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Infinite Loops
Luis Seco — On Mathematical Beethovens, Decentralized Education & the Voyage to the Human Brain (EP.243)
01:25:07
Professor Luis Seco is a mathematician, educator, and investor. Among many other titles and achievements, he is the Professor of Mathematics at the University of Toronto, Director of the quant research hub Risklab, Chair of the Centre for Sustainable...
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- [00:02]
Jim O'Shaughnessy
Hi, I'm Jim o', Shaughnessy, and welcome to Infinite Loops. Sometimes we get caught up in what feel like infinite loops when trying to figure things out. Markets go up and down, research is presented and then refuted, and we find ourselves right back where we started. The goal of this podcast is to learn how we can reset our thinking on issues that hopefully leaves us with a better understanding as to why we think the way we think and. And how we might be able to change that to avoid going in Infinite loops of thought. We hope to offer our listeners a fresh perspective on a variety of issues and look at them through a multifaceted lens, including history, philosophy, art, science, linguistics, and yes, also through quantitative analysis. And through these discussions, help you not only become a better investor, but also become a more nuanced thinker. With each episode, we hope to bring you along with us as we learn together. Thanks for joining us. Now, please enjoy this episode of Infinite Loops.
- [01:14]
Well, hello everyone. It's Jim o' Shaughnessy with yet another Infinite Loops. My guest today, there are just so many different ways that I could describe him, I think maybe vying for one of the world's most interesting men. It is Luis Feco, the professor and director of Mathematical finance at the University of Toronto, Director of Risk Lab, established in 1996. Honestly, it might take me the whole weekend if I was to list all of the things that you are doing that you are involved in. I find you absolutely fascinating. It seems like we have several of the same heroes, Richard Feynman, Wittgenstein, et cetera. But first, welcome and thank you very much for joining me today.
- [02:01]
Luis Feco
What a pleasure to be here.
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Jim O'Shaughnessy
So, the first thing I'd like to do is the thing that really drew me to you is I'm not in any way. I have a complete layman's familiarity with mathematics, so I have nothing but awe of mathematicians who both the intuitive and the more traditional way of approaching math. But what really drew me to you was your explanation of your getting to Princeton in 1985 and interacting with Charles Pepperman. I love music. Bach tends to be what I have on most of the day, but I love all of the composers you talked about in that. So I would love it if you would be willing to share with our audience that story, because it speaks to me in a number of ways and I think it will to everyone listening and watching.
- [02:54]
Luis Feco
Well, I was very fortunate that I went to Princeton to do my PhD and then I did work with Charles Fefferman, who is a child prodigy, winner of The Fields Medal, very young. But besides all of that, he's a wonderful person and one who does mathematics like no one else. I went to Preston, as I explained in my paper, thinking that I was going to meet a child prodigy and very eager to find similarities with, say, Mozart, which is what you would expect if you know music, right? And then I ended up finding. I love Mozart. I have to say, the Magic Flute is perhaps my favorite opera. But I ended up with someone that he's so deep and profound that, as I say in my paper, I think it's more like Beethoven. He does math in a way that really no one else does math. He takes a theme, and then he just extracts as much value from that theme as you can. In my paper, I quote the fifth Symphony of Beethoven, where with these four notes, he builds one of the masterpieces of music. And four notes. Four notes. You know, four notes. And to me, Charlie is a little bit like him. And if I have to say, what I learned from him is probably that look for that element on which everything is based, and then just extract as much value from that as you can. And that goes to the ubiquity of mathematics. That's why mathematics is so successful. And Richard Feynman that you quoted earlier, he said, and I'm paraphrasing, that one of the reasons for the unreasonable usefulness of mathematics is that the same equations have the same solutions. And for those who know math means, well, if I know this and this reality is similar, then the same thing should apply. That's why triangles exist, right? A triangle here or a triangle there would have exactly the same characteristics. And that's why mathematics is such a human science. Feynman said that, too, that he actually doubted that mathematics was science, because math is not really designed to understand the world around us. It's made by ourselves. He's the only science which is made by humans. And that perhaps makes it more like a humanity. So math is right in there, and it's so modern because modernism is about transversality. It's not about vertical silos. It's about going all the way around. It's about 360 degrees. And that's what mathematics is to me. And that's what I learned from Charlie Pfefferman back in Princeton.
- [05:38]
Jim O'Shaughnessy
And the other thing that excited me about the paper was the idea that math, human creation, and yet it really, math can also be kind of looked at as the universal language, right? The author of the Hitchhiker's Guide to the Universe. I don't know if you're our galaxy, if you're a fan of Douglas Adams. But he had a quote about Bach and he was talking about music and he said, you know, this music implies this, this music implies this. But Bach, when you listen to Bach, Bach explains what it means to be the universe. Tie in some of the other references that you made. Because when you were talking about Professor Pfefferman, you also said that he did math the way Rossini wrote music. And for the music lovers out there, that was quickly.
- [06:29]
Luis Feco
That's very, very fast. I was amazed at his speed. But I think it's because of that. It's because once you find the nugget from which everything follows, just follow to just walk and run and run and run. And that is what you can do. But going back to your other comment, see, mathematics has always been a language. And as I like to say, it's on my website. You know, mathematics is the language that computers speak. Linguists don't like that because they say, no, computers don't speak. Of course it's poetry, right? But that's what it is. Pythagoras said it. He said the universe is written with numbers. And that's basically the message that I'm delivering. And in this day and age, if you want to understand everything that is happening with artificial intelligence, you have to know math as a language, not as the way to build all those theories, but the way to understand how these things work, work, and how we are communicating with each other. The concept of neural network is now out there. ChatGPT. People talk about that. That's all math.
- [07:38]
Jim O'Shaughnessy
Indeed. And an experience of my. When I was a young adult, I became really fascinated by quantum physics. And so I went through all of the books that were written for the general reader, but I still wanted to know more. And so I bought some more sophisticated books and I looked and it was all math. I said to my wife, this might be really, really difficult for me. And then I had that insight that you just said, because it just looked very, very daunting. And I thought, well, wait a minute. Math is just a language. If I can learn how to speak that language, I'll be able to at least partially understand what they're saying here. And I completely agree with your assessment that that is the language of computers, that is the language of AI. And I was chatting with an AI genius recently, and he was speculating, he said at some point we might get to code, that AI writes that we humans literally don't understand. What do you think about that?
