The Psychology Of Investing W Blackrocks Emily Haisley Rwh069

TITLE: The Psychology of Investing w/ BlackRock’s Emily Haisley (RWH069) CHANNEL: The Investor’s Podcast DATE: 2026-06-28 ---TRANSCRIPT--- And but then he came back and his manager  explained to him that part of the job is taking   risk and those risks don’t always work. So, you’re  not here to make money every time. You’re here to   take risks consistent with your edge and there you  cannot expect them all to work all of the time.  That this is like part of the job and  that he hadn’t done anything wrong.   And so I think that that is a a huge  part you know, having the right culture   of risk rational risk taking um that can help  alleviate some of these biases as well as the   the more investment process structural  things like defaults. >> [music] >>   Hi folks. I’m absolutely thrilled to welcome today’s guest   Emily Hasley. Emily has really one of the most  fascinating jobs in the world of investing. She   leads the behavioral finance team at BlackRock,  which is the world’s largest asset manager with   more than 14 trillion dollars in assets  under management. She’s a PhD psychologist   with a very strong background in academia. But what I think makes her so unusual is that she   has this extraordinary depth of experience working  in the trenches with fund managers and investment   teams within BlackRock. Uh basically helping  them overcome their behavioral biases and deal   with their emotions and make better investment  decisions. I’m particularly excited to have Emily   here today not least because her expertise is  really usually on display behind closed doors.  She’s a kind of secret weapon within the world’s  largest asset manager. So, this is a very unique   opportunity to learn directly from her about the  psychology of investing and all sorts of practical   ways that we can uh use psychology to become  more successful investors. So, Emily, welcome.  It’s really lovely to see you. >> Thank you so  much for having me, Liam. I’m most excited just   to have a conversation with you because  I always enjoy our talks so much. >> Ah,   thanks. It’s it’s a real delight. I’ve been  looking forward to this, I think, for 2 years now   since we first met. And I’m so glad we’re we’re  finally actually getting to do this in public.  So, thank you for coming. You have such a  unique and interesting job that I really   wanted to start by simply asking you to describe  what it is you do at BlackRock as head of the   Behavioral Finance team. Can you give us a sense  of your role and your responsibilities there? >>   Absolutely. So, I work within the Risk and  Quantitative Analysis Group at BlackRock.  And this is a group that is an that really prides  itself of being an independent and consultative   function for investors within BlackRock. So,  within that space, I really have this I mean,   it’s amazing kind of position of being able to  bring another perspective to investment teams,   help them review their process,  understand their biases, understand   their team dynamics so that they’re they’re  really working for them and not against them.  And doing this all from a place of a kind  of, you know, consultative independence   rather than kind of doing it from a place of a  kind of, where they’re I’m in their reporting   line and they may be worried about, you know,  exposing their biases or talking about their   pain points or talking about their mistakes with  me because they have this independent function.  And within Risk and Quantitative Analysis, you  know, it’s very much a quantitative approach. So,   our kind of first uh, port of call is where we  can, where it’s available, is shedding light on   what’s going on in an investment process,  using our behavioral analytics. So, these   are suite of analytics that will quantify biases  that you may have heard of, like loss aversion,   and the disposition bias, and endowment  effect, that are driven by loss aversion,   overconfidence, um, myopia, their excess trading. You know, we basically started from the behavioral   finance literature, and said, you know, what  are the biggest problems identified there,   and let’s try to calculate them in  portfolios. And then from there, we, uh,   will help investors understand systematic mistakes  that they’re making that are costly, biases   consistent with the literature, which then are,  you know, a drag on returns in their portfolio.  Um, we’ll help them understand their edge, and try  to get them to essentially change their process   to help their biases, or take less risk where  they don’t have an edge, and take more risk where   they do have an edge. So, that’s, you know, that’s  that’s the main kind of area that we work in. Um,   with some teams, you know, it’s  not possible to have analytics.  It may be, um, one example is with maybe  private, in private assets, where there’s not   enough of a transaction history, new portfolio  managers, not enough of a transaction history,   um, to quantify biases, and there we’ll we’ll  mainly work just around what’s going on in the   investment process, how aligned do we think that  investment process is to behavioral best practice,   um, what are the pain points in that investment  process, you know, and with every process,   even if it’s a really, really strong process,  there’s always something you could do. There’s  always some work you could do to to add some  discipline or subtract some process that’s   just bureaucracy and not working. There’s always  something. And then there’s also a team dynamics   approach, which is used leveraging the literature  from social psychology, for example, on um   group decision-making and the biases that apply  there, many of which I found align with like   some of the the spiritual teachings um that  have been passed down over through centuries.  Um and then another thing that we do is very  unique, I’d say. We’re interested in keeping   portfolio managers in the right state of mind, in  the right state of balance to have the best shot   of making rational decisions. And these are things  that, you know, are uncontrovertible from like a   scientific perspective, but not often applied. Things like we don’t want them in sleep-deprived   state. Um things like we want them aware of when  they’re stressed and taking measures to rest to   counteract that stress to stay in balance.  We want them in positive stress states,   where their stress is fueling their  performance and not negative stress states,   where they may be withdrawing or maybe more  shutting down or heading towards burnout.  And to do that, we use wearable technology. The  main one that we use is the Oura Ring. Um and on   a voluntary confidential basis, portfolio managers  will agree to share their Oura data with my team,   and then we can link their um physiology to what’s  going on in their portfolios and play that back   to them. >> You know, there’s there’s so much  there and we’re going to unpack a lot of this   in detail as we go through this conversation. Um but really I I in a way, what strikes me   going back to the very origins of your  team is just the curiosity that it’s um   it’s a recognition that investor psychology is a  form of risk. And it it’s fascinating to me. It   reminds me I think in in the intelligent investor  there’s a a sort of seminal quote from Ben Graham   where he said that the investor’s chief problem  and even his worst enemy is likely to be himself.  And so it feels like philosophically that’s  like a really fundamental recognition for you   guys is that actually it’s not just market risk  that we’re contending with. We’re contending   with the risk that we ourselves are sort of  capable of um uh self-sabotage and the like. >>   I I completely agree and I think that  that’s true not only in investing,   but I think that that’s true often in life. Um for whatever we’re trying to achieve,   we’re often our own worst enemy.  And whether that’s underconfidence   and questioning one’s own intelligence and  capabilities and you may be goodness or etc.   Or it’s coming from overconfidence, of a  fragile ego that’s trying to protect itself,   shutting itself off to other information or  information that it doesn’t want to hear.  I think, you know, it it’s true for almost  anything that we’re often our our own worst   enemy. >> Yeah, you’ve obviously been watching me  in the kitchen. I was So So before we get started   on the the investment-related interventions,  the the kind of biases you’re identifying   and the kind of antidotes to them, let’s talk a  little bit about your journey that got you here.  You You’ve been at BlackRock for about a  decade, just shy of a decade. Um you had   a very strong academic background coming from  Brown and then Yale and then Carnegie Mellon. Um   can you talk about that sort of early academic  training and in particular you you were mentored   by a couple of really kind of foundational  figures in the world of behavioral economics.  Can you give us a sense of of how you came to  be in this position of being so fascinated by   behavioral economics and the like and what you’re  drawing on in your work at BlackRock? >> Mhm. So,   you know, I I always tend to give the advice  to young people to like to follow their bliss   and to follow their interests and to follow  their curiosity and to follow their passion.  And sometimes that leads you to you know, to kind  of like you hit a wall of like you realize like I   I’m not interested in this. I don’t like this. And  then that tells you to pivot into something else.   And when I look back, I feel like I I  pivoted all over the show. Um, but I apply   everything that I’ve learned in my role today. I always just find that that interesting is to   just, you know, to just keep exploring passions.  Um, if you don’t like where you are, chances are   you’ve learned a lot from that and you’ve also  learned learned that that’s not where you want to   devote your time 100% but maybe you can work that  knowledge into what does become your life’s work.  