30 December 2017

On today’s show, Preston and Stig talk to Dan Heath. Dan is a graduate of Harvard University and is a Senior Fellow at Duke University. He is a three-time NY Times Best Selling author of various business books.  Dan talks to us about his newest book, The Power of Moments.

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  • How to change your life and business through significant moments.
  • Which moments that can create short-term and long-term happiness.
  • How to level up on your skill set, just like a computer game.
  • Ask The Investors: What is the intrinsic value of Bitcoin?


  • Dan Heath’s book, The Power of Moments – Read reviews of this book.
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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  

Hey, how’s everyone doing out there? We are really excited to bring you today’s interview because we have Dan Heath with us. Dan is a three time New York Times bestselling author of famous business books. He’s the author of “Switch,” “Made to Stick,” and also the book that we’re going to be covering and talking about today, which is called “The Power of Moments.” Dan is a graduate of Harvard and is also a senior fellow at Duke University. 

The reason we’re covering this book is because so many people in our audience are business leaders or executives. They could take some of these lessons and use them to positively influence their employees or co-workers. 

Of all the books that I’ve read in 2017, this one would definitely be in the top three that I’ve read. Not only that, but as you’ll quickly find, Dan Heath is an incredible storyteller and he has some really profound ways of explaining why the power of moments are important for business leaders to take advantage of. 

Alright, I hope you guys enjoy this interview as much as I enjoyed talking with Dan.

Intro 0:59  

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  1:21  

I am so excited to have Dan Heath here with me. I read this book, Dan, and I can honestly say this thing was a homerun. This was such a fantastic read. I was captivated. The stories in it were fabulous. So I’m really excited to talk about this. Thank you for taking time out of your day to join us here on the show.

Dan Heath  1:41  

I appreciate that. Thanks for having me on.

Preston Pysh  1:43  

The first thing that I think when I’m looking at this book and all the stories that are in it is where in the world did you get the idea for this? What triggered your thought process to writing a book around this idea because it’s such a fascinating thing, once you start pouring into it? 

Dan Heath  1:57  

There is actually a very specific moment in time that I looked back on as the birth of this topic. My brother Chip and I were sitting in our dad’s office at his home in Durham, North Carolina. It was Christmas and we were in the midst of a discussion about a book that we later abandoned. 

This is a book we’d been working on for maybe 6 months, and in this brainstorming that day in the office, it just became clear to us that we were kind of forcing We weren’t that excited about the topic, the conversation had become the slog. 

At some point in that conversation, we got on this tangent about moments. I’m not even sure how we ended up here. I think it was just some desperate attempted procrastination, to be honest with you. 

However, we started just this whirlwind brainstorming about why it is that in virtually any length of experience that you have in life, there are a handful of moments that stand above the rest. In fact with time, those moments may be the only thing you retain from the moment.

The weird thing is that that’s true of a dinner. You might have a spectacular appetizer, a great glass of wine. It’s true of a semester in college. You might remember one professor and a particular road trip. It’s even true of your life as a whole. You talk to the people in their 70s or 90s, about their lives, and it’s easy for them to come up with a dozen moments that may have shaped who they are. 

So we started talking about just this insane power that particular moments seemed to have, that one moment might have 10X or 100X, the meaning and memorability of all the rest. So, we started brainstorming. 

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At first it is this kind of intellectual exercise, but then it occurred to us [that] there are a lot of people in the world who are in the business of shaping moments. You think about Disney World and the fact that there’s somebody there, who was trying to scope out the best place for families to take their photos and to set up these little landmark photo opportunities. 

You think about the Olympics’ medal ceremony. That kind of moving moment when someone who’s won the gold medal stands on the podium and the anthem plays. Just what a beautiful moment that is. 

Somebody in human history sat down and scripted out what that would look like and talked about the details. We even talked about… My brother  heard the story about BMW. The story is that they had this engineering team that was working to perfect the ignition moment. You turn the key, you push the button, and the engine brooms to life…my brother had heard that they made use of kind of acoustic trickery and other things to make that moment seem really “muscle-y,” the kind of thing that will get your pulse pumping as a driver.

As we went through this discussion, we spent 2 hours just on this manic brainstorming session about moments and the research that ties to moments, the stories of moments, political moments, emotional moments, and personal moments. 

We come out at the end of this with all our families sitting in the living room, and we kind of triumphantly announce that we’ve got a new book. It’s going to be a book about big, powerful defining moments. 

As we announced this, we looked around the room, and there’s this kind of visible sense of relief on their faces, because apparently all of them hated the prior book idea. They were just too nice to tell us, so that was the birth of this book.

Preston Pysh  5:21  

I love it. So, whenever I hear that moment, especially what you’re talking about with BMW, that’s a branding and marketing thing. I mean, really, it’s branding and marketing. We’re talking more business here than investing. When a business is developing a brand and a market for something, what better way to do it than that moment that you’re talking about? 

I guess my question for you would be this: we have a lot of business leaders and executives that listen to the show,how can they use this approach of constructing a moment to benefit their companies, whether it’s branding or it’s just employee recognition? Talk to us about some of those ideas.

Dan Heath  6:03  

Let me tell you a story that I think captures the meaning for business leaders. There’s this hotel in Los Angeles called the Magic Castle Hotel. I know you’ve got listeners all around the world. If you’ve never stayed there, I want you to just picture in your mind the Magic Castle Hotel. 

Now, what I want to tell you next is whatever is in your head right now, it looks nothing like that. It is actually a two story apartment building built in the 1950s that was later converted to what is effectively a motel. It was painted bright yellow. It is utterly average to look at. 

It looks nothing like a castle. The rooms are average, the lobby is average, the courtyard where the pool is is average. So that would be the end of the story if it weren’t for one particularly remarkable fact. 

That is that the Magic Castle Hotel is ranked the number two hotel in Los Angeles, according to Trip Advisor based on thousands of reviews. It outranks hotels like the Ritz Carlton and The Four Seasons. 

So you just kind of slap your forehead and say how could that possibly be true? Well, the executives of the Magic Castle have figured out what moments can do so if you stay there as I did. You start noticing that they do these remarkable things. 

One of which is there’s a cherry red phone mounted by the pool and just above it is a sign that says “Popsicle Hotline.” If you’re brave enough to go over and pick up the phone, somebody answers “Popsicle Hotline. [How] may I help you?” Then, you can order up grape, cherry, and orange popsicles delivered to you right at the poolside on a silver tray by someone wearing white gloves like an English butler. All for free. 

They have a snack menu where you can get for free Cracker Jacks, Sour Patch Kids, cream soda, just for asking for it at the front desk. They’ve got a board game menu; a movie menu. They’ll do your laundry for you. If you drop it off in the morning, they’ll have it back to you at the end of the day. They got magicians that do tricks in the lobby. 

So when you start to understand that side of their business, now you can understand how people could really appreciate this experience and how they could find it one of the highlights of their vacation, even though a lot of the amenities might be very poor by Ritz Carlton standards. 

I think the importance of that story… To me, this is not a story about popsicles, or even a story about the hospitality industry. This is a story about experience. What we know from research of memory, is that when people look back on their experiences, they don’t just kind of load them up like a video that you can watch beginning to end. That in fact, most of what we experience fades out, and what we’re left with are particular moments. 

