27 January 2018

On today’s show, Preston and Stig talk to renown investment blogger, Shane Parrish. Shane is a Buffett style investor that reads and studies everything about the markets. On today’s show Preston and Stig talk to Shane about learning and optimizing one’s life. He also discusses his opinions on the difference between Ray Dalio and Warren Buffett’s investing approach.

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  • How Shane thinks about learning new things.
  • What mental models are.
  • Shane’s opinions on Ray Dalio and Warren Buffett.
  • What books Shane values.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Preston Pysh  0:02  

So on today’s show, we have a guest that I highly admire and have followed for quite a few years now. For anyone coming out of the value investing community, you’ll definitely recognize the name Shane Parrish. 

Shane is a highly read blogger that gets millions of views and has over 160,000 subscribers. He shares his insights on business investing and just good ideas on how to become a better version of yourself. 

One of the things that Shane is best known for is reading. And I mean, really reading. A lot of what we’re talking about has to do with how you can get more out of the way you read, the way you think, and the way that you can optimize your own life. So I hope you guys enjoy our discussion with the astute and kind Shane Parrish.

Intro  0:49  

You are listening to The Investor’s Podcast where we study the financial markets and read the books that influenced self-made billionaires the most. We keep you informed and prepared for the unexpected.

Preston Pysh  1:10  

All right, I am really excited about this episode here because we have Shane Parrish with us. And Shane, as a hardcore Warren Buffett fan and just really an all around investor, it is really exciting to talk to you because I’ve been reading your posts for such a long time now. So to have you here with us, we’re really honored to have you. So thanks for taking time out of your day to be with us.

Shane Parrish  1:34  

It’s an honor to be here. Thanks for having me.

Preston Pysh  1:36  

So this is what I think if I had to put Shane Parrish into just like a little snippet of three words, it would be this total learning machine. All right. I guess my first question for you is how did you become this way? And were you like this when you were younger?

Shane Parrish  1:57  

Oh, no, man. I was a… Most people don’t know this, but I was a straight D student until grade 10. Okay, I don’t think I literally had a grade above D until grade 10. I was never, never really excited about learning, right? I was always hanging around with the wrong people or with the wrong crowd. My parents were in the military. So I was a military brat moving, you know, city to city every year. I had a new city, had to make new friends. 

Then, in grade 10, my peer group changed and the expectation became that not only could you have fun, but you also had to get good grades. It was all of my friends that I was hanging around that got me into this good grade thing. 

And I said, “Okay, well, you can still have fun and get good grades.” That kind of led to university and expectation of university. At that point, I still wasn’t super interested in learning things I didn’t have to learn. It wasn’t till I got out of the work or got into the workforce… 

After graduating with a Bachelor of Computer Science, I went to work for an intelligence agency. That was where I really kind of like kicked into this thing, which was I noticed that I was spending more and more of my time fixing problems that I was creating myself. I wanted to avoid that and one of the ways to avoid that is through kind of intelligent preparation and learning things in advance of needing them and not trying to learn them the time when you need them. Then refining them and trying to learn things that don’t change over time so that you can apply them to a wide variety of situations.

No, I wasn’t, I don’t even… I wouldn’t consider myself a learning machine now to the extent that I am, it’s born from that sort of background.

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Preston Pysh  3:45  

You know, there’s a lot of people that will say, well, you can still learn from a movie, you can watch a movie or you can turn on TV and watch it. Why do you think learning through books is better? Maybe not better than watching TV?

Shane Parrish  3:59  

Well, you can and I mean, I think just to back up for one second, we learn from experiences, right? We can… Well, if we don’t learn, then we’re not learning. And if we are learning, we’re learning from experiences, whether those experiences are ours or somebody else’s matters. And if there’s somebody else’s, what we really want to get out of those experiences to learn is the raw material that they used to develop that experience. 

So much of what we consume online is other people’s abstraction. So somebody’s done all of this work like a PhD, or whatever. And they have all this input material, and then they reflect on it. They come up with these abstractions, and then we consume those abstractions, and we consider that knowledge. 

But in reality, the knowledge comes from transferring the raw inputs into the abstractions. It comes from the reflection. So when we’re trying to learn from other people, we really want to have the reflection piece still be our own. So yeah, you can learn from movies, you can learn from a documentary. You can learn from all of these things. 

But what I really want when I’m learning is the raw material that other people use and I find in books, you get a level of fluency and a level of information that you junk in online articles, the bar is higher. You don’t get in movies, because movies are usually generally there for entertainment purposes. 

Also, you might learn stuff in movies. That’s not to say you can’t learn things in movies, it is to say that I want to do my own reflection on that material. And that is how I actually draw my own abstractions, which then I can put into action.