And so I started out being, you know, as a as  a child being really interested in science,   worked at like a plant molecular biology lab at  NYU when I was in high school, [clears throat] um,   worked in neuroscience neuroscience laboratory  at university. My first paper was in   neuroscience. But then I I hit this wall  where I decided I didn’t like lab work.  Um, I didn’t like working with  animals in laboratories. And um,   I realized that I had such a strong passion  for understanding the brain that also extended   to psychology. And so I started to think  about exploring clinical psychology and um   I started volunteering and later  worked in psychiatric hospitals.   I was doing research in in psychiatric disorders  that were treated in primary care settings.  So did a lot of research where I was diagnosing  and um doing research on anxiety disorders.   I worked in a sleep laboratory for some time  and taught a class on sleep which obviously   I apply in my work now. Some of the work I  did I involved sleep depriving children and   so you could see the effects of sleep deprivation  which a lot of that work now um it’s very hard to   get IRB approval for sleep deprivation because  it is so costly. It is so damaging to the body.  So you know, it’s part of some of that that early  work to uncover that. And you know, I I kind of   think now my penance for that work is encouraging  people to sleep as much as possible and to   pay attention to it because I just we know how  critical it is um for health and for intellect. Um   but if I think about what I love of all of those  things that I did and I took something from   from all of them but what I think you know, one  of like the most interesting lessons I took was   uh working in psychiatric  hospitals and really having  this fascination of being there for somebody who’s  in pain and also really helping them look at their   pain as an experience where they could learn and  looking at pain as like an intellectual exercise   to really not be afraid of but to go right  into and to understand. So, that that was   really impactful for me. >> I mean, most most  people I think a lot of people observing the   investment world don’t really think of of super  successful investors as being in a lot of pain.  And I think what’s interesting for both you as  a psychologist and for me as a journalist who’s   become friends with and and just spent a lot  of time inside the lives and minds of really   successful investors. I think what’s striking  is to see the amount of pain and the amount of   stress and the amount of fear and the amount of  shame and and pain when things aren’t going right.  And I you know, when I was writing the  epilogue of of my book in a way that was   Richer Wiser Happier, that was one of the  things I wanted to show people was, you know,   this sort of great Buddhist truth that everyone  suffers. And that just cuz you were, you know,   a genius like Bill Miller or whatever and you’d  been managing 77 billion dollars and then suddenly   everyone yanked out their assets at the worst  moment it went to 700 or 800 million or whatever   it was, just cuz you were brilliant and had made  a fortune yourself didn’t mean it wasn’t torture.  And I I I think in some ways that was that’s part  of what strikes me about your work is sort of the   the unexpected humanity of it. >> Yeah. Even  just this morning I was having a conversation   with investors trying to understand um doing a  postmortem on how they were adding risk during the   drawdown triggered by uh the conflict in Iran. And talking through, you know, that that   experience of when they were adding risk, how it  was on the team for that experience. And for teams   that are cutting risk, you might often ask, um  is it pain management or is it risk management?   And to be really clear about your emotions  around, let’s say, when you’re cutting risk.  Are you cutting the risk because you’re adding,  you know, during a drawdown and it’s just too   painful to hold it and it’s not because it’s  not working. And so are you going to then cut   risk because you just can’t take the pain anymore  or you and the emotions are too strong around the   position itself and the performance itself or  are you cutting risk because you’re worried   about things happening in the future? Right? So  is the emotion coming from something related to   a forecast or is the emotion coming from something  that you’re experiencing right now that’s  difficult or something that you’re scared of  maybe that’s happening in the past or something   you’re scared might happen in the future  and not related to a worry around, you know,   what might happen around constraints on like  supply of oil for example. So we’re really kind   of like understand what’s driving the emotion. Is it coming from something that’s related to   the investment decision that you’re trying to make  in a helpful way where it’s potentially providing   information or is it related to the decision  that you’re trying to make in a way that is   not integral to the decision itself because  it’s based on the past or because it’s based on   you know, you’re worried about  yourself rather than the position.  Um so yeah, something I talk  a lot about with investors.   Then so what I came to though, especially I think  doing research on you know, that was looking at   what I would have kind of came to is that while  I really really loved kind of clinical psychology   and that whole area I I sort of didn’t see  a place for myself in that in that system   and I really just kind of the more I learned about  psychology, the more I felt really really strongly   that there were so many opportunities to  apply psychology in policy, in organizations  and I didn’t see that really being done. I  think it maybe still isn’t done that much,   but in my mind I I could see such strong links.  Um, I just knew that that was what I wanted to do.   And so I got a PhD in organizational behavior  management at at Carnegie Mellon, which was the   kind of the closest area I could find to that. Even though a lot of the graduates went on to be   professors as opposed to going into organizations,  that was the path I decided to to follow.   And then once I got to Carnegie Mellon, which  was an extremely interdisciplinary school,   I could see, you know, how much they encouraged  you to work with the economics department, with   economists there who were behavioral economists  who were studying the impact of psychology and   financial decisions and economic decision making. And that I I just completely fell in love with   that area. >> I think one thing that’s interesting  is there’s a there’s a kind of conflict built in,   a sort of tension built in to a lot of the great  business schools and economics departments, right?   So, I assume a somewhere like Carnegie Mellon  where you were at the Tepper Business School,   there were a lot of economists who believe  that people are rational agents, right?   And that markets are efficient. One thing that strikes me that’s interesting   about being at places like Carnegie Mellon at the  Tepper Business School, where you got your PhD,   is that there was a kind of um internal tension  there, where a lot of the professors, presumably   teaching economics, believed that people are  rational agents and that markets are efficient.  And here you were coming in and studying with  these great professors, like I think Robin Dawes   and George Loewenstein, these great behavioral  economists who were saying wait, not so fast.   Can you talk about the realization that you were  coming to as you studied with people like that and   you you saw how irrational really we are. >> Yeah. Yeah. So, um I think my my actual uh prior and   most people’s prior is that humans are not that  rational. >> [laughter] >> Actually, and um   we’re I might be surprised by uh kind of  neoclassical economists who believe um   in at least modeling decision-making with  the assumption of of rational agents.  And there there really was that tension at  Carnegie Mellon. So, Herb Simon was like a   leading figure there who really I think, you know,  introduced the idea of satisficing and bounded   rationality, you know, was core of that. And then  there were a lot of um neoclassical economists in   the business school who would argue that even if  individuals aren’t themselves rational, markets   will become rational and efficient because in  aggregate the errors will cancel each other out.  And there you know, and there is, you know,  potentially some I do believe that to a certain   extent, but not completely. And not for any  one individual making decisions. We shouldn’t   be assuming uh that they’re rational or they  should not be questioning their own rationality.   And then in the liberal arts department, there was  a department called social and decision sciences   which had behavioral economists who were there. And it was, you know, and they really almost   were two separate groups who sometimes were in  conflict and didn’t work together that often.   And I actually didn’t see  any conflict between the two.   I always thought of it as like the rational agents  approach, the efficient market approach might tell   us like where we want to go to in an ideal world. It might give us like some clues towards like what   the right solution is or what we might want to  kind of like aim for in our decision-making.   Although they did also have a lot of  assumptions about people being you know,   self-interested that we maybe don’t want to don’t  want to model, but at least it gives us, you know,   some direction and some benchmark through which  we could actually compare how people actually make   decisions, how they actually behave, how often  markets are really maybe out of equilibrium,   and how often, you know, prices may look irrational. It gives us a comparison point   that we can learn so much. So I I never really  thought that there should be any tension from   the two and in fact that they could really learn  from each other. Actually, for on a personal note,   for many many many years, my boyfriend was a PhD  student in the neoclassical economics persuasion.  And we would learn from each other. Some  of the behavioral economists might say,   you know, sleeping with the enemy. But from my  perspective, I was, you know, this was like an   an opportunity to kind of you know, to to kind of  like think about how other people see the world   and use both perspectives to move forward.