There’s actually some research that explains why we remember the moments we do. In fact, there are two kinds of moments that we disproportionately recall. There’s the peak of the experience, which is the most positive moment and a positive experience. Then, there’s the ending. It’s called the peak-end principle. 

When you catch on to that, as someone in the business world, especially service leaders, what you realize is that to have a really great experience for the people you serve, whether that’s customers, or patients or students or otherwise… Not every aspect of that has to be brilliant. Not every aspect has to be perfect. 

I think there’s this illusion that in order to do something great, it’s got to be nonstop greatness. Every detail has to be perfect. In fact, what we know is that a lot of great experiences are actually mostly forgettable, but occasionally remarkable. That’s the story of the Magic Castle. 

That despite a lot of average, a lot of mediocrity, these special moments like the Popsicle Hotline, that’s what endures in their customers’ memory. That’s what makes the experience special.

However, here’s the bottom line. These remarkable moments don’t plan themselves. If you’re in the business of providing service to customers, and you haven’t thought carefully about peak moments, that’s a huge opportunity. 

Preston Pysh  10:14  

I absolutely love that.

Stig Brodersen  10:17  

What a great story and so much fun that you talk to us about how we probably envision this hotel. I almost had this distant land kind of image in my head whenever I read the name the first time in the book, until you started describing the facilities. Then, I was thinking why would it have such great reviews? 

It really makes me think of a quote that we had a few times on the show from Maya Angelou that says something like people will forget what you said and what you did but they will never, ever forget how you made them feel. 

I guess my next question would be, is that really what this comes down to in terms of “What is it that those businesses are doing?” Are they targeting people’s emotions, and how do they do it?

Dan Heath  11:04  

No question. Emotion is at the heart of what makes experiences powerful and what makes moments powerful. The book is organized according to 4 elements that we saw recurring again and again and different kinds of peak experiences. Those 4 elements are first, elevation. 

These moments tend to produce positive emotions like joy or delight or surprise. That’s the Popsicle Hotline story. It’s a great moment of elevation. On a sunny Los Angeles day, someone brings you a popsicle on a silver tray.

The second trait is insight. What we found is that there are moments in life when you’re just kind of thunderstruck by a realization. Maybe it’s something you’ve realized about yourself. Maybe it’s a moment when you realize, “I can’t take another day of this flipping job, like, this is it.” These epiphanies. These realizations.

The third element of defining moments is pride. If you look at people’s careers and the moments they remember from that, they tend to remember these moments where they were recognized for something they had done. 

Maybe you got an award or maybe you were praised for some work you had done. Maybe you accomplished something you weren’t sure you’d be able to. Maybe you weren’t recognized by others, but you just felt this intense sense of pride, having conquered something big that you’d set out to do. 

Then finally, the fourth element of these moments is connection. That’s so often these special moments tend to draw us closer to other people, whether that’s in a one on one relationship, or often groups bond in moments that require them to do something dramatic. Something that forces them to struggle. 

Think about boot camp. It is kind of a classic example of that a bunch of people who are strangers to each other, and different in so many ways, are bonded for life as the result of this kind of grueling experience that they have to go through together. 

Therefore, when we talk about creating better experiences for the people we care about, whether that’s customers or patients or employees, these are the ingredients we have to work with. Now what we know is that great experiences hinge on peak moments. That’s the first part of the story. Then the second part of the story is that peak moments are built from elevation, insight, pride, and connection. 

Preston Pysh  13:14  

I’m sure you get a lot of emails and feedback from your readers. What would you say is the most surprising feedback that you’ve received from some of your readers on the book? 

Dan Heath  13:26  

I think some of the most surprising feedback is just people kind of chuckling at their own organizations about how bad they are at this stuff. I’ll give you an example. We did some work for a retail bank in Australia. We were talking about retail banks are unusual businesses in that they have such a long trajectory with customers. 

I mean, you could have a relationship that lasts 30 to 40 years. Because of what banks do, they’re often part of really important events in your life. You get married. Now, you’re adding someone to your account, or you switch jobs and you may have new sources of income, or income. dropping off. They’re managing your mortgage. That’s a really important thing. 

So we talked about how emotional these moments are and we were talking in particular about the importance of transitions, which is a theme in the book. If you look at the big rituals that cultures evolve over time, so often these rituals are pegged to transitions. 

Think about a wedding day, the ceremony, the dancing, and the food. I mean, it’s a ceremony to celebrate a transition in a couple’s life. Graduation ceremony is to celebrate a transition. Rites of passage ceremonies, ranging from Quinceaneras to Bar Mitzvahs. They’re pegged to transitions. Therefore, when you catch on to that it makes you start paying attention to the transitions that are important in your work or in your life. 

Back to this bank. We were saying think about the moment when you finally pay off your mortgage, potentially 30 years later. You’ve been diligent, you’ve made every payment. That is a heck of a transition. Not to mention an end back to the peak end principle. We were saying that the way this should work is that when you make that final payment, someone comes out and visits you from the bank; knocks on your door. They’ve got flowers, and they’ve also got your deed. They shake your hand, and they say, “Great job, you’ve been at this a long time. Here’s the deed to your house.” That’s an emotional moment. That’s a peak moment. 

Then someone in the back of the room raised their hand and said, “Not only do we not do that, we actually charge people a deed transfer when they complete their mortgage, and deed transfer fee.”

Back to your question, it’s like what people are sending us a lot of times are the deed transfer fee equivalence from their respective organizations. It’s just they have these epiphanies where they slap themselves on the forehead and say, “How could we have missed that? That we’re actually charging people money at this moment. That should have been the culmination of a long and successful relationship.

Preston Pysh  16:02  

What an example. Does that mean? When you think about it, they’re doing the exact opposite of what they should be doing. 

Dan Heath  16:10  

They are squandering it. I mean, banks, like many businesses, talk a great game about relationships. In all the TV ads they have people holding hands and soft lighting. We’re all about the customer relationship. 

Well, here’s an example of where they’re just essentially taking dynamite to a relationship and taking a positive, emotional culminating moment and turning it into a minor transaction fee. That’s just malpractice. 

Preston Pysh  16:35  

Oh my gosh. So Dan, I have to admit, one of my favorite stories in this book was the poop story. I know that people hearing this right now are like, “What is he talking about?” I want you to tell this story because when I was reading this in your book, I was literally like, “This is a flippin’ homerun what he’s saying right here.” So can you tell our audience this story– the poop story?

Dan Heath  17:01  

Absolutely. Okay, so let me let me give you some backstory. First of all, I feel a little silly saying poop. The word we used in the book is the “s” word for feces, by design, as we’ll get to in a minute. Just for the sensitive ears in the audience will use poop. 

So, backstory, a lot of communities in the world are still practicing open defecation, i.e. people pooping in public. As you would expect, that comes with a lot of health consequences. It can lead to the spread of diseases like cholera, hookworm, roundworm, and more. It’s a really bad problem. 

A lot of social sector organizations are trying to fight this. For many years, the obvious solution to this problem was, well, if people are pooping on the ground in public, let’s give them some latrines. Let’s give them some facilities. So they have a place to dispose of their waste properly without endangering their neighbors and themselves. 