Preston Pysh  5:31  

So talk to us about how you read. Is it audio books? Are you reading hard copies?

Shane Parrish  5:38  

Oh, man. I read mostly physical books. Increasingly, it’s kind of Kindle and I would say that the percentage is maybe like 80-10-10, at this point, between physical Kindle and audiobooks. I use audiobooks at the gym. But I often use them for books that I’m reading physically. Or I’ll use them to preview books. So put them on like one and a half, 2x speed. I’ll just kind of go through a few chapters in them and sample the book to see if I actually want to read the book. 

But for me, I find the audio very hard to consume [as a] medium. That’s a personal thing. I know not everybody’s like that. But for me, I can’t be doing anything. If I’m doing audio, media consumption, I get lost. I mean, I lose track of things, I want to write stuff down. It’s just not convenient for me to do that. And I lose focus so easily too and I don’t lose focus as much on the physical books. And it’s really easy to write things down. 

Kindle is just becoming a practical sort of necessity, right? Like, I can’t pack a suitcase full of 50 books and they go away for a few weeks. But I can bring a Kindle with me and I find that I’m increasingly kind of adapting to that, although it would be a slow kind of convert to that. 

And then when I am reading, I mean, I’m not reading every book cover to cover. I want to know why I’m reading the book. I want to have an understanding of what I want to get from that. I always almost always skim books or read the introduction, the conclusion, skim the chapters, the index, get a feel for the author and the arguments that are presented in the book. 

Then, that gives me a sense of how much effort and time it takes 10, 15, maybe 20 minutes to do that. But it gives me a sense of how much time and effort I want to put into this book. And often it’s like, “Oh, this book is not what is going to solve the problem that I’m curious about right now. It’s great. And I want to keep it.” 

Or sometimes it’s like, “Oh, you know, what I really, you know, based on my knowledge of this subject, I don’t really think that they know what they’re talking about.” And I’ll just kind of give it away. Or I’ll put it on a shelf somewhere and come back to it later, right? 

Like sometimes you’re just not ready for that. If you’re learning a new subject. You can’t dive in with these books that are way above your level, you have to go just above your level and grasp that level and then you can move forward on them. So a lot of it boils down to like I want to know what I’m reading, while I’m reading it. 

I have a system for how I take notes. That works for me. And the point I think for everybody is to develop their own systems; a bit how you keep track of notes and how you integrate that into your life. But the real point of going back to what we said about learning is that that becomes how we reflect on the material that we’re consuming, and that helps us learn it.

Preston Pysh  8:18  

So how do you filter what’s next on the plate? Walk us through this.

Shane Parrish  8:25  

I don’t know if I have an answer that works for everybody. I mean, I’m super lucky. So at this point, I mean, Farnam Street is a fairly well known website. We get recommendations from publishers who are generally very thoughtful about what they send me. And also readers, right? 

I get most of my new book recommendations from readers or people that I’m curious about. I have a huge network of incredibly smart people who will send me emails that go and check out this book. It’s an instant buy at that point, and then I’ll get to it when I get to it. That’s the thing. It sometimes annoys people. It’s like, “Oh, did you read that book?’ And it’s like, “Well, you know, it’s sitting on my shelf somewhere, right?”

Like, it doesn’t mean that you can usurp my time and kind of direct it. It means that I trust you to recommend a book, and I’m really happy you recommended this book to read. However, it doesn’t mean I’m going to read it tomorrow. 

It might mean I’m going to read it in 10 years. It might mean I’m never going to read it, but I have it on my shelf. And I kind of have an idea of what it’s about and that allows me to kind of use it like I have an anti-library. That’s probably… I think the office here has 3000 books, and the people walking by think it’s a library. They come in and they say, “Can I look at your books?” And I say, “No.That’s weird. I don’t know you at all.”

Preston Pysh  9:44  

Well, they probably think it’s a library because that’s not that’s not something you see at most people’s homes is 3000 books.

Shane Parrish  9:50  

Oh, yeah, it’s not at all. Like it’s not in my house. It’s next to a dental office right so the kids come over and are like, “Can I look at your books?”

Preston Pysh  9:59  

So talk to us about the genre that you read. So, I know here, Stig and I, it’s almost always a business book. But to be honest with you, sometimes it gets a little repetitive like, so it’s like, okay, heard that story before, heard that story before. It seems like you really venture off into a lot of other areas outside of business. So talk to us about the different subject areas that you read about.

Shane Parrish  10:25  

So I read mostly nonfiction and within that sort of broad category, I read everything. And you know, everything. I mean, I got a dog training manual in the mail last week. I don’t even have a dog. But it’s interesting from a psychological point of view in terms of stimulus response and how you train people. 

