Chris Mayer (2:45)

Yeah, the highest level is it.

Matt Ziegler (2:47)

Is.

Chris Mayer (2:47)

It is a. A way to think about and analyze the language we use and how that influences how we think. And so that's very high level, simple. And a lot of it stems from Alfred Krasybski, who founded the discipline, although the ideas, of course, have existed before him, but he kind of systematized it into this little discipline called general semantics. So that's where we're at. And we've. We've explored a number of things already last time, and I guess we'll pick it up here.

Matt Ziegler (3:20)

Well, let's pick it up here, because between the AI talk, the AI bubble talk, the MAG7 talk, the sudden working of equal weight s and P500, and dare I say, Russell, 2,000 names. Start me here. You described this thing called IFD disease, idealism, frustration, demoralization. You say it stems from unrealistic expectations. It kind of feels like there's some unrealistic expectations in the world right now. What is IFT disease? How do you relate it to what's going on now?

Chris Mayer (3:49)

Yes. All right. Well, first, IFD refers to idealism. So I guess I could say that would be, you know, trying to change things you can't change or trying to do things you can't do, or persistently demanding of yourself and the world, things that are very. You're unlikely to achieve. So you've built up this idealism. And then when those are not met, then you get frustrated. So that's kind of the progression and makes me think a little bit of Charlie Munger. He always used to say that the secret happiness was low expectations. And Korzevsky had something similar to that where he said he had kind of a shorthand way of talking about. He would say that happiness is sort of minimum expectations but maximum motivation. So you Maybe you don't, you don't expect as much, but it doesn't take away from your, you know, willingness to give it your all and try. And that's kind of what happy people are when you think about it. Happy people are engaged, they're into what they're doing and you know, they can't control the outcome. Nobody can really control the outcome. So, you know, that's, that's what's, that's what it's pushing against. And so how does that come about? Like you mentioned AI. That's a great analogy because I think we're in this phase now where the way people talk about AI, it's going to be this completely faultless execution. I mean, it's being painted as this godlike entity that's going to be able to do everything. And it seems like every week it just sort of rolls through. Which industry is going to get shot this week? Whether it's financial services or, or alternative asset managers or video game makers or whatever it is.

Matt Ziegler (5:30)

It seems the entire legal profession.

Chris Mayer (5:32)

The entire legal profession, anybody that's a broker, I mean, yeah, it's reaching kind of feverish pitch. I saw somebody point out that there was a Japanese maker of toilets that was pitching itself as an AI beneficiary. I don't know how, but this is where we are in a psych.

Bogomil Baranowski (5:48)

I want to see that. Right.

Chris Mayer (5:52)

But idealism also comes across in lots of ways of investing. I mean, anytime you say, you know, something like this is a no brainer, you're setting yourself up for that sort of thing. Or you say management is best in class, you know, you hear that phrase a lot too. Or business is best in class, almost saying that, you know, it can't mess up. And the reality of course is that things are very messy, you know. So yeah, I would say that, you know, general semantics in general teaches us to build our expectations with a lot of margin of error, keep our beliefs sort of provisional and expect that, you know, it's not gonna be perfect. Things are, it's gonna be a messy process to get where we're going. That's what IFD disease is. When you have that ideal path and then you, you get frustrated.

Bogomil Baranowski (6:44)

We'll come back to AI. But I have a question for Robert and I'm thinking of outperformance. We might have asked you about it in some way before, but I'm thinking idealism and unrealistic expectations. Everybody goes into investing and says I'll outperform the market. And you wrote about Bill Miller, we Talked about Bill Miller on this show a few times. Unbelievable 15 year long streak. A couple of changes to how that was measured. Even he suggested if it wasn't December to December would have looked differently Anyways. Talk to us about idealism and unrealistic expectations when it comes to the assumption that we can all outperform the market.

Robert Hagstrom (7:22)

Well, I think by nature we're all optimistic. Right? We believe that we can do well and we can achieve certain things. And you have to be positive mental attitude, positive mental attitude to be in this business. I think the unrealistic expectations is some idea that, you know, you're going to do it every month, every quarter, every year, consistently. And we know that that's just not possible unless you're very, very adroit at being able to change your portfolio as many times as the market changes the portfolio in a particular year. So you're going to have some periods where the, the sun is not shining on your portfolio even though there's still very good investments and good bets. And, and the trick obviously is for me what we're doing is trying to set our people's expectations right out of the gates. I'm going to underperform, guys. You know, I underperform 55% of the time on a month to month basis. I underperform over the last 12 years, 60% on a quarterly basis. I outperform over the last 12 years on an annual basis about 80% of the time. So expect me, you know, I really just beat it into them. Expect me to underperform. I will underperform. But it's not, you know, the frequency, it's the magnitude. Because when, when we do outperform, we're adding significant value. And because we're value investors in a growth space, when we do underperform, we're just not underperforming as much. So, you know, we're, we're trying to tell them that through the process we're going to get a positive spread for you no matter how many times we win, how many times we lose. It's just we'll make money for you when we win and we'll, we'll give back less money when we lose.

Chris Mayer (9:04)

Let me throw out one question out there, which is, is beating the market the right benchmark? Is that the right thing to think about? Could it be? I mean, we assume The S&P 500 is representative of what, what a market rate of equity return is. But is that the right number or is that the right benchmark? I'm thinking of a lot of other funds, perhaps, that have very specialized functions, you know, whether or not it's generating income or whether or not they're in a specific sector or they're pursuing a certain strategy which you might say they succeeded over time even though they didn't beat the s and P500, let's say. So is that a possibility? Or what would you say to that?

Robert Hagstrom (9:46)

Are you. Oh, you're asking me?

Chris Mayer (9:48)

Yeah, I'm just throwing it out as a question. I wonder myself.

Matt Ziegler (9:51)

He's asking you. We're all looking at you, Robert.

Robert Hagstrom (9:53)

So you better, I guess you go back to barons and Charles Dowell and all those guys when they put together the very first index, I guess, which would be the Dow Jones Industrial Index. Now, that wasn't investable that time. You had to buy all, you know, all the stocks that there wasn't an index, per se, but you started thinking about market returns when they put together this index. And I guess maybe, Chris, it was just a. A normal reflex to say, okay, these 30 stocks did this. How did you do. Now, whether that was right or wrong, that's something that happened a hundred years ago. And then, you know, obviously with the s and P500, it would be really, you know, I spent a lot of time going through the. The advent and genesis of modern portfolio theory. I really ought to go back and spend a lot of time on this. And this whole concept, Chris, of why is it that we latched on to, you know, indices? I think what happened, my memory is serving me is that most of the money that was being managed, particularly in banks and trust departments, really wasn't that aggressive. There was some income for the, you know, for those that needed the income, and the capital appreciation went to the remainder months and. But nobody was held feet to the fire. Then when the competition started to heat up and people started doing money management business and building firms, the only way they could grow their business was to say, I can do it better than the other guy, or I can do it better than what they're doing. And so you had to put a marker down as to, you know, what the general market was doing, what you're doing and what I'm doing, and am I doing it better than, you know, what you're doing? If this is the general market, that's a thesis, you know, that maybe it evolved out of competition to build assets. You had to say that I was better than something, I'm better than you, or I'm better than something. And maybe that's how the index focus of performance all Came about, I don't know. Do you have any thoughts on that?

Chris Mayer (11:48)

No, I think that's right. I think also there, if I remember vaguely, I think. I think Peter Bernstein may have written about this or I could be wrong, but I think also it had something to do with Markowitz and the efficient, you know, frontier. And so how, you know, they needed inputs for that kind of stuff and it created a market and how to evaluate money managers. And I mean, I think that had influence as well, but I'm not sure if I can.

Robert Hagstrom (12:15)

I think, you know, the thing that I. I'm sorry, go ahead.