There was an organization called Water Aid that had funded the construction of some latrines in Northern Bangladesh. Our story starts with a guy named Dr. Kamal Kar who was hired to go assess that work. So they paid him to go to Northern Bangladesh and check out [if] the latrines were installed properly. Were people using them and so forth?

Dr. Kar goes to this community. He found latrines were perfectly well built. They were installed properly. He also found something that was a little more surprising, and that was everywhere he went in the fields around the villages. He stepped on poop. Open defecation was still rampant there despite the latrines. 

He said it was an eye-opening moment for him, because he realized that the development organizations in the world had been thinking about open defecation as a hardware problem. Like if we just get enough latrines out there, we’re going to fix this. 

However, what Dr. Kar was saying was it wasn’t that simple. Some villages were simply setting their habits. They’d always done it one way, and they weren’t going to switch. Others were kind of confused by the latrines. 

For example, in some places, the latrines were some of the fanciest materials in the whole village, and they felt uncomfortable, kind of defecating in one of the best built places in the village. 

Dr. Kar realized that open defecation wasn’t a hardware problem. It’s a behavioral problem, that until the people in a particular area wanted to change, the mere existence of latrines wasn’t going to help. 

So he developed a methodology that’s called “community led total sanitation,” abbreviated CLTS. That sounds super boring, but let me tell you, this is anything but a boring process. Let me just walk you through what happens. 

In CLTS, a facilitator practices the CLTS methodology… Picture a stranger arriving in a village kind of shows up and says, “Hey, I’m studying the sanitation profiles of different villages. Do you mind if I look around and ask you some questions?” 

So he tries to hang around long enough that he’s got a small crowd with them and he conducts a walk from one side of the village to the other. He starts by asking some questions. He says, “Well, where do people poop here?” 

And so, they point him to the right place. He kind of lingers there uncomfortably. They’re a little bit embarrassed. There’s poop everywhere, but he gets interested. He says, “Whose poop is this?” Then, he waits for someone to raise their hand and he asks, “Did anyone poop here today?” A few more hands go up.

Then he asked really seemingly gross questions. “Why is this poop yellow? Why is this one brown?” There’s flies everywhere. He says, “Are there often flies here and people nod. Then maybe there’s a chicken kind of pecking around in the area. He asks, “Do you eat this kind of chicken?” He’s been trained to only ask questions. He’s not there to pass judgment or or assert the truth. He’s just asking questions. 

So they finished this walk and they came back to a big public space. By now that crowd has grown a little bigger because people are just curious about what’s going on here, and he asked them to draw out in the dirt, a rough map of the village. So they sketch out the boundaries of the village and then landmarks. Here’s where the school is, here’s where the church is, and there’s a stream that flows this way.

Then he asked the people around to put a stone or a leaf to mark where their individual homes are. So they’re kind of drawing this community map and the dirt together. Once the map has been kind of fleshed out, he brings out this bag of yellow chalk that he’s brought. 

He asked them to sprinkle some yellow chalk on the places where people poop and he says where there’s more poop use more chalk. So people are kind of giggling nervously, but the kids get a kick out of this. They love to sprinkle the chalk and of course. They know where the areas are. So they do that, and they’ve marked the open defecation areas. 

Then the facilitator says, “Well, what about in an emergency? Let’s say, if there’s a rainstorm or if you have diarrhea and you just can’t make it to that area?” So outcome’s more chalk. Now, people are scattering it all around. Sometimes it’s just around people’s homes because they can’t make it to the common areas. 

At this point, it’s hard to miss that basically, the entire village is covered in yellow chalk. The crowd is starting to get a little bit anxious. There’s just a weird energy. They’re a little bit disgusted, a little bit embarrassed or not sure where this is headed. 

At that point, the facilitator asked for a glass of water. So someone provides the water, and he asks a woman in the crowd if she’d feel comfortable drinking it, and she says, “Well, yes, of course.” Then he asked others, and they said, “Yes, we would drink it.” 

He then pulls a hair from his own head. He said, “What’s in my hand here?” The crowd says hair. Then, he says, “Can you see it clearly from where you are?” They say, “No, not really.” 

Then, he walks over to a pile of poop near the area where they’re meeting, and he visibly dips this hair into the poop. He comes back and he plunges that dirty hair into the glass of water. He swirls it around. He hands the glass to one of the villagers and asked him to take a drink. The man refuses for obvious reasons. The facilitator says, “Well, why do you refuse?” The guy says, “Well, because it has poop in it.” 

The facilitator looks puzzled, and he says, “How many legs does a fly have?” People say six. The facilitator says, “You’re right, and all those legs are serrated. Do you think flies pick up more or less poop than my hair did? Do you ever see flies on your food?” “Yeah,” [they say]. “Then, do you throw out the food after you see the flies there?” [They answer,] “Not usually.” “Then, what are you eating?”

That’s the moment that Dr. Kamal Kar calls the ignition moment. At that moment, the truth is really inescapable and at that point, Dr. Kar describes that the discussion tends to spiral out of the facilitators’ control. 

People are agitated by this. They start saying, “We can’t continue this. This is crazy. This is madness. We’ve got to stop this.” They often ask the facilitator what they should do but the facilitator won’t answer. He says, “You know your village better than I do. You’re free to choose anything you want, including continuing to do what you’re doing today.” 

So that’s the trigger. That’s the spark for the behavior change that’s responsible for this behavior. Dr. Kar admits This is a brutal process. I mean, this is very, very uncomfortable but it is also effective in their experience like in Bangladesh, where this methodology CLTS became a cornerstone of the work. The rate of open defecation declined from 34% to 1%.

To me this is just a crazy moving, powerful emotional story. If I could sort of zoom out for a minute and talk about well, what does this have to do with the rest of us? I think what’s distinctive about this story is all the villagers already had all the information that they needed to come to the same conclusion, right? There’s no news being added by this facilitator. They already know where they poop. They already know the flies flit between the poop and the food. There’s no news. 

However, the way that this was set up, it caused them to, as we say, in the book, “trip over the truth.” To trip over the truth is to experience an insight that packs an emotional wallop. It’s like when you have a sudden realization that you didn’t see coming and one that you know viscerally is right, that’s when you tripped over the truth. 

In the book, we go on to explain how as communicators, we can use the same strategy to get our audiences to kind of have those visceral moments of realization.

Stig Brodersen  25:49  

Wow, what a great story and it really goes back to the title of the book, “The Power of Moments.” This is not just about your money and business. This is about how to change your behavior and how to change your life, through the power of the moment.

Dan Heath  26:05  

It’s life changing. It reminds me of some research that was done by a psychologist named Roy Baumeister who studied people who have these sort of sudden realizations. For example, people who join cults and later leave them or alcoholics who become sober, intellectuals who were once communist and then recanted communism. 

Baumeister said that in these situations, these realizations were often characterized by what he called a :crystallization of discontent,” which was one moment, kind of one of those lightning bolt moments when an array of misgivings or complaints suddenly became linked in a global pattern. 

So imagine just in your mind, just 100 scraps of cloth that are laying there and then in an instant, they’re all knitted together, and you can see the whole, suddenly. You might imagine a husband who has a really bad temper and he has a ferocious outburst. 