So I mean, I’m always looking for ideas. It doesn’t matter to me where they come from, or who has them. If they have a better adaptation of something that I have in my head or something I don’t have in my head that I should have, then I want to read about it. 

But within that, I mean, increasingly, it’s kind of biographies. And it’s always been a little bit of philosophy. I would say, over the last five years, I’ve had a decent chunk of philosophy. That’s just been important to me with what I’m going through in my life and it helps me.

One of the things that I do for books is like, I think three years ago is 2014, I was trying to read as many books as I can, I think I got up to like, 142-145 in the year, and I wasn’t retaining what I wanted to and I was reading a lot of things that had a half life, that just kind of like disappeared, right? And, I would read this book and be saying, “Oh, this is interesting.” 

Two weeks later, it’s irrelevant, right. The study was disproven that you know, the pop psych books, so to speak. And I think at the end of the day, I got away from that and I moved to like, “Okay, well what has stood the test of time?” 

What is still in print today after 10 or 20 years, because if you go back and this is a fun experiment for people to run. And I’ve done this once, and you go back and look at all the bestseller lists from like 2000, go to the New York Times and look at New York Times bestseller list, 2001, nonfiction, 2002 nonfiction, 2003… And look at how those books have aged. 

Most of them, that’s not to say that they’re not good books, but most of them are pretty much irrelevant at this point. And so I want to, we have a limited amount of time, right? The way that I think of my day is I have 100 energy blocks. 33 of those blocks go to sleep, 33 blocks go to kind of miscellaneous family, errands, friends, all of that stuff. 

And then I have 34 blocks to kind of work with. Within those 34 blocks, I can apply that energy however I want, but if I’m applying it to things that change quickly, then I’m going to just keep applying that energy to things that change quickly. I’m never going to get further ahead. I’m like, running on a treadmill, right, but I want to run a marathon but I’m just standing on a treadmill. I’m not actually moving anywhere, although I’m doing a lot of work while having energy but I’m not getting anywhere. 

So how can we build a framework if we work backwards that we can build upon that’s going to stand the test of time? Or if it doesn’t stand the test of time, that changes slowly. And one of the ways to do that is to allow time to filter things. I think it was Seneca the younger who said time discovers truth. 

And I think there’s a lot of wisdom to that. I mean, much of what we think of as modern philosophy today is actually just ancient philosophy modernized. Also, it’s the same subjects. It’s similar phrasing, they were dealing with the same problems that we deal with.

Preston Pysh  13:35  

So Shane, let me shift gears for just a little bit. We have a question from our Twitter feed. This one comes from Charlie Newsome. And Charlie said he read he read your blog a lot, and that you’d like to learn from success and failures. And so his question is which failure have you learned the most from?

Shane Parrish  13:53  

Oh, man, that’s… I had so many failures that it’s like, it’s hard to pick just one that has learned the most from. I mean, I’ve been fired, lost a lot of money for clients. And, you know, had to fire people and done that the wrong way. I’ve been *inaudible… I mean, there’s so many, but I think the one that would probably resonate the most is when I was on the board of a hedge fund. I mean, overall, the fund did really well. 

Although, we had one particular investment that did poorly, and it caused me to lose a massive amount of money, both for clients and for myself, personally. And what can I say? I mean, I eat my own cooking, which is good, but the failure in that case, led me to go back and look at why I thought it was so right and what we missed. That started a process of evaluating the way we made decisions. 

I mean, everybody ends up failing in one way or another. How you respond to that failure makes all the difference in terms of where you end up in life. But by becoming curious and asking myself instead of protecting my ego, it was putting my ego aside and going like, how do we figure out why we were so wrong about this? And how can we take this and learn from it so that it’s not that it won’t happen again, because I don’t believe that you can say, “Oh, this won’t happen again.” It’s how do we make it probabilistically less likely to happen again. 

And I mean, the world in this case was saying I had a bad outcome. That doesn’t mean we have a bad process, right? We instinctively think that if we had a better process, but that’s not the case. And in this case, we did end up having a bad process. 

But that’s a little bit of an aside. I had to go back to see where I was wrong and I started thinking more and more at the time about how to make better decisions. I mean, what was really getting in the way and what really gets in our way is ego, right? 

So my ego is getting in the way. I spent tons of time doing analysis on this company. We only owned, I think at the time I had six stocks in our portfolio. And so each stock was really heavily weighted, and we spent a lot of time researching it, and we failed. 

So I had a huge personal stake in the company and I told myself that I must be right, because I’ve done all this work effectively, right? I couldn’t… I was discounting the things that were disconfirming what I thought to be true. 

When I went back after the fact and kind of reevaluated things with some distance, I could see that I was getting in my own way, right? I was on the wrong side of being right. And by getting out of my way, I can focus on better outcomes and less about me being right. A lot of times we have our ego wrapped up in being right, and that prevents us from getting better outcomes.

