What We’re Reading (Week Ending 07 August 2022) - 07 Aug 2022
Reading helps us learn about the world and it is a really important aspect of investing. The legendary Charlie Munger even goes so far as to say that “I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading.” We (the co-founders of Compounder Fund) read widely across a range of topics, including investing, business, technology, and the world in general. We want to regularly share the best articles we’ve come across recently. Here they are (for the week ending 07 August 2022):
1. Will Thorndike – The Power of Long Holding Periods – Patrick O’Shaughnessy and Will Thorndike
[00:06:28] Patrick: 50’s pretty good. I’d love to dig into this interest that you have in long-term holding periods in as many ways as we can. The TransDigm episode and the conversation you had with Nick and some of the investors there really brings it to life where this is not a simple story, right? There’s a lot going on over a very long period of time. Obviously periods that long are fundamentally unpredictable. You don’t know what’s going to happen in the world. You don’t know what’s going to happen on the team. There’s a crazy amount of unpredictability that gets injected if you’re talking a 20, 30 year time horizon. So how do you deal with that amount of uncertainty and what are the benefits of having that sort of orientation? Is there a litmus test that you apply to the company to say, “This definitely won’t work over five years, but it could over 30.” Is that a positive thing? I would just love to start to understand the reason that you’re so interested in this, given that as you get longer, it just seems harder to predict things.
[00:07:22] Will: In the original Housatonic fund we still owned three of the eight companies that we invested in and the holding period for each of those companies is over 25 years now. And those companies have been very good outcomes, but they’ve also just been incredibly fun and satisfying to work on. You asked that question about how has the book influenced my investing, part of it is I’ve spent a lot of time thinking about those eight companies in the book, those three companies from the earlier Housatonic funds, and then a whole range of other companies I’ve been involved in over a long period of time with the idea that what correlates most highly with persistence in return profile over time? This is really translated into a lot of the work that we’re doing at Compounding Labs, but we’ve really become zeroed in on revenue quality. So the purest form of that is it a recurring revenue business? And if so, what’s the churn profile?
And what we’ve found is there’s disproportionate power in truly low churn businesses. And when I say churn, I mean, logo churn, gross churn, net revenue retention is, there are other metrics that are important as well, but really at the core of it is you start the year with a 100 customers, how many do you end the year with and why are there structural reasons for that? And so if you look across those companies, they tend to have this element of revenue persistence. It’s absolutely the case for TransDigm, TransDigm which I’m sure we’ll get into in some detail, their business is very specialized aviation components, airplane parts. When they get engineered into these core airplane platforms, frames, whether it’s the 737 commercial aircraft or the B-52 and defense aircraft, and those platforms tend to stay in active service for 70 or 75 years.
So if you’re providing a small, critical component part into those airframes, in order to be switched out, it requires FAA approval. It absolutely never happens. And so you have great visibility, predictability on your revenue stream around which you can then do a whole range of other things in terms of how you organize the company, whether you choose a decentralized organizational form, how you think about financing the company. It has a dramatic impact on your capital allocation menu of alternatives. So we’ve intentionally been trying to select for a very specific type of business model at Compounding Labs and also in the work we’re doing at 50X.
[00:09:42] Patrick: Maybe we could just keep digging in until we find a bottom on this concept of revenue quality. What are the most common things that you start to see early in the investigation of a business that indicate that this revenue quality that you’re after may be there? And what is the process like early on as you’re doing one of these deep dives, what kinds of questions are you asking of the business, or the inverse? What kind of things are you looking to actively avoid? Even if there’s, let’s say, low churn?
[00:10:08] Will: It’s one of these things the mathematicians talk about the simplicity on the other side of complexity. And so we’ve spent a lot of time on this over a very long period of time, across a lot of companies. At the end of the day, however, industries that are characterized by very low churn are just interesting places to be looking for these sorts of long holding period platforms. The Porter Framework is incredibly powerful. There are a lot of frameworks you can use to evaluate businesses, but I would argue at the end of the day, if a company has 2% customer churn that’s a very powerful indicator.