Then one day, his wife suddenly realizes that these outbursts aren’t just him having bad days. They’re actually a defining character trait. In that instance, she realizes not only the truth about her husband, but also the fact that she can’t bear it anymore. That’s the crystallization of discontent.

That’s what we saw in the CLTS story, that in an instant, all those fragments of truth that were already there, were suddenly stitched together because of what this facilitator did. 

Preston Pysh  27:28  

Let me ask you this, Dan. Going back to your original discussion about the mortgage, and when you were acting as a consultant, you guys were able to identify something that was really obvious to you. 

However, for everyone else in that community, it was completely oblivious. They just never saw it that way. How does a person listening to this conversation go about seeing those kind of things? 

Now, if I’m an executive of company X, and I’m hearing this conversation, I’m thinking, “How can I construct the moment for my employees?” So how do I go about…what’s the methodology for trying to discover that moment or that opportunity for a moment? How do you think through that?

Dan Heath  28:08  

Yeah, great question. I think that even though these stories are a bit dramatic, like the poop story and cult members and so forth. There’s a very practical lesson here. I’ll give you a concrete business example. 

A guy named Scott Guthrie, who was one of the top execs at Microsoft, about six or seven years ago, he was tapped by Steve Ballmer, who was the CEO at that time to lead their cloud computing service called Azure. 

Guthrie hadn’t been an Azure and so getting to know the new unit, he started with some visits of customer sites. He wanted to hear the customer feedback and how things are going. His visits tended to be pretty consistent. He realized that customers appreciated the technology. They thought it was a good feature set, but it wasn’t very customer friendly. 

So if you kind of freeze there, here’s a guy who has an insight, he knows that in order for Azure to deliver on its potential, it’s got to become more customer-friendly questions. How do you communicate that? Is there a way to get people to trip over the truth? 

Well, here’s what he did. He called an off site meeting with his new team and invited all the senior managers and software architects. When they got to the off site, he gave them a challenge: build an app using Azure, just like one of their customers might have to do. It wasn’t designed to be a difficult challenge. 

This was not like a development Everest, he was asking them to climb. However, what he found was that the team really struggled. Some couldn’t figure out how to use certain features. At least one team couldn’t even figure out how to sign up. 

Guthrie later told a reporter It was a complete disaster. But of course, that was the point, right? That was the moment of getting them to trip over the truth. They had to see this for themselves. Once they had, they had that emotional willingness to change, and by the end of the second day of the office, they’d produced a plan to completely rebuild the platform. 

So if you kind of reverse engineer all these stories that we’ve talked about, what you find is a three part recipe: you find a clear insight. “I know Azure isn’t customer friendly enough.” That’s compressed and time, right? 

There’s something that can be condensed down to a moment, the moment when you realize, “Hey, we’ve been eating each other’s poop” or the moment at the off site, when they realize, “Hey, I can’t even sign into my own software package.” 

Then, the third part of that recipe is that it’s discovered by the audience itself. That’s probably the most important part of the recipe is that the “aha!” moment happens in their heads, not yours. You didn’t just attempt to take an “aha!” moment that you’d had, condense it to a PowerPoint or an Excel document, and shove it across the table. 

Therefore, I think that’s the lesson for communicators is can you create a situation where your audience can have the same epiphany that you had? Can you replicate not just the factual information, but the actual discovery of it?

Preston Pysh  31:05  

There were a couple moments in your book that reminded me of Tony Hsieh’s book “Delivering Happiness,” where you’re talking about the difference between lasting happiness and short term happiness. 

Talk to us about the research that you did on this, because I find this such an important point for people. Regardless of the investing or the business side of things, I think, just in general, to become a happier person in life. This is so important, so tell us what you uncovered.

Dan Heath  31:32  

Well, I’ll tell you about something from the discipline of positive psychology, which your listeners probably know is a part of psychology that’s devoted to studying what makes people happier. There is what I would consider maybe a greatest hit of positive psychology that’s called a “Gratitude Visit.”

“Gratitude Visit” is a very simple idea. I’ll share with you the way that Martin Seligman who’s considered the godfather of positive psychology… Here’s how he describes it: close your eyes, call up the face of someone that’s still alive who years ago did something or said something that changed your life for the better. 

Someone who you never properly thanked. Someone who you could meet face-to-face within the next month. You have a face in mind? So your task is to write a letter of gratitude to that person and deliver it in person. 

The letter should be concrete, maybe 300 words-ish. Be specific about what he or she did for you and how it affected your life. Let that person know what you’re doing now and mention how often you remember what they did or sent for you. 

This sounds really simple, right? It’s just kind of an elaborate thank you. For someone who has been important in your life. It might be a mentor. It might be a colleague. It might be a relative. It might be an old teacher. Though, what they found is the people who conduct a gratitude visit, see their happiness levels spike for a full month after a month. 

I mean, back to your point about short-term versus long-term happiness. We can all think of a lot of things that will spike our happiness levels for five minutes or an hour. I would go directly to the nearest Krispy Kreme for that 5-minute rush. I mean, that’s a sure thing. 

Here’s an example of a moment that every single person listening to this can create and probably should create, because we all have a lot of people that deserve our gratitude. It’s not easy. I mean, it’s hard to force yourself to sit down and articulate something like this. It’s personal. It can make you feel vulnerable or uncomfortable. 

However, I’ll tell you what, I mean, there is not a person alive who’s ever done this that regrets it. It is such a powerful thing, not only for you, let’s keep in mind even though it spikes your happiness levels. Imagine how it feels for the other person to receive a compliment like that. 

Preston Pysh  33:49  

Absolutely. Hey, so we’re good friends with Jesse Itzler here at The Investor’s Podcast. We’ve had him on our show 3 times. I ended up doing a simulated climb of mountain Everest with him earlier this year. 

Yes, it was insane. Jesse is just a great guy and when I was out at the Everest event, I got a chance to meet his wife, Sara Blakely. You talked about Sarah in your book. I love this story that you tell about Sara. I would really like it if you could share some of these insights with our audience of Sara’s story, and most importantly, tell our audience about Sara’s dad.

Dan Heath  34:25  

Yeah, I love this story because one of my worst fears about this book is we tell some stories like “Popsicle Hotline” that are sort of fun and clever. My fear is that parents are going to read this and think that they’ve got to do a bunch of cutesy stuff like now, every birthday has to have a bounce house or something. That it’s about these grandiose [things], and it’s really not about that, and I think this Blakely story illustrates that.

So first, some backstory I have to admit when I first started researching this. I knew of Spanx, but I didn’t really know what Spanx were. Maybe if there are other people out there in my boat, I’ll just share some basics. 

So there’s a famous story about when Blakely kind of discovered the idea for Spanx as she was getting dressed for a party. She had a new pair of fitted white pants she wanted to wear, but she had a dilemma. 

She wanted to wear her pantyhose underneath the pants, because they have kind of a slimming effect. Though she also wanted to wear sandals and for sandals, you need bare feet. You don’t have bare feet with pantyhose. So what should she do? Should she wear the hose or not? 