Chris Mayer (12:18)

Chris Bogumill's got wisdom.

Robert Hagstrom (12:19)

Let's go.

Bogomil Baranowski (12:20)

I don't know about wisdom, but, you know, I've talked to 200 people on talking Billions, and I asked them a question that I really like, and it gets to the bottom to what Chris was asking about. And I say, well, let's halt for a second. Let's assume that the index was never invented, or let's assume that all of them get discontinued tomorrow. And I say, would anything change about your process, how you manage money for you and your clients? And people need a minute because it's such a, I don't know, a question they haven't even pondered, that this doesn't exist as a benchmark. It just doesn't exist. And they say no. Most of them tell me nothing would change about how they manage money, how they pick investments, how they build portfolios, how they think about risk. Because at the end of the day, I think that's where Chris is going with this question. What is the mandate? What are we trying to do? And if the benchmarks got discontinued tomorrow, I think the four of us, we would continue to do what we do. And I don't think there would be any difference in what we're doing.

Robert Hagstrom (13:17)

I think Warren phrased it perfectly. What he said was, what if there was no stock market? What if there was no daily pricing? What if there was maybe the prices show up once a quarter or something like that? He goes, I don't need a stock market to tell me what I already know about the economics of what I own. He's measuring economic progress of his businesses, both private and public. And that. That was the. That that I always think that that was the. That was the lightning that. That he grabbed a hold of was he was simultaneously owning private businesses, charting their progress by the economic returns that they were achieving at Berkshire in the early years, National Indemnity. And, you know, you can go down the list, the newspapers and the furniture Companies and all that, you know, he was just measuring their economic progress. And he decided that at the time, even though when he was running the partnership, I'm not sure this was deeply ingrained in his thinking. But I think when he started buying stocks, particularly the Washington Post, and it went through 73, 74, and got cut in half, you know, he just talked about the economics. He goes, this is a great business. You know, we're doing just fine. I don't, you know, the market cut itself in half for reasons that we know. But, you know, he simultaneously treated his public stocks like his private businesses. And so he was never one that was beholden to the stock market. He just said, look, if my economics and my public companies are motoring along pretty well, I'll do well. Pretty well. That is the way that Chris and I invest, and that makes sense. So if the stock market went away tomorrow, it wouldn't change anything that Chris and I do. We would have private companies, and we would just continue to progress the best way we could.

Chris Mayer (14:54)

Be easier, actually.

Robert Hagstrom (14:55)

Yeah, for sure. But I, you know, I do think there's something, you know, I think there's something in the competition piece when people were starting to build firms and wanted to gather assets, they had to say, I'm doing better than some. I'm doing better than you. I'm doing better than this guy. I'm doing. And then somebody said, well, what's the mark? You know, and then we have these indices so, well, I can do better than that. And that's how you built businesses with saying, my product is better than your product or my product's better than his product. And. And the only way that you could do that in the short run, unless you were going to run the economics out on it, was. Was by price. But, you know, we. We've messed this up really big. If you want to talk about how we really have messed up the money management business, we've done a really loyal, great job messing up, for sure.

Bogomil Baranowski (15:47)

Robert, real quick, you brought up the daily price quote. I might be in the minority, but I absolutely love that there is a daily price quote because it's this unique opportunity for all of us to panic together. And allow me.

Chris Mayer (16:01)

I was going to say, where are you going with that, Bokemo? Because I don't like it often say, if we could just have the markets open once a month, that'd be okay with me.

Bogomil Baranowski (16:09)

Chris, as a buyer, I love the daily price quote because you can get prices that you wouldn't get in the private market. You Know, to find a motivated seller in the private market. I was just traveling, I'm meeting people who are buying, rolling up private businesses

Robert Hagstrom (16:21)

into Warren, Warren, Chris. But Warren, you know, Warren said that's a, you know, the public markets are to my benefit, right. Because in private markets I am not going to get these exaggerated sell, you know, prices that allow me to take advantage of it. It's actually to my benefit to have this crazy market out there because it allows me to increase my future rate return based upon the bad behavior of other people. In private markets, you don't get that opportunity. That's why he was always frustrated, why everybody was swarming to private markets. You guys, you get a lot more better opportunities.

Chris Mayer (16:53)

Part of that popularity of course is. Is because, yeah, part of that popularity of course is they don't have those markdowns, right? Private equity, you just, yeah, you're just stuck in this thing. And they mark to mark and they mark the market with whatever they want almost. And they don't have to. Your investors don't have to put up with the volatility, which is, I think that's the challenges for us. We can handle volatility, but sometimes.

Robert Hagstrom (17:15)

Well, yeah, I mean, you know, clearly, I mean, if you want to kind of go down, continue down the rabbit hole. I mean, if you look at blackrock, you look at capital, you look at, you know, all these firms, their earnings per share, Chris, are going down, right? Why are their earnings per share going? Well, people are leaving active management for passive and that's cheaper. And then they had to close down the 40x which had higher fees to do ETFs, which is what you know, the product was that investor wants. That's normally. So their fees kept going down. So. And then the assets are leaving because they're going to hedge funds and the assets are leaving, going to private equity. So you know, if you're running an asset management business, big business, you know, you look at five years out, 10 years out, you're going, where does this end? You know, because it's going straight down the hill now. The market goes up 15 to 20%. It can help you overcome a lot of that. But it's going up 5 to 10% per year or 10% average annual return and you've got all this headwind in your face. And then someone says, hey, how about we take this private equity that's got 2 and 20 or 3 or whatever it is, and these man think, and why don't we sell it to Mr. And Mrs. Smith and tell them that they have, should have 20% of their portfolio in privates and we can charge these outrageous fees that will help us increase our income going forward. And lo and behold, I think a lot of them have, you know, thrown the Hail Mary pass, hoping that private equity is going to help them bailing, bail them out of a steady earnings decline. That has been problematic for a lot of these asset managers.

Bogomil Baranowski (18:48)

Just, just for a second, a thought experiment. Let's, let's assume we have a little lap here. Public and private, same approach, buying the same kind of quality businesses you want to hold over a long period of time, no leverage for a second on the private side. Apples to apples, given that in the public market you can get a deal, you can be a true value buyer and a growth holder after that, don't you think that the setup is much more favorable for the public? I understand the fees and the business model, I get that, Robert. But from the investment perspective, return seeking individual, isn't the public market set up much better than the private market to get excess returns?

Robert Hagstrom (19:23)

No. 100%, much better business, much better economic returns. And then as Warren says, not only they're better, you've got a bigger menu, you've got better economic returns in that menu. And then periodically you got these amazing prices that are only made possible by the bad behavior of other people to freak out about myopic loss aversion, which gives you see. So he said if you go to the private market, the opportunity set there is not as many as in the public market. And if you go to the private market, the economic returns are okay, but like you say, Bo, you got to lever it up. Yeah. And then thirdly, you know, the thing that pissed off Warren about private markets is it basically took Berkshire out of the bidding business as the private equity industry grew and grew and grew and they were swarming to get product, you know, companies and stuff like that. You know, the bidding wars just took him out. He couldn't do it anymore. The only companies that he could buy at that point were actually family run businesses that needed, you know, to settle estates or get liquidity, but didn't want to turn the business over to private equity because they were going to fire everybody and change the management chain. So Warren says, hey, if you come with me, I'll give you a check and I won't touch your business. And that appealed to some people, but you know, a minority of people. But yeah, you're exactly right, Bogomil. The opportunity set in public markets dwarfs what is available in private markets. But you know, as we well know, you know, my epic loss aversion is an investor's kryptonite. It just, you know, they can't, they can't get over. They just can't get, you know, no matter how much we preach and talk about it, they just can't get over myopic philosophers.