Preston Pysh  16:39  

What do you think would be a good read or a good source for a person to to allow themselves to check their ego or to be aware of their egos getting out of control?

Shane Parrish  16:54  

This is a tough one. I think one of the things that did it for me was becoming an entrepreneur. When you have everything on the line, it’s not about you being right. It’s about being right, because you risk utter total failure if you don’t have the best outcome. So it becomes less about your ego in some ways. 

Preston Pysh  17:19  

You need to have something at stake?

Shane Parrish  17:22  

Well, I think that there’s part of that. But I think that there’s also part of surrounding yourself with people that you believe are credible in what you’re doing and having the process in place by which you make decisions that incorporate… I wouldn’t say rigorous but definitely incorporates that into the flow, right? So you’re not doing it ad hoc and you’re just chatting about it, right? Like, you’re systematically sitting down and going, “Oh, this person has a credible opinion on this and they differ from me. I want to walk through that. I want to walk through their situation and intellectual experience. I want to walk through how right they’ve been in the past, how many decisions they’ve made. I mean, are they smarter than me in this domain? And if they are, or if they’re not, I really want to learn from them, if they are, or vice versa.”

 I mean, if they are smarter than you, you really want to learn from them. And if they’re not smarter than you, that doesn’t mean that you can’t learn anything from them. I mean, I tell my kids that their mission in life, they’re detectives, and they have to go around. And their goal is to learn something from everybody they meet, like everybody knows something they don’t know. And their job is to kind of find out what that thing is.

Preston Pysh  18:37  

So Shane, you briefly talked about investing and working with the hedge fund and such. I think there’s… You know when we posted some that we were going to be talking with you on Twitter and people were posting their comments. We got a lot of people that were asking about your opinions on investing and kind of how your approach has evolved through the years and I know that you’re obviously a big fan of Warren and Charlie. 

However, I also know that you’re a fan of Ray Dalio. So one of the things that we talk about a lot on our show in the disparity between their two approaches is Ray is this macro guy and has been enormously successful. And Warren and Charlie are much more on the micro side. So I’m kind of curious how you see things. Do you think that there’s a meshing between those two approaches? Do you just kind of side? Are you more polarized to one or the other?

Shane Parrish  19:29  

I don’t think about it in the way that you laid it at that question. I think they actually triangulate really well, in terms of how they think of very specific problems. I think they’re both focused on embracing reality and dealing with reality. I mean, the commonality and the overlap between the two of them is ginormous. 

When you think about it, well, they’re applying those skills in completely different ways. Similarly, they’re applying a thinking tool set to those problems and that tells me that there’s a lot more signal than just Buffet alone doing it or more signal than Dalio alone doing it. 

Now, you have two incredibly successful people who overlap in the way that they think about things and they’re applying it… And while it’s the same industry, same industry, incredibly different problem sets, that tells me that there’s a lot to learn in that toolkit that can be applied, probably outside of investing as well. 

And I don’t know a lot about how Ray goes about conducting his work. I think one of the criticisms against Bridgewater is that not a lot of people completely understand how they make money. And if there was a criticism against Bridgewater, that would kind of be it. 

For me intuitively, the Buffet approach makes more sense, right? Like, what am I buying, am I buying it cheaper than I think it’s worth? I think I can wrap my head around certain businesses. And can I create an environment where I only have to invest in those businesses.

Preston Pysh  21:11  

So when we look at the Howard Marks, and use kind of study how Howard looks at things… Howard really is very similar to the way Warren invests. But he also talks about in his book, “The Most Important Thing,” he talks about how it’s important to understand where you’re at in the credit cycle, which I think kind of incorporates some of the Ray Dalio stuff as well. 

Do you look at credit cycles when you’re investing or are you really just buy into the Warren Buffet style where he just says, “I just totally ignore anything to do with the credit cycles. I’m just looking at what’s going to give me the best yield for the lowest amount of risk that’s associated with that”?

Shane Parrish  21:48  

Yeah, I would say I’m probably I’m on Warren’s side personally on that. I just don’t know enough about credit cycles to have any sort of credible opinion on them or any predictability about where we are; what’s going to happen. So incorporating that or thinking about that it’s something to me that would be unknowable. And maybe it’s knowable for other people, but it certainly appears to be unknowable for me. So I don’t place a lot of emphasis on that personally.

Preston Pysh  22:20  

So this question comes from Mark Harrison. And Mark says, “What strong belief or idea gave you to change your mind recently? And why?”

Shane Parrish  22:29  

I kind of alluded to this earlier, I think one of the main things that I’ve changed my mind on in recent years, I’ll give you two examples, actually. So the first is that I have to be right. And so this plagued me I was a knowledge worker, right? So I got out of school with my computer science degree, I went to work for an intelligence agency and I was literally paid for my brain. 