And so she has this inspiration. This is a moment of insight. She cut off the feet of her hose so she can have the best of both worlds. However, it wasn’t that great of an innovation because the severed ends of that hose kept kind of rolling up her legs in an uncomfortable way. Then she thought, “Hey, if we could do this right, if we could create a real version of this, women are going to love this.” 

So fast forward to 12 years later, she had become the youngest self-made female billionaire in history. People come to her these days, and they say, “I was cutting the feet out of my hose years before you thought of it. How come I’m not a billionaire?” 

To me, this is the real part of the story that separates Sara Blakely from the others because as most of the listeners will know, I mean, both investors and executives, the idea is often a vanishingly small part of the success. So thousands of women probably had this idea, but there’s only one Sara Blakely. Why did she succeed? 

Well, let me tell you about the kind of gauntlet of failure that she had to run in order to make this idea come to life. So first of all, virtually everyone that she needed to recruit to her side was male, and virtually none of them understood anything about this. 

In fact, at one point, she was trying to find some IP lawyers, and she met with this one law firm. So picture them around a table, basically all men and Sara Blakely. She noticed one of the lawyers kept looking around the room like a little bit suspiciously. 

It’s just strange and then, much later the lawyer confessed to her that in that meeting, he thought her idea was so bad that he thought she was sent with like a candid camera crew or something, so he was trying to find the camera in the room.

The textile mills that she needed to crank out a prototype of Spanx were all managed or owned by men, and none of them understood what she was trying to do. It was only when one mill owner shared the idea with his daughters who told him, “Hey, call this woman back. That’s a good idea,” that she finally had a chance to get the prototype made. 

So the real question is not where did this idea come from? The real question is, “How did she survive just getting door after door after door slammed in her face?” And so, there are two answers to this. The initial answer is Sara Blakely before founding Spanx had spent years, I mean years, selling fax machines cold. 

Talk about a hard degree of difficulty. When she started her job as a fax machine salesperson, her boss handed her a phone book that was her lead set and gave her a zip code as turf, and she had to go door-to-door selling fax machines, as anyone listening to this podcast bought a fax machine from an *inaudible* salesperson. That’s Sara Blakely. 

But even if we go one step further, and we say, “Well, how did she have enough grit to survive that gauntlet of fax machine selling?” She says one important thing happened in her childhood. She said when her family would have dinner, her dad would always ask her and her siblings a question at the dinner table. His question was, “What did you guys fail at this week?”

Sara Blakely said if we had nothing to tell him, he’d be disappointed. It seems counterintuitive, right? That he’s encouraging them to fail, but she said he knew that many people become paralyzed because they’re afraid they’re going to fail. They’re afraid of what others are going to think, so they create this very safe, riskless life. 

Then she said, “My father wanted us to try everything and feel free to push the envelope. And his attitude taught me to define failure as not trying something I want to do, instead of not achieving the right outcome.”

So back to the point of the book, this is an example of how even in a moment, a question at the dinner table as a parent, you can have an effect on your child that you may not even realize you’re having. I mean, that’s how powerful a moment can be.

Stig Brodersen  39:31  

I really like that story. Another story that I really liked from your book is your story about how to look at your life like a computer game, where you can so to level up, and which is I think, something that you can not just use for your business, but also in your personal life, in terms of achieving your next goal. Could you please tell that story?

Dan Heath  39:52  

Yeah, I think this is a really subtle, but really practical idea, and it involves [what] we talked earlier about moments of pride. Our quest here is for the things that we want in life, can we come up with a way to ensure that there are enough moments of pride along the journey, that it keeps us on the journey? So let me explain what I mean.

A lot of people listening, especially if they’re Americans, we’re raised with one language. My dream of learning a second language. I know I’ve always thought about how I’d love to learn Spanish someday. So if you think about how most people conceptualize that mission in their minds… Number one, I would point out, it’s not at all clear what the moment of celebration is. I think it’s Jim Collins that talks about the champagne test, like, when do you crack the champagne? 

Well, it is very amorphous… when do you know Spanish? So we’re running a race without a clear finish line but worse than that, what are the finish lines in route to that master goal? So I think the way most of us think about it is in order to know Spanish well, I’m going to have to try to squeeze in a Spanish study session and then have to squeeze in another Spanish study session. 

Then I’ll do some homework, and then I’ll do some practice. It’s kind of like the way we’re thinking about it is you take your medicine, you take your medicine, you take your medicine, you take your medicine, you take your medicine, and then someday you ”know” Spanish. When you conceptualize a mission that way, it’s no surprise that the vast majority of us fail. We don’t get there.

So Chip and I had come across a book from a guy named Steve Kamb called “Level Up Your Life.” He’s got what I consider an antidote to that. He talks about being inspired by the structure of video games, which, if you’ve ever gotten addicted to a video game in your life, I’m of the kind of PacMan and Donkey Kong era, but I love the hell out of those games. 

It’s just level after level. Each one’s slightly harder than the previous one. But this is the important part. Every level is fun. So I never finished Donkey Kong, but I still had fun. And I don’t regret the time I invested in it, which is very different from a lot of the things we conceptualize for ourselves. 

Anyway, back to the book, Steve Kamb wanted to learn to play the violin. That was his learning Spanish kind of mission. Rather than fall into the trap of just thinking about it as “Got to do a lesson. Got to do a lesson. Someday I’ll be able to play the violin.” He created these video-game-inspired levels for himself. 

So, level one was committing to one violin lesson per week for six months. That was kind of like the boot camp. That one’s not a lot of fun to be honest, but the rest of these are much better. 

Level two is to complete Celtic Fiddle Tunes, a book by Craig Duncan. Level three is learning to play Concerning Hobbits from the Fellowship of the Ring. Level four is to sit and play the fiddle for 30 minutes with other musicians. Level five is to learn to play the Promontory from the Last of the Mohicans. The kind of battle, the moment of popping the champagne is to sit and play the fiddle for 30 minutes in a pub in Ireland. Isn’t that great? 

You see what he’s doing there that number one, he’s clarifying what’s the end. The end is that vision of himself in a pub in Ireland. What a great fantasy like that’s something that will keep you sustained for a long time. But even more than that, what he’s done is he’s created a succession of intermediate finish lines. Each one of which is fun and satisfying on its own merits. 

So learning to play the song Concerning Hobbits from the Fellowship of the Ring, which is a movie he just adored. That’s something he can get to much, much quicker than that in fantasy, but it provides a moment of pride in and of itself. 

Back to Spanish, we would be much wiser not to think of it as a succession of kind of boring lessons that we have to endure. In terms of levels, level one might be can I order a meal in Spanish with proper pronunciation? That’s something you could do in two weeks. 

Level two might be to have a simple conversation in Spanish with a taxi driver who speaks Spanish. Level three is to glance at a Spanish newspaper and find one headline in the newspaper that you can understand. Level four might be to follow the story in a Spanish cartoon. Level five might be to read a kindergarten level book in Spanish. 

And so, you see how that dramatically reshapes the mission. It’s like, every one of those levels is cool. Every one of those levels comes with a moment when you feel like, “Okay, I’ve done something.” And then finally, every one of those levels is such that even if you quit, after that level, you still feel like you’ve accomplished something. That’s the Donkey Kong story, right? 