And if you think about what you learned   from someone like George Loewenstein, this kind of  legendary behavioral economist who was, I think,   your dissertation advisor and and is still  a friend, um he’s an expert on things like,   you know, feeling risk in the body, for example,  or the the the human capacity basically to   sabotage ourselves instead of acting rationally. Can you think about sort of any enduring lessons   that you’ve learned from him that you still are  drawing on to this day? >> Yeah, I would say he he   wrote with with others called Risk and Feelings,  which I use probably every day in my work.   Um, he also um talked a lot about differences  between hot and cold state decision-making.  So, looking at the impact of like visceral forces  on your decision-making, and obviously that feeds   a lot into the the work that I do in conversations  with investors and in the work I do on stress   impacting decision-making. Um and I can talk more  about how I apply those concepts, but I just also   want to really say how much I learned from George  in terms of applying like intellectual curiosity   to your work, to researching things that you  know, were meaningful for you, that might help   you understand something about your own life. And how much I learned from George about   taking things out of the laboratory and starting  to put them in a more applied setting. So,   a lot of the early work that was done in the  judgment and decision-making and in behavioral   economics and experimental economics,  it was all done in laboratory settings.  And you know, either with surveys or with  experiments normally on university students.   And with George’s inspiration, we looked outside  of the lab to test ideas. So, we started working,   you know, we were interested in how low-income  people make decisions. And so, I was collecting   data at the Greyhound bus station. We were  interested, you know, and one of my colleagues was   actually interested in how people make decisions  when they’re under the influence of alcohol.  And you know, George had like a like a  data van set up and she’d go and down as   people were coming out of bars and ask  them if they wanted to do experiments.   With George, we we did research. Um we did field  experiments in banks. We did field experiments in   low-income populations to encourage them to save. We did um experiments related to health care.   So, you know, she really inspired me to start  to move the theory into an applied setting. He   really taught me that. >> So, let let’s go in  some depth about the ultimate field experiment   that you’ve been conducting at BlackRock  over the last 10 years cuz it’s kind of a   perfect microcosm of this, right? How you take  this sort of academic research on biases and   and the impact of emotions and like and then  you take it into into a an applied setting.  So, I want to really unpack it in some detail and  go through the various things that you do there.   So, maybe you could just start by giving a sense  of when you sit down with a portfolio manager   and you’re you’re sort of beginning to build  a relationship, how you go about identifying   their behavioral biases and the impact that  it’s having on their performance and their   risk-taking and what you actually do, which  I think is very idiosyncratic in terms of   quantifying and measuring their biases  by looking at everything from, you know,  their portfolio and their trading  data and their trade diaries,   their journals. Can you take us through that  process? >> Yeah, so the process is um not   So, there’s there’s many different processes  depending on where the portfolio manager is   coming from. So, if it’s kind of a routine sort of  meeting where, you know, we have analytics, like   maybe they’re a new portfolio manager, but now we  have enough track record where we have analytics   to be able to show them what’s working  and what’s not working in their process.  Um they generally have had like some introduction  to the team, know that they can come to us if they   want help. Um, and when we start to review their  analytics, I try to make [clears throat] them   understand, and many of them already do  understand, that this is a process where if   our analytics don’t show anything, that  doesn’t that’s not necessarily a good thing,   right? >> [laughter] >> Because if our analytics  can’t find any biases, then we can’t help you.  You’re kind of maybe like as as good  as you’re going to be in your process,   and we we’re not seeing any clear  opportunities for you to learn. Um, so   I really try to have them understand that they  don’t need to be afraid of us identifying bias,   because if we can identify a systematic mistake,  we can often fairly easily undo undo that.  Whereas if the mistakes that they’re  making in the portfolio are just random,   um, then there’s less we can do to help  them. So, that’s number one is to really   have the mindset that these biases are like  our opportunities. And very often, you know,   they’ll enjoy the meeting on some level,  and also find it painful on another level,   right? Cuz isn’t it always just painful to look at  our mistakes, but good for us? Um, and the other   thing I try to instill is that, you know, this  is the the the protected learning environment.  Again, this isn’t something where  myself or my team are feeding into um,   you know, whether they are promoted or not, or  their compensation or not, or or the opportunities   that they get or denied in their career down  the road. This is kind of their time um,   for self-reflection, to get to know themselves,  to think about how they can improve their process,   how they can improve their team dynamics, how  they can do better for clients, not a situation   where they have to perform or they have to be on  or they have to, you know, defend themselves or  rationalize. Um >> So, you kind of have to be  secret. You have to be sort of confidential and   not revealing stuff to their managers and the like  about, you know, if you find out that they get   super stressed and they start drinking when the  market’s going down or whatever it is, you know,   you’re having to respect confidentiality. Yeah, I mean, I think you know, where there is,   to be clear, where there is formal confidentiality  is only around the Aura program. >> Huh. >> Um it   because that is where the data is, you know, they  have agreed to participate in this program under   strict confidentiality. When we’re looking  at their portfolio analytics, you know,   to be fair, like anybody can kind of look  at these analytics and see what’s going on   um in somebody’s portfolio. It’s based on like their history   um of holdings and return and risk through time,  right? And that data is really the public within   the Aladdin technology at BlackRock. But most  often, it is really just my team that is looking   at these analytics and sharing the insights  with them and there is a lot of discretion   that we apply around what happens in the meetings  um and there may be discussions with CIOs about,   you know, how to take the investment  process forward, um about maybe resources   the team may need, but certainly not about the mistakes of the investor or of maladaptive um   reactions to stress and the like. >> So,  what what happens if you look at their   portfolio or their trade journal that, you know,  explains their rationale for making investments   and you see these very common biases  that I think you referred to before like   myopic loss aversion or disposition bias. Like can you talk to us about   how you’ll observe that in a portfolio like say  you know the the way that investor scales into   positions or something because of their fear of  of loss. Like can you talk about what what these   biases actually are that a lot of people will know  because they’ve studied Kahneman and Tversky and   all of these other great behavioral economists  but give us a sense of what the kind of biases   are that you’re seeing how it shows up in the  in the evidence that you’re looking at and   then what kind of interventions you can actually come in and help to provide. >> Yeah. So in in one   that you just mentioned in scaling into positions  to slowly which myopic is consistent with myopic   loss aversion. We’ll look to see we’ll look to  compare the performance in a particular position   that actually occurred as an investor built up  the position through time and compare that to   the return they would have achieved if they had  entered the position at the peak weight initially.  You know and it may be that going in slowly  is the right thing to do because you maybe   you’re building on local sell-offs. Right you know  maybe you’re building on that you’re building your   position on weakness. That seems like you know  that could be a very a very smart thing to to do   or it could be that what’s most  typical in your process is that   as you have formed your investment thesis and the  thesis is is quite sound is quite credible maybe   it’s based on new developments or newly released  pieces of information that you want to incorporate  into your portfolio through this  position very often portfolio managers   will enter at a small size. And this may be  because positions that are new often feel risky   because you’re maybe not as familiar with this.  This isn’t a company that you’ve owned for years   and years and years. This is a company that  maybe you just decided to invest in or a   position that you just finished researching that  you want to put into say a multi-asset portfolio.  Um and so this newness feels risky. I think also  for a lot of investors changing the portfolio   can feel risky. Like change feels risky. And  in terms of myopic loss aversion, very often   like that that in particular may come not just  from um kind of going into a new risk, but it may   be because maybe a particular analyst on the team  is recommending is pitching this investment idea.  