Also, that brain became my self worth and my ego got wrapped up in all of this. What that caused me to do for a number of years was I think that if the idea didn’t come from me, then it wasn’t really good. So again, it became about my best idea, not the best idea for everybody else. 

The thing recently that I’ve probably changed my mind on is tolerance with bad situations. I’ve always been a fairly tolerant person and super loyal to those close to me. I think, recently, I’ve changed my mind in terms of how far that tolerance should go and when you should act on it. 

Also, making sure that you’re dealing with reality, but you’re actually dealing with it and you’re not just wishfully thinking that it’ll get better. I think when we wrap up friendships, or we wrap up relationships into this equation, we tend to either ignore or become overly optimistic. I think one of the things that I’ve done recently that has been terrible for me personally, and I’m kind of vowing not to do again is I’ve just been way too tolerant with relationships that aren’t working for me.

Preston Pysh  24:05  

In the past, you’ve been way too tolerant now you’re just more upfront with it.

Shane Parrish  24:09  

Yeah, I mean, I’m definitely going to try to be. So I’m coming at the other side of this right now.

Preston Pysh  24:14  

Yeah. This question was originated from Steven Lavery. And he brings up these mental models that we know Charlie Munger talks so much about. Can you talk to our audience about what a mental model is, and then maybe explain one that you think is a really valuable or impactful mental model in your own life?

Shane Parrish  24:36  

Mental models are pre… They’re easy to conceptualize when you think of gravity, right? So gravity is this phenomenon that exists in the world. You probably can’t really explain it at a level of detail that makes sense, but that if you hold a pen and you drop it, it’s going to fall to the floor. And you know that because you have this mental model of gravity in your head. 

So mental models become this abstraction of reality that allow you to kind of deal with it right to think through things and to grasp ideas in chunks. And to visualize not only and in some cases, you can visualize what’s going to happen. In some cases, you can visualize what has happened based on your mental model. So the more models you have, in theory, the better you understand the world.

Now everything is becoming a mental model. I mean, I think this is kind of overblown in a way, to the sense where not everything needs to be a mental model that you think about, right? So when I think about mental models, I think about I want reliable mental models and what are the reliable mental models, that means that they’ve stood the test of time, right? So when I say mental model, I’m talking about reliable models of the world, right? 

So evolution in biology or thermodynamics and chemistry or thinking models and thinking models being like second order thinking or the map is not the territory, or incentives. And being able to shift perspectives and think about things and taking a step back through those bottles and through those lenses allows you to have better tools, so you can avoid problems and then course correct quicker if you do encounter problems. 

But I mean, if you have a lot of mental models in your head, in theory, you should be able to avoid most problems instead of getting yourself into them. It’s not always the case, but you know, the person with the fewest blind spots in the world wins. And removing blind spots means thinking better. Thinking better is about finding simple processes that kind of help us work through problems from multiple dimensions and perspectives. And what better way to do that then kind of understand and know the big ideas of the world. 

Preston Pysh  26:50  

So I’m curious, what would you say is one of the biggest mistakes that young investors [make]… because we have a lot of young investors that listen to the show that are in college, who just got out of college. What would you say is one of the biggest mistakes that a lot of these young investors make whenever they first get into the markets?

Shane Parrish  27:08  

I’ll relate this to a few friends of mine who made, I would say, seven plus figures on Bitcoin. But I think that understates it. And I think the biggest mistake that they’re making right now is that they’re ascribing that success to their knowledge and as an investor, and I think that that is going to cause them to probably lose most or all of that money that they have in paper gains at this point in time. 

I think early success is probably the worst thing that can happen to investors because you ascribe that to your knowledge and your processes and kind of your thinking and, you know, that builds your ego and confidence. And then, you start taking bets that you shouldn’t take, and you’re taking risks that you don’t know about. 

Also, I think it was Alexander Pope who said, “A little knowledge is a dangerous thing.” And there’s kind of an inflection point there where you get to a point where you have enough knowledge that you’re dangerous.

I think with a lot of young investors that I talked to, personally that like, come to Ottawa, and whenever I have coffee or something, we start talking through a company and almost everything that they say is textbook, right? Like it’s very much related to financial analysis or quantitative analysis at or the first page of Google. 

And so, I think you have this availability bias where you found this information, you think it’s unique to use somehow and your mind tricks you into this. This isn’t a conscious thing, right? Like you’ve spent 20, 30, 40 hours on this company, of course, you know everything there is to know about it, right? And, you know, you find this information or this news source, and you’re like, “Oh, nobody knows this,” but most of that information is priced into the market, right? 