So then you have to look at, okay, so what are the reasons for that? And what potential dislocation risk is there that the reasons for that stickiness will change over time. It’s a very rich hunting ground we found, and you tend to get with that profile a lot of other good things. You tend to get relatively simple operations, you tend to get pricing power, you tend to get a high degree of capital efficiency, which is another thing we really focus on. We can talk a little bit about that. But a lot of positive economic attributes tend to correlate with those sorts of revenue profiles. It’s not in and of itself the only criterion, but it’s a very powerful leading indicator. At least for the work we’re doing…
…[00:17:45] Patrick: If you think about, I guess the power of that patience early on, and you’re doing these very deep dive looks at companies for the outsiders now for 50 X. What are the kinds of things that you’re uncovering about let’s say TransDigm, since it’s the most recent example. That you think would just be overlooked or underappreciated if you spent, I don’t know, five hours researching the company or some shorter period of time that probably a more traditional analyst new to the company would get familiar in five, 10, 15, 20 hours, something like that. What kinds of things would they miss maybe specifically for TransDigm, but what is the value of this like crazy deep dive, year long type research that you do?
[00:18:23] Will: It’s the peeling back the layers of the onion analogy. So examples of things you learned from diving deeper, pacing is one of them. You need to look really hard to get at that, but their approach to pacing was very different, very differentiated. Another item that’s important to them is they’ve retained the ability to do really small acquisitions as they’ve gotten bigger. That turns out to be a common thread across really long term serial acquirers, really small acquisitions tend to be very, very accretive for these companies over time and so the trap that some serial acquirers fall into is to just focus on larger deals. TransDigm has retained the ability to do a steady diet of these smaller, highly accretive transactions. Again, all done with debt. Game selection, so to speak was really good here. Nick and his team chose an excellent industry, but within that, it’s sort of optimized along every single dimension.
You can look at the decision they made around organizational structure. They chose an extreme what I would call hard form of decentralization and they’ve been able to maintain that as they’ve grown. The details of that, which are in the podcast are all things you would miss on first study, but they’re very important to understanding how sustainable that approach is going forward. The approach to compensation is unique among public companies and it’s tied directly into the decentralized organizational form and it’s just unique in ways that are sort of provocative. It’s entirely performance based, no time based vesting whatsoever and it’s tied to minimum thresholds of compounding for shareholders using a very sensible formula.
The lessons that come out about how to instill, imprint a culture widely in an organization, sort of idea of the simplicity of the value creation triad at TransDigm, which is repeated add in for an item. It’s repeated add in for an item across our podcast, but even more so within the company, this idea that’s productivity, pricing and profitable new business. Those are the only possible sources of value creation and every GM is evaluated on those and every review of every business unit quarterly is centered on those…
...[00:25:09] Patrick: You’ve mentioned this kind of decentralized structure a few times. An example would be helpful of people might think of Berkshire or something where there’s a lot of trust and responsibility and ownership that’s pushed down, maybe IAC. There’s other interesting modern examples of a slim home office, not a lot of G & A the home office and a lot of responsibility at the business unit. Why does this work so well? How does culture permeate across very independent business units? It seems like that would be almost contradictory that unique cultures at the business level, if it was fully decentralized. So I’m just curious to understand a bit more about why you think this works.
[00:25:44] Will: First of all, it’s not a universal panacea at all. So there are lots of companies that have been very successful with cultures and organizational structures that aren’t decentralized. I would argue that Danaher has been wildly successful as a serial acquirer with a culture that is not highly decentralized. It has elements of decentralization, but also importantly, elements of centralization. It’s not a universal solution at all. I think it’s very industry dependent. The characteristics of successful decentralized cultures, I mean, again, you can kind of super, roughly get at it quantitatively by looking at the ratio of people at corporate to total employees, relative to the peer group. So a lot of the companies and the outsiders and the book and TransDigm as examples were just off the charts, they had 10 X, five to 10 X, as many employees, total employees per employee at corporate.
With that is this idea that again, that you’re trying to retain entrepreneurial ethos, that’s an essential priority. So that’s one of the objectives of a decentralized culture. The other is you are lowering your cost and in these cultures, there tends to be an element of frugality scrappiness in the culture. It persists long past the early days. Another company that fits this model very well is Constellation Software, which famously has 500 plus maybe 600 now business units under Mark Leonard. If you’re the CEO of a company, you’re constantly faced with decisions about what to centralize versus keep independent. The tricky thing is in almost every case, the decision to centralize leads to a near term economy, like a quantifiable near term cost savings.