And maybe this analyst only has a small number  of positions in the overall portfolio. And so for   that analyst, right, they have less breadth. Like  their breadth they’re more concentrated. So if   any one of their positions doesn’t do well, that  will kind of like really you don’t that that will   stand out. Right? Whereas for us like a portfolio  manager managing across a diversified portfolio,   he or she wants to add risk to any new  position that’s consistent with their edge.  And through diversification, through taking  risks consistent with your edge through time,   um you will you’ll make money over the long  run. The CEO of a company wants everybody   kind of below them taking risk in line with  their edge, taking risks with positive expected   value through time. But for that as you go  down the pyramid, for that one individual   taking the risk, they’re they’re less diversified. Each risk is more of a reflection on them   and feels riskier. So, that is why it’s kind  of several reasons why people may enter into   new positions in too small size or perhaps scale  up a bit too slowly. >> How do you make it harder   for the portfolio manager to make the mistake?  Like what are I mean is is it is it sort of   setting advanced rules for example about a  default position size? Like what can you do to   to kind of nudge them towards better  behavior? >> Yeah, that’s that’s exactly it.  I think there’s approaches that have to do with  addressing the psychology of like the mindset   and the emotions and there’s approaches that  are just in line with what you’ve suggested that   are taken from the behavioral  literature these nudge strategies   that help change behavior. So,  you set a default position size.  So, you may say you know, all new positions we we  think about it. We’ve collectively agreed at the   team that each new position should start at this  level. And it’s okay to exercise our conviction,   right? And say no, I this is a higher  conviction position or the catalyst hasn’t quite   you know, started to materialize.  Um so, it’s going to be smaller.  There’s good reasons to deviate from that  default, but you have to be really clear   and perhaps document reasons why you would  deviate from the default. So, you’re kind of   the default is nudging them towards the correct  or the more rational approach. And then you’re   using maybe a bit of process sludge having to  document like deviations from the default to make   sure that you’re thinking hard about why you’re  deviating and not just reacting driven by emotion.  I think also in that like what’s really important  is you know, again the emotion and the mindset   and the culture around it. So, you know, I was  talking about this at for a group of investors   at an offsite once about myopic loss aversion.  And one of the investors like took me aside after   and he recounted about the first  time he had lost a lot of money.  And that his idea that went into the portfolio  like didn’t do well. And how he had like   you know, gone to the bathroom to you know, to  hide in shame. And but then he came back and his   manager exclaimed to him that part of the job is  taking risks and those risks don’t always work.   So, you’re not here to make money every time. You’re here to take risks consistent with your   edge. And there you cannot expect them all to work  all of the time. That this is like part of the job   and that you he hadn’t done anything wrong. And  so, I think that that is a a huge part, you know,   having the right culture of risk rational risk  taking um that can help alleviate some of these   biases as well as the the more investment  process structural things like defaults.  So, I I think probably just to clarify for  most of our listeners who are pretty sophisticated   investors, they know something about prospect  theory and Kahneman and Tversky and this whole   framework and this idea that with loss aversion  that losses are something like twice as as painful   as an equivalent gain is pleasurable. There’s something kind of related to that   that comes out of the same sort of framework which  you talk about a lot which is disposition bias.   Can you explain what the problem  is here and how it it kind of leads   often to suboptimal behavior where people say you  know, hold on to losers for too long. >> Yeah.   So, the way that we measure the disposition  bias is um will look through time of what’s the   probability that they realize a gain versus the  probability that they realize a losing position.  And so, we’ll take as evidence that the  disposition bias could be of interest   for this portfolio if we see that there’s a  greater probability of them reaping a gain   than cutting a loss. And this is, you know, this  is we’re generally looking at this relative to   a benchmark. >> The general idea here, right,  is that you don’t want to cut the flowers and   water the weeds, right, as I think Peter  Lynch would say, right? So, you’re trying   to overcome that tendency that we have. Yeah, and this is a kind of natural   tendency that most retail investors will have,  that often investors will have early in their   career and they kind of unlearn this bias.  They kind of learn to run their winners longer   and to admit when they’re wrong sooner and  cut losses or risk manage their losses.  So, they you know, so it so that they don’t  get carried out. But the but you know, it’s   it’s not always the case and there could be some  investors that are quite good contrarian investors   that are just very, you know, they understand  when the market has overreacted and overreacted   to negative news or negative news is impacting  a position where it’s not actually relevant   and you know, that’s where they’ll add risk  and then position will actually mean revert.  So, when we look at it, we’re looking at like  this the relative probability of realizing   a gain versus a loss, but then we also that’s  like, you know, if the if the greater propensity   to reap your gains and cut your losses, that  could be consistent with the disposition bias,   but we’ll only say it’s a problem if it then  turns out to be costly in the portfolio.  If it then turns out that the losing  positions don’t mean revert and come back,   right? And by reaping your gains, you’ve taken  profit too soon and you’ve missed out on future   opportunities. So, in that case, your sell hit  rate isn’t good. As you’re cutting positions,   they continue to perform. So, if we see  the disposition bias, there’s a number   of different things that we can do to try to  like, you know, dig into why it’s happening.  So, we might look go through and look at lots of  examples um that are consistent with the pattern   and have the investor talk through them. We might  look at is the disposition bias being um driven   by a particular type of trade in the portfolio  and there the trade diary might be useful.   Is it coming from, you know, trades  that started out as tactical trades that   are actually becoming, you know, longer-term  trades as the investor gets caught in this   pattern of uh wanting to continuously hold or add  risk to positions that that aren’t working even  though the original thesis is no longer valid.  Maybe they’re creating new theses for why they   should hold it that don’t make sense necessarily.  They’re just justifications for their previous   decisions. Maybe there’s something going on in the  team dynamic where the positions that are losing   money have become a taboo topic and they’re not  being re-underwritten, they’re not being updated.  It’s not okay to challenge those positions. Maybe  in the trade diary we would have seen that they   have uh put down particular risks to a position  and those risks have materialized, but they’re   still holding it. I think the biggest clue also  that someone’s doing this is if you start talking   to them about it and you’re met with some emotion. You’re met with some sourness or some stress   or some anger, that’s when, okay, we know  that there’s some alpha here we can unlock   by addressing this and that’s when I get  excited. >> I wrestle with this a lot myself   as you’re talking about this. My mind is sort  of wandering because I keep thinking about the   fact that I I’ve now owned Alibaba since 2021 in  an IRA account and it’s it’s down about a third.  And I tend to have a rule for myself with  basic rule that you know, if I buy something   I’m not allowed to sell it for 5 years cuz  I’m kind of trying generally basically to   force myself just to hold stuff. And I only  own two stocks like I mostly own funds and so   I’m sort of happy to own Berkshire  Hathaway as a kind of permanent position.  But Alibaba really I just bought because I’d  had this amazing conversation with Charlie   Munger and Lou Simpson and and they were both  like super bullish about it and I was like   it was like almost like this tribal thing where I  was like, okay, well, they love my book and I love   them and so I’m going to buy the stock they love. And here we are like 5 years later. I really   A, I have no real reason to own it because I don’t  really understand anything about China and the   political risks and the like. And I sort of have  a general sense that probably it’ll mean revert in   the end because it’s probably cheap and you know,  everyone hates investing in China and the like.  But but it also it’s such a cognitive burden  for me because it’s such a minuscule position.   It’s totally irrelevant. I don’t even think  it’s like 1% of my portfolio at this point.   And yet I look at it and I look at Berkshire and  it’s like it’s irrelevant compared to the funds   I own. And so even though I know that I’m sort  of subject to these biases and I know that I’m   being illogical and I know that I should probably  just get rid of it cuz it’s not aligned with my   investment approach and I don’t really  want to be buying individual stocks  myself. It’s like it’s the knowledge of  my own irrationality doesn’t seem to stop   me being irrational. And I I talked to Annie  Duke about this a few years ago on the podcast   and she was talking about having kill criteria,  specifically with regard to Alibaba. You know,   she’s like, “Well, you need kill  criteria where you decide like   this is what will make you sell it eventually. ” Does my own folly and stupidity and   irrationality raise any thoughts for you,  any any observations? Sorry to turn this   into a therapy session for me. >> Not at all.  