It’s the things that you think about that are different than the market where you have a leverage in terms of positive or negative in terms of the outcome of that company. And I think that one of the best things young investors can do, and old investors. 

I mean, I work with hedge funds on a consulting basis to set this up– to keep decision journals, right? 

And this decision journal is kind of checking your ego at the door and you start writing out like what you think will happen and why you think it will happen. And the interesting thing is, like, often we’re right, but we’re right for the wrong reasons. Then, when you read your handwriting going like, “Oh, this is going to happen, and here’s why it’s going to happen.” And then, it’s so easy to convince ourselves that like, “Oh, well, what I thought was gonna happen. So I must have been right on the reasons before.”

Then when you’re confronted with, like, what you thought were the reasons, and then what actually played out in reality, there are two different things often and that’s a very humbling experience for people. I think like getting in that process that habit early would be super lucrative long term. I don’t mean lucrative just in a financial sense. I mean, lucrative in getting what you want out of life sense.

Preston Pysh  30:25  

Yeah and I think that when a person is able to look back at what they wrote, and if their temperaments being tested in the position, they can also say, “Hey, although it feels like I was wrong, and I have this urge that I want to sell or get out of the position, these things that I wrote down haven’t changed, right? Like these are all these things that I wrote down are still the main reason why I owned it and none of those things have changed.” So it might help a person continue to hold the position, if they are in fact, right. 

Shane Parrish  30:55  

I feel I see a lot of like, I call it 13F panic selling, which is like, you’ve cloned a couple of super investors and the stock goes down. And because you don’t, this kind of goes back to learning, right? Like, if you think about the learning that we talked about earlier, because you didn’t do the work yourself, you don’t know what’s going on. 

And then of course, you’re going to say, “Oh, I’m just going to sell and cut my losses.” But the reality is, maybe that’s a good choice, maybe it’s not, but the point is, you don’t know because you haven’t done the work. And doing the work is a constant struggle. It’s a full time job for people, right? Like, you can’t be… I mean, you can, you shouldn’t be so young and thinking that you have all the solutions. I mean, there are people that are [smarter than you]… 

Investing is a terrible career to get into when you think about it, right? It is tracks, the smartest people, the most competitive people and it’s like, you want to excel in that field? Maybe you know you could have a lot easier path if you excel in it; if you apply that mindset and those brains to a field that doesn’t typically attract those types of people. You will probably go a lot further.

Preston Pysh  32:09  

Yeah, that’s an interesting point. So, recently you had a chat with Ray Dalio. I’m kind of curious, if there was any, like big. You know, anything that you really remember about the interview that you kind of just went, “Oh, wow, I never thought of it that way.” You have anything like that?

Shane Parrish  32:27  

Yeah. I like Ray’s phrasing, right. Like he says pain plus reflection equals progress. And I think that’s true because he’s hitting on the fact that you need reflection. And I think that that’s super important and underrated by most people. I think that one of the things that I love from Ray’s phrasing on… I don’t know if I’m paraphrasing him here exactly, but there’s nothing more important than embracing reality. 

And when it comes to our mind, it’s not a conscious thing, but most of us fight what’s true when it doesn’t fit our world belief or what we want that is so true and if you can figure out a way to step back from that, you’re a step ahead right and getting your ego out of the way. 

I mean Ray’s idea of merit or an idea meritocracy is fascinating because… and I love the fact that he specifies idea meritocracy, right. It’s not a meritocracy. It’s an idea meritocracy, right? So if other people have a better idea, let’s use it. And a follow on to that is you should also know when you’re the best person to make a decision and when you’re not. If you don’t know the answer to that question, odds are you’re probably outside of your circle of competence.

Preston Pysh  33:44  

Yeah. So how does a person become more acceptable to forming an idea meritocracy around themselves?

Shane Parrish  33:55  

I think that’s incredibly hard. I mean, I think a lot of that is cultural but you can use Ray… Ray calls it believability of people I kind of, I’ve always thought of it as credibility, right? So people have credibility weighted opinions, and those opinions should not be equal. And if you think of it that, just that alone as an observer, so not choices that you’re making, because that’s really hard, your ego will be in play. 

But the next meeting that you go to where decisions are being made; where you’re inputting into the decision, just step back during that meeting and go like, “I’m going to weigh everybody’s opinion credibly, how believable are these people? What is their experience in the area of being decided? What is their track record? What is their knowledge of the situation? How close are they to the problem at hand?”

And if I think of it things from that perspective, I will naturally probably come to the conclusion that not everybody’s opinion should be weighted equally. And that is the very beginning, the first step, if you will, of becoming individually an idea meritocracy and becoming a corporate one or cultural one within your company is a completely different story. But if you can do it for yourself, I mean, that would just go a long way. 