- [08:50]
Luis Feco
Speculation it's possible. It's definitely possible. But now you said something about humans understanding and that is the concept, the meaning of that is already changing because we're dealing with realities around us which are more and more complicated. A thousand years ago you understood everything that was around you. Everything was physical and even know currency trading started that way when people didn't understand the value of currencies in different ports. Right. And then of course you can arbitrage that and then, well, that's how you start making. But for the most part you could understand the world around you. Now the world around you is daunting, is mysterious, and we need, I don't think a single person can understand it. We need to form groups and I think it's going to give a new value to the concept of a community. We're going to need to form communities so we can understand what we are doing. That's going to give us so much intellectual power also. And that's in a certain sense the way science is evolving too. We no longer have people like Newton, who in isolation actually during the bubonic plague, he developed theories, I think that I think of the past. Now it's much more collaborative, it's much more community based. And we're going to have to surround ourselves with humans so that together, aided by computers, can understand what's happening around us. But it's very mysterious and that poses a tremendous challenge for us as a society, as an educator. We don't want to leave anybody behind. Education is going to face tremendous challenges making sure that everybody understands the realities that we are creating every day. I wish that this is something that was spoken more frequently because we're going to see a very big divide when it comes to that.
- [10:57]
Jim O'Shaughnessy
I am 100% simpatico with that attitude and the idea. Of course, Leibniz might disagree about Newton and calculus, but we had two contenders for the crown. But I completely agree with your assessment that we're going to need collective intelligence, collective collaboration. When the Internet came along, I sort of said, I think this is the beginning of the human colossus and the ability for us to network. Because of what you just said, I think, I do agree that the era of a Newton, the era of any profound thinker coming up with the whole shebang is over. And then you have a lot of support for your argument in the Flynn effect on IQs from the late 1800s to the late 1900s, they went up and his assessment was partially, at least, I'm kind of doing this from memory. So I could stand to be corrected, but was that in the earlier era everything was physical and when they would ask more abstract questions to a thinker or person from that era, they literally just didn't quite understand or how to grok what the question was. Whereas as the world became much more complex, people were able to augment their thinking, make it more abstract, et cetera. And he said that his hypothesis was that was one of the reasons why we had this inherent increase in overall IQ. It's always mean to 100, but if you look at the raw data. But your other assessment is another one that's near and dear to my heart, which is one of my worries, is this potential divide that could happen, could be happening right now. You hear about a bunch of different ways, the digital divide, the technology divide, or what have you. But what are your ideas for how we bring everyone along, how we get everyone who has access again? Like you have amazing videos available for free on YouTube, you give great presentations. We're going to talk about the one I just watched right before joining with you in a minute. But what are your thoughts on that? How do we bring everybody along?
- [13:34]
Luis Feco
Let's look at the education sector. I'm a professor. That's where I live. Education is conceived as follows. You're born, you know, as soon as you can speak, you are basically put into an education system that for most people ends at age about 20 something. If you think about that, why. And then you go to work, this dichotomy, you study, you work well, that's going to get very blurry. I don't believe that the education system should leave people at age 24 as it's happening now. It's a lifelong journey. We don't have that infrastructure. But education is no longer just for children, young adults and young professionals. No, no, it's for everybody. It has to be a system of human transformation that never ends, not even after retirement. And it's not just about the job that you do, it's not just about your profession, it's about you as a human. So that's the first thing. Second, and I really like this because I'm a mathematician, I'm a scientist, I've written papers on physics and very often I'm expected to think that science is all important and everything is about science and this and that. I say no, no. What is called humanities, art, literature, that always was important and perhaps today is more important than ever because I like to exaggerate, to make my points very often. So I like to say that if the 20th century was the century of engineering, and that helped us go to the moon. The 21st century is going to be the century of the social science, where the voyage were taking us to the human brain. That's what we want to understand. What makes us humans is actually not the bridges we build, it's more closely like the music we listen to. That humanism is going to become very, very important. And this is perhaps a redeeming quality that will help us as a society, as a community to live, prosper and be happy and make sure that all of these things that are created are created for the good of all of us and not for exceptionally bad things. Which is the big discussion that's happening. Actually, it's a recurring theme in some of your other podcasts, which is people are afraid that these things which are being built will be used for this or for that. And the defense is on our DNA. I mean, humans have always been confronted with the things we can do badly, and a lot of them are built in our DNA, Right. They say this is not. I'm not a psychologist, but they said one of the reasons we're monogamous is because as babies, when we're born, we're so defenseless that the role of the father is so much more important than in other human species and so in other animal species. So that makes that familiar bond to be much more important than, say, for a cow. And that's in our DNA. And as a society, we welcome that, we value that, we price it, and we give awards to the people that behave like that, which is how goodness is built. And some of that, that's still there. We're humans, and that, I think is going to drive us as how we evolve as a society. It's very important.
- [17:20]
Jim O'Shaughnessy
Again, you had me at hello. I couldn't agree more. In fact, I thought of two things as I was listening to you. The first one was the book by C.P. snow, the Two Cultures where the science and the arts kind of stopped speaking to each other. And if you look historically, they spoke to each other all the time and one informed the other all the time. And then we got into, as you eloquently put it, the sort of 20th century engineering mindset that dominated the sciences and that the humanities didn't spend as much time thinking about. And then like Robert Persig and Zen and the art of motorcycle maintenance. I mean, that's basically one of his topics, right? Why aren't these two talking to one another? They really need, I often say we need Athens and Sparta. We need Plato and Aristotle. We need to be able to look and think about these things in a multifaceted way. And so I'm delighted to hear you say what you're saying about the 21st century being the one of the humanities and bringing the humanity back to our understanding. But I worry, and I also completely agree about learning. Learning should be a lifelong obsession.
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Luis Feco
Almost.
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Jim O'Shaughnessy
It is with me. I know it is with you. But I wonder, is there a way. I think a lot about people like you and people who are very super interesting and polymaths and just incredibly obsessively curious. Is there a way that we can get people like even great people who have the honor of being able to take classes from you? How do we get people to that point where they really do embrace the idea that learning is a lifelong thing and if we stop learning, we start dying? I think of it as life is movement and death is stasis, and learning is part of movement. And you have to. Another big part of learning is unlearning because we know a lot of things that are wrong. What do you think? How do we get the average person to just say, yeah, I really want to embrace that?