It’s like, if you conquer 7 out of 100 levels, you still feel good about conquering seven levels. There’s so many aspects of our life that I think this strategy would apply to that would keep us experiencing moments of pride and continuing on to the next finish line. 

Preston Pysh  44:56  

It’s funny, we were talking with Jesse Itzler, who I mentioned earlier on the show, and we had made the comment that you got to be passionate about something that you’re doing. Jesse interrupted me, and he said, “No, you don’t have to be passionate about the thing or the end state, you need to be passionate about the journey.”

It was really a profound moment for me because I was like, “Wow, that was pretty profound and that makes a lot of sense.” When you’re talking about these levels and basically creating the journey, and when you think about how you play a video game, when you play video games, you’re not super excited, because you finished that last level. You were having fun along the entire journey. Every one of those levels. 

If you don’t treat your life like that, I think a lot of people are going to absolutely, like you said, just quit. They’re not enjoying the process or the journey. They’re thinking too far to the end state and forgetting everything else in between it.

Dan Heath  45:46  

Exactly right, and I think what’s important for us to realize is that we have some control over this that we can be shaping the journey. It’s like we talked about in the book, there’s a kind of architecture of pride. If we understand that architecture, we can create our own journeys. 

I have a friend who is a history buff. Learning about history is another one of those things that could be very amorphous. When will you quote unquote, know history? Well, never in a certain sense. So what he did was he turned his interest in history into a quest. 

The quest was that he’s going to read the biography of every American president, starting with George Washington, all the way up to Donald Trump in order. It became like this, back to that mental image of multiple finish lines, rather than one now. 

He’s got 45 finish lines. Every time he finishes a biography, he goes and he buys like the presidential coin with that President, which is like a nice kind of visual or souvenir from the experience. 

Then, he goes on to the next ones. Sometimes the quest is fun and easy, like when you read about George Washington. Sometimes it can be incredibly painful. I think it was Millard Fillmore that he said he barely survived the process of reading that book, but that’s what a quest is like, right? Sometimes it’s easy and sometimes it’s hard. However, the point is that we can bring structure [to] the quest that keeps us on the road. 

Preston Pysh  47:07  

Alright, Dan, thank you. This was just fabulous. Your book was incredible. I’ll tell you, we read a lot of books. I really mean that your book was incredible. The name of the book is “The Power of Moments.”

Dan, if people want to learn more about you, where can they find you? 

Dan Heath  47:22  

They can find us at HeathBrothers.com. All of our books are there. We’ve got a book about communication, a book about change called “Switch,” and a book about decision making that might be of particular interest to the investing crowd. That book is called “Decisive.”

Preston Pysh  47:40  

Absolutely amazing. Thank you, Dan, for coming on the show today.

Dan Heath  47:43  

Hey, thanks a million. It’s been fun.

Preston Pysh  47:46  

All right. So this is the point in the show where we play a question from the audience and this question comes from Eleazar.

Eleazar  47:52  

Hello, guys. I hear you guys talk a lot about Bitcoin and cryptocurrencies. The thing you never understand about these cryptocurrencies is where’s the fundamental value? I understand you guys talk a lot about stocks and equities with a fundamental value approach in evaluating companies in terms of what’s the return you expect based on good businesses. 

I hear a lot of jargon being thrown around about how quickly it’s being accepted and certain thresholds regarding that. But the thing I just don’t understand about Bitcoin is that I don’t really see any intrinsic value, as opposed to other currencies. 

For example, which are backed by basically IOUs by the government [and] which are valuable intrinsically because if anyone wrote an IOU, you would hold that piece of paper as intrinsic value relative to the reliability of the credit of the person who issued that IOU. 

So for example, the US government is pretty good. However, [with] these Bitcoins, what’s stopping people from suddenly deciding you know what, we are not interested in them anymore, and then just selling them and not really having any interest in it anymore? So really that’s my question. In essence, I don’t remember where the fundamental value in cryptocurrencies are. Thanks.

Preston Pysh  49:09  

I really like this question and I think this is a question that most people out there, I would argue 90% of the general public, at a minimum, would probably agree with your position and not understand how this has any intrinsic value because all at the end of the day, it’s just a bunch of ones and zeros that are distributed across all these different servers around the world. So how does that have any type of value? 

This is how I would explain it to you and why I think that there is a fundamental value here. So when you look at the way fiat currencies work today, what’s the fundamental value of a fiat currency? Well, it’s backed by the government. The government ensures the fact like the FDIC here in the United States. If some emergency happens, you need your money in the bank, they’ll back up to, I think, what is it $250,000 at this point? 

So what are they backing that up with? They’re backing it up with more printing. So what they’re really saying by having an FDIC insured is that if all the credit contracts. I think we got to have a conversation about what money is whenever we get into this. 

So real quickly, money is really two things. You got a monetary baseline, which is an actual unit, which is just ones and zeros that the Fed keeps. They have a monetary baseline. From that monetary baseline, you also have credit that’s created on top of that. It’s a fractional reserve banking, that’s created on top of that.

Most of the money, the dollars in the system is credit. That’s why we have these big credit cycles that expand and contract because most of its credit, and that credit can dry up and it can expand and then it can dry up and it can expand. 

When you’re talking about cryptocurrencies, it’s just a monetary baseline. There’s no expanding and contracting of the credit with it, and what’s that backed by? Well, it’s backed by faith, people that believe that the protocol will not be updated and that there are incentives in place. 

That’s the ultimate game theory that people say that will keep the protocol in check, because the people that will hold the majority, the coins aren’t going to want them to be increased, or the monetary baseline to be increased. 

So if you buy into that, then there’s an intrinsic value in the fact that the monetary baseline can’t be manipulated. But history has proven that fiat currencies that are backed by nothing, have always have always been manipulated by their monetary baseline and have been increased. We’ve seen that with the dollar. You can pull up any chart of the dollar for the last hundred years and you can see that the dollar is devaluing and devaluing. It’s somewhat of a rapid pace. 

That’s what it really comes down to is do enough people globally have faith in a mathematical solution for blockchain technology on Bitcoin that the protocol will not be adjusted. You got a lot of people forking the protocol and trying to mimic the protocol. But as long as you have a network effect, more and more people continue to join that network. The protocol will not adjust its monetary baseline. So, you have to have faith. You have to believe in that being a better store of a unit of measure than governments doing that. 

My personal opinion is as I kind of buy into it a little bit. Now, we’re not talking price right now because the price is going in wild swings, because it’s brand new. There’s people that are adopting it. There’s people that are trying to short sell it, there’s all sorts of things that are happening. 

However, if you ask me if I would be surprised in 10 years from now, if Bitcoin was a global currency that a lot of people were using, that would not surprise me in the least bit. I would not be surprised at all if that was what happened in 10 years from now. So this is the quote that I’ll take from Ray Dalio, and this isn’t exactly word for word, but it goes something like this: Don’t think about how you want the world to be, try to understand what the world is and how it does function. 

So whenever I think about how this might play out, whether you want Bitcoin to work or you don’t want it to work, or you want fiat currencies to remain dominant, backed by a government, whatever… You have to take your opinions out of it. You have to think, “What is going to actually happen here?” 