But the reality is that if you do it every time, if you follow that path to its logical conclusion, you tend to end up with a bureaucratic ossified organizational structure and culture. We talk about this with our CEOs all the time. What messes are you willing to step around? What things do you think are important to have reside at corporate and what should remain with the general managers?
[00:27:50] Patrick: I’m curious for an example of a mess that’s worth sidestepping. It would seem counterintuitive that a great business would actively avoid getting involved in a mess. So what’s a good example of that in your experience?
[00:28:01] Will: It’s sort of, what do you want to mandate? Do you want to mandate a certain type of Salesforce compensation program at all of your companies? And it’s this idea. Do you want to mandate it or do you want to suggest it? The other thing that happens in those successful decentralized companies is they tend to regularly assemble the general managers and compare their results and share ideas in a way that naturally promotes positive peer pressure or a little element of competition, but also shares good ideas. That would be an example. You have healthcare insurance, you’re going to make everyone on the same healthcare insurance program or let them choose their own. Even if you get purchasing economies, what’s the flip side? It’s sort of looking at that non-intuitive costs of efficiency sometimes.
2. How Caffeine Became the World’s Favorite Drug – Amy McCarthy, Cynthia Graber, Nicola Twilley and Michael Pollan
Gastropod: Where can you find caffeine molecules in the wild?
Michael Pollan: It’s produced by several plants, most notably the coffee plant, the tea plant. Members of the citrus family produce caffeine also — that’s a curious case — and the kola plant produces it. It was hit upon by plants during their evolution as an insecticide, and also as a chemical that discourages other plants from germinating near you. Plants are very protective of their territory — at least some of them are — and if they drop leaves of a caffeine-producing plant, it’s very hard for other plants to germinate in their presence. But the main purpose [of caffeine] in the life of a plant is to poison insect predators, which it seems to do pretty well.
So when did humans start enjoying this insecticide and in what form?
What’s really interesting about caffeine, at least if you look at it from the point of view of people who live in the West, is that compared to other psychoactive plants that we’ve been involved with for thousands of years — peyote is 6,000 years, alcohol probably goes back even further — caffeine came to human attention fairly late; in the case of coffee, not until the 600s or so. It doesn’t come to the West until the 17th century. Before that, it was known to people in East Africa, in Ethiopia, and the Arabian Peninsula, and it was commonly drunk in the Arab world long before it arrived in Europe.
That’s why it’s a really interesting case study, because we can really look at civilization before and after caffeine. And its effect on Western civilization is profound: It ushers in what amounts to a new form of consciousness, a new way of perceiving the world that was incredibly helpful to things like the scientific revolution and the capitalist revolution. Because it cleared the Western mind, which had been badly clouded by alcohol.
We have very little sense of how drunk people were much of the time, before the advent of caffeine in Europe. Alcohol was something that people drank morning, noon, and night because alcohol was safer than water — you got diseases from water, but the fermentation process and the alcohol itself sanitized the water. So when you read accounts, people were kind of slightly addled all the time.
When caffeine comes in, it doesn’t obviously eliminate the use of alcohol, but it does reduce it. And a lot of people observed this in the 17th century — that, as a result, they’re clear, more focused, able to do things they couldn’t do before. This has a profound effect.
To go back in time a little bit, why were people on the Arabian peninsula consuming it? What did it do for them?
One of the first uses of coffee and tea, interestingly enough, is in the religious context. Sufi monks would use coffee to help them stay awake during long nights of prayer or meditation. And this was true, too, for Buddhists in China, who learned pretty quickly that tea was an aid to meditation. It helps with the focus that you want, and it also keeps you from falling asleep on the cushion. It really begins as a tool for religious observance…
…One thing we thought was fascinating was that early scientists were trying to understand caffeine from a worker’s perspective. How were scientists trying to understand how caffeine and energy were related?