- [19:49]
Luis Feco
Okay, so people like you and me, I mean, we believe that learning is fundamental. It's not something that you do because it's a task or something. It's is. As humans, we do that. By the way, as humans, we are rewarded for teaching. It's some of the things that actually gives us pleasure. Okay? And we have chemicals that reward us when we teach. Everybody is a teacher. This is very important. Everybody, we enjoy teaching other humans something. We are rewarded with that. So that gives me hope. It gives me hope. And perhaps is the reason why you do your podcast, which is fantastic. That's why you do it, and that's why I have my YouTube channel. And that's. We want to explain people, because as humans, we are programmed to do that. So I have hope. I'm an optimist, because I know that in the end we have close to 7 billion people who are rewarded for passing that message across. No one is going to give you a dollar bill because you say this to this other person. You do it because this is who we are. This is what we do. We are a bit confused. It's true. We're very confused, because these things that are happening, many people don't understand. My hope is that the people who understand it, like me, like you, we speak up. We tell the others. With your podcast, with my YouTube channel, with my classes in universities around the world and other people with their tools, and then we can go over this challenge we have, which is to understand this new world. I'm an optimist, but I'll give you one fact which is a little bit pessimistic. If you look at the history of society, the deadliest, the one with the largest number of Deaths, was the 100 years after the invention of the printing press. That's a very bad figure, it's true, but it's by a little bit worse than the 20th century with its two world wars. And why is that? Well, this is what these revolutions do, especially revolutions that affect the way we think. Ideas, travel, and ideas are so powerful. I hope we can avoid that. I hope in this new revolution that we're going through, I hope that these tools, with people like you and me are given, will be used to avoid that tragic scenario. And I hope it doesn't take us 100 years like it took in the 16th century, to get over that and realize that actually, books are great, and they will have the French Revolution, they will have democracy, and they have all of those things. I hope we can do a lot faster, but it's going to require a lot of communication, a lot of podcasts like yours, and a lot of teaching and a lot of YouTube channels, and then people will find it. But we have to always be there teaching each other and helping each other come up that mountain so that we see the new landscape, that new reality, and then we can continue to perfect ourselves as humans.
- [23:07]
Jim O'Shaughnessy
Yeah. Whitehead said something along the lines that all great eras are chaotic eras. And I think you're right. After the invention of the printing press and that period in history, the uncertainty. I think that you're absolutely right about the idea that we have to really look closely at what's in our DNA, what's in our basic building blocks. And when you get a world that was fairly static, where I used to joke the priesthood said everything in Latin because they didn't want the laity to know what they were up to. And suddenly, when the laity had books, which one of my favorite writers, Robert Anton Wilson, references, I think it was actually Corpitsky, who's called it time binding. And that's what it allowed us to do. It allowed us to, for the first time and en masse time, bind our ideas and send them into the future. And so that we could learned from somebody who'd been dead for a thousand years. And one of the things that fascinates me about that period is. And back to Newton. Right. It was possible for a single individual to pretty much invent some brand new thing. It was possible for a very learned individual to know most of what there was to know, even though, of course, most of it was wrong. But they could know that. And then we had the printing press, which started, of course, as a luxury. I was reading recently that many of the earliest books were encrusted with jewels because they were seen as luxury items and they were sold to very, very wealthy people. And then it was like, huh, maybe if we print the Bible in German, that might get some more people interested and more people interested in reading. And then, of course, that onslaught of new ideas caused that violence that you referred to. I, like you, am also an optimist. And I wonder, though, is there a proxy for that physical violence? I mean, you spoke about the 20th century being like the physical world. We're moving more into the world of the mind now. Well, I always kind of had a theory about social media, which was maybe it's a proxy that acts like a steam valve for people who are really angry and in earlier eras would have taken up their pitchfork and their torch and gone and pitchfork people. But now they just say mean things on Twitter.
- [25:47]
Luis Feco
Exactly. That's about it. And actually, I think that's a very good analogy, and I believe in that. Okay, so if that's the analogy of what the wars in the 16th century was. Okay, let's. So let's go through that quickly. Okay. And let's imagine going back to. You said something. I said Newton used the Leibniz. So Newton and Leibniz were mirror images of each other, and it took them years to realize they were doing the same thing. Imagine they had Twitter. Imagine they had email with each other. Wow. Maybe the whole thing would have lasted and who knows, two years. And then in two years, where actually we can send people to the moon, we don't know. So it is important when we look at history, of course there are some bad things that happened. We need to learn from them. We need to teach each other also all the bad things that happened so we can drew the analogies as to what's happening today. Just as you just said, very eloquently comparing social media with what may have happened in the 16th century, for example, and say, well, that's what it is. Let's quickly find what our path forward is. Let's deal with some chaos for a while. But, you know, then we're going to go into this new area of growth and prosperity, intellectual prosperity, physical prosperity, and basically a new relationship Amongst all of us.
- [27:09]
Jim O'Shaughnessy
Yeah. And that is also my hope. And one of the things that motivates me is, you know, I have six grandchildren, and I want the world that they live in and the world that all humans live in, that we're moving into, to be the. As Voltaire, mocking Leibniz in the character of Dr. Pangloss said, the best of all possible worlds. Obviously, I'm not Panglossian, but it's not a bad directional aim to try to get the world to be the best of the best of all possible worlds. And another thing that I love about you is I'm going to get to some of the math and some of the asset management stuff, maybe because this is just so interesting. But you did a lecture about trying to. Or helping your students understand that success in life is really about communicating. And you did a great job both, defining what communication actually is. I think you used Wittgenstein, if I remember right. And it is about. It's not about the words. Right. And you said something that really struck me, and it was, when we go to university, what we're learning is that 15% about the right words or the right formula or what have you, the right system, the right way to program, etc. But in communication, that's just 15%, 85% is nonverbal. It's, you know, are you making eye contact? Are you having a conversation as opposed to a lecture? And one of the things that you said that I'd never heard before, which is very impressive because I'm very interested in this topic, and it was the first second and the last second are the two most important times. Elaborate on that for our audience, because I loved that talk you gave.
- [29:13]
Luis Feco
That's great. I should start by saying, I play the violin. I've given a number of concerts in my life, so I performed a lot. I performed with music, not with words. So when you perform with music, you know that there's no content. It's all in something that goes right to your brain, to your stomach somewhere. I've always had that. And I always learned that when you're performing, what is. What makes the audience react cannot be the content. And then I bumped into this work done by people at Hartford and other places where they actually do the same thing, but with real psychology and experiments. And then I say, well, let me say it in my way, which is when you're doing any act of communication, say a job interview, being a parent, being a teacher, 15% of the result of that is due to the content. The 85% is these intangibles that are hard to measure. If you do a cross section of the human brain, this is very well understood by psychologists now. And it's all measured. It's a science, it's not a theory. Our brain has the limbic brain that we develop when we wear reptiles. And then we have the frontal neocortex, which is very recent. And that's the one that in universities we get people to focus on, you know, learn this, understand this, and it all works in the frontal neocortex. But deep down we are still a little bit like lizards. The limbic brain is what drives a lot of behavior. And I use an example when I teach this to my students. How do you fall in love? How do you date someone? You don't go around with a cv, right? No one falls in love to a cv. So when you're going to be hired, when you go to a job interview, the CV is there, the CV takes you to the interview, but then it's just you. They're going to hire you as a person, they're going to spend eight if not more hours per day with you. That is like a marriage, right? So they're going to look for all the other stuff that you're going to be doing. I don't, I mean, I've hired people in my company. Hire people in your companies. And yes, you want people who can do the job, but you also want people that you're going to be working with, with. Something bad happens, right? And you have an emergency and you need to fix something, something happened. You need people around you, you need humans around you that not only can get to the answer to that question, you need people that you can rely on, you need people that you can work with, people that you're going to make mistakes, they're going to make mistakes. That's a community that you're building, a company is a community. And if you're hired to be part of that community, they're not going to hire you for skills only. They're going to hire you for everything else. They're going to hire you for how well you sing, how will you speak, how will you dance. This is very important. That's the analogy that I bring to my students. And I should say that this is for many of them. This is the last lecture they have before graduation. This is typically fourth year students and this is the last lecture, the last week of classes. And I tell them that everything they've been doing for four years is like 15%. And I said, where's the 85%? I said, don't worry, I'm going to spend all my three hours on the 85% that matters. @ least you got something. And I have to say that I've been teaching for, I don't know, 30 years. Some of the best comments I have received about all of my courses is this one. Many students, they come and they tell me, you know, you said something that I had not suspected. I now understand what I'd be doing right or what I'd be doing wrong. And I, for many of them, this is a life changer. And it's a math course where I'm not talking about math, I'm talking about how to speak, how to be part of a community, how to relate to people. That goes back to what I said earlier. This humanism is, I think, something which is going to make the 21st century very different from the 20th century.