Matt Ziegler (21:02)

Chris, a question for you. And this is from like the founder, the company executive, this perspective. And part of it's strategic and part of it's just like, what do you do when founders or leaders make statements like this? And I'm thinking of we've got Sam Altman out there saying start us with three people in an idea are getting insane valuations and it isn't rational. We've got Google's DeepMind's hospice saying seed rounds at tens of billions with nothing seems unsustainable. What do you do as an investor when you see the strategists saying this back to you? Because, like, maybe this is why BlackRock has a stablecoin and a private equity vehicle, or maybe that's the Japanese toilet with AI of strategy. Like, what, what do you do when they're telling this to you as the investor?

Chris Mayer (21:51)

Yeah, I mean, you know, we talked about the IFD earlier. This is a perfect example of that idealism coming through. Right. I mean, some of these things are. And that manifests in valuations that show that or that indicate that people think these breakthroughs are going to, are kind of inevitable and imminent. And you know, we just know that from past technology transitions and things that they are far messier. And there'll be slow adoption curves here and there will be uneven. They'll be, it just won't unfold exactly as people tend to think at this stage in the cycle. And I think there are a lot of parallels kind of with the 90s. I mean, you had, you know, the whole rush for dot coms and you had some companies becoming dot coms that were just almost, you know, absurd. I mean, but there was this big sort of rush to stake out that real estate and then most of it didn't work. But then out of that there was of course, some very powerful Internet franchises. And then the incumbent businesses wind up also taking tremendous advantage of that. So, you know, like the New York Times is doing perfectly fine today and Walmart has a tremendous online presence. So I think that kind of map will play out similarly here. And so, yeah, some of that, you know, the Japanese toilet seat AI is kind of like, I don't know, I'm trying to think, Robert, of Some of the more absurd.com companies that sprouted up in the 90s, you know, some of them were basically blank checks almost. It was just, you know, I'm going to have a website to do something. So we're at that part of the cycle and I think you just have to realize that we're at that part of the cycle and not lose your moorings and all the other things we think are important and we talk about all the time. There still has to be some ROI on what they're doing.

Robert Hagstrom (23:41)

Yeah. When I, when I look at Chris's IFD here, you know, I, I, and we're kind of in, so in the middle part is frustration. I think that that resonates with me because when we talked about Roy Amera and Amera's Law, you know, whether whatever technology it is, the arc walk, you know, water wheel and steel mills and oils and, you know, automobiles, you go all up in that when they were invented. Tremendous amount. Idealism may not be the right word, but tremendous amount of enthusiasm. This is going to change the world. And then it doesn't change the world immediately for you in a very big way. And you become, then you might say frustrated, I would say skeptical. You're like, ah, you know, this was going to change the world. Maybe it's not going to change the world. Maybe it's not going to be able to achieve all the promises that you told me it was going to do for me. And you become very skeptical. And then, you know, the demoralization is that people just bail, they get out and then as. But Chris is very right. These are not, these stylistic curves are not, you know, they bounce around a lot. But then you start to get this parabolic thing that starts to move over time as the technology then begins to get payoff. But you were so frustrated and so demoralized, you very rarely will come back to it. I mean, it's dead to you now. I'll never invest in another AI stock. I'll never invest in another.com stock. And then that, that's when we'll be,

Chris Mayer (25:03)

that's what we'll be in there. That'll be a very interesting period.

Robert Hagstrom (25:06)

Yeah. Yeah. And so, you know, it seems to me that it's following somewhat this IFD disease. I think where we are now is just, you know, we've got AI fatigue right now. I think, you know, we need, we. I don't know why more of the CEOs are parading out the productivity gains that we're hearing anecdotally from Other people. I mean, Zuckerberg talks about the returns on advertising, and his advertisers are saying they are getting returns on their advertising dollar that they have never seen before in history. And they're just throwing money at Facebook and Instagram. You see the same thing at YouTube. I don't know why they're not out there trumpeting that saying, you know, business. You know, this is going to change the ad, which it will. Jamie Dimon said on the call, you know, in his first quote, he said, we spent 3 billion on AI last year and we generated over $3 billion in savings and we will spend more in AI in 2026. Well, Jamie, tell me what you did, you know, give us some tangibility here. What is it? You spent AI, what did you spend it on? What did it do? And then how is that translated into increasing margins or profits for you? That. That's the gray area that people are, you know, are struggling with. Like, what is it? You know, what's the payoff here? What are we getting? There are. Palantir could tell you about things right now. They're in military, and a lot of that can be classified. But there are payoffs occurring right now in AI. But I don't think the market has its hands around exactly what it is. Is it growing? You know, what is it? We just, we don't have enough tangibility on this benefit of AI right now. And people are skeptical. That's what I think is going on.

Bogomil Baranowski (26:48)

And we're still so early in this whole experience. And I'm very curious what we're going to learn from it. Robert, I have a question for you. We were talking about frustration here. People check their portfolios every day. You did some research about the opposite of a benefit and the disadvantage of checking your portfolios daily, maybe looking at it year over year. I've seen research that I actually shared with Matt at some point that showed the performance of stocks from the open to the close and then after hours, basically saying that most of the performance in stock happens after hours. And if you hold stocks, you can capture it. Talk to me about that. I'm very curious because a lot of people have their phones and apps and you can see prices of your stocks minute to minute.

Robert Hagstrom (27:30)

Well, you know, we'll back up just a little bit. It's a great question. We'll back up a little bit. Thaler wrote a paper, you know, about this, on his myopic loss of version, and he actually said, how long would you not. How long would you need to not look at stocks to basically erase the myopic loss aversion penalty that you receive. How long would you not, you know, you can't look at the stock, how long until you can look at it again where you get a volatility measure that is equal to the bond market and it was one year already. That's a problem. You can't look at your portfolio but once a year, but that if you looked at it once a year they calculated it over time you get the same variability as you would in a bond portfolio. So you know that's not going to work. You know, obviously that's not going to work. So I'm sorry Bogumill, I'm not sure where you're. The second part of the question when I bb8 it out there, you know.

Bogomil Baranowski (28:25)

No, it's, it goes connected.

Robert Hagstrom (28:27)

Go ahead.

Bogomil Baranowski (28:28)

No, no, it's, it's connected because on one hand, you know, I, I'm looking for an excuse why I don't check my prices throughout the day unless I'm buying things, right? And what you talk about, it's one side of the argument and additional to that is a study that I've seen, it's bespoke research that wrote about it how when you, if you bought the stocks at the open, sold them at the close, you basically wouldn't have any return. Most of the returns come from the after hours activity which is in, in not, you know, it's intuitive. You would all the earnings releases, all the changes about the business, the big bumps happen overnight and obviously the drops as well, but the big up movement. So the study said that the best thing you can do is just buy and hold because buying at the close and selling at the next open is not really feasible with large amounts of money, but you can just basically halt through it. And it rhymes with what you're saying, which is hold through it and don't check on it. I think that's where we're going with

Robert Hagstrom (29:24)

somewhere in this conversation. We're going to get to the buy and hold is the compound, right? And that's how wealth is built. So you can either buy and hold and compound as Warren says, that intrinsic value growth of just let them have the money, reinvest it back into the company, keep compounding, do it again next year, keep compounding, do it again and then at the end of, you know, you get to T1 to T10 but around T6 and 7, boy, a lot of money's getting made on compound, right? You don't see it so much in years one, two and three, and you might say, well, I could just trade and get the same returns. But when you start compounding out five years, six years, seven years, there's some serious money that is being made by Buy and Hold. Chris will correct me on this, but I think Warren's net worth, if you looked at it, I think 80%, 90% of his net worth is the net worth that he's accumulated in the last five, six, seven years. I mean, you think about that. I mean, you know, he was wealthy in the beginning, but that mega wealth, you know, that helping that happens later down the road. But you know that you have to delay that gratification. You have to delay the, the desire to take that profit, pocket it and move on to the next one. Because you're just, you're just gaming a lot of little bitty profit taking is to making one bet that then compounds, but you don't get the full benefit of it or realization of its benefit after four, five, six, seven years. That delayed gratification, Chris, I think, you know, is troubling for people.