This comes a little bit later, around 1900, where you have this new academic discipline concerned with humans and work. Efficiency — kind of a mix of biology and social science — becomes a very important science. And one of the things they were trying to understand is, how was it that caffeine appeared to enhance people’s energy without giving them any calories. There was a pretty strict understanding that energy was a function of calories. But here was a noncaloric drink — leaving aside whether it was sweetened or not — that seemed to give people more energy. This seemed in violation of the laws of thermodynamics, and it looked very much like a free lunch in terms of giving people energy.
It was only later that we came to understand how you got energy from caffeine — that you were essentially borrowing it from the future. It wasn’t additional energy. The way caffeine works is that it, like a lot of drugs, closely resembles a neurotransmitter or neuromodulator. In this case, it’s adenosine, which is a very important neuromodulator that regulates the sleep cycle. Over the course of the day, adenosine levels build up in your body and create what is called sleep pressure. There are receptors dedicated to linking with adenosine. What caffeine does is hijack those receptors. It fits neatly into those receptors and then blocks the adenosine from doing its job.
But it’s not like adenosine goes away. The levels of adenosine in your bloodstream and in your brain continue to build. So when the caffeine is finally metabolized, the adenosine hits you like a ton of bricks because it’s been building up the whole time and you’re more tired than you would have been had you not had the caffeine.
3. A quick look at 2 companies innovating to overcome the short half-life of mRNA: is self-amplifying or endless RNA the future of mRNA vaccines? – Infinitty Capital
Conventional vaccine development takes time, about 10–15 years from initial research to market availability. In this COVID pandemic, mRNA technology has shown a clear advantage of speed over other modalities. However, the technology also faces several technical challenges with no near-term solution.
One drawback with mRNA vaccines is that the amount of antigen produced is dependent on the number of mRNA molecules delivered to the cell. This means that if more antigen wants to be produced a higher dose would be required (this might not be safe). Additionally, because the half-life (number of days before the mRNA is degraded) of mRNA is relatively short, this means that individuals need to get multiple doses to mount an immune response that is potent enough to provide protection.
To address both these issues, scientists have been researching & developing solutions that could increase the production of antigens and improve the half-life of the mRNA molecules.
Let’s look at two technologies that have been developed: self-amplifying RNA and endless RNA.
A self-amplifying RNA (sa-RNA) contains components that allow it to replicate itself in situ (create more copies of itself in the cell, see image below). These components are typically from Venezuelan equine encephalitis virus (VEE), Sindbis virus (SINV), and Semliki forest virus (SFV) and they encode for an RNA-dependent RNA polymerase (RdRP) complex. Therefore, the sa-RNA not only encodes the instructions for the host cell to make the desired protein, but it is also able to make more copies of the RNA containing those instructions. This technology thus allows for an increase in the copy number of mRNA templates but does little to improve the half-life of the template at the parent template is not being amplified.
Because it can replicate and amplify itself, sa-RNA vaccine can be given in a much lower dose, meaning that each dose can be smaller and cheaper…
…In the world of RNA, there are multiple types of RNA and circular RNA is a particularly intriguing format. In circular RNAs, the free 3′ and 5′ ends found in linear RNA forms are joined together to form a closed loop that appears to render them stable and long-lasting. However, circular RNAs are typically non-coding, meaning that they do not get translated into protein.
Laronde Bio (Private) has managed to engineer a closed-loop RNA into a translatable form of RNA, called Endless RNATM (eRNA). Different from sa-RNA which amplifies itself but is still unstable, eRNA is a versatile synthetic RNA platform that instructs cells to express the desired protein and it is naturally stable.
4. Data Centers Are Facing a Climate Crisis – Chris Stokel-Walker
When record temperatures wracked the UK in late July, Google Cloud’s data centers in London went offline for a day, due to cooling failures. The impact wasn’t limited to those near the center: That particular location services customers in the US and Pacific region, with outages limiting their access to key Google services for hours. Oracle’s cloud-based data center in the capital was also struck down by the heat, causing outages for US customers. Oracle blamed “unseasonal temperatures” for the blackout.
The UK Met Office, which monitors the weather, suggests that the record heat was an augur of things to come, which means data centers need to prepare for a new normal.