- [33:46]
Jim O'Shaughnessy
Yeah. And you highlight that communication is really about understanding, making sure it's about people that you're communicating with. It isn't about you, it's about them. And for example, I didn't read the book how to Win Friends and Influence people for like 25 years because it had such a cheesy title. And I just thought, oh, that's gotta be just, it's, you know, oh, that's all. I, I'm not going to read that. I'm not going to read it. But so many of my friends who were really great communicators, Jim, of course you've read how to Win President. And I'm like, no, that sounds like trash. They're like, oh my God, no, you have to read it. You absolutely have to read it. And after I read it, of course I understood why. Because he was saying a lot of what you say about the art of communication, the art of storytelling. And I learned that early on, thank God, because I ran a quantity finance long only firm, right? And so I realized, though I would start some of my presentations with, I'm going to tell you a series of stories that I hope influence you to understand that you shouldn't let stories drive your investment decisions. And people of course would laugh. But that is the only way I've found. At least any listener or anyone watching as a way that isn't that way, please let me know. But if you really want to be able to communicate with people, you have to tell them stories. Maybe that's that limbic brain that influences that. Because another one of my ideas is that many decisions, even among the most analytical People are made emotionally and then papered over with logic and rationality to explain in quotes why they made that decision.
- [35:43]
Luis Feco
You're absolutely right. As people in the investment sector in particular, you talk about the art and the science of investing. Well, they use those two terms because if you are convinced with formulas and you're not convinced with your limbic brain, you don't get that feeling. Then you say, well, the artist, that's just the best thing you can come up with. But people, investors, portfolio managers, they like to make decisions where they got the proof, but they got the feeling. And that feeling, it's hard to express, it's hard to quantify is the quantum in us. Maybe with a quantum computer, one day we'll understand what that means. Right now, we're still very digital, but that quantification, not in the way of quantities, in the way of quantums, which is the opposite of quantification, that is very important because the world is very complicated. And we have an analog computer, a digital one. It's an analog computer, which is very effective. Sometimes it just doesn't feel right. And then you capture something that maybe now with AI, we can capture it very quickly too. But realities are complex, and numbers, oftentimes they oversimplify things. And that's where the art is so interesting. Because, you know, maybe back to Beethoven, you know, why is Beethoven's Fifth Symphony? So it's four notes, but why is it four notes? Right? Four notes that play for half an hour, 35 minutes, and then. But they make up something which is. That's wonderful. And the brain can understand that, but it's very hard to quantify.
- [37:32]
Jim O'Shaughnessy
And that leads me into your work in risk management. In asset management. When I first saw value at Risk bar, I had a real negative reaction to it. And my negative reaction was due to. You don't understand people. When you put your risk is. And then they would quantify it with a single number.
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Luis Feco
Right.
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Jim O'Shaughnessy
The portfolio risk here is 15%, plus or minus. Right. People, like, carry a lot of baggage with that number. And they start down a thought pattern. And I saw it happen time and time and time again, especially during the great financial crisis. Right? Wait a minute. You told me that this wasn't even possible. And you are doing a lot of really interesting work in risk management. Have done a lot and are doing a lot. And so let's talk a little bit about that. Let's talk about where that type of art and science is going and what you find the most promising. I enjoyed reading your work on using AI and esg. ESG has become kind of a negative phrase these days. But I enjoy your work on it because I agree with your original assessment, which is the way they were doing it wasn't the right way to do it. So if you wouldn't mind talking about that a bit.
- [39:04]
Luis Feco
Well, now you touch the nerve. This is all very important for me. So I'll start with value at risk. You know, let me tell you how I explain value at risk to my students. I tell them, once upon a time, risk management was very simple. Tell me how big you are and I'll tell you how much risk you have. That's it. In 1987, that was proved wrong because a fairly large change in the S&P, 525% change in the data, but that made people lose more than 100%. So how is that possible? Well, there's a nonlinear something going on in here. What is that nonlinear something? Well, it turns out that it's options and derivatives. And I'm not going to go back into 1987. But then something interesting happened, which is we need to understand that the world has become nonlinear. So I need a way to control things that I don't understand that are suddenly nonlinear. So value at risk came up. But the important thing about value at Risk is while it's nonlinear, it was an attempt at doing that. The important thing is it was part of the regulation. And as far as I know, it's the first time that a deep mathematical concept rightly or wrongly became part of the law regulation. Once that happens, then mathematicians, you're all going to be hired because you are the only ones who can actually make this happen. You can agree with this degree. It's part of the law now. It was the first step in a direction to understand complexity. Okay? It was perfected. And, you know, for a long time, many people think that value at risk is the solution to everything. It's the solution to nothing. It's like taking your temperature. Oh, you have fever. Great. Are you sick? Maybe you're not sick. Maybe you are. Okay, so it's like that. It's just the first step in understanding complexity. And, well, maybe regulation should have become more complex or that's, I think, perhaps not the point. I think that was a very big change for that. But now talking about esg, okay, esg, for people who don't know, is environment, social governance. It's really something which I like to express it differently, is dealing with even more complexity because Value at risk and financial management, Risk management for a long time was about money, making money, losing money, currency, all based on currency. But now we live in a world where everything around us, we talked about that earlier, is complex and we want to understand, for example, social issues that you are doing. We have very good accounting for money. People know how much money they spend, they know how much money they have. But you don't know how much water is used in your everyday activities. And you don't know if you are being water efficient in the way you deal with your life. You don't know if you are wasting water. Emissions is something that is talked about a lot and understood by very few people. Some people think it's about pollution. It's not about pollution. It's just that certain gases like CO2 have an impact that when they interact with the sun rays, they get warmed up. Like when you put your foot in the microwave, only the water gets hot, the plate does not. These are extremely complicated physical realities that now we have the hope of understanding because our unprecedented computational power called AI and other things. So if I can understand risk at that bigger scale, let me do it. So of course, value at risk is what I did in the 80s, 90s, that was just the first step into understanding all the risks that we may have. Value at risk is like the seat belt. You put it on, okay, that's it. That does not mean you're not going to have an accident. It does not mean that if you have an accident, you're going to be safe. These other things and now you have GPSs and you have airbags. This is part of the evolution. And what is also remarkable is that mathematics is part of all of that. And that's what I tell my students. Mathematics is perhaps not the solution to the problems, but it's the language that will help you understand what you're dealing with. Mathematics will understand what risks you still have if you have the seat belt on. Mathematics is the one that will help you understand that the GPS sometimes does not work. This information which is not in the database and you're stuck in traffic or something like that. So I think the 21st century is going to be the century of math as a social science, perhaps even more than as a social science. That's how I see value at risk. That's how I see financial risk management. It's an evolution that it started with a big bang called value at risk. And this thing that many people thought was the solution to everybody's problems. No, it was just the first step in the direction towards complexity. And now we are going further into that and it's going to be fantastic. We will see.