And I think like Buffett and Dalio, a lot of great people have that in mind. I mean, Gates is doing that right now at the Gates Foundation, right? Like, he’s not pretending to have the solution to all of these problems. 

He’s saying, “Oh, that sounds credible. Let’s try it.” And you know, he’s doing that 100 times and being like, “Okay, this one is the most credible, let’s apply a lot more money to this problem, or this solution.”

Preston Pysh  35:40  

So earlier, you had mentioned a book that was about training a dog and the psychology of that, and I found that really a fascinating comment. I guess my question would be, what book or topic have you studied in your past and it could be… It doesn’t matter the timeline that it could be five years ago, it could be last month. But what topic or book have you studied that would really surprise the audience? It’s kind of out there. But that also had a very profound impact on you, even though it’s kind of something that would be out of the ordinary.

Shane Parrish  36:14  

And how to talk to your kids, [so they] will listen would be one of them. And I think that applies to everybody, right? Like how you communicate with each other. And I think that there’s a lot of wisdom in parenting books. It’s surprising because you would never if you don’t have kids, you would never think to pick up a parenting book. 

But if you do have kids, and you pick up a parenting book, a lot of that stuff applies to other people, right? In terms of how you handle a situation, how you make sure that you step back from the situation, and how you talk about it, right? 

So the way that you’re supposed to address things with your kids helps you address things in the workplace, right? Because you don’t want to blame your children. It’s not about them personally, it’s about an action they did.

Well, that’s the same thing you want to do in the workplace. It’s not like you’re a bad person because you did this. It’s like, “No, you did this and this isn’t what we should be doing. How do we get to a better place than this? Or what would you do next time?” And I mean, you don’t want to take this same approach that you would take or the same language that you would take with your kids. 

But the same sort of framework would apply to setting goals with people at work, dealing with performance problems with people at work, anything that’s relationship based, where you need to have a more open and honest conversation, right? And it teaches you to kind of separate different parts of the conversation to structure the conversation with them to not confuse topics. We do that so often at work is like, we’ll have a decision to make and you know…

Say you and your partner have to decide where you’re going to go for a summer vacation. So you start mapping it out, and they start planning logistics and the conversation just becomes incredibly complicated, right? Because now you’ve intermixed two things instead of just going like let’s figure out where we want to go first and then let’s figure out how to get there, because when you’re mixing two things, it becomes infinitely more complicated and you’re less likely to actually move forward.

Preston Pysh  38:08  

Interesting and was that a book that you said at the beginning, How to Talk So Your Kids Will Listen, or is that just the…

Shane Parrish  38:13  

I think the title is “How to Talk So Your Kids Will Listen.”

Preston Pysh  38:17  

Okay, got it. All right. This is a funny question that you have to only provide a response to one of two books that I’m going to name. And I’m not going to say anything other than the name of the two books, and then you’d have to say one of the two books. “The Intelligent Investor” or “Margin of Safety”?

Shane Parrish  38:37  

“Margin of Safety.” Am I the only one who says that?

Preston Pysh  38:42  

No, no. Stig and I have the same opinion. And we were just kind of curious, you know, you’re a well read person. We were just kind of curious about what you thought. And you didn’t say that it was better. You just said the name of the book. So we’ll let the audience interpret the results. 

All right, the last thing Shane is, and we know you’re so well read, and it’s almost impossible to name one book. And if you want to name however many, what would you say is something that has really influenced you in a major way? Maybe it was a book that just got you reading a lot, or maybe it was something that kind of puts you in a certain direction.

Shane Parrish  39:20  

I won’t offer recommendations. But to answer that question, books are contextual. So this saying is it’s kind of like art, right? Like, if you go to the art gallery, buy your house, and you look at a painting, and then you go back 10 years and look at the painting, the painting doesn’t really change. 

But what changes is you and that painting can mean something completely different 10 years from now than it did the first time you saw it. And for me, I’ve had a number of occasions where that’s happened, right? 

So one great example would be Marcus Aurelius’ Meditations. I read that first year university, I thought this thing was like the worst thing to have ever happened. And in part that was because I had a crappy translation. But in part, I wasn’t in a place where it mattered to me and where it made a difference to me, and it didn’t speak to me. 

And so, when you talk about what books made a big difference in my life, there’s no book that made a bigger difference than “The Stopwatch Game.” I would have been arrested in a police car, had I not been reading that book, right? My trajectory in life would be totally different. And that is 100% luck. But it’s also the answer to the question. I think, in life books that helped me are books that make me feel like I’m not alone.

Marcus Aurelius’ Meditations was a really good example of that. Here you have the most powerful Roman Empire, Roman Emperor in the world, is going through very similar stuff to what we go through in life. Also, he’s writing openly and honestly about it. 