The World Meteorological Organization (WMO) says there’s a 93 percent chance that one year between now and 2026 will be the hottest on record. Nor will that be a one-off. “For as long as we continue to emit greenhouse gases, temperatures will continue to rise,” says Petteri Taalas, WMO secretary general. “And alongside that, our oceans will continue to become warmer and more acidic, sea ice and glaciers will continue to melt, sea level will continue to rise, and our weather will become more extreme.”
That weather shift will have an impact on all human-made infrastructure—including the data centers that keep our planet’s collective knowledge online.
The question is whether they are prepared. “From my point of view, there is an issue with existing data center stock that’s been built in the UK and Europe,” says Simon Harris, head of critical infrastructure at data center consultancy Business Critical Solutions. But it doesn’t stop there. Forty-five percent of US data centers have experienced an extreme weather event that threatened their ability to operate, according to a survey by the Uptime Institute, a digital services standards agency.
Data center cooling systems are built using a complicated, multi-stage process, says Sophia Flucker, director at UK data center consulting firm Operational Intelligence. This may include analyzing temperature data from a weather station close to the point where the data center will be built.
The problem? That data is historical and represents a time when temperatures in the UK didn’t hit 40 degrees Celsius. “We’re on the fringes of a changing climate,” says Harris.
“It wasn’t that long ago that we were designing cooling systems for a peak outdoor temperature of 32 degrees,” says Jon Healy, of the UK data center consultancy Keysource. “They’re over 8 degrees higher than they were ever designed for.” The design conditions are being increasingly elevated—but data center companies, and the clients they’re working for, operate as profit-driven enterprises. Data from consultancy Turner & Townsend suggests that the cost of building data centers has risen in almost every market in recent years, and construction companies are advised to keep costs down.
“If we went from 32 degrees to 42 degrees, blimey,” says Healy. “You’re having to make everything significantly larger to support that very small percentage of the year” when temperatures rise. “It’s got to be done with caution.”
Data center design companies are starting to consider the historical weather information outmoded and beginning to use projected future temperatures, says Flucker. “Rather than thinking my extreme is 35 degrees, they’re doing projections saying maybe it’s more like 37 or 38 degrees,” she says. “But of course, that’s only as good as how well we can predict the future.”…
…Companies are testing some unusual ways to tackle these challenges: Between 2018 and 2020 Microsoft ran Project Natick, which sunk a data center 117 feet below the sea offshore Scotland to insulate it from temperature fluctuations, among other things. Harris says that building data centers in ever more northern climates could be one way to avoid the heat—by trying to outrun it—but this comes with its own problems. “Developers will be fighting over an ever-dwindling pool of potential sites,” he says, a challenge when edge computing puts data centers ever closer to the point at which data is consumed, often in hotter, urban areas.
Liquid cooling technology offers a more practical solution. Data centers are currently in an era of air-based cooling, but liquid cooling—where liquid is passed by equipment, transferring the heat and syphoning it away—could be a better way to keep temperatures down. However, it isn’t widely used because it requires a combined knowledge of cooling and IT equipment. “At the moment, these are two very separate worlds,” says Flucker. “There’s definitely some apprehension about making such a big change in how we do things.”
5. Mission impossible: Recovering 3AC’s missing assets – Scott Shuey
When DRB Panama first filed a suit against Three Arrows Capital (3AC), few people thought its claim would throw the massive hedge fund into a death spiral or kick-start a global hunt for hidden assets.
After all, 3AC was a giant, with assets estimated at US$10 billion, according to crypto intelligence firm Nansen. DRB Panama, the operations arms of dutch crypto exchange Deribit, was only seeking US$80 million.
But DRB was just the first in line at the courthouse. Other creditors quickly joined the suit, and it soon became clear that 3AC owed almost US$3.4 billion. To make it worse, the paper trail for the firm’s once incredible portfolio reads like a giant edition of Where’s Waldo?…
…DRB Panama filed the suit against 3AC at the end of June. It went to court in the British Virgin Islands (BVI), where 3AC has been registered since 2012. In under two weeks, the court decided that the crypto hedge fund’s liabilities far exceeded its assets and ordered the company liquidated.
The first thing lawyers had to do was identify what remained of the company’s assets and sell them off. These proceeds are then used to pay creditors, usually netting them pennies on the dollar and helping them pay off legal fees.