For me right now, it kind of seems like this whole crypto movement is going to become real. I think there’s gonna be a lot of bumps along the way. I mean, a lot of bumps and big bumps going up and going down. But I wouldn’t be the least bit surprised to see it really come to fruition based on the network effects that we’re seeing on the protocol today.

Stig Brodersen  53:44  

It’s such an interesting argument that on one side, you might say that it doesn’t have any value because it’s not backed by the government. Then the other side says it is valid because it’s not backed by the government. This is just kind of ironic. The more you think about it, and the more that you study things [such as] economic history, there is a lot more to it. 

Let me just give you a few examples. So in Russia, for instance, in 1992, so this was the first year after the economic reform, retail prices in Russia increased by 2,520%. So think about that. Think about that, today, where we are looking back at 1980 in the states and saying, “Well, you know, inflation was 13-14%. [It’s] like we don’t want that to happen.” 

And no, we don’t want inflation like that to happen, but we definitely don’t want Russia to repeat itself for 2,520% inflation in one year. 

This is not just ancient history. If we look at what’s happening in Venezuela right now. So just the first nine months of 2017, they have more than 500% inflation. So, basically what I’m trying to say here is that while we in developed countries are talking about is it’s volatile, we believe in the established system. 

Well, we probably have a good reason to do that and it probably makes a lot of sense for people, call it the top 1 billion people in the world, not to buy bitcoin, because, like, why would you? For 24 hours, you can have access to a bank account, you can get credit, you can trade international markets. It makes not a lot of sense but if you’re one of those 6 billion other people or whatnot, it probably makes sense.

I think it’s around $3 billion, they’re completely unbanked. Then, there’s another $3 billion that can get access to a bank account. It’s just very, very difficult, and it doesn’t have as much *inaudible*. 

Perhaps for them. It makes a lot of sense because they’re not necessarily afraid of going back to in 1980 scenarios with 10% inflation. They might be afraid of 500% inflation in nine months, or even more. 

I think that really also goes back to what is the intrinsic value of something like Bitcoin? Whether it’s Bitcoin or another cryptocurrency, I really think that stores of value are just so valuable. That’s probably the highest utility that you can think of. I mean, often Bitcoin is compared to gold [and] is typically called the digital gold. If Bitcoin were to be priced at the same level as gold, it would be up around $500,000 for one coin. 

Now, I’m not saying that this is what it should be [doing]. You might have good arguments why you should be 10% of that, or 5% of that, or whatever it is. But a lot of the arguments that you have about something like cryptocurrency is that you can spend that in stores. I mean, you can’t spend gold most places but you can find multiple places where you can cash it in. That’s also what you see with cryptocurrencies. 

If you think about gold, there is some utility to gold, but it’s actually very little, if you really think about it. It really comes a lot from the trust that you can always find valuing in gold. So I think for me, if I were to invest in Bitcoin, I think like the store of value is the most important thing.

Preston Pysh  57:19  

It’s quite a transition because we’ve never seen anything like this ever before. We’ve never seen anything that was a distributed network, that was a store of value. That’s never happened. This whole blockchain thing is brand new. 

I mean, it’s never happened before. I think that that’s going to take a lot of time, if this does go all the way, if this really does become a global currency. That’s going to take a lot of time to convince the general public, that that’s something that’s safe, and something that they actually want to possess. I don’t think that that’s something that you can just sit down and have a casual conversation with anybody because you really got to understand a lot of things. 

Number one, you got to understand game theory. I mean, this is all wrapped around game theory in the way that cryptocurrencies work. You got to understand monetary policy. You have to understand what’s happening with the central banks, and that they’re in a race to devalue their currency so that they can manufacture growth inside their own country. You have to understand branding and marketing and how powerful that is to sway opinion and build trust. 

There’s so many factors that are wrapped into this, that that’s not going to happen quickly. It’s going to take time, if this does go all the way. I think that that’s really important for people to keep an open mind about it. If you don’t buy into tech, you might be smarter than us. Though, I think that it’s important that you keep an open mind and that things could continue to move this way. 

Although, it doesn’t seem like there’s any intrinsic value, I can tell you one thing if there’s $10 trillion of value pumped into this thing, as far as the market cap goes. Guess what? There’s value there. 

You can take a Bitcoin at that price, and you can go buy a Ferrari with that and that Ferrari is real… I don’t care what anyone says there’s no intrinsic value, there’ll be intrinsic value there, if you have that many people on the network using this stuff. That’s important. That’s really important for people to not rule it out, because maybe they don’t understand some of those nuances. 

Maybe they do understand those nuances, and they just completely disagree with the fact that it’s going to go in that direction. So, amazing question. I think that it’s something that a lot of people were thinking about.

Stig Brodersen  59:24  

I wanted to bring an argument to the table and really a counter argument. And whenever I say a counter argument, it might sound like Preston and I are super bull on Bitcoin. I don’t know if we are. If anything, we see ourselves more as your media that a lot of people are talking about Bitcoin. So we’re talking about Bitcoin, and we really want to try to understand that. 

If a lot of you were talking about bonds, we would talk a lot more about bonds. So I really just want to point out [that] I’m not saying to buy or sell or [that it’s a] good or bad idea. We really try to record from that angle. 

I would like to bring [up] an argument to the table that Raoul Pal, whom we had on several times on the podcast….he’s not necessarily bearish on Bitcoin per se, but he’s definitely a bear on the price. Pal is saying if the price were dramatic, [it would] go down next year. 

Basically, what he said was it reminded him of Cisco. So back in the days where the internet was all the rage, and people were buying clicks and banners and all that, like, outrageous valuations. 

What happened back then was that since Cisco provided a lot of the infrastructure to the internet, it was like, if you’re really bullish on the internet, and you didn’t know if you should invest in Microsoft, or some of the millions of other companies that were not Microsoft, the easy play was just to invest in Cisco, because no one really knew what the internet was about. 

Obviously, there’s a parallel with what’s happening today with if you’re bullish on blockchain, I think most people will agree that there’s so much potential in the technology of blockchain. Then, you can more or less see Bitcoin as an application like Gmail.

If Gmail was to go down, nothing would happen to the internet. Saying that, this is more or less a spin off. It’s something that is now available because of blockchain but it’s not necessarily something that would go up in price because blockchain would become more popular. I really liked that argument. I think it’s a very insightful argument and it really made me think of everything that could go wrong, I guess.

Preston Pysh  1:01:40  

Well, I got another one that I think could go wrong. So when you’re talking about the most superior protocol to do store of value, when you’re talking blockchain specifically and you’re talking about the way Bitcoin works, you have to have this mining mechanism in place. You’ve got to expend a lot of energy in order to secure that network. 

What happens if another protocol comes along that does that much more efficiently, that basically performs the same function, that you’re able to transact a digital file, or a digital unit of measure to another person, that’s not copyable…but you’re able to do it at a much lower expense from a mining and energy and all that?That would be a whole nother discovery, like blockchain technology was a discovery. 

There’s a thing out there called the Internet of Things. That’s using a thing called a tangle, which takes no mining whatsoever. Now, I don’t know that much about this but that’s a threat. That is an absolute threat to the protocol that is a different protocol that could potentially be implemented and it could take all the market share. 

