#209 Yen Liow – Episode Transcript

Sean Delaney: Yen, welcome to What Got You There. How are you doing today?

Yen Liow: Wonderful, Sean, thank you so much for having me.

Sean Delaney: No, it’s a true honor. You’re someone I’ve already learned a great deal from, so I’m excited for you to share some of these experiences with the listeners, but I thought really fun jumping off point would actually be around the Mongolian general Subotai, and I would love for you to explain the impact he’s had on your life.

Yen: Oh, well, Sean, well, thank you for asking you about Subotai. He is absolutely one of my heroes. So Subotai was Genghis Khan’s right-hand man, one of four generals that he counted upon to help him achieve his goals, and Subotai was probably the most accomplished general in the history of mankind. But very few people in the west actually know who he is. So Subotai actually won, he conquered 32 nation states, won 64 pitched battles, drew two and lost none, and he actually died on his farm in Western Mongolia at the age of 73. And he was by far the most accomplished exponent of Genghis’ military strategies. And just to give you a sense of this, he actually conquered Russia, Persia, China, and Hungary and would have taken the whole of Western Europe, arguably, if Genghis hadn’t died in 1227. And so what was really remarkable about him is… And what really changed my life, frankly, I read Professor Jack Weatherford’s book Genghis Khan and the Making of the Modern World in the summer of 2012. And it led me to Subotai and what really grasped me, Sean, was these were nomadic, illiterate tribes from Mongolia and Genghis in 30 years with Subotai, conquered 10 million square miles of this Earth with 200,000 cavalry. But it just blew my mind.

And one of the things that’s inspired my life is, I’m just always in awe of what a single person with a great team can accomplish in a single lifetime, and this just redefines it to a completely different scope.

So one of the things that inspired me around Subotai, which also by the way, inspired… They pretty much drove Russian military strategy for the next 700 years. Romel and Patton actually learned all of their stuff from many of the execution strategies of Subotai. But it inspired me to try to decode a little bit of what Genghis Khan and Subotai actually do to achieve such greatness. And one of the key things that I want to touch on here was to do extraordinary things, you can’t do normal things, you have to pick very clean strategies, and indeed, my firm is actually named after Genghis Khan and Subotai. We call it Aravt. Aravt is the proper way to pronounce it in Mongolian. It’s actually just the number 10 in a base unit of a military, of a decimalized army.

Sean: So you love the scalability, the ability for one person with little change to the magnitude and create massive change.

I would love even to hit a little bit earlier on Subotai’s life, and he started as the son of a blacksmith, and I would love to hear about the start of your life and kind of your origin story.

Yen: Sure, Sean. 

So I’m actually, I call myself a Mozzie, a Malaysian-Aussie, and so I was born in Kuala Lumpur, Malaysia. I’m a son of a dentist and a middle school teacher. And I immigrated to Australia when I was five years old. And so my father was a dentist and in the emerging world, that’s actually a fantastic life actually, but they decided for various reasons and the things that were going on a Malaysia that would better be better for my brother and I to be educated in the Western world, and they chose Australia, and so we actually grew up in Australia just after Australia repealed what they called a White Australia Policy, and those in…. There you go, sorry about that. So we grew up in an environment where when I turned up to kindergarten, they actually never even saw Asians before, and so they actually thought I was Greek. And so it was a very, very strange environment, but my parents sacrificed a tremendous amount for my brother and my education, and it’s something that really stuck with me and was one of my fuels, honestly, and for those, of your listeners who are immigrants in any shape or form, there’s a resilience that comes with that existence that drives them for a very period of long time, frankly never leaves them and that is one of my fuel sources, and indeed one of the seminal moments of my upbringing was my grandfather actually was… We sent a picture back of my father doing laundry back to my grandfather and our extended family in Malaysia, and he cried and he asked him to come back and that moment never left me. And the reason for that is my father, my mother made very clear sacrifices for me and my brother, and I’m deeply grateful for it, and by the way, I would do it happily for my children, but I was very, very lucky also in Australia, I grew up around some wonderful people. Aussies are really, really incredible people. It’s a humor that is so beholding and gives you a sense of grounded-ness that will never leave me, but the other part of it and growing up, I actually… My best friend growing up, and his name was Richard Gunn, his father’s name was Peter Gunn, and this was one of the instances where I was absolute awe, and Peter was probably my most important mentor at a very young age. Peter was one of the most successful self-made transport magnets in Australia, and at a very young age, Richard and I would work in his warehouse, and I discovered so many things about business and wonder and I was just in awe at what this man had created in his lifetime. He used to drive trucks on the weekends when he was in college, between Melbourne and Sydney. It’s 1,000 kilometers each way, and he created a fortune, a huge empire in his lifetime and would explain to me in very simple terms what they were. But anyway, to cut the long story short for the rest of it, I went to college in Australia, studied Commerce and Law and Actuarial Sciences for a brief period, then went to Bain & Company in San Francisco, Sydney, Singapore, Beijing. And then over to Harvard Business School, and then I started in the investing world at Ziff Brothers.

Sean: I would love to circle back to Peter Gunn and I would love to know… So you were 14, 15 around this time?

Yen: That’s correct.

Sean: So I love these transformative moments in people’s life and how they shape the continuing progress for them, and I would love even just hearing a few stories from that time, and you were mentioning just picking up on the building of empires during that time, but I’ve heard you say personally to me, this gave you the next 25 years of clarity for you, these moments. So what was it about that and what was that clarity you came to?

Yen: So Peter… Mentors and peers is a very important thematic for me, and life is pretty hard, and hopefully what we can share with your listeners today is just passing on some of the wisdom that was shared with me, but I was lucky enough to be given by Peter and several other of my mentors. It’s taken a lot of luck, and a lot of help, Sean for almost anybody to get through life, and I’ve been very blessed with that, with that luck.

So Peter sat me down a couple of times, so before we even got into any of that. Originally I labored, brutally labored in his warehouse. This was during the summers, we’re 14 to 15, it takes about an hour or hour and a half to get to and from. The summers in Australia are extremely hot there. 30 to 40 degrees Celsius, so 95 to 100 Fahrenheit. And we would work in his 100,000 square foot facilities, physically laboring. So grabbing boxes, unloading semi-trailers, unloading boxcars, and just literally working side by side with their workers, which by the way, I would so encourage all parents and children, I think hard work is such an important part early in someone’s life, because it grounds you forever and it taught me, first of all, it takes a lot of effort and it’s hard work, and you’re above no one. It teaches you relatability, and so next to the forklift driver having lunch with him, I learned a lot about life.

And then Peter started teaching me things, but the first thing he taught us was just like, life doesn’t give you anything, guys. It owes you nothing, right, you have to go after it yourself, and you have to earn it, and it takes a lot of hard work. And that actually was incredibly important for me because the back-breaking physical labor… I’m in the investing world now, and there’s lots of different psychological pressures and effort required, but it’s nothing compared to the physical labor that I experienced in those summers, and it was incredible for me. 

But anyway, Peter stepped back and he started teaching me some things, so one of those lessons I will never forget was to understand capitalism versus labor. And what I meant by that was, he just said to me, “Listen, if you want to create a fortune, you’ll never do it by working on an hourly basis. So he said, go pick up that box. And I said, “What do you mean?” He said, “Just go pick up that box.” I picked up that box and he laughed at me and he goes, “Two cents to me,” and I said, “What do you mean?” And he goes, “Pick it up again,” and I go, I pick it up and he goes, “Two cents to me.” And I said I don’t understand. And he goes, “Well, how much money do you make if you stop work, if you’re out of labor, if something happens to you?” And I say, “Oh, I’ll make nothing,” and he says, “I understand that.” When you create systems and you work really, really hard, now you can create compounding effects on return on capital, and that’s the only way if you want to create a vast fortune or achieve something great, it needs to be beyond the individual effort. It needs to have compound elements to this, and it blew my mind. It completely blew my mind. And then part of this, Peter started forcing us to think. Richard and I would go… And these were 100,000 square foot warehouses, I mean vast things. And he would come back at the end of the summer and go, “What did you learn?”

And you know, the two of us, we’re exhausted from it, and he goes, “What did you observe? How would you do it better?” And sat us down for literally a week and said, “Draw it all out.” And that forced us to think. And so, Peter, what you were referring to in the 25 years, what I’ve got after this over various conversations, and it literally changed my life, he said to me, “Listen, kid, I get it, you’ve got work ethic, I get it, you’ve got aspirations,” and by the way, again, I’m a son of a dentist and a teacher, we don’t have many business people in our extended family. We have lots of doctors, classic Asian immigrant family. I didn’t really have that much advice on how I would approach my passion, my interest around business and Peter said, “Listen, you’ve got to equip yourself with a couple of key things, and let me lay out of a fairly simple framework for it.”

One is you got to go learn the language of business, and that’s … and accounting, and you’ve got the brains and the effort to be able to go for it. Just go to Melbourne uni and work it out, and then go join one of these consultants or banks, and see a lot of things, then go to Harvard Business School, because we think you probably could make it, and then go after it. And he simply said to me, “In your 20s, go try a lot of things in your 30s, go skill up, and in your 40s go for it and do everything, if you can, quicker.”

And that was really the framework that set me up from the time I was 15 until the time was 40.

Sean: You essentially followed that to a T, didn’t you?

