117 - Timeless Wisdom for Crypto Investors | Jim O'Shaughnessy

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, and how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Guys, today we've got a special treat. We're talking timeless wisdom for crypto investors. These are the things we need to know. We've got Jim O'Shaughnessy, who is an expert in investing and comes to us with some fantastic ideas we can implement in crypto. A few things you should take away. Number one,

You suck at investing. I'm gonna be real with you. And Jim makes the case as to why. Not just you, so do I, so does everyone. Uh, number two, how to short circuit this monkey brain that we're dealing with. Jim calls it human OS. There are all sorts of traps we can fall into, and we need short circuits. And number three, some really tactical hacks. We got at least 10 of them, maybe a dozen. Actual tips for how you can avoid crypto FOMO and fear, uncertainty, and doubt, and maximize your long term gains. David, this was at once kind of a very wise and practical episode. What were some of your thoughts?

Yeah, I was completely reminded of this one book that I read called Devil Takes the Hindmost. And it was just a book about the history of financial bubbles going as far back as financial bubbles existed. And the main takeaway that I learned from reading that book was that there's one common denominator to all markets, no matter what asset class, no matter what decade, no matter what century. And that common denominator is human DNA. Like humans perceive value, and that's what comes to define markets. And so, like Jim has seen many markets across many decades. And so he has just like wisdom. He just has seen a lot of markets and has seen the same patterns play out through all markets. And so while crypto, it's a new paradigm, it's a new technology, we're going to change the world. It's still operating on what Jim calls human OS. And so there are still going to be the same tricks, the same traps, and the same things to know to make sure that you can actually navigate through markets because crypto is not different. It's just another market. It's just the structure's different.

Yeah, absolutely. And that's why this conversation with Jim is so valuable. And there's so many things that crypto investors can actually learn from traditional investing. Because to your point, David, it ain't changed.

I mean, we're still the same human beings and we're going to make the same mistakes as traditional investors. And so he gets right to the heart of it. David, I'm really excited to record the debrief with you, though, because there are some other quibbles that we probably have about like,

I got some bones to pick.

Yeah, with some asset allocation and like whether crypto is a store of value and these sorts of things. But guys, if you are a premium subscriber of Bankless, did you know you get an extra podcast? That is the recap that we do after all of these episodes where David and I talk about the episode that was. If you want to upgrade to a premium member, click the link in your show notes and you can unlock that episode on a private RSS feed. Guys, we are going to get right to the conversation with Jim.

Bankless Nation, we are super excited to introduce you to our next guest. Jim O'Shaughnessy is a Wall Street legend. He is the founder and chairman and co-CIO of O'Shaughnessy Asset Management. They've got over six billion in assets under management. That number could be up outdated, Jim. I'm not sure how many you guys have now.

Yeah, it is outdated. It's uh like seven and a half billion now.

Ah, there you go. Keeps going up, up only. And uh Jim has decades of investing experience in a world of crypto and like podcasts and investing, where many of us have mere years. So we are looking at Jim to tell us some timeless investing wisdom, something that would last us in crypto for the long haul. I think, Jim, we want to cover three different things in a few sections. So the first is what's changed with investing throughout your decades of experience? Like, you know, some trends, some changes that you've identified, maybe different seasons of investing and kind of fundamentals and narrative. And then secondly, what stayed the same? That might be actually an even more interesting conversation to have. And then lastly, what does all this mean for a crypto investor? As most in the bankless audience are like we're kind of getting into crypto now. Many are young, many have their first investing experience in crypto and actually don't know investing in the traditional and the outside world. So that's what we want to cover. Does that sound good?

Sounds great.

All right, let's start here though. First, would love to hear a bit about how you learned to invest in your early years. What did that look like for you, Jim?

So let me take you back to the Paleolithic era before internet,

where like if you wanted to do something, you actually had to go to the library. I don't have it handy, but I could put up the cover of my first brochure, which took like four months to do because I had to physically go to the marble query to take the pictures because I wanted it to look really cool. And then after getting the one I liked, I had a design firm, an entire design firm.

Try to work it in. We can't do that. We, you know, I was telling him what I wanted. Three months later, it looks okay, but like you do it now, one second, done.

So when I really started to learn and became passionate and a bit obsessive about investing,

was in the late 1970s, early 1980s. So I was a teenager, 19 and 1979, and then a young guy who got married young.

And then a young dad. So I had people who had

to put up with all my craziness. So I found a library. I used to live in St. Paul, Minnesota. I found a great research library called the James J. Hill Library, where they had literally all the data. Literally it, all of it.

The problem was getting it from here to there.

And you guys probably have never even seen one, but they used to have big, big spreadsheets, paper spreadsheets. So you could have, I can't remember, like 18 rows across and 50 rows down. And so I started with the Dow, because just 30 stocks, and I'm legendarily lazy, but it was all by hand, literally. Then I got every book that I could find on investing, and I read all the ones that most people do, you know, securities analysis by Graham and Dodd, the individual investor by Ben Graham himself, just on and on, and started to build a thesis around investing, which was that.