For people that maybe are so wrapped up in the Bitcoin specifically or any one of these other protocols like a theorem or whatever, if you’re so wrapped up and so headstrong, but that’s going to go all the way, think you’re potentially have a major gap in your understanding of how to assess risk to something.

I think people need to really be on the lookout for other ideas and I think that the whole network effect is definitely a very powerful force behind all of this. It’s very hard to overcome a network effect as strong as Bitcoin. But that doesn’t mean it can’t be done, so I think people need to be very cognitive of all the things that could potentially go wrong, because that list is somewhat unknowable. I think you’ve got to be on your toes.

We’re very big fans of this but I think we’re big fans because we’re excited about the change in the finance sector in general and how this could all change. To be honest with you, since the last recession I’ve been thinking to myself, “How in the world do these central banks get out of this? How does this all end? Do we keep printing into the negative territory, and I’m giving the bank $100. I’m getting back $95 a year later. How does this end?”

To be honest with you seeing some of this crypto stuff is getting me excited because maybe that’s how this starts shaking out, I don’t know, but it’s a potential solution. It’s something that could actually start making interest rates go back up if it starts getting mass adoption and that’s exciting. That kind of stuff is very exciting and that’s why we really like talking about learning more.

Stig Brodersen  1:04:22  

Going back to a question, so we used to talk about if we should compare Bitcoin to gold, say they have the same market cap, and with the available coins that’s in the system right now. It’d be around $500,000. 

Also, try to make another comparison. That would be to talk about the transaction fees and it’s not so than when you do transaction with Bitcoin, everything is completely free, but it’s significantly cheaper

If you think about what is the amount of the total transactions fees right now, it’s around $300 billion every year. I try to take VISA’s gross margin that’s around 8%. I said that if you had a company, it would be trading a PE of 20. Then this specific Bitcoin company, call it, would have 20% market share. 

If we do that we come up with a price per coin of around $60,000. Then I tried to look at what if the utility was remittance… You have around $600 billion a year carried out by 200 million people. Put in again, some criteria and you might agree or disagree and you can *inaudible* yourself but say that the saving some transaction cost would be around 10%. 

Western Union charges 9%, just like that. But say that the combined transaction cost would be 10%. Again, trading a P/E around 20% and say that Bitcoin could handle 20% of this market, then you have a price per coin around $15,000.

I think that the problem that Bitcoin is really trying to solve that [it’s] a store of value. 

Now again, that’s not the same as saying that it’s worth exactly the same as gold because it’s trying to solve the same thing. But I do think that has more validity. If you think it’s transaction costs, and you think Bitcoin is better, because it’s safer. 

You’re not a big believer in some of the other cryptocurrencies that might solve this problem slightly better. Or if you disagree, and you think this is a question about remittance, rather being the utility, then you might want to include that instead in your intrinsic value. 

We will also like to take the opportunity to talk about a new tool that Preston created, that’s really evaluating the price action of Bitcoin. So please go ahead.

Preston Pysh  1:06:45  

Trace Mayer is a guy that I really respect in this space. He’s extremely smart. He’s been playing in crypto since specifically Bitcoin since like 2011. He has a very large net worth because he’s been playing in this stuff for so long well in excess of $100 million. 

Some of the stuff that I’ve read from Trace when he’s looking at price, and trying to understand if it’s a good time to buy or simply hold, he was looking at a multiple the price that it’s currently trading at today, or the price that it’s at today, compared to the 200 day moving average. 

So he put out some numbers on some different blog posts that he did, comparing the price to the 200 day moving average. I found it quite interesting. So when he put the price out there, he only compared it a couple times in history. 

He had maybe eight different times or the multiple was a 10, and the multiple was a 3, and he’s kind of showing those price points. Then he said based on the 200-day moving average, this is where the price would be if the multiple was a 5 or 7 or whatever. 

Well, I looked at the data, and I said, “Well, 5 or 8 data points or whatever, clearly aren’t enough to really kind of understand where this goes. So I want to chart it out and look at the statistics on it.”

So I did a statistical analysis of the price over the 200 day moving average, every single day since Bitcoin was originally started. What I found was some really interesting results and what I did is I bought the domain MayerMultiple.com. 

We named it after Trace, because Trace, his last name is his Mayer. So it’s MayerMultiple.com. I basically published all the statistical analysis that I did on this multiple, and it was really fascinating stuff. 

Something that I found that was really interesting is right now in December of 2017, the multiple is really way higher than it normally is. So this multiple is typically around a 1.4. So if the 200-day moving average is 1000, then the price would be 1400. [That] is what the average for Bitcoin is, about a 1.4.

Today, in fact, just a couple days ago, it hit a 5 or like a 4.5. So if the 200 day moving average was 1000, the price was like 5000, it was really high. This is very uncharacteristic. In fact, this has only happened two other times in the history of Bitcoin. Every time this has happened, the price has come back down to about 1.4, within like 15 or 30 days, it’s really fast. 

So, based on the stats that I’m looking at the price has only been this high like 3% of the time, it’s been this high. My expectation is that the price is going to come down significantly in the weeks ahead based on this statistics that we’ve done, but who knows? That’s based on the past, and we got to look towards the future and we have no idea what that future means. 

Based on historical results, we’d say that the price is very high. Then, it’s expected to come down, but who knows? We might be in a different environment with the derivatives and everything else. We don’t know that but if you guys want to check out the statistics that I did on this, it’s really interesting stuff. Check MayerMultiple.com.

Stig Brodersen  1:10:03  

Yeah, and as people can tell, Preston and I are pretty excited about cryptocurrencies. So on MayerMultiple.com, we actually started to compile all the various resources that we can find about Bitcoin that we might think is useful to you. At least it’s been useful to us in our journey to really understand this. 

We really like to use this resource not just for us, but really to share it with the community. So together we can help understand this. We just just wanted to put that out there that as we go along, there will be podcasts in there about cryptocurrencies, videos, and a few other resources.

Preston Pysh  1:10:39  

Yeah, and if you guys are listening to this and you know of a good resource, send it to us on Twitter. Send it to us on email, but get it to us so we can add it into the index so people can learn. Like for example, there was a like 70 or 65-video lesson from Princeton University, completely free that’s listed on this resource. 

I’ve taken that and I loved it. It was amazing. I can’t believe it was free. We want to add these things into the resources. So we can all help each other try to understand what the heck is going on. 

Eleazar, thank you for this question. I don’t even know if we gave you a decent answer. I think our answer is we don’t know. But there’s a lot of interesting things out there that we’ve got to be aware of and  remain vigilant. So thank you for going to asktheinvestors.com. 

For anyone else out there, if you want to get a question played on the show, go to asktheinvestors.com. You can get your question played on the show. 

For Eleazar, we’re going to give you a free subscription to our intrinsic value course. Stig and I made it and it’s 18 lessons long. It’s on the TIP Academy page on our website. We just want to give that to you to say thanks for recording the question and being an active member in our community. We really appreciate that.

Stig Brodersen  1:11:48  

All right, guys. That was all that Preston and I had for this week’s episode of The Investor’s Podcast. We will see each other again next week.

Outro  1:11:55  

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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