Yen: I did, Peter gave me a clarity of vision and what it also really helped me, Sean, there were many times in that 25 year period that were absolutely brutal and I was tested. And he gave me a clarity of vision, and frankly, he also turned up in New York just before I started Aravt Global two, three months before it, and I saw an incredible twinkle in his eye, and it was a 25-year journey, and I was really, really gracious. There were lots of different things that we’ve had to nuance. But yes, he gave me a meta-framing, which was a really guiding light for me to work extremely hard towards some goals that made a lot of sense to me to wind up with my dream, and then candidly, I met up with him again in the last couple of years, and I said to him, “Now that you’re obviously a lot older than when you gave me that advice, what advice would you give me now?” And he says, “Kid, bigger, faster. Everything in life, the risks are not as bad if you can work them out. No one ever knows before they start, you can work it out, and you’ve proven you can work it out. And that’s what I found at the end of my life.” And I was like you’re incredibly accomplished, and he said to me, it’s one of those things where it’s like the real challenge for most people, and business is the perfect example of this, is you just have to work it out. There’s lots of problems all the time, and you have to have faith and you have to have skills. You have to have judgement. It has to be refined and you just gotta work it out, and that’s been the joy of the journey, candidly.

Sean: What are the really key and important things here? And you mentioned some of the nuances, but it’s about setting that structure and that framework early on, so you can build and compiled on top of that, right?

Yen: That’s correct.

Sean: Okay, I just want to make sure that’s correct. So when we’re starting out here, it’s so key to understand these things early, which is why I love this conversation, it’s so impactful for some of our younger listeners and even the older listeners as well. One thing that’s apparent that’s coming out is just how ferociously competitive you are. And I’d love to know how that just ferocious competitiveness forces you to become a better person?

Yen: That’s a very nuanced question, so there’s a fire that’s internally driven, and there is a fire that’s externally. The internally driven part of my passion, well, on a more nuanced level, it started by appreciating life is finite. And what I mean by that was, I can remember vividly, I was 12 years old, I read, this is just a very simple magazine called Women’s Weekly that was sitting on my mom’s table, and there was a story about this gentleman, this actor called Michael Landon, right. He was a lead actor in a show called Little House on the Prairie, it was just a soap opera, but it was a little thing that caught me, it caught me forever because it said, “I wish I’d known that I was one day closer to death every day. I would have lived differently.” And ’cause he had cancer at the time, and it struck me so deeply, right, and I started exploring early in my life, I read a few things about the end of life just for perspective. And so Tuesdays with Morrie, Chasing Daylight, more recently, Last Lecture, more recently, these are all genres about it and just gave me perspective that it’s like this is a really precious journey that we’re on, and I’m just trying to live the best version of me, but it’s finite and you have to enjoy those chapters that Peter described, because each chapter of your life is very finite, and you should try to enjoy as much as you can of each part of it and do your best. But the fire in me, that’s one… It’s just like understanding I’ve been given incredible opportunity, great privilege from generations above me, I’ve been incredibly lucky, I’ve got two very loving parents, I’ve got an incredible brother, I’ve been incredibly lucky to have a wife that’s been so supportive and people around me like Peter et cetera, along that journey. So this great, great appreciation for the sacrifice and luck and responsibility that also comes with that. So the internal journey, the first part of this was also compounded by, as an immigrant, one of the things, I call these decisions of consequence. When you have no one really backing you up as a family, you have to scrap and you have to fight. And you have to fight to survive. So you have to be financially independent, which is the first step of this. Immigrant families place a lot of responsibility on education and the Chinese value set that places very high, so my brother and I were very aggressive and competitive against ourselves academically, but as I aged, I think that shifted actually. And this is a really important part of just my evolution internally, and I think the internal game is as important as the external game of how you evolve and meet the world. That fuel source has to change, and so the first fuel source is something you’re trying to get away from. You’re just trying to survive, right? It’s like you’re not even trying to… Thriving is not a concept that an immigrant family really spends that much time around, right? Survival is the first protocol. As you get through those stages though, and my parents actually sat me down very lovingly in my 30s and say, “Hey, don’t do this for me,” it’s like this is for you, and one day is yours. As a parent, and I have two children, I love them very much. It’s like, my dream is to help them find their dreams and live their dreams, not live my dream. That’s a great fortune that any parent should have the privilege of doing, but they said to me, and they said it in very loving terms, it’s like the next stage of your journey has to be for you, and that’s a very different stage of the fuel, so the competitive fire in me is I just want to find out my edges. I just want to live the best version of me and by the way, it’s multi-faceted. And this is another really important part of this. So early in those days with Peter, I was desperately looking for how to do things and you want… Roughly I knew what I wanted to do, I was in love with the business, the whole concept of creation, right. It’s how the world works and how people work within the framework of that world, that fascinated me so much, but I didn’t have any of the hows, and so I scrapped from literally everything that I could to really create that concept and add more texture to it.

Anyway, let me pause there and see if there was anything.

Sean: No, just a million things. I think just the competitive nature. But one of the important things about that is like you mentioned the different life chapters, and that drive, that fuel, that fire that changes over time, and I think that’s a difficult one for people to understand projecting into the future. So I’m just really appreciative of you shedding light on that. 

I want to dive in one of the chapters of your life and then how you decided to go into investing, ’cause I’d assume coming from the background you did with Peter as a mentor, you might have gotten into starting a different type of business on your own. So I’m curious what led you to investing?

Yen: So I actually thought I would end up in private equity or running a business, and I knew it was something business-related as a child, and I’ve been investing in stocks since I was about 14. I was just curious about the investment world and how it worked, and this again is where I think decisions of consequence, if you want to learn fast, you have to be accountable for your decisions, and as soon as possible, actually there needs to be feedback loops to it. And so how I stumbled on investing, I stumbled on it very early, right. You can’t save your way to a fortune, you have to save to invest to a fortune, right? You have to live a frugal life or one within your means in order to save. You can’t save to a substantial life-changing level of wealth, and so I started fixating on understanding patterns of value creation, and I think this is a very important part of the evolution into my 20s and 30s was, if anybody wants to be significant in the amount of wealth they create in their lifetime, or they want to create anything, the number one most simple part of it is value creation and then character, the two have to go in together. It’s capability in character and the two combined. And so I joined Bain & Company coming out of college. I actually worked with them while I was still finishing up law school, and Bain was an incredibly pragmatic consulting firm, I loved it so much, and I started actually in San Francisco after I graduated. And part of the reason I joined Bain & Company was as Aussies we are very humble people, and you yanks, we thought you guys were like, 10-foot, Planet killers. And it’s this like part of me is, there was always a part of me that was sitting in there, and it comes back to your fire question, it was a part of me that always wondered… Are we as good as you guys?

And I just had to go stare them down and Bain and company was some of the best of the best. I think they’re some of the best people that I honestly have had the opportunity of working alongside and learning from in my life. It was a culture of extremely hard working, and I had to go over there and find out who they were, and it gave me an insane amount of confidence once we got there. 

But my discovery into investing was, I actually thought I’d go into private equity, so Bain Capital is Bain & Company’s originally private equity firm, that’s a completely separate entity now, and they were absolutely the best in the world and what they did. And so I actually thought I would end up in that route in that 30s-plus stage of my life, but I graduated coming out of the dot com bust. And so that whole thing, just evaporated from my plan.

And this is another point of luck, which is just like I was very, very lucky that I met this gentleman who at another inflection point in my life who’s name is Ian McKinnon and Ian, I met him at Bain & Company in San Francisco, and he was a portfolio manager at Ziff and for many years Ziff had said, “Come over and join me,” and I said I don’t even know what a hedge fund was, but he was working for the Ziff family, Ziff Brothers Investments was the name of the firm. And Ian went over to create it, and over the summer of 2000 when the world went from boom to bust very quickly, actually to the startup that I was working on dried up in four or five weeks of that summer, and he said, “Just come over and check it out,” and I did, and I saw what he was creating, and it was the start of an amazing, amazing ride. It really changed my mind again, blew my mind actually, what was going on in that world and what he was building, and it was honestly …13 years I spent there, and it was 13 of the best years of my life.

Sean: One thing you’re hitting on here, and there’s a much bigger framework in store to this is just about overall game selection and choosing on what you do. I would love for you to focus on the importance of that, ’cause you shed a lot of light on that for me, and I would love for people to get to experience that and the importance of game selection in your own life.

Yen: So this is a huge question. 

I think people spend… There are tremendously hard-working people listening to your podcast who’ve dedicated, by definition, if they’re investing in themselves to listen to the people of wisdom that you’ve had through the years on your podcast, they’re highly invested into self-improvement and making the best of their lives. 

The one area that… And this really, really struck me, actually Genghis was one of the influences, one of the main influences of this is where do you funnel all of that energy? And so I think one of the meta-frames of life is energy, technique and focus. The three had to be broken down discreetly. By the way, all of mastery requires philosophy and deconstruction. And so decoding is a very, very important part of what I do because I’m trying to work out persistent patterns of excellence, but one of the most important parts of it in game selection is where do you focus all that energy? People can spend hundreds and hundreds of thousands of hours plowing away at stuff and they haven’t asked the first order question, where do you focus it? And this all comes, that was all at the paradox of choice. The more accomplished you are, the more choices you have, and you don’t have the framework to decide it. It’s really tough. And so game selection is just setting yourself up in a game that you can win, and then it’s highly lucrative when you win it, and so for me actually Khan changed my game on this, so Ziff Brothers was an incredibly successful firm, wonderful culture. I learned so many things about process versus outcome, but the one thing that it changed, it was built on one premise, it’s called variant perception. We’re in the investment world, what do we know? It’s incredibly arrogant what we do for a living. 