The biggest problem in investing is that people are probably looking at the wrong things.

And back then, again, Paleolithic era, everybody just talked about people,

right? So I had my aha moment when I was invited finally

to the big dinner when my uncles and aunts were in town. You had to be a certain age to go to the grown up table. And I was so excited because, like, anyway, so there's 14 of us uh around the table.

And my father and my uncle were having this like really intense discussion and fight about IBM and its prospects.

And I listened and didn't combits and

just kept listening. And I just noted it was all just talking about the CEO. That was it.

They were not talking about what its earnings were, how much you had to pay for it, what its prospects were. And so I finally interjected. And I'm like, Uncle John, who was more on this than my dad, I think uh that's totally wrong. And he's like, oh, okay, well, so enlighten me.

And as you know, well, you d might not know, if you're at a mostly Irish family's table and there are 14 people, there's probably a minimum of 20 opinions. And but it gave me that push, that first push, right?

And it's like, I think they're wrong, but I might be wrong. So let's go to the videotape, as the old sportscaster used to say. And thus was my first dive into empiricism and now called systematic or quantitative investing.

Jim, I'm wondering what the context or like zeitgeist was around society and investing at the time. Because if you're telling me that you had to go to the library and go through like these cumbersome like documents to get an edge to like do your research, that seems if it was hard, then you were doing things that other people weren't doing. And that reminds me of like the early days of crypto, where learning and researching and like valuating things, there was no consensus about these things. And so there were only people carving their own path. Was that what it was like? And how easy was it for you to like generate your own like understanding and models for how to invest back then?

So that's a great question, David. And it speaks to the Zeitgeist of that era. Every era has its own zeitgeist, right? And that era, because we were coming off the worst bear market 1972 through the end of 1974 for stocks since the Great Depression.

Inflation was rampant. Sounds familiar. And like literally, so I was like 21, right? So all of my contemporaries said, you know, are you out of your fucking mind? Why would you be interested in stocks? Stocks are for widows and orphans. I mean, the real money is in hard assets. So, like all of my contemporaries were going into real estate. They were going into commodity trading. They were investing and trying to figure out how to get into hard assets.

So the attitude toward stocks was just grim. I mean, it was like everyone thought I was crazy to be interested in stocks. And like I gave the standard, well, you know, they seem to have done pretty well over the last century, so I think that they'll come back.

But the question always highlights something that anticipates your question on what's changed.

It was really hard to get good actual data to study, and most people did not.

If you go back, like I was reminiscing with a friend about there used to be a very popular show called Wall Street Week with Lewis Ruchaiser.

So I watched the one that they did right after the crash of 1987.

I turned to my wife and I'm like, that world no longer exists.

It was because they were people were still basing their actions on what their broker told them to do. And I use the term specifically broker. Now we've seen a huge change to registered investment advisors, who their pitch and everything is very different than a broker's, right? So brokers were there by this. Why? Because it's going to go up. Why? Because I said so.

And basically, even like supposedly sophisticated, like corporate pension plants, they had no idea how their money was being managed. In fact, the first company I started, O'Shaughnessy Capital Management, started as a consultant.

And it was because I uh had done a lot of research. By this time, I finally had computers, so it made it a little easier.

So I had come to the conclusion, which I wrote extensively about in my first book, Invest Like the Best, that you could clone any manager you wanted to

by not paying attention to what they say, but paying attention to what they do.

What they do is accessible in their portfolio.

So I would take their portfolios, put them on a huge database of stocks, and suck out the most relevant factors, right?

And it gave us what was at the time called normal portfolios. In other words, the portfolio had the same characteristics as the manager.

And so A, the pension finally got to see are they doing what they tell us they do? And again, spoiler alert, most weren't. And secondly, are they the manager adding value through their trading, right? Through their buying and selling throughout the year.

We got about three years into that, and that's when I decided holy shit, I got to become an active manager.

Because the so called clone portfolios were killing the managers that they cloned. And

My thesis was that's because, like the old pogo cartoon suggests, we we've met the enemy and it's us.

So that got me involved in the whole human nature stuff. And

I mean, like I've been studying that ever since, and it's just so remarkably clear that well

our world has dramatically sped up our access to good, high quality information.

It's the highest it's ever been in my lifetime. And things like crypto, great example. So invented. It had a thesis supported by a white paper.

I like the little rasmataz of it being an anonymous white paper, but it already had the defense of the thesis built into that white paper.

Back when I was doing it, no way. And this sounds weird, but it's true. Like the highest indicator of who you might hire as a money manager, again, you were like a pension guy, was who you golfed with.

And that world, I think, for the better, is gone.

So, Jim, there's so much to uh unpack there. And I think we're like hinting at a conversation to come on this podcast, but I've already gleaned one learning lesson for us that is probably timeless in crypto is you have to put in the work.