But 3AC’s situation isn’t your run-of-the-mill bankruptcy case. According to lawyers that Tech in Asia spoke to, this is the first major liquidation involving massive volumes of cryptocurrencies.
The job of finding 3AC’s crypto assets fell to Christopher Farmer and Russell Crumpler, both from the BVI offices of advisory firm Teneo, who were appointed as liquidators. Tech in Asia reached out to Teneo for comment but did not get a response…
…The majority of 3AC’s assets were in crypto. The company had an unknown number of wallets, though Tech in Asia has seen seven so far that are likely connected to 3AC.
Four wallets identified by Nansen as being associated with the hedge fund held US$50 million in tokens as recently as July 15. One wallet by itself held over US$38 million in stablecoins. Some wallets appeared neglected with only a small number of trades, while some include transactions that liquidators are still trying to explain.
Tech in Asia spoke to analysts, including lawyers and blockchain experts, who say that while some of the assets are sitting in plain sight, some will never be recovered.
Even the crypto assets that investigators do know about could be forever locked away, unless the private keys that can unlock them turn up. For all the world knows, those keys could be with 3AC’s founders, Zhu and Kyle Davies, whose exact whereabouts are currently unknown.
The need to recover cryptocurrencies might be a relatively new problem for the legal community, but lawyers are increasingly hiring blockchain analysts to track these assets.
6. RWH011: The Emotionally Intelligent Investor w/ Daniel Goleman – William Green and Daniel Goleman
William Green (00:12:35):
If I remember rightly Dan, you were actually bankrolled to go off to India and spend time researching this. And then, you came back and you wrote about meditation as an intervention for stress as part of your PhD program in the psychology department. Is that right?
Daniel Goleman (00:12:51):
It is right. But the detail’s a little more interesting. I had a fellowship actually from Ford Foundation that included a year of traveling study abroad, which I actually I didn’t know about. But then, I took advantage of when McClelland fronted for me saying, oh yes, he has serious research to do in India. And that allowed me to hang out with Neem Karoli and Lamas and Sufi and yogis. I was very interested in how meditative practices and related spiritual disciplines transform the mind and the heart.
Daniel Goleman (00:13:21):
And when I came back to Harvard, I thought I wanted to communicate this to other psychologists, but other psychologists weren’t very interested in the day. And, what I ended up doing was showing that meditation was a useful intervention in stress, which by now, decades later has been well established. But then, that was a radical idea.
William Green (00:13:43):
You said at the time that there were only three scientific papers on meditation, right? This must have seemed-
Daniel Goleman (00:13:50):
Well, William actually, by today’s standards, they were all somewhat dubious, they’re anecdotal reports. And two of them were anecdotal reports and one was a non peer reviewed publication. Our standards are higher these days. When I look at my dissertation, given the measurements we had decades ago, I don’t think it would be published today. Now, you would use brain imaging or you’d use much more sophisticated methodology. We didn’t have them back then.
Daniel Goleman (00:14:17):
So I would say this, that the hunch that I had that meditation really can help you be more calm and more focused has been tremendously well-validated. I finished a book published a couple years ago with a friend Richard Davidson, who was also a graduate student with McClelland at Harvard and Richie, as we call him, has gone on to become a world famous neuroscientist, University of Wisconsin. He and I wrote a book looking at the now thousands of peer reviewed articles on meditation, which shows very clearly there is a dose response relationship. The more you do it, the stronger the benefits are.
William Green (00:14:54):
It’s a brilliant book. We’ll hopefully talk much more about meditation later, but this is among other ways of controlling our emotions, both in investing and life. But this is a book called Altered Traits, which is on my table here behind me and I’ll put it in the show notes, but it’s a terrific book. So in a strange way, you were coming back as this exotic creature from India and I think Sri Lanka and coming back into this world that didn’t really know what had hit it, right? That wasn’t particularly interested in Eastern yogis.
William Green (00:15:21):
And so in some sense, is it fair to say that without maybe being conscious of it, you were somehow reconciling or bringing together these two very different worlds, the scientific realm of the Harvard psychology department and the realm of people like Ram Dass and Neem Karoli Baba, and their world of Eastern spirituality, where they’d been sitting around watching the brain for the last 2000 years. And, I think believed that you could change the brain, whereas Western psychology, am I right in thinking believed it was much more fixed?