Every time we invest, we say we know more than what the world knows. We do that very, very rarely, but variant perception was the premise of that business model, whether it was informational or other. What do we know that the rest of the world didn’t know? Genghis taught me to just focus on unfair fights. It was a transformative part of my life because I went from the variant perception, you can almost spot down everything, all types of quality, it’s just what does the market not understand, that’s an incredibly complex question. A much simpler question, which is like, there’s about 200 to 300 companies on Earth that fit the profile of what we do. And if you focus exclusively on unfair fights, we focus on economic monopolies and oligopolies, if you focus on unfair fights where companies are always winning, you’re reducing the number of variables.

Investing is incredibly complicated and it’s very, very, very competitive.

Many of the smartest people on Earth, hyper-motivated, literally trillions of dollars at stake, and so game selection for me was like, where do you focus all this energy? And the starting… That one decision is incredibly important and do it as early as you possibly can. It took till 2012 for me to fully realize this. It actually took me to 2016 to fully implement. And the last part of game selection is, it’s not just the game you choose, so we spent literally over a decade studying the right and left tails of capital markets. I’m looking for persistent patterns of excellence and for the right tail in terms of just pure excellence. There are very, very few patterns that persist, but once you find that, that’s the game selection, now you want to go where the scoring is, you live where the money is, and it’s just like… And you want to be spending grinding away your skills and focusing on those companies, but the last part of that is how it meshes with who you are? And that’s also really, really critical, that’s another very important part of my evolution as an investor, and as a person quite candidly, is a deep understanding of the authentic self, matching itself with the game selection of a high performance area or skill or strategy.

Sean: Can you actually expand on the authentic self working in a conjunction with that game selection? I think that’s a really important piece to hit on. 

Yen: Absolutely, and by the way, I’ll come and give you all systems or examples of game selection.

Sean: Oh believe me, we’re going to dive to a lot of these.

Yen: Absolutely, I… My simple analogy to this is, and you are an athlete, I have played tennis almost my entire life, and so what I worked out is, I’ve done this three times over the past 12 years, where I stripped through the entire North American universe of investable stocks, above a billion and half, or two billion dollars and I just wanted to study the right tail. And so I looked at five and 10 year compounders above 20% and just got the dataset and looked at every single company, and created hundreds of cases to dissect them in depth, I learned this from Eddy Lambert, and it’s… It was an incredibly important part of our process of how we trained a lot, but what it was really important to me was it defined three strategies, and the analog in tennis that I wanted to share with you was just like… It’s not just the strategy, it’s how well it meshes with your ability to execute it and your temperament. So the authentic self, for example, Roger Federer, people want to keep looking for the next shiny thing. Roger just hits perfect back-hands and forehands, he makes it look a lot better than most of us can do it. But he hits them all the time, and he could do it under extreme stress, and that’s what makes him special. It’s not behind the back or between the legs, some weird shot that no one else can do, it’s the same shot everyone else can do. He can just do it perfectly, most of the time, and under extreme conditions. 

And so what I learned was I knew there were these three strategies we launched our business with in 2014, but by 2016, I realized there were only two of the three that me personally, was really good at. But one, I knew I was the only one that mattered, and we had deep emotional resonance under extreme stress conditions that we could execute it and executed really well, and so that was the matching of knowing who we are emotionally and why, and that’s probably the more important part of the dissection of this is making implicit understanding of your emotional responses explicit, that takes time, and that was the key to this is, and then mashing that up, and that’s what lets you get peace of mind and be quiet, have equanimity under incredible stress conditions. That’s what I mean by this.

Sean: I love that. Diving even really deep into that to understand that. 

You mentioned you uncovered about three different structures that would work, but you decided to only go with two, and I would love for you to hit on that.

Yen: We actually narrowed it down to one and it was like, and by the way, the two, we are on a live today basis, we were betting… Our success rates were absolutely in the top decimal of the world. The reason why we only focused on one, which is we call them horses. It’s a type of compounders where they’re economic monopolies and oligopolies and they compound a lot faster than the markets and they trade for reasonable prices. We just spent years dissecting this and what we effectively looked at, and this is part of the introspection, so know thyself is probably the most important set of words in investing. It starts with knowing who you are, and it takes a lot of work to work that out because markets are a very expensive place to work out who you are. Once  bullets start flying, you start discovering who you really trust, what work you really did, all that kind of stuff starts coming out and it only really shows itself when those bullets fire and so we looked at a data set, I looked at it through the Ziff time, I looked at it through the live data of Aravt, and what we effectively did, this is part of the unearthing process for us was we found is this is a risk system that we could build extremely deeply. I can explain in extreme detail all the things like why we like it? And so part of this in investing, it’s the matching between… It has all parts of the decision-making ecosystem need to be aligned, it’s not just being right, you got to believe in it, and so the difference between opportunity and risk and volatility is literally the game. If you can’t be strong when price comes to you, that is the defining moment, I call it the inflection point of Nike swoosh, ? That is actually the hardest part of the game of investing, public market investing, and that in my view, is what defines the difference between the good and the great, or the bad and the great, I should say, is the bottom part of the Nike swoosh. Is that literally a gift to you, is that opportunity or is that risk and can you pass it out?

And what we worked out of those three, again, I know for sure those three, I studied 60 years of history three times on this, and it’s like those persistently have created massive value. It’s the right tail, it’s the 3% of securities that don’t mean revert over 10 years to the cost of capital of markets, and those three for sure work, but two of them we know how to do really well. One of them is so deeply organic to who I am, and one thing I’ll just throw out as a thread to you on this is quality. And maybe this has something to do with my childhood, I don’t know, but again, in the deep of a storm, why does quality matter, right? In investing, we’re looking for peace of mind and performance. It’s both… By the way, the power of “and”, I think is the most important question of all the questions we ever ask, “either/ors” aren’t particularly interesting questions “and” questions are important. In investing, we are fiduciary of third-party capital, that is an insanely important responsibility to never ever take that lightly. It’s even hard to be responsible for your own money, but peace of mind is a very, very important part of this. Now, there’s character and capability, that comes with peace of mind, you don’t want to be in partnership. We just try to do good things with good people. Return of capital is important before return on capital, and you need to be dealing with high integrity people, and there is no price that will never compensate you for that. The second part of this, are they capable and henceforth, can they produce world-class results? And for me, it always came back down to quality. 

Sean: One thing you were talking about there, the bottom of that curve, and it alludes to something you were talking about earlier, and that’s just the confidence you build up early, is that one of the keys there to be able to have the confidence that you’ve put in the work that when you make that bet, you understand you might be getting beat up at that moment, but that decision making was the correct one at that time?

Yen: So this is a very important question. It comes back to your point on game selection. 

If you’ve chosen a good game to start with, and you’re starting… So we’ve separated in our approach the difference between business volatility and price volatility. Profoundly, really important decoupling. All of risk is a function of price, but the game selection by narrowing to monopolies and oligopolies is we’ve reduced one very important variable – competition. Competition in the depths of storms creates very, very wide outcomes for predictability. We’re in the business of arbitraging price and value, and so when the Nike swoosh… So COVID was a fantastic example of this, right?

If your investment methodology was variant perception, extremely difficult because the market didn’t know COVID was coming either. That gap exploded. COVID for us absolutely reduced our ability to forecast our businesses, but not a single one of our businesses had a moat question, not a new competitive question, none of them had price wars because no price could out compete against our companies. But we all had predictive macroeconomic questions, it just reduced the error set … But to your point also on doing the work beforehand, absolutely. And this comes back to how the Navy Seals train. The reason why they’re so brutal on their people is their term is “you bleed here so you don’t die there”. We do the same equivalent in our businesses. Markets are efficient most of the time. We don’t need them to be inefficient all the time, we only have 15 or 20 longs and we hold them for long periods of time. We only need them to be inefficient for temporal, short periods of time for us to get our positions on and then let them do their thing, but the pre-work and also really helps being with a team that’s been through storms. This is one of those things you can’t discover in theory, you have to see it and observe it in practice.

Sean: You mentioned understanding, doing the work, and you studied so much of history, building of empires, businesses, I would love for you even just dive a little bit deeper into that process, because I know this is a nuanced question, but I think it might help people exploring their own path and how they can really dive deep and be truly exception-able in that process.

Yen: So let me do… Separate it out, I’ll focus on the external question first, we can do the internal question if it lends itself separately. 

The external process, we use a thing called case study methodology. So we had the great fortune of meeting Eddie Lampert the summer of 2005 in 2006 at two Ziff Brothers’ retreats. And I just asked Eddie how did you become so insightful so early in your career? Eddie compounded capital at almost 30% for two decades and started in his mid-20s.

I said, That’s just not human.

And how did you do it? But he said to me, he spent 50% of his time training. The best investments in history, and he did it through a thing called case study methodology, and I say, “Wow, if it’s good enough for you, it’s good enough for me. What does that mean?” Someone gave me a tool!

And I literally dedicated my life to it right after that, and so we’ve been teaching that at Columbia and Harvard business schools for the past decade, and doing this internally. We’ve literally spent thousands and thousands of hours on this, generated hundreds of cases internally. 