Chris Mayer (30:50)

Yeah. One little anecdote I'll add to the volatility is I have a friend of mine told me a story about when he's in Joel Greenback Blatt's class at Columbia, first day, he wrote two numbers on the board, like 50 and 120. And apparently that was the high and the low for IBM that year. And even though you look at the bit, you look at the business, of course it hasn't changed. You know, it didn't change much at all. Of course they looked at it over a period of years and it's just like, you know, steady step, more whatever. So that, that's the point, I think too, about those daily prices. It makes, makes it seem like something important is happening every day. And most of the time the business is just plugging right along.

Robert Hagstrom (31:27)

Yeah, yeah.

Matt Ziegler (31:28)

Chris, you've. You've got this great story about a guy at a conference and he's really wearing what the banker would probably have if it was, well to do pants, a cummerbund and, you know, suspenders. But in this case, it's a man in overalls. What's the story with man and overalls? And I know it ties into this delayed gratification thing we're talking about.

Chris Mayer (31:49)

Yeah, I mean, I've told the story a bunch of times. It made an impression on me. I was 32 at the time. I remember it very well. I was at a financial conference and you know how financial conferences are. Everyone's all dressed up in suits and so on and so forth. And. And this conference, people had to pay a good amount of money to go to. So I remember, you know, standing around as you do, talking to people, and this guy came up to me and he was literally wearing overalls, looked like somebody who came off a farm. And, yeah, in my mind, I mean, I just. My mind is. I just remember my reaction of just, like, discounting this guy heavily right away. Like, who is this clown? You know, what is this guy doing here? Why am I talking to him? And I remember it didn't take very long at all for me to realize that this guy was very smart, also very wealthy. I mean, part of the reason he was wearing over. He didn't give a crap what anybody

Robert Hagstrom (32:42)

thought, you know, and all that.

Chris Mayer (32:43)

And if I had thought a little more about it, of course, I would have come to that conclusion, right?

Matt Ziegler (32:47)

He.

Chris Mayer (32:48)

He couldn't have been just some farmer guy came in. Right. It was expensive to go to this conference. The quality of the people there, and so on and so forth, but that always surface. I remember very much walking away from that conversation and telling myself, I will never do that again. And I will never discount somebody like that just based, you know, on how they look or how they dress. And it's always stuck with me. So I always. Yeah, I always like to tell people about, you know, that story, and delaying your. Your reaction as long as possible would have helped me.

Bogomil Baranowski (33:18)

In that case, close your eyes. Exhale.

Matt Ziegler (33:21)

Feel your body relax, and let go

Bogomil Baranowski (33:24)

of whatever you're carrying today.

Matt Ziegler (33:26)

Well, I'm letting go of the worry that I wouldn't get my new contacts in time for this class.

Robert Hagstrom (33:31)

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Bogomil Baranowski (34:21)

Robert, as I'M listening to Chris. I'm thinking of Buffett not needing markets affirmation and making his decisions, just delaying the reaction to what's going on. People buy a stock, it goes up, they feel better about it. Just as you look at somebody nicely dressed, how do you think about that? Buffett has no consideration for what the market is telling him. He's doing his thing. It's such a powerful thing. And he might be among the few that mastered that to a level that I think few can.

Robert Hagstrom (34:50)

Yeah, I think Warren got to a level mentally and probably got it, you know, early in the 50s and 60s, and Graham and stuff like that, that, you know, you're in. You're in partnership with a maniac. You're in partnership here with something that is quite irrational and crazy. I thought it was interesting, Chris, that when Buffett, you know, gave his last talk at the annual meeting this past year, and, you know, it was kind of a parting words. It's actually in the morning, but I thought, you know, he said, got this amazing cathedral called capitalism, where, you know, it's a reverent process of trying to figure out what to buy and to own and products and services and management. I mean, it's a. It's a truly remarkable thing, what capitalism has done.

Bogomil Baranowski (35:37)

And.

Robert Hagstrom (35:38)

And. And it's occurred in this cathedral. And he says, unfortunately, we're living next door to a casino, and we have to go over to the casino to make a transaction.

Bogomil Baranowski (35:47)

But.

Robert Hagstrom (35:48)

But then Warren comes right back to the cathedral, right? He wants to stay in the cathedral and study his companies. And that's where, I think, spiritually and intellectually and emotionally, he is more comfortable in the cathedral. Too many people start in the cathedral, but then they run over to the casino and they don't leave. There's just hanging out in the casino all the time, right? And it's all, you know, and these are Warren's words. It's very exciting. You know, they got bells and they got whistles, and money's being made, and, you know, there's all this action and stuff like that, and they got different products and jazzy things going on, and you never leave the casino. And his parting word was, you know, we got to spend some time not letting the casino take over the cathedral. And I think we're on the cusp. You know, I think we're on the knife's edge on some of this stuff. I mean, yeah, some of the work that Mobison is doing now, and Chris will get a chance to talk about this in the future. You Know, he is, he's. We did a work on the ecology of markets, trying to figure out if, if strategies were species. Right. So each species has a unique strategy and its population set was based upon assets under management. So you could do an ecological breakdown of the market. That's the theoretics that Dome Farmer did at Santa Fe. Mauboussin's now starting to do the work on actually measuring the change in species. How much money do the different species have? And you would not be surprised that over the last 10 years, the population set for long term fundamental Investing is down 8 percentage points. The population set for hedge funds and HFT is up about 8%. So, you know, the species is changing, but the species not changing to being, you know, people that would go to the cathedral. The species is changing for people that are going to spend a lot of time in the casinos. And, and I, and I trouble, I'm troubled with that. I, you know, I. The other thing, Chris, interesting, I didn't know this at all, but since COVID retail volumes are through the roof and it's even grown in the last three or four years. So whether it's Robinhood or, you know, any of the fast track, you know, things like that, boy, they're just sucking up aum left and right. I had a friend of mine, if I told this story, I apologize, who just wanted to open up a Robinhood account and you know, he bought some Nvidia stock not too long ago and within five days they called and asked him, did want to do an option strategy. But it's Nvidia now and he could do it tax free, right? I mean, he could do it commission free because, you know, they make their money on the bid and ask of the options. But, you know, now he's flipping options. I went, is that really what you decided to do here? And Mosen used a word called gamification. Have you guys heard that word?

Chris Mayer (38:28)

I was going to say that.

Robert Hagstrom (38:29)

Yeah, yeah, he's called it gamification. I got to spend it because now you got prediction markets in there. You can bet football games and you can do options on the video. I mean, that's Casino 101 here. You know, we're not spending any time in the cathedral. And, and you wonder, Chris, that, you know, as, as the casino grows with more people in the casino and less people in the cathedral, what does this, you know, what does this look like somewhere down the road?

Chris Mayer (38:53)

Yeah. The gamification of markets is, it is troubling. And I'm sure you've Read as well, how much volume now is in the hands of bots and passive flows. I mean, it's an awful lot of chunk of the market is not really based on the rational price discovery. So that's why you see movements in the whole industries and a lot of stuff that we've talked about before about labels. You know, a label gets stuck on a group and they all kind of move and so. But that also creates opportunities, of course, for those of us who can separate out, well, that's the wheat from the shaft, so to speak. But one thing I forgot to tie in back when we were talking about that guy, this whole delayed reaction stuff is kind of was important to Korsinski as well. So that's what he always kind of tried to push on. Not being quick to react to circumstances or to language, you know, to try to withhold your judgment a little bit. And I don't know if it's possible, but I like to think it is. And so I aspire to that now that, you know, when you're, when you read something or you hear somebody advance a thesis that you don't try as long as possible not to react, you know, because that shuts down how. Shuts down your thinking. We've all had this, right? When you're having a conversation with somebody and you're saying something, you can almost tell they're not listening. They're just waiting for you to finish so they can say what they want to say, right? So that's kind of what. What it gets at. So I met. Sorry if we didn't mean to tie that.