Daniel Goleman (00:15:51):
Well, yeah, at the time when I came back, we didn’t have the understanding in neuroscience of neuroplasticity, that came much later. Neuroplasticity says, basically the more you exercise brain circuits, the stronger the connectivity between them becomes. This is now very well established. Then, no one even entertained that idea. Brain science was just beginning to emerge back in the day. And not only that, there was a lot of skepticism about the east when I wrote the book. So as you point out, I couldn’t really find a job that suited me in academia. After getting my PhD, I went into science journalism. I ended up at the New York Times and writing in science.
Daniel Goleman (00:16:32):
And, it was then that I wrote the book, Emotional Intelligence, which I was really thinking of people in the business world, in the education world. And the message was not one of, in Asia, they completely transformed their brains in mind, it was more, this will help you because the Western culture is very pragmatic. It’s like, what use is this? Can I focus better? Can I stay calm even in a turbulent situation? Think of an investor, your investment fails and all of a sudden you’re overwhelmed by fear or anxiety. How do you handle that?
Daniel Goleman (00:17:10):
Well, emotional intelligence speaks to that. And how do you stay focused, amidst all the distractions that we have today, emotional intelligence speaks to that. So I’ve really made a point of being more pragmatic, even though the way I think about it is deeply informed by what I’ve been exploring from Asia.
William Green (00:17:31):
So in a sense, you almost had to conceal the more spiritual part of your journey, because in a way it was so unconventional in those days, whereas now it’s probably much easier for you to talk about that openly.
Daniel Goleman (00:17:44):
Well, yeah, I think that the culture has changed enormously. Mindfulness is everyday news now. You mentioned I was in Sri Lanka, that was on a post-doc and I went to study with a monk named [Nana Panika Terra 00:17:58] who wrote about the mind and how to work with it and how to transform it, based on fifth century texts that were written as manuals for meditators. Nana Panika who actually was German by birth, but had been a monk since the twenties was a scholar of poly. And so he had access. And what I realized William, was there’s the psycho technology, which is well known in Asia, well established, it’s been functioning for thousands of years, literally, and that we know nothing about it in Western psychology until very recently. Very recently.
Daniel Goleman (00:18:35):
So, when I started looking into it, it was unknown. I faced a lot of actual open hostility about it, which probably encouraged me to be a little bit sub rosa at the beginning because things had not changed. And it may be that I and a host of other people had a hand in changing it. In India, I met someone named Joseph Goldstein who became one of the first major teachers of what’s called insight meditation and a whole generation. Sharon Salzberg, another name in that world.
Daniel Goleman (00:19:07):
I met Sharon and Delhi and I told her, hey, there’s this meditation course. So she went to Boga and learned what she now teaches. So, I guess I get some karma credit for all the good Sharon is.
William Green (00:19:17):
She’s an amazing teacher.
Daniel Goleman (00:19:19):
Yeah. But what I’m saying is that when we all started, this was very new in the west. And of course that small group can’t take credit for the transformation, but was part of it. And now it’s much easier to talk about these things…
…William Green (00:57:39):
And again, I think Sharon Salzberg teaches that on the 10% Happier app, which I hate to be a sheal for. And I’m not being paid to be a sheal for it, but it really helped me. And I think that it’s a very helpful app. You have an extraordinary thing in Altered Traits where you talk about Mingyur Rinpoche, one of these great Tibetan yogis and what was going on in his brain when he was doing compassion meditation. This is the deep end of the pool. Can you talk a bit about what actually we saw in his brain?
Daniel Goleman (00:58:06):
So Richie Davidson flew these yogis over from Nepal and India and Europe. One by one. One of them was this Yogi Mingyur Rinpoche who at the time had done 62,000 lifetime hours of meditation. Well, if you do a traditional Tibetan three year, three month, three day retreat, you get credit for about 10,000 hours. So this guy had done huge amounts. And when they asked him to do a compassion meditation, the circuitry in the brain for that increased in a moment by 7 to 800%. Never been seen before in neuroscience, such a voluntary jump in the activation of a brain circuit. And, this is a circuitry for compassion. And so I thought it was pretty astounding.