What that is, is literally taking clusters of the best investments in history and trying to learn patterns from them. And it’s very, very detailed work, it takes a lot of work per case, in fact, it’s best done as clusters because you’re trying to look for patterns. You’re not trying to look for just idiosyncratic  outcomes, and what we end up doing is it… All of excellence, in my view, comes back to decoding and then decoupling, breaking down each element of it. So we found it as eight elements that define all of these types of right tail, 5 and 10 year, 20 plus compounders. They’re all of them and we do a subgenre because we observe we’re super quiet on one version, but we’re not on another, and so if we can live in that point of equanimity where when storms hit, we can make sound decisions, we’ll do fine over time, and that’s what’s been, what we’ve found to be the case. 

Sean: The greats, tend to play “games inside of the games” it sounds like. 

Yen: Absolutely.

Sean: You mentioned Eddie multiple times in this conversation, and you said 50, 5-0 percent of his time in training. Why do you think more people don’t have that amount of focus and fortitude in their craft?

Yen: I think we just live in a hyper-competitive world where time scopes are inappropriate. Investing is an incredible bloodsport. It is the most extreme version of competitive learning, and there’s enormous amounts at stake, and people are stressed all the time. Training is an investment in the long term.

And so if you don’t fit within a culture that thinks in the long term, you can’t train, and my firm trains about 20% of the time, and I think that’s too low. We’re in a business that is low frequency, high impact, and if you’re in a business that is in that type of environment where if you think about any professional sport, I can’t think of any professional sport where the training to the playing ratio isn’t dramatically towards the training. Investing, people could say that they’re training on the job, there’s some truth to that, but it’s the equivalent of going out there and playing golf every day and not refining any sub-element of the skill and just thinking any round is making you better. Any athlete knows that’s not the way you do it. It requires dis-aggregation and deepening and really focused effort. So I call them controlled and uncontrolled leaps and an uncontrolled leap is a step up in the capability of a particular skill set or an insight, and uncontrolled one. An uncontrolled one is the a-ha moment… A controlled one is done through intense training, focused training.

So what we’re trying to do is… People go through school, these are both controlled and uncontrolled ’cause it’s a controlled environment and it’s uncontrolled in that, wow a-ha, the brain literally rewires. They now see the world differently. That’s by the way, the essence of insight, right. Insight is finding patterns where you can take abstract fact patterns and you can see how they actually operate and find causality and how things, an order to that chaos, and that’s what we’re trying to do is dis-aggregate all of this chaos and find ways to operationalize this. From an external perspective, it’s really decoding, simplifying, executing and refining all four steps constantly. Decoding, simplifying, executing and refining.

Sean: So are you searching out those plateaus where most people drop off when it really gets tough and you kind of hit that mental blockage? Are those times you’re looking for?

Yen: So I actually firmly believe that’s where masters live. So the plateaus, as you’re describing is this… It’s always most fun when you have a dramatic increase in your capability and candidly the biggest steps are when you’re a beginner, but when you’re competing at the highest levels, the iterative, you’re playing at the last few basis points of capability that defines the number one to the number two or three or other. And so what I’ve discovered is the masters love the grind of training, they absolutely love the training and they fully embrace that they’re not going to be 5-10% better every day. Even one, two, three basis points each day is better, or if it drills in muscle memory, even better. Bob Rotella was another guy, we spent a little bit of time with… And this was in late 2008, him and His Holiness, the Dalai Lama, had a really great opportunity in ‘05 and ‘06 to spend time with His Holiness and then Bob Rotella would say, “There’s no such thing as over-confidence.” I was like, “What are you talking about there’s no such thing as over-confidence?” I’m not talking about arrogance, and I’m not talking about false confidence. If you are deeply fully prepared, you are ready to meet the moment. It doesn’t mean you’ll win, but you could play at your best. And I was like, wow, you need to be able to step in and release your soul and play smooth, swing six, go for it, but if you are fully, fully prepared… Bob was Tiger Woods’s earliest, one of his earliest sports psychologists and wrote some wonderful books on sport psychology, but that was a really potent part of this.

Sean: It seems like there’s so much, and I know you and I have talked about this in truth and uncovering the truth, and so I’d love for you just to discuss being true to yourself here and the bigger concept of truth both in life and in business.

Yen: Wow, this is a really wonderful topic, and it’s a hard one, and one of my bosses said to me, and please bleep this out if you need to, but it’s just like “the truth will set you free, but first it will piss you off.”

And I firmly believe it, right. The truth will set true free, if you can face it, and it takes a lot of work in introspection to find what those truths are. And who you are is one of the eternal questions, but how do you find out is one the hardest questions you can ever ask. It’s like one of those things people ask what is involved?

And there’s some simple answers here, but it’s frankly, there’s no shortcut to this, and frankly, I think this again, I’ll come deeper into this, but insights aren’t very useful in changing lives if they’re not coupled with disciplined execution, and it’s the boring stuff that actually makes the difference. The insights are profound, people do change, but they don’t change profoundly until they execute them all the time. And so for me, the truths internally. Introspection, it has to become a core part of what you do, because it’s understanding how you operate and not questioning it, not necessarily judging it, even respecting your own psychology of it. Why are you reacting in a certain way? Now, the hard part of this is also you’re evolving, right? I’m not the same guy I was even yesterday, and so just teasing it apart and not trying to judge it, but just try to find fact patterns. Why is it that you’re quiet here? Why is it that you’re strong here? Why is it you go to that person and not that person? Why is it that that team, that business, that industry, whatever, that you behave when certain stress cycles… Stress cycles are a wonderful way of discovering who you are and mistakes are the greatest teachers of who you are, because the tells are where everything is revealed, and this is the way that we operate our business. 

You observe everything about a person, a business under stress. You can observe nothing when things are going well. In fact, everybody, it lifts all boats, but when they go through stress points, you understand how they make decisions, you understand how the organization works, you understand, can they make tough decisions or not.

There are so many things that get revealed by these truths. And so for me, in teasing a path to truths, and there are lots of times when you’re going to be incredibly disappointed about what you find about yourself, right. And then you are faced with a decision of what are you going to do about it? Because that’s the key question. Life’s going ask really, really tough questions, and I think your life will be defined, I think my life will be defined, this is again, it’s just my humble view, by the way that I answer those questions, and there’ve been many that have been brutal, but quite candidly, it’s a lot more fun after the fact, but you don’t wish those on anyone but candidly, that’s the only way they discover who they are, what they’re made of?

And you have to live enough life, experience enough things in order to get enough data points to look for directionality, and then you have to decide. Is that who I still am all who I want to become? Is that an area of weakness that I don’t want to strengthen? Is that an area strength that I can make even stronger? And that requires… It requires a tremendous amount of introspection. Go full tilt and find out as much as you can, surrender and accept who you are and then evolve.

Who you were yesterday is not who you’re going to be in a year, and you just have to be all about… The only thing in our control is how we spend and marshal our resources and time, and that introspective process to the game within the game is once you understand who you are, by the way you will never actually be there, it is asymptotic, because it’s a moving target too. And that’s the beauty of it.

Why would you want it to be fixed? In Carol Dweck’s book on mindset, this is so beautiful, but it’s like continue to evolve and migrate that, but it requires a team, it requires tremendous introspection and requires vulnerability to expose yourself to truths, and then enough truth tellers to actually tell you what they’re seeing and your ability to accept, and then adapt from it. 

Sean: I know you’ve experienced plenty of difficult moments, and one of the most difficult moments was just a few years ago within your business, and you’ve talked about the amount you’ve learned from that. Can you just dive into that so we can kind of conceptualize what a real world example of facing those tough questions looks like?

Yen: Absolutely, so at Ziff Brothers Investments, we had an incredible team and I ran three sectors within it. It was a wonderful, wonderful experience. And we launched in February of 2014, and we had an incredible base of investors and a lot of excitement about our launch, et cetera, and then I had the three of the worst years I’ve had in 20 years.

It was embarrassing, candidly on the performance, and I was very upset about it, and I was like, what is going wrong?

And we had to do a very deep introspective work over the summer of 2016 and go, there’s strange things, this is not at all close to what I’m used to or expect. Our investors deserve better, we deserve better and frankly, we’re better than this. And so one of the things that we found in the deep introspective work, we looked at all the data sets, right, and this is, by the way, as a leader, it’s a hard thing to do. You have to put the ego aside and go, what am I screwing up here? What are all the mistakes? How has  the environment changed? Are these the right people? Am I doing the right things? Has my energy been spent at the right time?

So coming back to the frameworks in a minute, one of those four key insights, and one of the key insights for me was we looked at the data set of these three long tail frameworks and we said, “Wow, how are we doing on these?” And one of them, which was about a quarter of the equity from the start of the fund was doing terribly, and we said, “Wow, is the strategy broken or is it us?” And we go we have 60 years of data that says the strategy works. It’s clearly us, right? Or me? Let’s be more specific. It’s me, right?

It’s like we look through literally every single investment we made within that genre and we go, wow, we just do not do the right things at the right time there, consistently. Now we have a choice. Do we try to make ourselves better because we know the strategy works, we’re just not good at it? Or do we funnel the same amount of energy to what we already know we’re extremely quiet, we have equanimity, we’re powerful in, and we do the right things. and we just made a decision where it’s like, we don’t have to waste that, or spend that energy on making it better. Every time I’ve studied excellence, it’s built on strength. Weaknesses need to be brought to an acceptable level, but to be world class and make a contribution, the world does not need another investment firm, right, and so for us to make a contribution to society, we said we need to bring what we believe… We’re among the best in the world at and continue to innovate and or organically more aligned with, and so we focused our energies here, and frankly, that’s what’s unleashed the top decile performance we’ve experienced ever since.