And you also have an exemplar behind the scenes, who could literally do anything he wanted in the world, and he didn’t abuse his power. Plus, that helps me contextualize my life in a way. 

I think that when I went through a divorce that book spoke to me in a way that it didn’t speak to me before, right. And it gave me a framework for handling things that I had never had to handle before. And you can’t match things better than perfect context, perfect book. And it helps you, like A) I’m not alone, and B) It’s giving me a framework for how to deal with something that I’ve never dealt with before. 

And I can learn from somebody else’s experiences in that. I know that like, this is something everybody experiences but so often we’re going through something in our life be it a breakup, you know, or we’re achieving success, right? We still feel alone. We feel guilty about our success because we don’t want to feel like we’re bragging about it. We feel terrible that we’re going through a breakup and we don’t want to burden our friends about it. 

So a lot of what modern culture does is forces us inward and if we’re going to be inward, and that’s not to say that that is the best approach, but if we are going to be inward, then finding books or people that speak to you, allow you that outlet that you can’t have outside of. I think that, you know, Tara Brach is another author who has done a lot for me in terms of dealing with reality and facing things that  you want to change in yourself. 

Preston Pysh  42:33  

Any specific books by Tara?

Shane Parrish  42:35  

No, I mean, the name kind of behooves me. It was four or five years ago that I read her. But it’s marked up a lot. I haven’t gone back to it since but I remember at the time kind of walking away going, “This is like, I feel better about where I’m at. And it’s not this dark tunnel that I thought it was.” And Marcus Aurelius, the Meditations, if you’re going to do meditations get the Hays translation, which is by far the best. 

And yeah, I think what you want are books. [They] can be drugs. I don’t think people understand that, right? It’s not that you definitely need medicine all the time, right? A book can be medicine because that book can speak to you in a way that changes your path. And it doesn’t have to necessarily change things that you do if you don’t feel alone anymore. Or you feel like you’ve gained knowledge that you can apply to a situation that you’ve never had to encounter. 

I mean, if you thought about learning from only yourself, you would literally just learn from mistakes. And computers can do that because they process like trillions. I mean, AI is effectively that. It’ll process trillions of transactions a second, and sure it can learn, but I don’t have a life where I can process trillions of failures. 

So, I need to learn from other people and go back and find books that stand the test of time on these. I mean, there’s really a reason they do stand the test of time and then using those as your filter for reading is a probably a good source no matter what you’re going through in life.

Preston Pysh  44:08  

Well, Shane, we can’t thank you enough for taking time out of your day. And I know your time is very treasured. And to be a part of that we’re just very honored. If people want to learn more about you, where can they find you?

Shane Parrish  44:20  

They can go to FS.blog or Farnam Street or @farmamstreet on Twitter. We have a newsletter called Brainfood. It’s got 165,000 subscribers at this point. Every Sunday, I send it the best of what I found on the internet, try to pick timeless topics or subjects that I think are interesting from multiple different perspectives. Doesn’t mean I agree with everything I send out. But it’s designed to provoke thought. So, we call it, signal in a world full of noise.

Preston Pysh  44:47  

All right, well, thank you so much, and we really appreciate it.

Shane Parrish  44:51  

Thanks a lot. It was great being on.

Preston Pysh  44:53  

So guys, I wanted to conclude this episode by telling you about our community event that we’re having alongside with the Berkshire Hathaway Shareholders Meeting. So this is open to anyone that wants to attend. And we always have such an incredible time together, you don’t need to own a $325,000 share of Berkshire to attend. We explain exactly how you can do it on our websites. 

Don’t worry about that. Warren and Charlie aren’t getting any younger. And the time to see them is right now. We have plenty of people that come to the event all by themselves, but the common thing that we hear is that it was so easy for everyone to make friends and they had so much fun with all the other TIP-ers that attend the meeting. We do everything together so you won’t miss anything, or you won’t feel left out. 

If you’d like to attend this meeting with Stig myself and some of the guests that we have on the show, simply go to TIPBerkshire.com. We bought the domain and we have it pointed to an information page where you can sign up and you can learn exactly what you need to do to attend the meeting. 

Let me repeat the address, so you don’t forget it. It’s TIPBerkshire.com. We would love to hang out with you, so come and join us. Alright, so that’s all we have for you guys today and we’ll see you again next week.

Outro  46:11  

Thanks for listening to TIP. To access the show notes, courses or forums, go to theinvestorspodcast.com. To get your questions played on the show, go to asktheinvestors.com and win a free subscription to any of our courses on TIP Academy. 

This show is for entertainment purposes only. Before making investment decisions, consult a professional. This show is copyrighted by the TIP Network. Written permission must be granted before syndication or rebroadcasting.


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