- [44:44]
Jim O'Shaughnessy
I think so too. And as I listened to you, God, I would have loved to have you sitting by my side when I was trying to get these people to understand first step. Because what they did was they saw value at risk and they were like, okay, that's it, that's everything. And as you just very eloquently pointed out, no, that's not everything. It's the first step. It's the seat belt and then the movement towards the complexity and the idea of the interactions between so many different variables that that's where we should be moving. That's where you are moving with AI Describe, if you don't mind, the, the way that we are seeing the change from, you know, very heavy data, numeric data and a very limited amount of it. If you've done any research like I have, you know, the Compustat only goes so far and you know, the earliest, like the, like a lot of, even the crsp, the center for Research and securities Pricing, there's a great paper by a guy, I think, what was his name? McQuarrie, in which he kind of dissects the, I think the name of the paper is the myth of 1926 or something along those lines in which he points out all of the massive holes even in a pretty pristine data set. You've been arguing that we're moving to completely non structured data to a very, very different way of doing the analysis. If you wouldn't mind, just walk us through that.
- [46:25]
Luis Feco
So I like to explain this by looking at the last 100 years. So 100 years ago, data was something you could write with a pencil in a piece of paper. Very important. In particular, accounting practices started that way. Very, very important. Then in the 50s when computers were invented, suddenly data became databases, amounts of data that no human could read. And that was great, but they were numbers. Around the year 2020, our databases, the concept of data stopped being numbers and words were welcome. That's where ChatGPT started to be useful. And we're in the midst of, of that. We're going through a database revolution where what is changing is the fact that my data consumption, my data input is no longer just numbers, they are words. And we're in the midst of that. But what's coming is even more interesting because what's coming is what's called multimodal models, multimodal data. Data which includes sensor data, images, video, all things that I could analyze in real time. So if we think ChatGPT is a big deal. It is a big deal. No question about that. It is only a change from number only to numbers and words. If now to that I say now, give me images, videos in real time and then I will announce that's going to change. It's going to change agriculture, it's going to change engineering, it's going to change manufacturing. And when we have the hardware that will help us analyze this, when we have the communication systems which are faster so we can share this information very, very quickly now we're going to start to see even bigger and faster speeds at the change in which this revolution is taking place. Which, by the way, going back to our previous discussion about education is we really need to have an education system so that no one is left behind. Because if you think it is a big deal. No, it's not. The big deal is about to happen. And it's going to be databases that grow at formidable rate that we can understand in real time what's happening to my plantation of peaches in southern Spain or my. Or whether I should be planting olive trees here or something else. A lot of the geoengineering challenges that we have are going to be affected by this. There's one thing that I like to remind people, which is in the 50s, the big problem for humanity was talked to be food. We were going to run out of food. I was born in the 60s, so I get to see the tail end of that. No one talks about that anymore. Why? Because small changes in engineering, in agriculture, small changes they gave us, that's the value of the exponential function over time. They made us better. We're going to go through something like that. But what is different is, in my opinion, they need for a different type of education.
- [49:48]
Jim O'Shaughnessy
And so the immediate next question is, what does that education look like? What? Let, let's, let's, let's both live in the future for a moment. What, what are we? It's 2045 and we're both young men. I was born in the 60s too. I was born in 1960. So let's imagine that we're both young men in 2045 and, and we're just the same. We have the same interest and curiosity that we have now. But what's going to look so much different then?
- [50:25]
Luis Feco
So at 2045, let's do another podcast together in 2045. That's number one. Okay. Okay, so we'll book it now. Let me mind you. Yes, let's book it now and let's see if we are right. What I think we're going to see is a democratization of education. Education is still centralized. I mean, a university, great university, University of Toronto. I've been to universities, great universities, Princeton and this and that. It still is centralized. It may make sense or not. I'm not going to argue about that. But I think education is going to be decentralized and we'll do all the good things and the bad things. The good thing about centralization, you can have this thing that we call quality control when you have decentralization. So I like to use an example to explain this. And that's what happened to the company Kodak. Kodak is a wonderful example because they invented the digital camera, but they thought celluloid is the thing to go because it's much better quality. And they thought Hollywood would never go digital and this and that. So they went bankrupt. I drew an analogy between Kodak and universities and I said, well, Kodak should have become Facebook. Different business model, you may think. But that's what happens when you democratize something. This actually is in a book. I forget the title of the book now. But when it comes to education, we're going through the same thing. I think education is to be democratized is to be decentralized and we're going to have systems. Of course you say, who is this person teaching me this? Well, maybe you don't know. Maybe the whole community will have with its own way of helping you select who that teacher is going to be. A little bit like what YouTube does, right? Right. There's people in YouTube tell you all sorts of nonsense and people telling you all sorts of great stuff. And eventually maybe an algorithm, maybe something will tell you, well, this is what you learned here. This is what you learned. But we need a system like that. We're going to need to have companies, enterprises are important, extremely important in this. I don't think governments are big enough to be able to drive this forward. Education right now is run mostly by governments. I think we're going to have to have the private sector develop a version of that. I have a company that actually I created with that purpose, hopefully. I spoke at Davos two years ago about the metaversity, which is what I would like to see develop. But we're going to have to have a way where humans are being taught, had been explained their realities by having this decentralized system where you have access to information, you have access to data, you have opinions, you have to all of that knowing that what you learn will become obsolete very, very quickly. So that's going to have to have. This is my iPhone. Okay. Everybody has more or less a smartphone and these devices, they need an upgrade, right? You get an operating system upgrade. What happens if you don't upgrade that operating system? Your apps stop working, you may get break ins. People can break into your phone, right? You need to upgrade. Well, with our operating system here, we need the same thing. So I think education is going to look very much like that basic thing. That's the operating system that you have when you buy your. And then you need a company that does the upgrades. You have an operating system upgrade like every few months. You need to upgrade your operating system here. I think it's going to look very much like that. I think it's going to be decentralized. I think it will become a business for many companies to operate in and then humans will be participants in that. Humans will participate not only as learners, but as teachers also. Pretty much like a blockchain works. And that may be what you and I will talk about in 2045. And we'll have this blockchain based system where who knows what podcasts would be then maybe groups of organized individuals all sharing ideas very quickly and doing it very, very well. We'll see.