Sean: Could you dive into what that personal self-reflection process looked like for you? How are you diving deep on those questions and even being able to step above to understand the big picture there?

Yen: So self-reflection requires a data set. So whether it’s personal journaling or in the forms of investments, we have every decision in a research management software database that we can see all of our decisions, and I write every time we make a decision, why we’re making a decision so we have a lot of data. That’s the starting point.

The second one is, you have to put the ego aside, and this is really hard, you just have to accept whatever the data is about to tell you, and it’s something that’s going to be very painful, but the more you can put the ego aside, the more you’ll be able to absorb the truth.

The third part is you need people around you or a process that actually lets you tear it apart impartially. The only way you’re going to see the truth is you need some truth tellers, and it requires deep trust in those people, and that was enormously different for me. So I have performance psychologists, I have an awesome coach that I’ve been with for ten years. I have incredible friends in the investment world that have been around me for one or two decades. I have a great team I trust deeply, and between that we were just teasing out the data and some of them would just say to me why on Earth would you be doing that? When it’s like that’s not, that’s not who you are.

And it’s one of those moments, again, in risk, one of the laws of risk, if you’re going to panic, panic really quickly or not at all, right. It’s very expensive to find out who you are under stress. And so you can see that you understand the strategy, but behaviorally, it’s not organic, and so we can toughen it up or we can focus on the strengths. And that was the process of this but… And the last thing I would throw out there, Sean, patterns. Don’t look for one-offs. One-offs, they don’t tell you a lot. Patterns are what we’re looking for. Persistent patterns. and what we were finding is clusters of decision-making that were equanimity, strong, appropriate. Clusters that were not great. And then that last filter, what do you want to do about it? And that also required fairly intense R&D… And there’s a finite amount of time, a finite amount of energy. Where do you want to focus it? To make a world class contribution we had to focus it on strengths and we built some incredible things that came out of this. And I suppose the last mantra on this, mistakes are your greatest gifts if you allow them to be. You learn very little from success, you learn a tremendous amount from failure.

Sean: Wow. That’s an incredible few minutes right there with a lot that goes into that. One of the things I really took away right there is just about truth, and it kind of gets back to that earlier question. That’s a very difficult thing to do, and something that just kept picking my interest there was talking about building on top of strengths. And I even know when you were doing those 600 plus case studies, you study success as opposed to studying the failures, correct?

Yen: No, we studied them both.

Sean: Both?

Yen: So this is counterfactuals are actually… So, this is comparative learning.

Sean: Okay.

Yen: We call it type two learning. It’s very difficult to see change or the strength of something when you compare it to itself. It’s really powerful when you contrast it to something else, in fact, we’re doing some cases right now… In a particular industry right now that’s highlighting two very different approaches, and it’s the highlighting of that that tells you it. So we’re studying success and failures, so in the same economic cycles, the flip side of what succeeded and what failed. I’ve been in the hedge fund world for 20 years and it’s long and short. And the short side is teaching you the other side of the long side, not necessarily a pair, but it teaches you the sources of failure and there are lots of points of failure, but where to look for it… And so no actually we spent a considerable amount of time understanding patterns of a failure too so that it actually peaks us earlier on detection of if anything that we underwrite is not appropriate. There’s a very big danger when you only study success because it blinds you to all the counterfactuals, and seeking dis-confirming evidence is actually one of the most important parts of what we do, because we know our frameworks work, you don’t want to be blind to make them, force them into that framework. In fact, you want to be actively seeking for why they don’t work because once they do fit in, they naturally compound. And so we spend, in fact, we literally highlight in our notes, we highlight in a different color everything that is disconfirming, so we can see it when we scan our notes very quickly. It’s always highlighted what is disconfirming.

Sean: I love this, and you mentioned looking for that disconfirming evidence. 

I’m wondering what are the things and unique things you guys do that just give you a little bit more alpha and you can find that edge. Is there anything you think that’s unique?

Yen: Unique assumes that we’re the only one, and I don’t know that I can say we’re unique, but we assemble the best of many parts, and most importantly, it’s definitely the best version of us. There’s an ecosystem effect when you study and invest in quality, which I don’t believe you can get in other forms of investing. It’s been a virtuous part for me. But what do we do differently? It starts… There are many ways, again, to play the game at an outstanding level, and if it’s a combination of 1% advantages, they add up dramatically over time.

The first, the most important part of it, or simplistically, we put three things together in order to give us each of those edges, and there are four edges in the business that I’ll touch on too. The three to start up with this strategy, skill and structure.

Strategy is game selection. Did you choose a really good game that is inefficient? And so we’re in the business of extremely high durable, high quality assets, and we let volatility come to us. We just wait. One side is knowable, the other side is not; and let price come to us. So that’s the strategy. Second is skill, are we skillful at executing it. Back to Roger Federer. I know what a perfect forehand hit looks like, I just can’t hit them all the time. And so, skill is temperament and skill… Temperament, by the way, is a huge one. In our game, can you be patient and can you wait? We went 17 months where we bought one stock, that’s a long time when you have a fairly large investment team, but you need a system that does that, and so that’s the last part of this. And I learned this… I’m on the board of a charter school called the Success Academies, and system is the last part of this, when a system is built, a structure is built, this is industrial design. Industrial design, when it’s built really elegantly, allows for imperfect inputs to generate world class outcomes. That’s what you’re solving for.

And for me, it’s like it’s not enough to put a bunch of very smart people, throw them into the ring and go just generate alpha, just go do it.

It’s too hard. This game is too hard for that to be true. You have to build systems that allow people to be built for human-scale, things are going to happen, but your system is built so that it already tolerates that and can still generate very high through-put returns. And so that’s the thing that has allowed us to do it is all three elements coming together and we’re constantly tuning and constantly improving it. 

Now, the last thing is there are four edges in the business. The first is information, this is generally speaking a first, informational, analytical, behavioral and structural. Those are the four edges in the business.

Informational is much tougher now, clearly, and that used to be an advantage, I think that’s hyper competitive now, but still doable, if you outwork them. Nothing unique there. We work pretty hard.

Analytical is very interesting. So the first one also, we buttress our process with investigative journalists and forensic accountants. Again, back to the pursuit of truth in investing, we’re just trying to discover. We’re in the probabilistic business of the future. It’s hard enough to work out what’s even happening today. And so to unveil a little bit of that, the forensic accountants and the investigative journalists are assisting our analysts to unearth what is the truth on our evaluation of literally just today. Analytic is where all the case studies come from, this is classic Buffett … With the same data fit sets, are you better or not? By the way, a profoundly arrogant thing to say, and this is again, studying deep patterns of history, we just know where to focus. It’s the same data sets and we can start seeing different things, ’cause we’re not energetically using our energy across all parts of the diligence process. We’re focused on eight things and we know how to assess those eight things quickly. Third is behavioral. This is the whole field of behavioral finance. This comes back to the search of truth and the matching of internal and external. Once we understand who we are and why, what gives us patience? What gives us strength? Behavioral finance is effectively all the demons of the mind. His holiness, and the whole Buddhist movement is based around why the delusions of the mind affects your ability to see reality and deal with it, and so behavioral finance for us is that internal alignment and understanding our conviction and aligning it with our strategy. The last one is structural. What can your organization do that others can’t? And at Ziff we had literally a multi-generational asset, we have time arbitrage, and that’s the asset that we also have at Aravt. We don’t have a multi-generational asset, but we think in time scopes that others don’t compete in.

So I hope that answers your question.

Sean: You have no idea how incredible of an answer that was. There are so many places I want to go with this, but I would love to know, ’cause you keep the team tight there at Aravt, what are you looking for? What does someone who’s going come into that team, what do they have to have?

Yen: So talent is a really complex question, and I’m really blessed to be surrounded by people that are not only highly talented, highly motivated, deeply great people, the things that… Talent’s the first one, you can’t… Without talent, .. that’s just table stakes. You’re looking for character is the next part of this, right. People that are self-aware, that have a training mindset, they always want to improve, they’re open to feedback, a team player. 

So culturally, we’re a blue collar work ethic culture, we do… We do all the heavy lifting. It’s not to manage others to do it culture. It’s a team that is very tight intentionally with a lot of support outside of it. But the core team, I firmly believe in… I learned this from Subotai and Genghis, again, is when you have a great team, and Aravt was 10 people or arban is the other term they use. It was 10 people where they would never allow them to switch out, and it was literally also one of the originations of no man left behind. It’s a forged culture where we try to make each other better, so here’s three things I solved for in my teams. And it’s not a good person, bad person, it’s not even talented or not. The first most important question in my view, and investing is, can you make money together and in all businesses, can you operate well together? That’s a simple question. The second one is, do they make us better? Do they make us as a firm, collectively, us and the person., can we learn more together? Are we better together? And then the last one is, do they give us energy? If they give us energy, the whole thing hums. And those are the three key things I solve for. It’s not, are they a good person or a bad person. It’s not, are they talented or not, those are just table stakes. It’s those last three filters, and when you get them right, incredible things happen, and then when you go through stress cycles, you really see it. I’m very proud and very blessed to have a great team around me.

Sean: Yeah, that really codifies what to look for there. So I appreciate that. 

Another one of the three structures you were talking about earlier is around skill, and I would love to know how you approach skill development and what you think is one of the most important skills you can have?