First of all, I love that you did buy Alibaba,   right? Because it’s giving you all these  opportunities to reflect on your own rationality   and all these lessons that that you can learn. And I think they I I’m like a real believer that   in order to learn to undo these biases, you  like you almost always have to live it yourself.   And this is what some of my my research  is also shown, like teaching and lots   of behavioral research has shown, like teaching  people about the biases often isn’t sufficient.  You have to like build it into like the structure  of the process and and like very often you have   to like have physical real experience with it and  feel the experience like in your body as well as   go through it cognitively. Okay, a couple  of things like go to my mind. You bought   the security because people that you admire um   you said they loved you a bunch and you loved  them, so you so you buy it, right? >> Yeah,   so there’s a sort of authority bias. There’s something tribal there that I don’t   think I quite appreciated. >> All So, all of these  things So, okay, taking the advice of experts,   you know, that that’s pretty rational.  But doing things anytime you’re making   a decision about markets where the reason why  you’re doing it has something to do with you,   then that’s when you know that there’s a problem. Right? So, you you know, you mentioned it because   you know, it was your feelings about them that  made you you buy the security, right? Not their   expertise, but your kind of affiliative feelings  A a little bit of both cuz I also thought,   “Well, here’s Munger who makes very occasional  investments and he’s literally saying to me,   ‘Look, if I had more cash, I would be all in. ’” And so, I have one of the greatest investors   of all time and Lou Simpson saying, “Oh, it’s  unbelievably cheap.” Another of the greatest   greatest investors. And they’re two of the  great global value investors. So, it’s sort of   my tribe. And so, there’s a sense of So, there’s  authority bias. There’s the shortcut of saying,   “Well, these guys are kind of brilliant. ” There’s There’s wanting to be part of that   tribe. There’s the ego and vanity of thinking,  “Oh, wait, I have access to the smart money.”   And um And so, it’s like doing none of  the due diligence. >> [snorts] >> And   you know, yeah, there’s too much ego and identity  involved in the decision rather than sort of   dispassionate economic or financial analysis. Yeah. And almost nothing you said   right [clears throat] at that moment had  anything to do with Alibaba. It all had to do   with you or with with other experts,  right? Um but you you know, but you know,   I might stay with I might stay with the  position because of what it’s teaching you,   right? Because it’s like actually  teaching you quite a bit.  The other thing that you mentioned was the  cognitive burden of this position losing money.   And that’s, you know, comes into this pain  management versus risk management. And,   you know, if you’re cutting something just because  it’s putting you in pain, I think you need to look   at that and make a decision about whether it’s  worth the pain if it’s that big of a distraction.  But I think, you know, for you, you said it’s  1% of your portfolio and it’s causing this   pain. And I think, you know, we talked about for  portfolio managers, having a job where, you know,   there’s a constant scorecard where the drawdowns  are examined, you know, by clients, by management,   by risk managers, you know, there’s a lot  of like um defend yourself as a person   that I think really you have to do a lot  of work to continually subtract, you know,   how much of that cognitive burden is  about because you’re worried about that  1% of your portfolio or how much of that cognitive  burden is about what does it say about you that   this position is underperforming. And again,  I think it’s like so important to take the   you out of any any scenario and look purely at  the prospects for the company. Another thing   that that example brings up for me is let’s say  today you broke even, Alibaba rallied enough for   you to break even on your original investment. What would you do then? >> Yeah, it’s a really   interesting question. I think historically I’ve  never sold in down periods. Like I I was fine in   2000, 2001. I was fine in 2008. Like I I either in  2020, 2022. Most of the time when things got hit   I either bought more or I was kind of  paralyzed and at least didn’t sell anything.  And but I realized that so I’ve done okay  psychologically in that sense. Like not brilliant,   but okay. But I’ve noticed that sometimes I would  wait for something that was painful to get back   to even and then I just wanted to get it out of  my sight. So I’m definitely aware of that being a   a recurring issue. So part of my work around  for this has literally just been to say   I want to take myself out of the game and I’m  going to just give money to people I trust who   I think have a better temperament for this and  are more focused on it. And so I mean to me in a  way what’s so interesting here, you know,  sorry to be overly self-referential, but I   think what’s interesting is is the importance of  self-awareness. I think that’s what a lot of these   examples get at is you need to be aware of your  own weaknesses and irrationality. >> Yeah. Yeah,   what you can learn about yourself in the  process, I think is really important.  And then, you know, I think on  that that temptation to break even,   right? When you break even, you’re  out. And I I I like this you know, I   I too, like you, have my inclination is to add  into weakness and not to crystallize losses   at the bottom, right? Unless it was clear that  my rationale really really doesn’t hold water.  I was really mistaken. There was something that  I missed. Um, but then this break even effect,   I think that’s one that you have to be really  aware of when you have a kind of temperament   like our own. And that’s where having the right  sparring partner on your team, um, I don’t know   if you make investment decisions with your wife,  but my husband has exactly the opposite as me.  You know, he must aggressively cut losses and he  wants to run winners, right? And he’s not scared   to go about going into positions that have rallied  where he’s like, I I don’t like that. I’d rather   buy into weakness. Um, so I think that, you  know, there’s no wrong or right way of doing it.  It always depends on the situation and it always  is, you know, depends on you making the decisions   based on your future expectations, not based on  yourself, right? So, to counteract the impact of   yourself, you would want to try to find somebody  to debate, to work with, that has like naturally   has the opposite inclinations that you have. I remember, um, Annie Duke, when I interviewed   her, she she was friends with both Danny  Kahneman and Richard Thaler and she said   you know who I guess both of them won Nobel  prizes for economics, right? And she said um   Kahneman had had appointed Thaler as his  quitting coach basically to tell him when he was   being blindsided by his own biases or and so for  me that was really interesting that if someone as   brilliant as Kahneman um needed to appoint someone  who could tell him what he didn’t want to hear   um that says something really important, right? About our capacity for self-delusion. >>   Have you spent any real time investing? You’ve  probably noticed something. The longer you do   this, the smaller the circle of people you  can actually talk to about it with gets.   Most people in your life are unfortunately  not spending their weekends reading 10-Ks   and the internet is full of noise as we know,  hot takes, meme stocks, influencers with a camera   and a conviction that they can’t defend. Well, that’s the gap that the Mastermind   community was built to fill. I’m Shawn O’Malley  and alongside my colleagues Stig Brodersen,   Kyle Grieve, and Daniel Shonka I help lead a small  application-only community of long-term investors   who are serious about getting better at this.  You’ll join a like-minded peer group, enjoy direct   access to us as hosts and to high-profile guest  speakers on private calls and live events like   roaming Omaha with us during Berkshire weekend. If you’d rather compound your capital alongside   people who take investing as seriously  as you do, apply to join at the   investorspodcast.com/mastermind. That’s the  investorspodcast.com/mastermind. We’d love to   have you. >> Yeah. Yeah, absolutely. I think it’s  absolutely essential um to have a team or to have   people that you work with that that can do that. And a lot of the decision-making processes   that happen at BlackRock are um in the  structure of a team. And the the kind of the   decision-making authority kind of structure  that I prefer is to have, you know,   to not make decisions by consensus, to have the  lead PM or or like a couple of lead PMs being the   the people who are taking the decisions informed  by the collective intelligence of the team.  And but that means that even though the the the  people making the decisions are often the kind   of like, you know, most senior people in the  typically the most senior people in the group,   did I really try to impress on all of the  other members of the team that it is their   job to beat up the decision makers, right? It  is their job to challenge the decision makers.  It is their job to really speak their truth to  the lead portfolios managers making the decisions   because that is how the wisdom of  crowds primarily works is through   like a principle of error canceling.  Diversity and and independence have   a function of canceling errors, canceling these  biases. >> Yeah, this is such a powerful insight.  