- [54:49]
Jim O'Shaughnessy
Yeah. Again, I'm just smiling here because I knew I was looking forward to talking to you for a reason. And it's because I too think about it that way. I love the idea that we are moving away from this centralized way of.
- [55:06]
Luis Feco
Education.
- [55:08]
Jim O'Shaughnessy
This idea that still permeates much of our psyches in the west at least, which is we got our certification, we got our stamp, our diploma, and we can get a nicer, better looking stamp with a master's and even a spiffier stamp with a PhD. But we do get this idea that, okay, now I'm done. No, you're just starting. And the way that I see it unfolding is I completely agree education needs to be decentralized. I also agree that the private sector has to get involved. I think, for example, that great professors such as yourself, you should be making millions of dollars a year from being a great teacher. And I think in the future that might happen. You might see the emergence of these great teachers who are being compensated for being a great teacher, letting the market decide. But that's going to require curation. That's going to require, as you said, it's a great example. And it's, it's the earliest of days over on YouTube, but it's a good analogy. And to, to look at, right? On YouTube you can find just absolute Garbage, right? And. And you know, it's all engineered to get people to click on it. And, you know, I exploit. I was never a big YouTube person until some of my much younger colleagues were like, jim, you've got it. You got to go and check YouTube out because it's amazing. And so I did it for like, I devoted a weekend to it. And I was like, holy shit. They weren't kidding. But like, one of the first things I noticed is what you pointed out. There's a lot of garbage, but so there's noise. And right now it's most. Not mostly, but it's largely noise. But then. And I'll use your YouTube, there's really high signal on YouTube as well. And so the curation part of this I see coming in, helping isolate the signal from the noise and getting it so that great teachers can, you know, have. Earn a great living from their ability to be great teachers, I think is a laudable thing to happen. And I also agree very much of the community aspect of it. Again, what we have now has collapsed. Time, space and geography. You and I can. It doesn't matter if you're in Toronto and I'm in Connecticut. But an even better example is, like, many of my colleagues are in Bangalore or Singapore and doesn't matter anymore. And so I think that you're dead on. And how do you see that? What could derail that? Both of us are optimists. What could derail that?
- [58:11]
Luis Feco
No, I think nothing's going to derail this. I just don't see it. It could take longer, it could take a short time. But no, this is the way we are going to. And we're going to evolve. I think we're going to organize ourselves like that because it's needed. There's a need. There's no provider to that need. Like I said, education now is conceived at age 24. You're out, right? And then you're left to your own devices. I think we're going to start, I mean, YouTube post perhaps. It does fill a void. We'll see much better versions of that. The word social media is misused. It will be social, it may be media, but it may be a new type of social media. But we are going to have a way for communities to get organized so that we can teach each other. I'll tell you another thing. I don't think the concept of a nation is going to stay around for much longer either. The concept of communities is not going to be, as you said earlier, geographical. This is it. This is the river and now in a different country that will be there. But there's going to be so many high dimensional. There's so many ways to organize people, people in different communities. Some things will be geographical by our countries as they exist now, but some other times they will be in different ways. Culture has been a very big divider of communities because of the language, but now even that is being throughout the. Because language is just something that we can fly over very, very quickly. So I think we're going to see a disruption in the concept of community, the concept of, of nation, the concept of education. Certainly a decentralized education and humans are just too valuable. I think the concept, it's not that I want to attach a price tag to a human. That's not what I mean. But humans are extremely valuable. And oftentimes I think that a human is valued at price lower than a cow. It's just not right. A human that you transform, that you help get better, is so much better. That's why education is the best business, right? You give me some raw material which is a person, which is so. So. And then I give you this fantastic, excellent person. The value added there is fantastic. So you monetize in any way you want. Okay, I'm talking monetization now. You understand what I'm talking about? This is. But that's. You do that. The value of improving the quality of a human is fantastic. I am 7 billion people who are here. What is the revenue of typical social media Network? It's about $50 per person. Imagine I could run something that increases the value by thousands of dollars. The multiples are just tremendous, right? So that's the inherent value in having a proper commercial education system. And it pays for itself. It's not that people have to start saving. No, no, it pays for itself. Because the way you calculate the value of education at a very basic level is look at how much your salary will pay. That's the typical MBA argument, right? What do you do in MBA? You spend $50,000, but now you make 100,000 per year for the rest of your like, right? That's the monetization of that. Take that everywhere, right? So you can look at this from many different perspectives. I use the monetary perspective, you can use the human element perspective. We will all be kinder to each other. We'll be more educated, we'll be happier. And your grandchildren will love you for that because they will watch your podcast, right? And they say, wow, look what Jim did. All of that has value. And the value is so exorbitant. There's nothing to derail this. It'll be done one way or another. This person or this leader or that leader will take care of that, but there's nothing to derail that.
- [62:08]
Jim O'Shaughnessy
Yeah. It reminds me of Julian Simons idea that humans are the ultimate resource.
- [62:15]
Luis Feco
Yes.
- [62:15]
Jim O'Shaughnessy
And he goes after the Malthusian argument. You mentioned the, the questions about food and scarcity in the 1950s. And of course, way before that, we had Mr. Malthus, who's positive that we are all going to starve to death because there was just basic mathematics. Right. He said, here's the population, here's food production. That's starvation. What he did not account for is human ingenuity. The ROI on human ingenuity, which is nearly infinite and endless. Right. And so I completely agree that.
- [63:01]
Luis Feco
It.
- [63:01]
Jim O'Shaughnessy
Has to be decentralized, it has to be commercialized, because right now we're at the tail end of an old system, I think. And that old system was very valuable, absolutely valuable. But now, because of the world that we're going to all live in, it's going to be much more complicated. It's going to be much more. We'll need to learn how to understand the exponential function. Because there's that great quote, the great sadness of humanity is that humanity can't understand the exponential function. And I think you're dead on, on the way it gets solved because the value is going to be so enormous from these types of learning systems that people will just flock to them. What do you think about the idea that's been emerging that I find interesting? They call them smart swarms, where people with different capabilities, different expertise, et cetera, are drawn to a problem and they all work on it together and they either get a solution that works or they don't. But it isn't this old hierarchical. The man in the gray flannel suit.