Yen: So if we talk about investing, I mean there’s many… That’s a very broad topic on what skills we want to have, and we can talk about life as well as investing. Let me just give you an example specifically to investing, but people can bring this down to an applied level, and again, I love this because its energy, technique and focus, and so each of those elements you pound away on all three outcomes start increasing processes is awesome. 

So for us in investing, we’ve dissected the entire investment process, and one of the key components of it is what we would call value-added research, primary research. Like going out there, talking to primary sources, talking to management teams, talking to suppliers, competitors, former employers, the whole shebang. It’s a lot of time in what we spend on. And it’s just one example of what we’ve done.

First of all, you’re going to break down the whole process, and then you need to isolate the processes you want to improve on, because the game is not the whole game, the game is a game of games. So breaking down the game of games is step one. Step two is then break down the key elements of that process. So for example, in primary research, there is outreach for how you do a cold call, whether it’s on the phone or via email. I want to see every single word, we spent literally a month on exactly how do you email? How do you source them? And how do you email them? We spent months on this, refining words and giving people feedback on doing. You’re going to  interview people all the time as you are with me today, what does an awesome interview look like? We sat in on a third of every interview for a whole year to try to understand how we could tune the people. We broke down the interview process. What does the opening look like? What does the close look like? What’s the preparation look like? What does the post look like? Let’s refine each of these. By the way you asked an earlier question on the plateaus. If you make people 1% better on each of these dimensions collectively, it becomes an incredibly potent lift. And that’s another thing, don’t always just look for the big lift, even the one percent is enough for me. Making it a tiny bit better, tiny bit better and this evolves and something very, very potent. But that’s one of the approaches that we used for investing was like, we took this one process, we broke down the game, we took that one process, we broke down the process within the process, and then we isolated for months on each element of it.

Sean: In order to be able to even have really good skill development, I’m thinking about, and this is something you mentioned earlier, just having a massive tank. You have to be able to have that energy. I would love to know how you build up the physical training to have a massive tank. What does that practice look like for you?

Yen: This is a huge one, and I think first is mindset, right?

Anybody in… I think you only have one life, live an epic one. Let’s live an epic version of you, and it does take a huge tank, and I think of our business as corporate athletes, why? Because it’s like we are required to make decisions under stress constantly, and you can’t do that if you’re poorly fueled and you’re unfit and you’re tired. And so one of the most important parts of this…  Health is an important pillar. It’s one of the most important pillars. And having a huge tank, physically, mentally, spiritually, all three components are required to this. 

So I actually went to a Human Performance Institute in Orlando, and Jim Loehr is his name, and he wrote a wonderful book on this whole notion of stress and recovery, and this is just on the physical side of it. And so this is where they train a bunch of professional tennis players, and most of it’s done in stress and recovery. Energetic signature in almost everybody is a wave, it’s not a constant, and if you work in constants, you break, but if you work in bursts, that’s really, really important. So physical training is an important part of what I did do, and I generally do it, not in these long protracted endurance sports, but usually in HIIT forms of stressing recovery as one as physical training.

Second is fueling. You’ve got to be actually… You’ve got to know how to fuel your body. You can’t sustain this. It takes an enormous effort to do what we do and to be constantly fueled, you need to be able to… You’ve got to understand your body, you’ve got to understand nutrition. Study it. It’s really, really important. And by the way, we are all chemically different, you have to understand what works for you. Get data sets on it, invest in it. 

Next two are really important. And there is a spiritual component to this too, on your source, there’s a mental and spiritual component to this, respect your psychology. So there’s another gear in all of us, and it’s just understanding these mindsets. This requires work, and frankly, it requires the help of people who are far wiser than each of us. So seeking out good counsel for many of those, I’m spiritual, I’m not religious, but for those of you who are religious, you’re surrounded by actually extremely wise people who have invested their lives on drawing the wisdom of the ages. I’ve met many people, religious leaders who are profoundly philosophical wizards. Philosophy is the love of wisdom and pursuing it. And for me, the spiritual journey is an unleashing factor. So I’ll throw one small thing out for you guys, and I would also include in this for those that are spiritually inclined, The Surrender Experiment and The Untethered Soul by Michael Singer is an epic book on this. There’s a false sense of control that we all live in, and when you actually embrace whatever comes, comes. And John Wooden is another huge hero of mine, where it’s a process over outcome, you stop wasting your energy on being disappointed or trying to control things that are literally uncontrollable. Wooden unleashed me spiritually and mentally.

And so investing in coaches for each of these, spending your time on each of these and by the way, it’s like, it’s one of those things you have to do almost every day.

Sean: Do you mind even running through what a typical day could look like? We don’t have to dive too too far into a nuance, but I would love even just a big conceptualization of what that might look like.

Yen: Absolutely, no happy too. And Sean, this also touches on another just broader topic of, to live a great life, you have to define a perfect day, and you have to play offense with your day and you have to design your surroundings and your day in order to optimize it. Otherwise, you’re always playing defense. It takes an enormous effort to try to be successful in life or the best version of you, and it requires offense, not defense. Every one of us has defensive components, no question. There are things that are out of our control and we’re accountable for. But the design of my day is the mornings are the most important part of what… Of my creative space. And so at the start of my day, I journal almost every single day, I meditate as soon as I get up for 20 minutes and I journal for at least 20 minutes. I operate in concentration cycles of 22 to 25 minutes. I have a timer on my watch, and what it lets me do is stress and recovery cycles throughout my day. Why? Because when I know it’s only 25 minutes and there are other versions that are longer, I had gone full tilt and I know I’m taking a break, full tilt I’m taking a break. So I punctuate my day.

Sean: How long is one of those breaks?

Yen: They could be anything from five minutes or longer, they can even be two minutes, but… But it’s as long as the brain knows, actually, this is another one where the brain, if you do one thing for too long, it strains it, so even switching things gives it a break, but in general, it’s at least two minutes if not five or sometimes even longer, but you want to punctuate it. So what I found is hour -long concentration cycles are too long. If it’s two 25 or 30-minute cycles and you break it up, you just get that much more out of it, and flow state only lasts for three hours a day. So if you’re in total creative, deep problem-solving mode, you literally have just burned up all of your brain sugar you possibly can do in a day in three hours. To expect more than that is not realistic, and frankly, you don’t even need it. If you can do two to three hours, unfettered, full tilt, flow state every day, you are going to live a life that is insanely productive. But you need to create it and protect it. So for me, that’s my mornings and actually COVID ironically, has made it even more pronounced, but from the start of my day through to a little bit after lunchtime is my most important creative zone. My afternoons is where I generally do more meetings or calls or etcetera. 

Chunking that is the first part, second part, and is structuring it. I generally work out in the afternoons. I meditate again in the afternoon. I don’t drink coffee, and so between three and six in the afternoon is a typical circadian dip in most people and definitely for me, and so I don’t fight it. In fact, that afternoon meditation is one of the greatest gifts I’ve ever given myself. I do transcendental meditation, which I would strongly recommend, it’s been a life changer for me, but creating that moment where I just literally let yourself completely recharge, and I train there. The last part is sleep cycles. Sleep is incredibly important. There’s been a lot of great stuff written on this recently, and high performers have a real problem with boundary management. It takes an enormous amount of effort to compete at the highest levels, and if you don’t know how to set boundaries around your life, you’re going to burn out and so one of the important parts for me is I absolutely have to be pencils down by about 8-830pm. Otherwise, my brain is going to go haywire overnight. Now I still feed it one or two key questions at night so my subconscious does its work overnight, but if you’re still grinding at… You know … This is just for me, it’s different when I was at Bain and earlier in my career, if you’re still grinding at 10:30, 11, 12 o’clock at night, your brain is so wired up when you’re going to sleep, you’re not resting, and it means the cycle is starting to degrade itself. So that’s broadly the structure of my day.

Sean: Thanks for diving into that. You mentioned addressing those one or two questions when you’re going to bed, what exactly is that process you’re referring to there?

Yen: So it’s a journaling process where your subconscious doesn’t actually idle down at night, you just need to quite it, and so from a creative perspective, your conscious brain, there’s estimates anywhere between 7 and 10% of your total consciousness, your fire power and your brain comes from your conscious mind. Vast majority actually sits in the subconscious and can quiet down your mind. That’s part of the whole process of meditation, but it can’t focus on too many questions. And so whatever you’re wrestling with, just write it down, and I believe the brain is a very sophisticated problem-solving device, but it’s only as good as the questions you ask it and so you have to… This, by the way, is why I’m a big fan of philosophy. Philosophy, although again, the love of wisdom, is really the art of masterful questions, and so are you posing the right question to yourself in the problem set that you’re struggling with? Just write it down, go to sleep, and then the next morning, just see what comes out. It may not come out, but I studied this pattern myself, why is it that people get these insights when they’re in the shower or going for a run, on a holiday? It’s white space, and this is one of those elements that is profoundly misunderstood is actually recreation, relaxation, creative endeavors are really important part of the problem solving process. It gives yourself a chance of distillation and creativity. I’ve had tremendous ideas that have come to me in the water when I’m with my kids, when I’m exercising and leaving it room to do that is actually an important part of my process.

Sean: Yeah, that incubation period in process is so fundamentally important. So when you wake up, are you hoping that you’re just journaling out the answers to those questions? Is that what you meant by your journaling process to start the day?