You said something to me a week or two ago  when we spoke. I I wrote down the exact   quote cuz it was so striking. You said, “The  responsibility of everyone else in that team   is to debias the decision maker, to  attack, to challenge the decision maker.”   So, there’s a certain type of ethos that you’re  trying to instill in a group that requires um   a lot in terms of the leaders being self-aware,  but also getting their ego under control.  Can you talk about the functioning of ego, which  I think is a it’s a huge part of what you think   about, right? The way that ego kind of screws  up a team, for example. >> Yeah. I think that um   I I think that you had asked me the question,  actually, of what makes a really good investor   at one point. And I think I had answered  that, you know, I see so many different   types of investors, and I think there’s so  many different strengths and weaknesses.  And you know, you just want the strengths  and weaknesses to be aligned with the   particular game you’re playing, with  like the asset class that you’re in,   or the time horizon that you’re investing under,  etc. But I think something that just, you know,   I haven’t really reflected on it, something  that just really pervades every good investor,   I think is not being caught up in their own ego. And it’s someone that is more interested   in markets, right? Is than being interested in  themselves being right. Right, they want to like   understand what’s going to happen next in markets,  more than they want what they said yesterday to   be true. >> Right. So it’s a fascination with  the problem, with solving the problem in a way.  As a not as necessarily a reflection of your  own ego and self-worth, but just cuz it’s an   infinitely interesting complex problem.  Yeah. Yeah, exactly. And of course,   it’s it’s impossible to take your ego out of the  situation completely. And, you know, I struggle   with it myself, even when I’m in conversations  with investors or or speaking with my own team.  I’ve learned over time, and I’ve not mastered  this, but I’ve learned over time that the more   I am trying to be the one to be helpful, or  the one I am trying to get to the solution, the   more I’m trying to be right, the worse the whole  thing is. Um, so, one of the habits, I think,   of good leaders who can subjugate their own egos,  or move past them, I think that one, um, they have   a willingness to talk about their their mistakes,  to be vulnerable in that way in front of the team.  And so, this is like classic psychological safety.  By doing that, you promote psychological safety,   this feeling that everybody on the team can speak  their own truth, be their authentic self. Um   that they can take intellectual  risks without fear of retribution.   And I think also what’s really important is  that these leaders are often quite quiet.  So, they may be the ones speaking last in the  meetings. Right? You don’t want a leader, the key   portfolio manager, the key decision maker speaking  first and kind of anchoring everybody on their own   point of view. They’re genuinely interested on the  on the independent points of view of other people.  And so, they’ll listen first and try to  stay in a state of um delayed judgment.   They’ll try to really delay their own judgment  until they hear other people’s perspectives.   Right? And then, of course, at some point, you you  form a judgment, but you’re open to reversing that   judgment if you’re convinced by a better point  of view or if you’re convinced by new information   that emerges that tells you that you’re wrong. And this is uh you know, consistent with the   trait of of active open-mindedness that Tetlock  found was really one of the defining traits of   superforecasters. This idea that they you know,  they have strong convictions, they have strong   beliefs, but they are willing to update. Their  egos are not so fragile that they don’t update in   the face of a better argument or new information. We were originally introduced by a mutual   friend of ours, Thomas Miler Borja, who’s um  co-headed the of global real estate BlackRock   and head of the value-add real estate group. And  And Thomas recently gave a wonderful speech at   my invitation in in Omaha when we went for the  Berkshire Hathaway weekend where he talked about   applying lessons from Charlie Munger on  the psychology of misjudgment and talked   in in some detail about working with you  to improve his team’s investment process.  And one of the things I thought was really  interesting, he talked about um you know, the kind   of problems that he was trying to address with  you. So, I think he said that in the seven years   before you guys started working together on this,  there was something like a 100% approval rate for   the for the deals they they were discussing. And he said, you know, look, we were a group   of five white men on the investment committee  and if someone was traveling or they were sick,   you’d give your proxy vote to another  investment committee member so they could vote   in in your stead. And he said there were never  discussions that felt uncomfortable. And we never   approved the sale of an asset at a loss. And so, I wonder if you could talk a   little bit about like how you and he kind of  worked on that process of kind of creating   more uncomfortable discussion which kind of  goes against our nature, right? To And And   Thomas is such a lovely human being, right?  To actually invite uncomfortable conversation   and to bring more cognitive diversity to the  group, more diversity of all sorts to the group.  Can you talk about some of the that as a kind  of microcosm of what really works well in a   successful group cuz it seems like it’s had a kind  of profound impact as you guys have transformed   that investment process. >> Yeah. So, I I can  talk about how the process has shifted a bit,   but again, it goes back to to loss aversion  and and when you’re working in the private   asset space like real estate or private  credit or private equity or infrastructure,   I think the number one bias that you need  to be aware of is the sunk cost bias,   which is that as you’ve had, you know, you’ve been doing due diligence   on a particular deal, on an opportunity,  you come to grow pregnant with that deal,   you’ve done lots of work on it, you’ve  spent due diligence money on it, and   then to walk away feels like a loss, right? So,  this is I think the number one bias um that you   need to try to overcome in private assets. And so, the last kind of stop for doing that,   hopefully that’s done earlier in the process,  but then the last kind of stop for doing that   in this world are the investment committees.  So, in Thomason’s process, what we did is   before they went into a preliminary IC  meeting, so this is not the final IC,   this is one where they’re deciding whether  or not to uh spend the due diligence money,   you want to collect independent points of view. So, instead of having everybody receive the memo,   receive the IC paper, go into the room and  discuss it, where then again, you can anchor on   the position of the first person that speaks, you  want to encourage everybody to come to their own   perspective on the deal before that meeting. So,  we introduced a voting head of the preliminary IC.  And instead of it just being actually, it wasn’t  just kind of a yes-no vote, it was their rating   the deal on the distribution, comparing it to,  you know, to a scale with very concrete anchors,   looking at the distribution of deals that  have previously been approved by this IC,   how good or bad is this particular deal. Um  then those votes, those ratings go to Thomas,   who’s chairing the IC, and then Thomas has, as  he’s going into that meeting, understands what   everybody else believes about the deal before  the discussion even starts. And so, if it  starts with people talking about the  strengths, and it seems like it’s just   moving in that direction, but Thomas knows that  there’s one IC member that has a a less positive   view on the deal, he can make sure that that  perspective is aired in the meeting. >> It’s   avoiding rush to judgment. It’s avoiding the  momentum where you start talking about a deal   that you’ve already invested a lot of time in,  and you you move inevitably towards fruition.  And it’s avoiding kind of deferring  to the most senior people in the team.   Um, so it’s sort of authority bias, right?  It feels like there’s, as Charlie would say,   there’s a sort of lollapalooza of biases that  you’re you’re having to address. >> Yeah, and this   this practice of just collecting independent  points of view knocks out a whole lot of them.  I mean, another bias that groups have is that they  like to talk about shared information, and they   like to talk about things that they agree on. You  and I agree on something, that that feels good.   That just humans like that. Like, we’ll feel  closer to each other, we’ll trust each other.   We just positive emotion. Us disagreeing is  is horrible, right? People don’t like it.  It makes them uncomfortable. If a psychologist  wants to do an anger manipulation, something   they can do is find out what somebody  believes and have them watch a video of   somebody arguing the other side. Disagreement  is just unpleasant. But the literature suggests   that disagreement leads to much better  decisions, objectively better decisions.  Even though the group may feel less confident  about it, they’re objectively often more correct   the more disagreement there is in the discussion.  Um so, that type of structure allows the chair to   pull out different points of view um and make the  full committee aware of them. >> So, so part of   it, Emily, is like you’re creating this culture  where independence is valued over agreement,   where challenge is invited, not taken personally. But, part of it is actually actually structural,   right? So, you have this kind of blind  voting system. But, you also, I think,   in that group, I think you guys introduced the  role of a challenger, right? Someone um Can you   explain that role? Cuz I think it it This is a  really important aspect of actually structuring   disagreement or debate into the process. Yeah. So, this actually it serves um   a couple of purposes. I think most people  would have heard of devil’s advocate.   