- [64:19]
Luis Feco
Yep. I think that is an example of what we're talking about, is an actual real life example of what we're talking about. We're focused on education. This one is focused on problem solving. Problem solving, as you said earlier with Newton and Leibniz, was very often engaged as a solitary pursuit. Einstein now more and more, it's a collaborative pursuit. One of the things that I think we're also going to witness is if you look at certainly the 20th century, I say it's the century of confrontation. Now. I think the 21st century is going to be the century of collaboration. We have ways to collaborate, and by collaborating we can be so much stronger at problem solving. At Educating each other at making each other happier and so on and so forth. And anything that enables this collaboration aspect is going to be, well, unavoidable because it's going to be extremely valuable. We're all going to go towards it. It's going to make us happier. And the question is, when is it going to be? In a year or five years? I don't give it a very long timeframe. I think it's going to be fairly soon.
- [65:37]
Jim O'Shaughnessy
What do you see emerging right now that are good examples of your thesis?
- [65:42]
Luis Feco
Well, apart from the example that you just mentioned, they're all small here and there. I think this idea is a little bit early because I think people are still ingrained in the past. I think people are still thinking of education. I'm at a university, Many people think about education. You go to the university when you could argue that the university is like a rating agency and their learning happens elsewhere. We are still in the old system. But as soon as, for example, companies start to hire people based on other types of merits, where the rating system gets expanded and it changes when now education can be made available here and there. I mean, I created my education company a year ago. Right. I think this is all beginning to happen. So we don't have very many examples about this. But if you do the calculation of the value add of a decentralized system, just from a calculation perspective, you would say the only thing to stop it is if you could not develop the resources to make it happen. But we know the resources are there now, right? We have communication, we have your podcast. Resources are there. So they will be organized probably very quickly to deliver it. I think it's going to be very, very fast. I think it's going to pay very fast.
- [67:11]
Jim O'Shaughnessy
And that's the part that I find very interesting because I agree that the century, I love the way you frame it, the 20th century being the century of conflict and the 21st century hopefully being the century of cooperation and collaboration. And the way I try to frame it is like the way we do things at o' Shaughnessy Ventures is, you know, a cd, a diploma suggests competency, but that's all it does, it suggests it. You mentioned the rating system. So one of the things that we do is look at proof of work. But then we also, everyone that joins the team starts out on a trial period because we have to see an interview is a snapshot. A six month working together experience is more of a movie and it tells you more of a story. You mentioned earlier in our conversation that how Are people in crisis? Do they fall to pieces or are they more stoic about it? At least I'm not smart enough to get to an interview question that tells me whether somebody's going to be great in a crisis unless we happen to be in the midst of one. And I'm observing them. My friend Jason Zweig, who writes for the Wall Street Journal, says that he's talking about risk. And he says the difference in trying to really disambiguate true risk is the difference of showing a person a picture of a snake and saying, are you scared? And then the way to really tell is throw a live snake in their lap.
- [68:52]
Luis Feco
That's right.
- [68:54]
Jim O'Shaughnessy
So I concur with you that this is the way forward. And do you think that right now that there is an institutional imperative, an institutional wariness of the existing leaders in education, et cetera, that is going to in any way thwart or try to block this?
- [69:15]
Luis Feco
It may be, but I cannot believe that this can be stopped. The value increase is just too high. Okay, but I'll give you another. Continue. I mentioned that I had this metaversity concept, and I spoke about this at Davos a few years ago. My concept of the metaversity is one in which the participants are not only people, they're also corporations and institutions of other types. Right. You mentioned the concept of the process of hiring. The fact that someone goes through a certain process, education, they get a degree, and then they become interviewed, and you have to decide in a few days, weeks, whether you want to hire them or not. What if this person was part of your community all along? You know them, they know you, because you are part of that community. There's no. Like, I leave this university and I enter this company. They were always there together to begin with, right? So the customer community has to be extended to institutions, too, to legal entities, not just to people. Because at the end of the day, most people still, today, they get hired by legal entities. So that relationship is very important. So if this person you're going to hire is someone you've been following for a long time, that job interview is really not an interview. You've been interacting for a long time. You already know this person has a certain skill set. Maybe they're not the right ones for you today, but when they are, you already know where they are, you know who they are, and vice versa, they know you too. Right? So this could happen very, very quickly. Goes back to an enhanced concept of collaboration, one that doesn't exist now because we collaborate by hiring someone very quickly. And firing someone very quickly or leaving your company very quickly. It's all very abrupt. It's like.01. And that, I think is ready to be disrupted, too. We may even require new labor laws so we can have different types of relationships. And by the way, I think we need to find a way that we can hire children. Right. How? You know what I mean by that? Of course. I don't want. We all know what happened in the 18th century with child labor. That's not what I'm talking about. Right. But we want to give children an opportunity. I used to take my daughter to work one day a year. Right. We all have done it. Take your kids to work day. What if I could do it every day for a few minutes? You know, the amount of learning they will do and the amount of learning we will do by watching their reaction to what we do is priceless. Right. So I think a way to. Or this is going to be part of the change, too. It's not just, you know, this new weird university we're going to create. No, I think it's going to be a different way of collaborating with each other, a different way of interacting with each other. And so that this thing we called learning, which is really human transformation, is enhanced and adapted to the needs that we have now when everything is changing.
- [72:24]
Jim O'Shaughnessy
Yeah, that's a really interesting point as well, because the idea of the extended period of teenage adolescence is really a very modern idea. And for most of human history, that wasn't the case at all. And again, we're not talking about sending little kids into chimneys and Charles Dickens type stuff. We're not talking about that. We're talking about the interaction between a child and an adult in a family where it was constant. And I've been thinking a lot about young children as unprogrammed humans. And you can learn a lot from watching young children, in my opinion, because what are they? They're learning machines. Like, I have the joy and happiness of having very young grandchildren around, and I just love watching them because they're what natural human curiosity is all about.
- [73:26]
Luis Feco
Right.
- [73:26]
Jim O'Shaughnessy
It's. It's like everything they do is meant to learn and. And they're not afraid. Like, imagine if they had programmed many of the fears that we get programmed as adults. Right. Nobody had ever learned how to walk. My new grandsons learning how to walk and they fall down and they get up again and they fall down and they just persist and keep learning and learning and learning. And so it seems to me to be a much more natural process. And in terms of like take your daughter to work daily as opposed to day, makes a lot of sense to me. And also this idea that we have that, you know, you, you, you have to, which is also from our more recent history, I think, right? This idea that no, no, no, no, no, you can't, you can't contribute anything like a first year analyst on Wall street, right? In the old way of doing things, they were meant to just sit there, shut up, take the notes, do everything that the senior persons wanted them to do in bidding. That's an awful way to run things, in my opinion. And I find that by empowering younger people, boy, great things can happen because like, they're closer to the newest stuff than I am, certainly. And the ability, I learn from them all the time. Yeah, right. I mean, my guess is you learn from your students all the time as well, every day.