Matt Ziegler (40:21)

I feel called out by your statement. But I wanna wait. I wanna pull though, because of what you were saying in the lead up there, which is the sit still thing versus the do something thing. And part of that's tied to delaying reaction. I know you've got examples. If you have one that comes to mind, great. If not, no problem. But that when to sit still versus when to do something, when to look at it and say like, no, I need to stay in the church right now versus go to the casino versus, hey, I got to go to the casino. There's, there's a great deal on them. Slot machines or something. How do you think about the balancing act between flipping through those mental states? Because you can't just sit still forever and, and you can't just keep doing something forever now.

Chris Mayer (41:01)

Yeah, I mean, there's some medium in between. Right. You can't just completely forget about your companies and ignore them because technologies change, competitive landscapes change. And businesses can be impaired. On the other hand, you don't want to react to every, you know, spur of the moment concern. So I mean, what I think of jumps to mind immediately is kind of what's going on software right now, you know, this just complete blood bloodbath and anything related to software, these stocks have all been cut in half or worse it seems. And you know, we're at, we're in the part of the market cycle where there's not a lot of differentiation between them. If it's a software, it's all going down and it's not, you know, it's not yet. There will be a part of the cycle where people start to think through, okay, well, that software is at risk because it's mainly, you know, a user interface. And this one's not so much at risk because it's more system of record. And this one may actually benefit from AI and this one, you know, so that will eventually happen, but right now the market is in the, you know, shoot, first phase.

Robert Hagstrom (42:05)

So Chris is, yeah, Chris is 100% correct on software. I think, I think where I, I'm on this and you know, I'll pat myself on the back a little bit. We sold our Adobe and Salesforce and ServiceNow in 2024 only because it was kind of a Charlie Munger type thing, which as you began to look at it, you knew AI was going to get involved this, right? You, you knew it was going to do something and I couldn't figure out what was going to be the scale. And Chris said it right. Some of them are going to get washed out, they're going to get competed out. Some of them are going to, you know, morph into something, adapt and stuff. And some are going to actually benefit. The problem is right now, Chris, we don't know who it is. And so the market, maybe what's going on? Is it. It's asking terminal value questions. Most of the time when we do growth investing, you know, it's the terminal value is what, 80% of the intrinsic value of a company, plus or minus. And the growth rate in the first 10 years is the other part. We spend so much time on the first 10 years. But what Warren says, I'm thinking about the terminal value. How long can this thing keep going on and how long can it compound? A great company is a company that can be great for 20 to 30 years. Okay, that's terminal value that he's talking about. When they do the software stuff, they don't know what the terminal value is. And if you don't know what the terminal value is going to be, then you're right, Chris. It is shoot first, ask questions later, because you're making bets on terminal value is different than making bets on growth rates or did they make the quarter or something like that. So I think the market is struggling with terminal value on these software stocks and it's going to struggle with a lot of things that AI is going to impact because they just don't know what is the magnitude of the impact pack. So Charlie Munger would say, do the easy stuff and the stuff that's hard and you can't figure out, put it in the too hard pile and just put it over there and come back to it at a later date. That's kind of what we're doing with software. I mean, we'll come back to it later, but it's very hard to figure it out right now. Very hard. I mean, you might argue that the enterprise stuff, you know, Microsoft, SAP, they're not going to rip that out tomorrow for an AI application. But some of this other stuff, it's at risk for sure.

Bogomil Baranowski (44:17)

It's probably related to that. But Chris Krasipski had this insight that the problem stems not from uncertainty, but from mistaken certainty, wrongly applied. When you look at the markets right now, where do you see the most dangerous certainty that people assume about things?

Chris Mayer (44:35)

Well, I mean, we already thought, we've talked about it a lot, but the elephant in the room, of course, is around AI. I mean, there's a certain certainty that the market is building. And those expectations now, not only with the companies and their huge commitments of capital, I mean, we know they're spending, whatever it is, trillions, trillions of dollars over the next several years. And to, you know, to try to figure out what the economic return on that is, you're just getting completely massive numbers. So I think we've mentioned it before, but it's kind of like a prisoner's dilemma. You know, these companies all have to sort of do it. If they don't do it, then they're going to be left behind for sure. But if they do it now, they all can't get an economic return on this spending. Some of them will win and some of them are not going to get it. So that, I think, is an area today where there's quite a bit being priced in that's not really, I think, likely to, or, yeah, likely, or maybe even not even possible to pan out. And that's really, I think, the best example. And then the flip side of That I think is that, you know, and again we saw this with the Internet is a lot of the incumbents wind up being the real winners. And now we have, not even just in software but in other industries that are getting punished because of uncertainty around AI. Even though they're using the AI tools themselves and they are the incumbents where they have quite a bit advantage. They already have the customer relationship. They have a lot of things that give them an instant leg up against an AI native, for example, or startup. So those are areas I think will be most interesting to see how they play out the next say five years.

Robert Hagstrom (46:18)

Yeah, I'll take the other side. I think there's certainly going to be companies in the AI space. Some will make it some or don't and you know, network effects and things like that. You know, you've got to kind of figure out those that are latching on are going to stick around. But I think the biggest risk in the market right now, and it's a severe risk because people don't perceive it as being risky, is the consumer staples side of the business. There was an article in the Wall Street Journal yesterday. We talked about Walmart for you know, a long time. Walmart, it's at 50 times forward earnings. Let me say this again. A company that the CEO has already told you their earnings will come out this week and you know, their online business, but it grows at a high single digit rate. That's it. He said that's who we. We're a grocery store. Most of our business is groceries. We're an 8%, 9% grower. It's growing. I mean it's being priced at 50 times next. Nvidia is 23 times next. Okay, so now you, we know why Walmart goes up and Costco goes up and all these because they're warm fuzzy low volatility stocks. When volatility is high and AI has uncertainty tea and people are all freaking out, you go to your warm fuzzy blanket. Well, the warm fuzzy blanket is massively overpriced right now.

Matt Ziegler (47:29)

You can get a warm fuzzy blanket at a pretty good price at Walmart though.

Robert Hagstrom (47:32)

I'm telling you that's true.

Matt Ziegler (47:35)

Let's be careful.

Robert Hagstrom (47:35)

But you know we did, you know we did on what was in expectations investing and just said if you reverse engineer what does Walmart have to grow at for the next 10 years to justify the current price on earnings? It was 19 per year for 10 years. There's no chance that that's. So then the Wall Street Journal came out. Chris, I'm not sure you saw it saying, you know, the most expensive stock right now it's trading 23 times EBITDA. I don't do EBITDA stuff. But they said the last time it traded 23 times EBITDA was 1999 going into 2000 when people started going back to the warm and fuzzy. One thing the wheels were coming off the NASDAQ. Well, the earnings per share for Walmart from 1999 to 2010 went up about single digit rates. The stock price was 23. $3 at the end of 1999 and the end of 2009 it was $17.80 down 20% for the entire decade. Nothing except the dividend. So everybody's rushed to Costco at 50 times and Walmart and all these warm fuzzies as a place to hide out during the AI volatility. But let me tell you what, there's a lot of risk in the warm fuzzy blanket right now. A lot of risk.

Matt Ziegler (48:48)

Yeah. Inside of that. And Robert, I'm sticking with you on this for a second. Especially in Mobison's expectations investing framework, which lovely. If you haven't read the book, go find the book, look the stuff up. Confidence versus overconfidence and how, you know, how do you recognize confidence versus overconfidence and how do you see that come out when you go through a framework like the expectations investing process?