So, you want to bring a devil’s advocate into  the discussion. And in this particular example,   what we decided to do was to have an  outsider be the devil’s advocate. So,   instead of having one of the IC members do it, to  bring in somebody from outside of the IC group,   because bringing in the presence of outsiders also  helps you think harder about your assumptions.  And it was generally somebody who has really  like the time and the space, the capacity   to really dig into the details. And then it’s so  they’re not only digging into the details of the   particular deal, but they’re licensed,  they’re charged with thinking about um   if this deal were to go wrong, what would go  wrong? And that’s what we call a pre-mortem.  You imagine that it’s 3 years down the road  and we’ve all agreed that this investment   was a colossal mistake. What happened? Right?  And so, that person then um goes through that   that process. And what you want to happen here  is to make it, you know, okay for somebody to   challenge the work that the deal team has been  spending long hours exploring and building.  And so, you do that by making it  structurally part of the process.   And then just because, you know, the pre-mortem,  if you do a pre-mortem and you’re identifying   lots of risks and lots of holes in the deal, that  could lead you to potentially walk away. But also,   what that could do is just to say, “Okay, well,  you know, maybe we need to negotiate the terms   harder or maybe we need to restructure differently  to be able to guard against some of these risks or   maybe this just gives us a blueprint for if the  deal is going wrong down the road, that we’ll  know that we’re wrong and we try to dispose  of the asset rather than continuing to spend   to throw good money after bad.” So, that kind of  all happens in the preliminary IC. And then in the   final IC, you know, as we mentioned, we introduce  blind voting. And so, this was, you know,   so at this point now, it’s hardest to potentially  walk away from a deal or to vote against it.  So, what we do is have the IC members  vote anonymously. So, it gets away from   the kind of pressure of you being the one who  doesn’t want to voice your true feelings about   the deal because you don’t want to be the one who  has killed the deal, who’s kind of ruined it for   for everybody else. So, that anonymity like  takes away that kind of that that pressure.  It seems like another really critical shift  that you guys made was in terms of the group   composition in the investment committee in these  ICs. That I think um if I remember rightly,   Thomas said originally, you know, there were  no women at all. That went from zero to three.  And then you guys explored having the group  rise to 10 people and that was too many,   so now it’s come back down to seven or eight, or  something. Can you talk about the importance of   of cognitive diversity in a group? Because um I  mean, that seems to me a really critical thing,   right? Is not just, you know, not  just understanding these biases,   but actually having these kind of systematic  ways of sort of structuring things so that   you’ll get more diverse independent views. Yeah. And to be fair, I think this was   something that Thomas really drove, like, changing  the composition of the IC, and I think just,   you know, needed to kind of sense check that  that idea with me. And it’s something where   you want to balance diversity to the point  where like, if you’re if choosing like,   this is actually like Condiments’ idea that if you  are looking for the first person to be on the IC,   you just want to take the person who has um  the most expertise in that area, like, the   best track record in that area, like, you trust them the most, like, they you know, they have   the clear training in that area. Then the second  person that you would want to have in that group   is somebody that’s not the next best expert in  that area. The next person that you’d want to have   is someone that brings a different perspective.  Someone that doesn’t share the same assumptions.  Someone that maybe may make a mistake,  but it’s not going to be the same mistake   as the first expert that you brought on. And  this again is because, you know, if you have   two people with exactly the same background and  training and experiences and ways of thinking,   then it’s very likely that they’re  going to make the same mistakes.  And so, they’re going to have correlated  errors, and so there’s kind of almost no   there’s just not a lot of benefit of having,  you know, a clone like, on the team. and you you   get much more benefit uh by introducing somebody  that’s going to have a different error and going   to be able to spot yours. >> Yeah, I thought it  was striking that Thomas and various other people   um on the investment committee talked about the  importance of you know, not only having more women   but having people who were from Asia or the Asia Pacific region or I I think they brought in   a sustainability expert and a the global head  of securities and so so it seems like just this   goal of bringing people with different forms of uh  experience, exposure um different ways of looking   at the world. It’s It’s not just about gender,  right? It’s about geography and many other things.  Yeah, I I think I think that geography when I  when I hear from investors from other parts of the   world, which is one of like the great advantages  of being a BlackRock, I mean, that is just   it’s not only fascinating to see you  know, how where somebody is based   changes what they believe and what they forecast. I mean, it just it’s just so interesting. It’s   always you know, it’s it’s just it’s just it’s  just fascinating to hear another point of view   that comes from someone living in a different  place. The other thing that I would add to your   list is political diversity. >> Ah. >> You know,  we people are so polarized by politics these days.  It’s really I think it’s essential to have  people in the decision-making environment from   a different political persuasion than yourself. I  think especially because there’s so much kind of   you know, politics leads to so much of like a  world view of what you think is right or wrong,   which then affects your forecasting so  critically because you want you know,   your side to be the right side. Well, it’s such an interesting point, Emily,   cuz I remember being at at a BlackRock event  a couple of years ago cuz I had come to give a   speech. And the real estate team would talk about  the importance of sustainability as a kind of   an element of judging the risk of  an investment they were making.  And like you know, people who are sort  of politically myopic would sort of say,   “Ah, you know, ESG nonsense and BlackRock’s  gone crazy about this stuff.” But actually,   if you just set aside your politics, you’re like,  “Well, why wouldn’t you want to know whether the   property you’re investing in for the long term is  vulnerable in terms of sustainability, you know?”   And so, I you know, it was kind of it was kind  of such a an interesting thing for me to see   the debate there because um I mean, I’m I’m pretty  independent politically, but it but like even when  I’ve done podcasts where you mention ESG, the  reactions you get on YouTube are sometimes like   like literally someone will  just write, “Fail. You know,   ESG nonsense.” And you’re just like, “Well, why  why would you close your mind to that?” And so,   I mean, just you know, I think of Buffett and  Munger who are sort of Democrat and Republican,   really close friends, very consciously sort of  you know, very open-mindedly using the other   one to kind of stress test their judgments. Yeah. Yeah, absolutely. I mean, what I   what I think about sustainability is, you know, I  completely agree that like we should be looking at   it through the lens of risk. Um and also looking  at it through the lens of opportunity. So, there   is this a bias um called tainted altruism, >> Mhm.  which is that we often and and to me, this is   the saddest bias, and it’s this idea that anything  that you might have positive um externalities   that might be doing some good in the world like  shouldn’t be making money or won’t make money.  Right? And if you can develop like what  sustainability is, right? Like you think it’s   like new innovations that, you know, don’t have  a lot of negative externalities and, you know,   are likely to sustain us through into the future,  then why not think of them as opportunities? Um   even if maybe they have some benefit  for the world despite that fact.  Yeah, I also I also just love that that both  of those phrases you used, tainted altruism and   the saddest bias. The The saddest bias sounds  like it it should be the the title of an article.   Um I want to go back a bit and discuss more about  investor physiology, which I think is something   that is a huge area of expertise for you. And I think, you know, for a lot of our listeners,   I mean, there are professional investors here who  operate in teams. There are people who can apply   what we’ve discussed about teams just in terms of  getting kind of cognitive diversity in their lives   in different ways and having quitting coaches  and the like to stress test their ideas.  