- [74:59]
Luis Feco
And they all know it, right? And I have an example that I use. For example, I am terrible at playing video games. I can't, My hand eye coordination is just terrible. I don't know about you, but I can't. But. So I am convinced that everything around us, all the gadgets, all the portfolio management tools that we have, the Bloomberg software tomorrow will be like that because they are so much better if you know how to manage them. But I confess my incompetence dealing with that. These people can do it. So why not, why not introduce these interface systems that would allow them to do what we used to do more slowly? They can do it in a different way. And that's the value of youth. And even children, when they look at things first, they've developed skills that we don't have for whatever the reason, we need to find a way to make them welcome into the world. And even I, who are not an I cannot play a video game, I should allow for, you know, video game interactions if they contribute to something. Whether you know the word is gamification, if there is a way that you can gamify some learning process, some portfolio management process, anything, do it because it's going to be better.
- [76:20]
Jim O'Shaughnessy
I agree and I think that's an unfortunate term because label thinking is not really great for us if we're trying to extend our understanding. And I think certain people hear gamification here, it should be fun and think, no, it should be serious. It should be this and that. And I really disagree. I think that learning is fun and teaching it in a way that isn't fun. Transmits to the student. Yeah, no, you're welcome to hell. You're not going to have any fun in this class at all. What do you expect their reaction to me if they're told, here, put on this sackcloth and we're going to cover you in ashes and you goddamn better write, you know, have the correct answer machine installed in your brain. Well, you're going to get different results. Yeah, exactly. That is not how it works.
- [77:16]
Luis Feco
Back to the humanities aspects of what we're doing. Right, sure.
- [77:21]
Jim O'Shaughnessy
So I'm getting my producers giving me the little. With me it tends to be more of a ten minute warning than a two minute warning. But what do you see as the most promising thing in, in a lot of our listeners and viewers are interested in investment and asset management, et cetera. What are you seeing as the most compelling and interesting developments there that are incorporated in the theme of what we've been discussing?
- [77:51]
Luis Feco
Wow. That is. We haven't talked about that. So I'll give you. This is very, very important. I say, I mean, as you know, but maybe your viewers don't know. I've managed money. I run an investment company for 20 years. We manage about a billion dollars. And the way you manage money has been based on numbers. Now the way you manage money is based on words. And here's an example. It may sound very cheesy. I may not have time to explain myself. But for example, if you want to understand what happened to GameStop, Bloomberg is behind. You can't use Bloomberg, you have to go to Reddit. So if you want to understand the realities, the complex realities of what's happening, that information is not accounted for. Companies don't account for the value of their data. Companies don't account for the value of their community and lots of other intangibles. Investment decisions are going to be driven by variables that we don't know. Analysts are going to have to rely more and more on these expert systems which are really just based on fantastic data that we don't have or that someone is going to produce. And one example is all the focus on sustainability, which is what I do now. Sustainability is just something that is worth so much money and so much lives that. But it's not accounted for. Accounting standards don't go there. If you develop a system to create concrete that does not have the emission and the heat consumption that you have, well, what is that accounting for? I don't know if you have a way of accounting for these transformational changes that are happening. The new companies that will be created is great private equity. The way that's going to be done, analyzing private Equity is considered to be the investing without data because you're not publicly traded. Well, there's so much data out there, but it's all in. It's all in disclosure statements, it's all in audit reports, it's all in. In textual databases that now we can analyze in real time very fast. And so I think investing is just going to be a completely different game. The exercise is going to be absorbing data sources which are extremely complex, but that's where you find those nuggets of value. And so it's everything we talked about, but applied to the act of investing, which is taking risk, putting something on the table so that things get better and your value goes up. Right. It's just the quantification of that will be done with new forms of AI, which we have and will be developed, and it's going to be a fantastic, fantastic activity.
- [80:41]
Jim O'Shaughnessy
Yeah, I agree. When I was still at osam, before we sold it, we did a big research piece on intangibles. And they're the game. They're the game now. And you know, the antiquated figures that we still pay so much attention to. Right. Gdp, a variety of those things, they're all beyond useless in many regards today because it is the intangible factors of some of the biggest companies by market cap, for example, most of the value that you're seeing there belongs in the intangible category. And how do you get to that? You get to it through natural language programming, machine learning, the ability to mine the text data and other data.
- [81:26]
Luis Feco
Right.
- [81:27]
Jim O'Shaughnessy
And so that, in my opinion, when people ask me, well, know what's the future of quant? I said, the future of quant is more art than science. The future of quant is the ability to manage these complex data streams in a manner that you can test and hopefully replicate. But the old days when it was just numbers, those are gone. They're done.
- [81:53]
Luis Feco
That's right. It's not black or white. It's the 50 shades of gray that matter now.
- [81:57]
Jim O'Shaughnessy
Exactly. And what a perfect way to put it, because something that I often harp about but I think is really important for us to remember we don't live in a deterministic world anymore. And the yes, no, 0, 100 binary choices, that is the way it's going to work and you want to be successful. The other thing, when people would say, well, what do you think? Who's going to be the Warren Buffett of I'll stick with 2045, since I used that data earlier. And I say, I don't know, but he or she isn't going to look anything like Warren Buffett. The way they got there is done. Got a little anything like Warren Buffett's back. Well, this has been absolutely up to my expectations, which is always a great thing. You are an amazingly interesting man. I love what you are doing, I love what you are working on. I love the way you get your ideas across and your insights into non math things that are incredibly important. Like the whole communication lecture that you give at the end. Well, if you've seen the podcast or listened to the podcast, you know that our final question is really just fun and it's we're going to wave a wand and we're going to make you the emperor of the world. You can't kill anybody, you can't put anybody in a re education camp. But what you can do is, is we're going to hand you a magical microphone and you can say two things into it. And the two things that you say are going to incept the entire population of the world. And whenever their morning is, the next morning they're going to wake up and they're going to think that the two ideas that you give me now were their own. And they're going to say, you know, unlike all the other times when I wake up and have a bright idea and never act on it, I'm going to actually act starting today on these two ideas. What are you going to incept in the world?
- [83:50]
Luis Feco
I only need one, which is love each other.
- [83:53]
Jim O'Shaughnessy
Oh, that's great.
- [83:54]
Luis Feco
It's. I mean I, I have a way of expressing the concept of, you know, I mentioned it earlier, when you hire someone, you have to be in love with them. So the concept of love is very, very interesting and not enough, in my opinion, promoted. I think I only need one.
- [84:10]
Jim O'Shaughnessy
I love it. You're leaving one in reserve. That's very.
- [84:15]
Luis Feco
I'll save my next one for 2045 when we do the.
- [84:20]
Jim O'Shaughnessy
Well, I certainly hope that you will accept an invitation in between those two dates to come back on because I didn't even get to like 80% of what I wanted to talk to you about because it was so fascinating to talk to you about what we chatted about. Thank you so much and just really, really enjoyed the conversation and really admire.
- [84:41]
Luis Feco
Your work and what a great program you have here. Thank you.