Robert Hagstrom (49:14)

Yeah, I, I think, I think, you know, obviously behavioral mistake is being overconfident. But you know, Buffett says I want certainties at discounts. Was he confident with the certainty at a discount you'd say yes, he was very confident. You know, was he overconfident about his certainties at discount? Yeah, you can say, but you're basically trying. Overconfidence is only bad if you don't really have anything to back it up with. You're trying to build the confidence up as high as you possibly can to pull the trigger. What I think happens is people are overconfident without enough quantitative data or enough data or enough thinking to substantiate the overconfidence. Anybody can be overconfident. A lot of people are overconfident that don't have that insight. What we, how we wrestle with overconfidence is we're just trying to get it to something that we feel highly confident that within the cone of uncertainty we've narrowed it down. And if we're wrong, we're not going to be wrong by a lot. And if we're right, we're going to make Pretty good money. But we, we want to be confident. You know, when we make an investment, we want to feel like we've got it, we've got it tapped down. We do the due diligence, we go through it, we understand it, we're highly confident. And that, that is, speaks to the level of your investment process and due diligence. Before you pull the trigger, what'll happen is oftentimes people don't do that work. And the first bad day that the stock price goes in, that overconfidence goes to, I've made a mistake. I didn't think about that. I overlooked this. Somebody knows something that I don't know. And, and then, you know, as Buffett says, you're in a poker game for 30 minutes, you don't know who the patsy is. You're the patsy. So we don't want to be the patsy. We want to be pretty good at this. That's how we think about it.

Bogomil Baranowski (51:01)

I like to say that I want to be the least wrong. I don't have to be right. I just, if I make a mistake, I want to make a mistake that I can afford. Chris, I have a question for you. General semantics says that everything is connected to everything and we must relate things to their environment. And Robert, you talk about markets as self organizing systems with no central controller. Chris, can you talk about your side? And I'm curious about Robert's perspective on that too. Everything is connected to everything.

Chris Mayer (51:30)

We can't think in the context of markets. For sure. Yeah, my, my. One of my all time favorite examples of why this is important was when McDonald's Latin American business went public. Arcos Dorados was the name Golden Arches. And it came off IPO at a very big multiple because people are just assuming, you know, McDonald's in the U.S. how great a business is. Boy, look at all this, you know, space and room to expand and what they can do in Latin America. But of course it's a very different environment. You know, you've got different countries, different regulations, different currencies. And yeah, for years and years it didn't, didn't work at all. So environment is critically important for valuing investments and thinking through that. And not just, not just environments as present day environments, but comparing present day environments to past environments. People do that all the time. Even, you know, I've done it in this call talking about the 90s. Of course there's lots of differences in the 90s now, so you have to be very careful about those kinds of comparisons. But not only that, but Then you know, everything being connected everything else means too that seemingly things on the margin can have impact. You know, there's this ripple effect, so nothing really happens in isolation. And those are all, I think, important ideas to consider and think about when you're looking at an investment.

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Chris Mayer (54:18)

Well put.

Robert Hagstrom (54:19)

Chris, I think, did a perfect, perfect job of, of choosing words to give a sense of the reality of markets. If you go back and play Chris's words, it was a biological metaphor. It was not a Newtonian metaphor. Right. He was talking about everything is connected in biology, everything is connected. He talked about non linear effects in biological systems. They're non linear effects. In physics based systems. There are some, but not much. It's mostly linear. For every action, there's an equal and opposite reaction. Is how modern portfolio theory was built. Reversion to the mean, Right. The way that I kind of deal with this stuff is that we're living, we're dealing with a living system here. It is a living system that evolves and adapts and gets fevers and it gets chills and it's, you know, it's, it's, it's a, it's, it's a living human being market. And, and when you kind of think about Mr. Market as being a Living being, not a physics based being, clockwork universe. Then you begin to understand it a little bit better, I think, and, and not as surprised about the non linear effects. You know, small changes can have big impacts in market markets and sometimes big impacts have no changes. That doesn't work in physics systems, that works in biological systems. So Chris described accurately, the market is a biological organism.

Matt Ziegler (55:42)

Chris, it kind of feels like we as investors also as humans are somehow hardwired to be discontent, miserable, unhappy. I mean, we're going to chase the other stuff, but it seems like there's a weird baseline tug that's going on there. So what's it matter if you succeed in any way? Maybe I'm tying this back to the beginning a little bit, talking about versus the S P500 and whatever else.

Robert Hagstrom (56:08)

Right?

Chris Mayer (56:09)

Yeah, I mean success is an interesting thing when you think about it, because what is success? I mean most people, when you just say it, you know, there's success bundles a lot of things together, bundles together money and status and some kind of self worth and, but you know, what does success really mean? I mean a lot of the things that you think are important or that you value the most or to make you the most happy don't really have to do with any of that, you know, so yeah, I mean, so what if you don't beat the S P500, you know, did you maybe you learned a lot and you had a really good run, so that's fine. I mean I, I think the key and one, one lesson I guess from general semantics out of this is success is just a word and you can define really what that is for you. And it doesn't have to be a social consensus of what success is all about.

Bogomil Baranowski (57:05)

Robert, how do you think about it?

Robert Hagstrom (57:07)

Oh, it seems so deep.

Bogomil Baranowski (57:13)

We have one more that's deeper.

Robert Hagstrom (57:15)

Getting into morality and ethics and all this stuff. I didn't know we were going to go that clock this morning. I, you know, I, I just do it because I love it. I mean I, you know, I, I, I, I, I love this business because the puzzle always, I like solving puzzles and, and the puzzle always change. Like in the Newtonian world, the puzzle never changes. You do it the same way every single day, day in and day out. And maybe you can find happiness in other avenues of your life and that makes for a successful life. But I just love the business and I think it's a fascinating business and, and each day I get to solve problems and think about things and it's an adrenaline rush that I enjoy and yeah, there's mistakes and there's successes, but overall I wouldn't change anything. Over the last 40 years, it's been a great ride. But I just think that building wealth for people and our families and all that that's going to be passed on to generations is, you know, it's a noble act and you know, I enjoy doing it. So that, that's kind of where I leave it.

Matt Ziegler (58:20)

That's a great fuzzy blanket of an answer. I want to thank, thank you for that one.

Robert Hagstrom (58:24)

A non answer. It's a non answer.

Matt Ziegler (58:26)

That's not a non answer. That's a real, that's a real answer. Chris, Take, take us back all the way to the top. General Semantics. We're at a weird point in time. Recording this. It's February 18, 2026 is a weird point in time. Markets are doing weird things. Technology is just a weird human experience. We have. My life has fully been gamified. What can I say? What should investors, what should people know today about general semantics? What can I help them with? We're going to help Robert with, with his existential crisis. We put him into it. 10am on a Wednesday morning.

Chris Mayer (58:59)

No, I mean, I think when, always when people ask about kind of a one phrase, you know, encapsulation, everything. I think, you know, krazy pop popularized phrase, the map is not the territory is pretty good. It's a pretty good one. So, you know, the map is not the territory. And that means, you know, keeping your abstractions and you know, being a little more humble about those maps, what you think, you know, could be financial statements, whether other ideas, other things that you have. So yeah, the map is not the territory. Just be more mindful and thoughtful about what those, what those mean.

Bogomil Baranowski (59:38)

Robert, what's your last big takeaway for the audience after two episodes of General Semantics?