Yen: That’s part of it, as well as just solidifying, consolidating knowledge is another important theme Sean, and that’s… Again, coming back to Roger, is the grind of training that defines you. Like excellence is doing the same thing every day until it’s second nature and your proving micro bits. And part of my journaling process is solidification and codification of knowledge. You have to make it part of who you are in order to do it really, really well, and part of it journaling is, yes, the answers that may or may not be coming out of my consciousness or not, and just trying to be creative on where the other opportunities are here. But the other part of this is also, what did I learn in the prior day? What am I still thinking about? What I need to think about? And there’s always little threads that come out of this. And one or two of these can be very, very big, but in general, don’t judge it, just let it flow. 

Sean: One of the things I think you’ve been most helpful for me on, and you’ve really pressured me is about that codifying, and that solidifying. The information’s out there.

It’s about to distilling down and condensing it, and it’s almost one of those things, it’s the delusion of the mind here that we always think we have to search for that new thing and we forget about all of the things we’ve already uncovered, and so I’d even love to know what different frameworks you use, so you don’t fall victim to delusions of the mind?

Yen: One of the practices that we use, first, it’s really helpful to have truth tellers around you, and that is, by the way, one of the scarcest things in the world is having a great team of people that you trust around you. Truth tellers are so valuable. Second, to avoid the delusions of the mind, we actually codify, we write down the reasons for our decisions, we sleep on them, so we trade on a T plus one basis. We don’t ever invest on the same day we make a decision, why? Because we want to sleep on it and we want people to understand why we’re doing what we’re doing. It may be wrong, by the way, investing in general people are wrong half of the time? It’s an industry where we’re dealing with the future. It’s unknowable, but what we’re trying to do is improve decision quality and expressing why we’re doing it, and that also holds us accountable to history, but also to our team, we’re saying we’re doing this because of this. And I’ve had three, at least three instances where we’ve written it and we come back the next morning, but that was just a woeful decision. And we didn’t do it.

And the whole team knows actually why you’re doing it. A) They’re learning. B) They may come back, that piece of information was wrong. Actually, you’re basing it on that, that’s not what I said, or C) it’s like, I still don’t understand how you’re getting from this to that.

And making it transparent and making yourself vulnerable to it is the way that we do it, but listen, even then, it’s still hard, Sean. I don’t want to … The delusions of the mind. There is a reason why this is centuries old and persistent to this day; the hardest game is the six inches between your ears.

Sean: Yeah, I’m asking you to decouple all of human history right now with one question.

I know you’re so widely read though, are there any psychology books, or you mentioned a lot about philosophy, any directions like that that we can look towards?

Yen: Yeah, from a psychology perspective, I’ll give you a few that unlocked me. So we’ve already touched on from a game selection, I actually think it’s one of the most important investment books ever is the Genghis Khan and the Making of the Modern World. Jack Weatherford’s book is outstanding.

I think the Art of Learning is a fantastic book for decoding, Josh Waitzkin wrote this and Josh has done a masterful job on deconstruction, like him and Tim Ferris are probably the two best guys on deconstruction. And by the way, there’s a very different game when you’re playing for the 1%, then when you’re talking about trying to get to top decile. It’s a very different approach at the later stages, and Josh’s book touches on some of those. 

We touched on the Surrender Experiment, I think that’s very important in reducing the suffering of this false notion of control. Again, only the spiritually aware will be able to handle that book in my view. Wooden, read everything on Wooden? Wooden is a master and he is process over outcome and frankly liberated my soul.

So if you’ve done your best and you’ve given your all, you’re fully prepared and you are already broadly world class, you can’t fail. You may not win, but you can’t fail, and that is just such a different mindset to go through life with. It really took an enormous burden off my shoulders in reading Wooden and Wooden on Leadership, I think is probably the best of all of them, but there is lots of great great stuff on him. 

His Holiness has written a tremendous amount about this, and actually Daniel Goleman is somewhat… He did a whole bunch of projects and called the Mind Life Form at MIT, and Daniel Goleman wrote Destructive Emotions many years ago with His Holiness and Emotional Intelligence with it. There’s much more stuff since then, I think there is… Within His Holiness’ writing the Dalai Lama, excuse me, there are some things in there that are helpful, but quite candidly, teasing them down into actionable parts has been something that I’ve been trying to do for years.

Sean: It’s one of those infinite games. You’re going to continually tease those down. 

You’re so wide read, you felt and experienced so much throughout life, I’m wondering with all of this coupled into one person, what do you find and what skill or mindset is just the hardest for you to transfer to people on your team?

Yen: That’s a great question, Sean. First of all, again, I’m blessed with a great team and I feel very, very lucky to be able to work with such great people, and so I wouldn’t say that this has been difficult to apply to them, ’cause by forging what we have now, we’ve kind of found each other. But in general, the things that I think are hard is to transfer to other people, self-awareness, I think is the hardest one. If you’re not self-aware, I don’t think you understand how to operate in different contexts and the impact that you have on different organizations. I don’t even know how to fully teach it, you can tell if it’s not. It’s very, very difficult to increase someone’s self-awareness.

The second part of our business, it’s extremely difficult to teach people patience. I would say those are the two highlights, but again, I would say that’s not a comment on my team. Our team over time has found ways for that, that’s what matters to us, and we found each other. But over time, if you’re not self-aware and you don’t have a sense of natural patience… Now, I’m not a naturally patient person, let’s be clear. It doesn’t mean that we’re not aggressive in a way that we research and pursue excellence, in fact, we’re very aggressive. It’s just we know how to separate out risk and actions like hyperactivity in research are very different than hyperactivity in trading. And our team understands the difference of that, and many people frankly would hate our culture because they wouldn’t be able to have enough at bats or  capital at risk. 

Sean: Speaking about aggressively pursuing skills and new tools to add, for you right now, what are some of those new skills, those tools you’re trying to add to yourself?

Yen: So I’m constantly writing individual white papers that we keep iterating and pushing, and this is back again to thematic of it’s not the new shiny thing, it’s just the deepening of it so much more. The most important area in our genre of investing is actually one of the periods we’re going through right now, where you’ve got these epic horses that are compounding intrinsic value at a fast clip, but stock prices are ripping, and that ride phase is a very, very important phase of our genre of investing. So we’re teasing that out real time right now and taking it even further, and it’s like, this is something I’ve spent many, many months on already, in many iterations, but we’re just trying to articulate it to make it super explicit. Another phase that we’re working through is capital allocation is one of the most important parts of any business model, and I’m trying to make very explicit sub-parts of capital allocation decisions within our portfolio and stuff that we interface with constantly. What exactly makes us… What are the tells for us? What are the experiences for us? Where are our mistakes on this? Where have they succeeded when one of those patterns is part of the areas that we’re looking at?

Sean: Referring to patterns, once again, I love just learning from you with regards to history and those empire builders, and you mentioned a few, Genghis Khan, and some of the business titans you’ve been around. Anyone else come to mind for you that you just love studying and diving deep on?

Yen: Oh, absolutely. This is one of the best parts about what we do. We study excellence. So in our ecosystem, we’re just trying to do good things with good people and the best part of… Or it’s not accidental that this is the genre we’re focused on. We studied a tremendous amount of various people in history, look Sam Walton’s obviously one of the greats, and I love this too, it’s just so simple, and Sam’s leadership style is extraordinary… So someone asked him, “Sam, what was the trick?” And he said, “Friend, we just go after and we stay after it.” 

I love that because you know what, it’s not that complicated. Okay, it does take a lot of work. And it’s like deep value creation, and it’s like I love reading biographies, the Koch brothers recently, there was a wonderful book on the Koch brothers that was recently written, and they built an incredible empire, just trying to understand the different elements of this was wonderful. But no, we read biographies all the time and the case studies. We’re doing some stuff right now and various elements of software and just deeply understanding the composition of the teams and how they’re making decisions, but we studied them very broadly, Sean.

Sean: Any other biographies? You know, I’m a nerd for biographies and books. Any other that you’ve gone back to over time?

Yen: That I’ve gone back to over time. Listen, there’s so many great ones. There was a very recent one that was done by Charles Schwab called Invested that was on his life, and that was really cool. There was one very recently, what I… To get back to you on those names. I’ve read Titan is epic on Rockefeller, that’s something I’ve read many times, but yes, in the biographies, we read them constantly like this… The whole story of Starbucks and Nike, Phil Knight’s book is extraordinary. The thing that we study, and you see it in every one of these is it’s not a straight line. They all have to deal with some very major setbacks, and there’s a lot of luck involved in life, and they’re highly persistent and grinding away what they do. Deeply principled people who made decisions of consequence, they’re all the same. That’s the reason why I love biographies so much is everybody sort of idolizes the outcome. What I find most interesting is how do they deal with adversity, and every single one of them has dealt with tremendous adversity. 

Sean: It’s something you know a great deal about. I would love it if you’re just assessing… You mentioned living different lives and assessing some of the chapters of your life. If you almost had a sentence or two for each of the chapters or decades, are there any great takeaways? ’cause we’re going to have listeners across all those age groups, so your teens, your 20s, your 30s on into your 40s.

Yen: First of all, another mindset that blew my mind was don’t live one life, live three. And I was like, wow, what does that even mean? And then this was one of the founding partners of Bain & Company, and when I was very young, he just took me out for lunch, and then he just said me to actually, if you really do it right, live all three at once, and I was like, Oh my God, what does this even mean? And he explained it to me, it was just like, in his life, he did academic, business and then politics, and he goes, if you want to make a really epic life, why would it only be one thing? And I was like, that’s a really great call. And he actually goes, but if you really enjoy it, you want three and ladder them all on.

