. Consider how incredibly positive some trail magic is. The givers and receivers of the magic both come out ahead. Despite all I've learned about business and

• 10:09Patrick O'Shaughnessy?

  investing over these two years, my favorite question to ask is still my final one in each episode about acts of kindness. Getting to hear more than 100 stories of kindness from these people has been the highlight for me and the best lesson. Summed up, what I've learned from these people is to follow your own way always. Figure out the right units of exploration, embrace strange intersections, and carefully consider what could go wrong. Rest when you need it, be dogged and aggressive when the situation calls for it, but just keep going. Do it all with respect for others and as much trail magic as you can possibly muster. Thanks to all the great people I've had on the show, and thanks to you for listening for two years. I promise to keep this discovering process going in some way, shape, or form forever.

• 10:50Speaker 03

  Hey everyone, Patrick here again. To find more episodes of Invest Like the Best, go to investorfieldguide.com/podcast. If you're a book lover, you can also sign up for my book club at investorfieldguide.com/bookclub. After you sign up, you'll receive a full investor curriculum right away and then three to four suggestions of new books every month. You can also follow me on Twitter @Patrick_OShag. If you enjoy the show, please leave a quick review for us on iTunes, which will help more people discover Invest Like the Best. Thanks so much for listening.