Robert Hagstrom (59:45)

Well, you know, you know, I love this topic and, and thank you, Chris. And you know, we, I came at it differently from Wittgenstein but you know, words matter, right? You're going to pick a word, it's going to matter because it's going to influence how you think about something. And so, you know, and Chris, I have been using the word. It seems to me that Walmart is overvalued. It's the, you know, I'm working on that. So I'm still a student in practice here, but I do think, I think the advice for people is be careful of how, when you describe something, think about what you're describing and look at it to see if that's the Accurate explanation because there's more than one explanation based upon what words you may be using or not using. And so we. I do spend most of the time thinking about something that I'm looking at and I go, is something else going on? Is there a different reason? Is there a different explanation? Is there a different description? I think that's, that's the way that I, that I kind of use the general semantics is trying to come at it as many different ways as I possibly can, not just get late. You know, we're lazy thinkers. We know that system one, we're lazy. We latch onto a description. It's good as gold. We won't ever change it. And I'm always, as soon as I buy a stock, I'm thinking, is there a different way to think about, you know, should I thought about it differently? You know, so it's just the exercise, mental exercise that you go through in general. Somatics is just a tremendous tool to help people make better decisions. So I, I congratulate Chris and thank him for introducing this into the podcast.

Bogomil Baranowski (61:22)

Thank you.

Chris Mayer (61:22)

Thank you.

Matt Ziegler (61:23)

All right, Professor Chris, A grade Robert's answer to that question. B, tell people where to find you on the Internet.

Chris Mayer (61:31)

A plus gets A plus.

Matt Ziegler (61:34)

Where should people look you up?

Chris Mayer (61:36)

Well, I mean, you know, if you Google Woodlock House Family Capital, that's my fund and you can reach me there. I don't really put out much anymore these days for public consumption, so I also have a Twitter handle, but I'm not on it very much. X as it's called now. So anyway, that's, that's where you find me.

Matt Ziegler (61:58)

Look them up there, Robert, same question. People in a buggy on the Internet, where you want to send them?

Robert Hagstrom (62:02)

Yeah, you know, last 12 years, after working at Leg Mason and things like this company, Equity Compass Investment Management, a bunch of old like Mason guys came together and managed money. We got a great little shop, Equity Compass Investment Management. Look it up. You can go through the portfolios, you can go through my commentaries and things like that. That, that'd be the easiest way to latch on.

Matt Ziegler (62:24)

You want to do it? Believe us, that Bogo. Thanks for doing this with me, Chris, Robert, you guys are great. There's two of these, so if you only watch this one, go back and find the last episode of Hundred Year Thinkers. You are watching Excess Returns. Like Comment, subscribe all the things below. We're out. It's fantastic. I love getting together. I know you do too. I wrote down stuff I don't even know what I like. I feel like, it's, it's that thing when you're in class and you're just feverishly writing stuff down, and at the end you're like, I. I don't even know what's here. I just hope I captured something. The seems like thing at the end went like Robert framing this back to Chris at the end and just talking about how it's showing up, but he's trying to make himself do it. I thought was just. I feel like that's the way I walked out of the first time I listened to Chris talk to you on talking billions about general semantics and then went and read these books. Where, Where'd the end of this one find you?

Bogomil Baranowski (63:27)

What you just said. I had this feeling with, you know, Robert how it's that idea that you're always a student. Like, Robert has read everything there is to read. He has talked to everybody there is to talk to, and he shows up with us and Chris and he walks away with something that's new and different that will inspire him, empower him, let him see things differently. And I think that's the essence of this podcast and those conversations that no matter how much you think you know, hopefully you have a little bit of space for something new and maybe you're open to swapping your previous assumption, belief, understanding, thought, mental model with something better. And Robert is ready for it.

Matt Ziegler (64:11)

Robert is ready for it.

Robert Hagstrom (64:12)

It is.

Matt Ziegler (64:12)

The great thing about both the suspender and the overall is that when you, when you remove the need for the belt.

Bogomil Baranowski (64:19)

Yes.

Matt Ziegler (64:19)

He really enhanced the entire. Yeah, it's, it's a great thing. I, I wanted to ask you specifically

Bogomil Baranowski (64:25)

too, about the overalls.

Matt Ziegler (64:28)

Not just the overalls. Yes, the overalls. Do you have a pair of overalls? Do you have an overall? Ash Bagash Bogomiel.

Bogomil Baranowski (64:33)

I, I down. But I was thinking, you know, I wrote a piece, Invisible wealth, and it's something that came up a lot. I was traveling and I was seeing clients, prospects, fellow investors the last 10 days and got back last weekend. And I'm sitting down with people in all kinds of places having, you know, coffees and lunches and dinners. And I'm thinking, if anybody's looking at us, they have no idea who is sitting in front of me. No clue. A lot of those folks came on public transportation to see me. They're living very comfortable lives, but they are the. They didn't wear the overalls, but they could as well. They don't really care what other people think of them. They didn't park their Ferrari in front of the restaurant or the coffee shop. And there's something powerful about it. A certain level of comfort in who they are, what they accomplished in their life, or what they're stewards of. If it's a second, third, fourth generation, they don't have to show it. I don't know. But I feel like it's important to bring it up because we're living in a culture where all is a show that you don't even know what's real. It's the opposite that the show is not even there. And then you see the real I

Matt Ziegler (65:43)

had this is like early on when I started working with clients on stuff. And you know, in the good old days when we used to do a lot of house calls.

Bogomil Baranowski (65:49)

Yeah.

Matt Ziegler (65:50)

Like you go out, see people. And I remember I still do that. I do, just not as like there were multiple of those every week. There was so. There was just so much more at that point in my life and in. In the world. And I remember being. I just remember having the thought in my head, this is like 2007 or 8ish. I'm like, wow, a lot of multimillionaires have old like Toyota Camrys.

Bogomil Baranowski (66:19)

Yeah.

Matt Ziegler (66:19)

I was like, they have one of the cars that like some of my not multi. Multi millionaire friends have. And like, it's so interesting that the priority stack or what you decide to display versus not to display becomes. It sharpens the intentionality around some of those things. Wealth can sharpen that intentionality. Not always. We see the other examples. We see the. I'm thinking of Rio fan of the Silicon Valley show. Do you ever watch that show on hbo?

Bogomil Baranowski (66:50)

Hey. Yes. A startup story. Is that the one? Yeah, yeah, yeah, yeah.

Matt Ziegler (66:54)

I'm thinking about the explanation of car doors when he goes from being a billionaire to being like a multi millionaire and he's like, look at this car. What's wrong with it? He's slamming the door and he's like, billionaires, cars, like, they open like this or they open like this. They don't open like this. He's yelling about it. And I think about that it can sharpen intentionally, can make it worse. I think the through line in all that is still this delayed gratification idea, though. It's still just delayed in choosing gratification. On what terms

Bogomil Baranowski (67:23)

does that.

Matt Ziegler (67:23)

Yeah, how do you think about that?

Bogomil Baranowski (67:25)

So the delayed gratification and the delayed reaction that Chris talked about, kind of two things, but very connected at the hip. Give yourself time. And I remember being approached by this young heir of a family and he Had a lot of thoughts and questions. We're having a conversation. I said, you know, if you walk away from this conversation today, it's okay to go slow. If there's one thing you walk away with, it's okay to go slow. But because there are moments in life where you feel like you have to rush, make decisions, choices, allocations, and hire people and do all those things, you can go slow. Because when you go slow, I think our body, mind and spirit have a chance to actually process what's going on. And emotions, too. There's a lot of emotions around money that we talked about. So I like that idea that wait a little bit to make up your mind, a delayed reaction. It's very helpful in investing and in life. I think we can avoid a lot of mistakes. I mean, it's so obvious, right? If you get upset very quickly, if you respond very quickly, you don't give yourself a chance to really process what's going on. I want to ask you about the casino and the cathedral. It's at the top of my list of things that I wrote down. I don't think I've heard that before. Framed that way. I knew that Buffett is painting the ceiling of his Sistine Chapel, but the idea that there's a cathedral and a casino, and I was just visiting some old European towns, and usually there is a bank and a church next to it. And in some towns, obviously there are some sort of security markets, too. But I was thinking how the two institutions are always close to each other in many towns. But he talks about the casino, and I can't get it out of my head that you have to go to the casino to buy the shares, but you can go back to the cathedral to remain a patient holder. What did you think of that?