And so for me, I love education. Learning is a very important part of what I do, and I’m involved in charter schools. I teach business. I absolutely love investing, that’s a core part of what I do. And then philanthropy and having an impact on society. It’s a privilege to be put in this position in life, it comes with the responsibility, and so the question for me, it’s like how can I stack all three and move them across? Now, the call signs for the different chapters in the 20s is just go do a lot of stuff, go enjoy it, go try a lot of things, you can’t work out who you are, where you belong, to fall in love by sitting and idly… We’re stuck in COVID so I’m sorry about that, but it’s just like when things normalize, you need to go out there and try a lot of different things, experiment, go fail. Don’t worry about failing, go try a lot of things. 30 is once you found one of these things, you got to go deep and you need to go fast. And the 40s, you just need the courage to take the bet and have the fortitude just to know that you can work it out. Like you need to tool up your… Go sample a lot in your 20s, tool up in your 30s, go for it in your 40s, do everything faster, and then one last thing I’ll say to everybody, it doesn’t matter of your stage, you’ll be okay, bring it down a notch. You’ll be okay. It will work itself out. You will find a way, it’s not always pleasant, but you’ve got to quieten it down so that you can give yourself a balance and a chance to work it out. And enjoy that journey because it doesn’t last very long.

Sean: Why do you think you’ve been able to quiet that out and slow down slightly?

Yen: Oh, I wasn’t always like this, Sean.

Sean: Yeah, what I’m asking here, I need to know.

Yen: I’ve learned some of this the hard way. Part of this is, as I matured and frankly had been blessed with some great mentors, great friends, great advisors, and studying myself was just like, and studying myself, wow, you know what, you lost all that sleep over that, it just didn’t matter.

Right, well, you have no control in that, and there’s some… We shared in this conversation some of the mindset shifts, and I think that’s probably one of the most important is it’s like mindset shifts a lot of things. It’s like how do you interpret… ‘Cause mindset is interpreting all of these stimuli and what is the response in your mind and how do you make that effective for yourself? It’s part of how do I learn this? You got to find people that you really respect and really trust and then be vulnerable and open-minded to learn. And then you’re going to go through some real tests, and frankly, those tests, if you’re quite enough, are gifts. I don’t wish on my children, some of the things that stress points that I’ve had to go through in my life, but I’m not going to protect them from it because how they answer it will define who they are, and I think that’s a really important part of the process, you have to be put into a position where you have to make decisions of consequence, and that feedback loop is what helps you and so quieting down that process it’s taken time, but I’ve accepted…, all of this is a working process, and it’s just one humble man’s view, but I’ve accepted that my best is good enough for me. I believe that’s in the room. I believe this is the best version of me. And it’s not perfect, I’m a deeply flawed human being. Everybody is, I’ve accepted it. But I’ve also surrendered that if I give my absolute everything I have and I keep refining, I’ve chosen a really wise game surrounded by really great people. Over time, great things will, and actually have happened, and that’s what’s quieting my soul is like that 1%… And this is a real struggle for high performers. We all understand the last 1% is where all the action is, but your best is not… Sorry, your most is not your best. And what I mean by that is, if you are, if you don’t know how to channel that preparation, you’re too exhausted, you’re not balanced when decisions of a consequence matter. And so you’ve got to dial it back a tiny bit, and that mantra for me changed everything was like you actually have to contain it, your energy, put yourself in a position to make great decisions, surround yourself with people you deeply love and trust, and then you can fully embrace whatever comes comes and be at peace with that. Peace of mind is… If I had put the tag line behind that is that is probably the ultimate at what people ultimately seek and they don’t even know it, is what gives you peace of mind, what gives you equanimity, but allows you to really enjoy this journey. And for us, it’s peace of mind and performance. It’s not an or. You can have peace of mind by putting everything in a bank account and never compounding it. We’re in the business of risk. But how do you find the and? And equanimity lives in that land of and, and that is a great question.

Sean: So many great answers. So many pieces of advice here. I’m thinking about just for your own sake and what you’ve done, have you gone back and really codified these down into certain principles you live by that you’re able to look to so that you understand the frameworks you’re operating off of?

Yen: Absolutely, and this is a thematic of making things that are implicit, explicit. So I’ve… Two of my best friends are former Navy SEALs, and part of the reason why they train so aggressively in the SEALs, their belief again is like you bleed here so you don’t die there. The training is so important because it needs to be deeply in your system before all the stress points arrive. So codifying, really important part of what we do is distilling, simplifying, executing, refining. That’s the external game, right. It’s just making sure that we can transfer that knowledge to other people. The introspective process is with the introspection, you’re trying to tease out the thematics, give into it, then keep on surrendering to it and then evolving it, but it absolutely… We, I’ve written for my children, and it’s taken years and years, the codification of some of these core life principles, and by the way, they evolve and you can’t really test them if you’re not aware of them and expose them to people that you really again respect and love, and they can come at you and go, you know what I just don’t agree with that. And sometimes they’re right. You continue to evolve it, but making it explicit on why you do things, and it’s part of it, Sean, the last part of this is it’s not really about your thoughts and your words, it’s all about your actions. So if you can’t live up to your own principles, they’re not your principles.

And your character is not what you say or what you think, your character is what you do consistently, and so you may say all of these as aspirational principles, which there’s nothing wrong with that, by the way, no judgment here. The problem is like what we’re trying to do is all humans live the best versions of us, and so I’ve stated some principles, I violated some principles. No one can ever live up to all them, but by having them codified and refined and in front of me, I go, well, you know what, I got called out on this, that is not who you are dude. And it’s like… And having some people who can actually literally say that to your face, you know what corrective action is required, and that’s another aspect which I think is important. For anyone to live a happy life, it’s seeking fulfillment as not singularly mentioned. And all of these require some almost engineering tolerance to know if you’re in the band. There’s lots of balls that all of us are throwing in the air, and it’s a constant struggle. 

I don’t want anybody in this podcast to think that I live a perfect life, I don’t. I have a loving family, yes. We run a great business and are surrounded by some great people. We’re constantly juggling, and it’s constantly things that are going wrong. We’re dealing with all of the issues of life, but what we want to know is when the big balls that are important in life are out of whack, then we need people or we need alerts to tell us get back into it. I’m a father, it’s really, really important to me that I am a great father, I’m a great son, I’m a great brother, I’m a great friend, I’m a great husband. They all matter to me, there’s no ors in there, there are ands in there. All of them require work. To me, to be the most successful investment manager in the world, to fail in any of those dimensions, there is no price. That’s just my philosophy. I think that’s critical, and you have to invest time and action in that, and that’s what requires focus and effort. Where are your hours? Show me your calendar, and so these are priorities that you need to focus action, time and energy in.

Sean: Wow, Yen, every time I have the pleasure to speak with you, the chills and just the hair on my back stands up because of the amount of wisdom in this… And one of the things that I just appreciate and take away every single time is you have to own it, and it’s about you and yourself and what you’re going after. So if I’m gonna leave one takeaway with the listeners pulling from your practices, that’s one of the most important things and what I love, and I just feel so fortunate to get to learn from you. 

So one of the questions I love, if you could sit down for an evening, you’d have the microphone, interview anyone dead or alive, not a family member or friend, who would you love spending an evening with interviewing and just getting to have a great conversation with?

Yen: So this is where the conversation started, look, the great Khan and Subotai are easily two of the people that I would have killed to have an opportunity to sit and learn. These were masterful learners. I don’t want to judge any of the conquering elements of this, it’s too complicated for me, but what they managed to do in a lifetime was truly, truly extraordinary. These were illiterate slaves that changed the arc of history. How did they learn what they learned? How do they absorb the knowledge of the technology, the medicine and mathematics of all these different cultures and have the wherewithal to be able to integrate them into one society that functions and creates this silk-road? I think they’re absolutely extraordinary. The other one who I’ve spent a little bit of time with, is His Holiness the Dalai Lama. From a spiritual perspective, connecting this and the questions that come from him is just truly extraordinary, but if I had the chance with the appropriate security for my personal self, I would love to have been able to just understand the mindset of Genghis Khan and Subotai. I’m just blown away and inspired with how they learned and applied what they learned at such a grand scale across so many dimensions.

Sean: It’s certainly a conversation I would love to sit in on, but Yen, this has truly been just an unbelievable conversation. I can’t thank you enough. Is there anything you’d love leaving the listeners with? Where they can stay connected with you? Any other parting words?

Yen: Sean, thank you very much again for having me on and listeners, I’ve got a YouTube on mastery, learn how to learn. There’s a few more lessons in there on the practical elements of accelerated learning, and if you want to subscribe to that channel. I won’t do too many of these, but that’s one way to find us and to share more knowledge, and on LinkedIn, I’ll probably post a few more of these things. In general, we like to be fairly private people, and we want to share this wisdom as just to honor our mentors, and pay it forward. And quite candidly, these universal wisdom, they don’t evolve much in between time. It’s more about how to apply them. And we probably will do one follow-up, mass Zoom at some point in a month or so. People can dial in and we can talk about practical application of the core insights, and I think that’s where it really matters is I hope people don’t take away just bumper stickers from this to really live a full and enjoyable life, and I do hope this helps people live a better version of themselves. It’s about applying them, and that’s the great joy, and I wish everybody an epic life and have a lot of fun doing it and thank you again for your time and this opportunity.

Sean: Thank you so much. I guarantee you there are at least a handful of people who are going to walk away fundamentally different based on applying these. 

So Yen Liow, I cannot thank you enough for joining us on What Got You There.

Yen: Thank you, Sean.