William Green (00:58:51):
Yeah. I think one of the things that’s so remarkable that your book shows is that we are seeing scientifically this thing that people are sitting in caves for thousands of years in Tibet and the like, figured out experientially. And so you no longer need to kind of sound like you are a woo woo mystic, you can actually show what’s going on in the brain. And I see this as a woo woo mystic myself. So I’m not dismissive of that.
Daniel Goleman (00:59:16):
Here’s the thing, I kind of have a foot in both worlds, in the world of Asian spirituality and methodology and the world of science and psychology and so on. And at first, there was a huge gap between those worlds. But as science has investigated these practices, it’s finding, oh, you know what, this works. And it seems to me there’s an ancient psycho technology that’s been well preserved in many Asian cultures. It’s only now becoming known in the west. I think it’s very important.
William Green (00:59:50):
It’s interesting because Buffet’s partner, Charlie Munger, who’s this 98 year old problematic genius who studies all these different fields will say, I observe what works and doesn’t work and why. And this is one of those things where it’s really interesting. You observe it in the laboratory, you observe it in people’s behavior. And you’re like, oh, it works. And so, I’m struck by how many very successful investors meditate on this podcast. I talked with Ray Dalio about the fact that he’s been doing transcendental meditation 20 minutes or 40 minutes a day for 50 years, basically. And so, here you have the guy who’s made more money as a hedge fund manager than anyone else in history. And I think that’s interesting.
William Green (01:00:29):
He claims that it also makes him much more creative. But, he talks about amygdala hijackings. Actually, he talks about the fact that he’s less likely to get swamped by emotion. And he’s gone through a great deal, as we spoke about in my interview with him, he lost his son a year or so ago. And so he’s dealt with extreme pain. And so the fact that meditation has helped to make him more resilient, more clear headed. I think it’s curious when these pragmatists like Dalio start to adopt something that used to seem fringe.
Daniel Goleman (01:00:59):
Well, that’s the culture shift that I’ve seen over the last several decades is that people like Ray Dalio are doing it as a matter of fact, not a big deal. It’s, I go to the gym and I meditate, it’s self care.
William Green (01:01:12):
And I think if I remember rightly that he said that anyone at his firm Bridgewater, they would pay for them to go meditate, for them to take transcendental meditation and training, which is very interesting that they would regard it as sufficiently a competitive advantage that they would actually bankroll it.
7. Reality Catches Up – Morgan Housel
An asset you don’t deserve can quickly become a liability
Maybe your portfolio surged during a bubble, your company hit a monster valuation, or you negotiated a salary that exceeds your ability. It feels great at the time. But reality eventually catches up, and demands repayment in equal proportion to your delusions – plus interest.
These debts are easy to ignore because they are often repaid in the form of self-doubt and crushed morale. But they are very real, and when you understand their power you become careful what you wish for…
…WeWork is currently worth $3.5 billion, which is a monster success for a 12-year-old company – it’s probably in the top 0.0001% of business successes. But of course no one feels that way. The company was worth $47 billion a few years ago, and it was trying to go public at a $100 billion valuation, which no one could justify but felt fun because those were the times we were living in. So by comparison today’s valuation feels like a corporate bellyflop – embarrassment, employees whose stock options expired worthless, and morale shattered as it laid off thousands of people. Every cent of valuation it didn’t deserve was a debt that came due without mercy. What should be a company celebrating its enormous success is instead a company whose head hangs low and whose former employees hold a grudge – that’s the debt coming due…
…I knew people during the housing bubble who went from earning $8 an hour delivering pizza to $250,000 a year selling subprime mortgages. Of course reality came due, and their income went back to normal. But not a single one of them considered their flash of money to be a lucky windfall – in every instance it became a number to anchor to, a source of bitterness and self-doubt when reality returned. And in every instance the money funded a lifestyle that eventually had to be surrendered, which became a point of social shame, particularly when a spouse and kids were involved. The money didn’t feel like a windfall because it wasn’t – it was a hidden form of lifestyle debt that abruptly came due.
Disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation. Of all the companies mentioned, we currently have a vested interest in Alphabet (parent of Google). Holdings are subject to change at any time.