Matt Ziegler (69:15)

So I have heard that before, and it's very possible that I've gotten it from one of them. And it's. It's also very possible that this is in one of Robert Hagstrom's books or somewhere where he's explained this, because up. I'm going to tell you why. It's because I grew up. There's a street not far from where I live now, a couple towns over. And I. I don't remember which edition of the Guinness Book of World Records this was in. In like the 90s, early, early 2000s. But it was there in one of these. And the first time I encountered this metaphor, all I could think of is this street, because the street goes both sides of the street, like denominational church. So it's whatever. You know, this variation of Catholicism, this variation of Protestantism, it goes denominational church, funeral home, and like, effectively like VFW or like Union hall. With the idea being that if you were like a Polish Catholic or something like that, it's like, here's your church, here's where you're gonna go after work to get drunk, and here's where you're gonna go where you die. And both sides of the street were organized this way. And it was in the Guinness Book of World Records for being like the largest concentration of these three very bizarre places all in one spot. But I always thought kind of like your entire life is held in these three places. Yeah, you're going to go work, you're going to celebrate with your friends, you're going to repent on Saturday or Sunday or whatever time you go to your church or your mass or your synagogue or whatever. And then eventually you're going to be buried and the community is going to come together, they're going to mourn you, and then they're going to go back to the tavern to drink. And you kind of need all those places. You can't just have one place if there's only a church, but there's no funeral home or there's no hall. Like, how does it become a reinforcing communal act? So actually framing it that way and reminding you need all this stuff next to each other. I'm like, this is so obvious to me, but so rare. We talk about it on these terms.

Bogomil Baranowski (71:08)

No, I. I hear you. And I might have read it in Robert's book. Somehow I forgot it. And I'm glad he brought it up.

Matt Ziegler (71:15)

I don't know where I got it from. I was just like, oh, I love this metaphor because it reminds me of that street near where I grew up.

Bogomil Baranowski (71:22)

And it. It is very true that, you know, we need a different services throughout our life. I've never been or I don't recall being inside of a casino in my life. And if I was, it wasn't a memorable visit. I got to see the, you know, beautiful casinos in. In Europe.

Matt Ziegler (71:39)

You've never even, like, walked through a floor of a casino. I hate casinos, personally. I have an aversion to them. They make me like.

Bogomil Baranowski (71:45)

I have physically no recollection. I mean, I have no recollection of walking. I've never been to Las Vegas either. But I've seen, you know, the beautiful Monte Carlo casino from outside. A beautiful building that's been featured in so many movies. And I only know the interiors from Dreamspot movies. I think it says something about me that I don't have to go to a casino. It just doesn't appeal to me. But I wrote in my books how people told me that the stock market is a casino. Maybe because I was coming of age and learning, going to school at the time when the dot com bubble, which we talked about today, burst and my professors likely lost a lot of money in the process. And the last place they wanted us to look for opportunity was anything related to the stock market. And until Peter Lynch's book, I thought it's just a casino and there's no way you can win. It's just you bet on things and they work or they don't work. Nobody told me it's just a place. The way Robert described today. You go buy an ownership of a business and then go home. Yeah, you leave, you leave.

Matt Ziegler (72:51)

You don't live in that place.

Bogomil Baranowski (72:53)

You don't linger until they send you, you know, options trading ideas and all those things. By the way, I have Jacobs, Spencer Jacob on the show this week on Talking Billions and he wrote a book about GameStop revolution, how the little guy was supposed to take on Wall Street. And you know, from his research he shows us what we already know, but he did it in a wonderful way and in a much more detailed form. What actually happened, how the little guy got fleeced again. And I think that's the point that Robert was bringing up, that people get sucked into this gamified experience thinking that it's all about the activity, but it's not. It's about buying and holding the right thing over a long period of time. We'll keep on repeating it until it sticks, but it's.

Matt Ziegler (73:42)

We'll, we'll keep on repeating it, we'll keep on discussing it. And I think this is part of the human condition. And put, you know, tack this to the wall like this is the human condition. To think about all of these experiences, to look at it. I just started. It's called the Score. It's by Wen N G U Y E N Wen. I can't remember his first name. It's about the gamification of everything. And I'm reading this book and I'm like, this is near Eyl writing about like habits and how we form habits and basically habit loops inside of apps and things like this probably 10 plus years ago. Like this is, this is an extension of that book in my head. And he's talking about like duolingo and trying to learn a language and then realizing how the gamification shaped his learning curve and didn't necessarily help him learn, but it certainly kept him engaged on it. And what does that mean when we do that to everything? This is probably the most important question to be looking at in our modern times and to hear Chris and Robert wrestling it with as much perspective and context they have, it's an amazing thing.

Bogomil Baranowski (74:49)

It's related and I have this thought how in my lifetime, I'm 45, how much of my life living experience has moved from physical to online. And some of it I think is good, some of it I have some hesitation about. But only recently I had to change an account or something with a public utility, gas, one of the properties that I had to help with. Anyways, I had to go in person. There was something not right online. And it reminded me, brought me back to the time when I used to go to a post office. I might have told this story to a few friends and I would fill out, you might have done it too. You know, you had to make a payment, you would fill out a lot of paper form, they would tell you you did it wrong, you had to wait in line. Again, you're paying for gas or electricity was a whole deal 25, 30, 40 years ago. Anyways, it brought me back because I was in line, I was holding a number and I was talking to a person for the first time with a public utility that I haven't done in years. And it brought back all those memories and this huge gratitude that I don't have to be doing this because I talked to public utilities in Brussels, living in Brussels and in Paris, there was a big udf, the electricity utility, where I stood in line and I was treated as the smallest human being on earth, unimportant to the public utility because they are the ones providing power. Anyways, I thought the experience moved online so that I don't have to feel very little when I wait in line. I can go online and have the service taken care of, everything taken care of, without me interacting. And I think there are huge benefits that a lot of things moved online. But I think it's also a dangerous territory because once you are online, we'd love to have you online. And the gaming part, the gamification part kicks in and what was good is turning against us. And I think it's an interesting point that all of both of them brought up. How do we interact with that casino, whatever it is in your life, but don't get laid by it. And I think might become harder and harder going forward than ever before. And I don't have an immediate fix here, but just being aware of it, you might be played here. I think that's what Spencer Jacob in his book told us, and I think it's something. It's a good reminder when we are interacting with those things online.

Matt Ziegler (77:13)

Most certainly is. All right, we can talk forever, which is clearly not a problem. It's a feature, not a bug. We'd keep you online forever watching Bogomil and I talk forever if we were lesser humans. But we're not. You're watching Excess Returns. Make sure you check out Talking, Talking Billions, Bogumill's wonderful, wonderful show, Bogomil Baranowski on Substack 2. Bogomil, thanks so much for doing this with me today.

Bogomil Baranowski (77:36)

Thank you. And I hope everybody's listening this on a beautiful walk in nature, among the trees or on the beach. I hope that's. That's the image I have in my mind.

Matt Ziegler (77:44)

Or maybe you're in Walmart picking out a fuzzy blanket. If we're going to send one to Robert, we got to get it monogrammed for him or something. Welcome. I'll talk to you real soon.

Bogomil Baranowski (77:54)

Thank you.

Podcast Host/Announcer (77:54)

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Matt Ziegler (78:14)

should be construed as investment advice. Securities discussed in the podcast may be holdings of the firms of the hosts or their clients.