But for some people it doesn’t seem that  relevant, whereas the investor physiology   stuff that you’ve studied is unbelievably  applicable to all of us as we deal with   the emotions involved in investing. And so  one thing I think so fascinating is that you   study physiological data, as you mentioned. You’re  looking not just for biases related to the brain,   but biases related to the functioning of the body. Can you talk a little about what you’ve found   by using, you know, in the past Whoop straps and  using Oura rings and various types of measurements   just in terms of of what you’ve learned about  sleep, about stress levels, about activity levels,   and about you know, how how how to deal with  this kind of physiological challenge of being   a kind of balanced, sensible, smart, rational  investor amid this sort of storm that goes on   not just externally in markets, but  this storm that goes on internally   in our brains and our bodies. Yeah. So, I think that the main   kind of bias that inspired uh this project was  that research had shown that when you administer   cortisol to people in a laboratory setting  and then test their risk preferences,   if they have sustained levels of cortisol over  the course of about a week or slightly more,   this can then change their risk preferences. And they they saw this from looking at an   experimental group receiving uh cortisol  and a control group receiving placebo,   and they found that um those receiving the  cortisol were biased towards risk aversion.   Okay? Now, we need our investors at BlackRock  being able to take risks and to have this   the basis for those risks that they take,  you know, what’s going on in the markets.  We don’t want them taking risk depending  on their internal cortisol levels, right?   Not great, you know, you think there could maybe  not so bad, but there could be some problems if   those cortisol levels are being driven by the  markets, but like really bad if those cortisol   levels are being driven by something in their  personal lives or something that’s going on   in the work environment that’s not related  to the risks and opportunities in markets.  This was the kind of the driving kind of factor  uh the driving like rationale for the project.   And we do see, you know, with uh individual  investors relationships between their stress   levels that we can measure from the Aura ring and  the risks that they take in in their portfolio.   And the main thing that we want to do is bring  that to their conscious level of awareness.  Um and and try to break that relationship between  stress in the body and risk decisions in the   portfolio. So, that’s that’s kind of the impetus  for the project. But then, in addition to that,   the data that we get and linking the data to  portfolios is so rich for so many reasons.   So, there’s even just this really really  basic and intuitive finding that, you know,   their performance impacts their physiology, that  their performance impacts their stress level.  And that may be a kind of like no-brainer. Um,  but it’s useful for people to see. And it’s   particularly useful for people for for investors  to see if they’re in a period of sustained   drawdowns and their stress has stayed elevated, we  really want to bring that to their attention. And   often you’ll hear something like, “Oh, I didn’t,  you know, I’ve been investing for so many years.  I didn’t really realize that the portfolio  was still impacting me this way. I thought   I’d moved behind that.” And then, it’s just  by looking at and acknowledging their stress   that then often would like take them out of that  like that chronic stress state and bring them   back down to their baseline and help them recover. There’s also the information in that of like when   you’re in volatile markets or you’re in a period  of drawdown, often investors might think, “Well,   I just need to, you know, to work harder  and spend longer hours in the market or,   you know, be more and more vigilant about, you  know, about what’s going on in my portfolio.  ” And what I try to impress on them is that it’s  not just their job to work hard, it’s also their   job to rest hard. Because if they aren’t able to  meet that stress with rest and recovery, um, then   it’s very likely that that stress is  going to be more biasing for their   decision-making. That’s that may be a  cycle that takes them towards burnout.  Um, it’s not going to be actually an  efficient or productive or rational   way for them to be making decisions. >> What  do you find in terms of habits like you know,   changing people’s sleep habits, maybe getting them  to meditate. You know, I know you’re very into   yoga and somewhat into meditation and the like. Well, you know, I have friends who are great   investors who, you know, will just go walk in  the woods and do something contemplative. Like,   what what do you find is actually um, really  helpful as a sort of pressure valve release for   investors who are suffering from a lot of  stress. >> Yeah, I mean, for me, I always like   to go for a mindset approach, for a mindset shift. Um, and I feel that does help a lot of investors,   but for every investor, there’s a different  approach. But, I could talk through some of   those mindset shifts, but >> Yeah, no, that’d  be great. Mindset shifts and I know I know you   do a lot in terms of mindfulness techniques.  Like, anything that you found helpful to us.  Uh, you know, please, yeah. >> So, in terms of the  the main mindset shift is around seeing the stress   as something that is fueling. Like, I’ve I’ve just  heard about this study where they told girls doing   math exams that the butterflies in their stomach  were fuel, not nerves. >> Huh. >> Right? Or,   you can think about if you have to do some public  speaking and you have all this nervous energy,   um, well, put that energy into your smile,  right? Or, you know, use that energy to   show how much you care about the topic. And a positive stress mindset is one which is   leveraging the main function of stress,  which is to give us energy and focus,   rather than where stress can go wrong and when  it becomes chronic and we go into burnout or   if we’re in panic and and we can’t focus. So, to  think about the benefits that come from stress,   I also really like this this insight that  the stress hormones are not only cortisol   and adrenaline, but that oxytocin is also a  stress hormone that leads us to gravitate towards   others when we’re feeling uncertain, right? You really want to resist if you’re feeling stressed   withdrawing into yourself. You want to follow  that impulse to be drawn towards others. And   oxytocin not only draws you towards others under  stress, but also has this heart-protective effect,   has a health benefit under stress.  And as we draw towards others,   towards others investors in the platform, or to  other members of our team when we’re under stress,   that and we we bond with them or we connect  with them, then that actually stimulates   oxytocin in them and they stimulate oxytocin in ourselves, and this has   this really positive outcome from a stressful  experience of drawing closer to your team.   Another kind of classic positive stress mindset is  looking at it as a learning experience. You know,   you look at like what’s going on in  markets today. We’re in the midst of   this major technological innovation of AI. And you of course that is making investors   nervous, right? Like that is reducing breath in  market, that’s making valuation start to feel   frothy. Um that’s, you know, getting investors  worried as we’re moving out of CAPEX funded   out of hash flows and more towards being funded  through leverage. This is, you know, it’s a risky,   stress, potentially stressful period of market  history, but like, man, is it interesting.  And the lessons that investors will gain from, you  know, having a front-row seat to markets um during   this period of history will serve them throughout  their entire career. Taking that broader mindset   and taking a mindset of learning rather than  this mindset of just worry and being in it,   um I think it’s it’s quite positive. I was also really struck by something you   said to me when we chatted a couple of weeks ago  where you said, and this isn’t exact quote, you   said to me, “I think that the best investors of  the future are going to be the ones that are best   leveraging AI to support a disciplined process.”  And so in some ways, like we’re going through this   period where AI is a you know, tremendous  opportunity, tremendous threat, tremendous source   of disruption, but I was really struck by the  fact that at BlackRock, you are actually using AI  in this kind of simulation program,  a sort of wargames program,   um to to sort of see how investors um will react  under certain circumstances. Can you talk about   that? Cuz it’s it’s absolutely fascinating and I  I haven’t heard anyone anyone else doing this. >>   Yeah, so this is something that’s, you know,  it again is inspired by George Loewenstein   on hot state and cold state decision-making. And also also having experienced seeing investors   go through the experience of volatile markets  and how how stressful those types can be,   um there’s the thinking, can we  let investors kind of practice   how they would manage their portfolio through  different stressful volatile market experiences.   And so a woman on my team, Nikki Lai, actually  took this idea and used AI to create a game   which we’re going to constantly developing  on the the full team and making it better.  The way that the game works is that it  loads up your existing portfolio positions   and shows the team news headlines. And that  are that are economically uh normally pretty   economically relevant or they may just be noise,  but that’s what it is for the team to decide,   right? Whether they want to react to this  information and if they want to react, how do   they want to react to manage their portfolio? Um  and then as they decide whether to trade or not,   then the simulation produces another headline in  the next period and you kind of keep going, you  keep iterating in that process. Um and  from doing this exercise several times,   one of the things that I think the teams really  learn is what is it’s a really be really clear   about what their strategy is for trading  through volatility. Are they a team that has to   uh really hold risk through volatility? Are  they somebody that wants to provide liquidity   during volatility? Are they somebody that maybe  wants to manage risk in a more dynamic way?   So it really helps them kind of like understand  given the types of investors we are, our  temperaments, our edge, the constraints on  the portfolios and the time horizons of the   portfolios that we’re managing, what actually  makes sense? Um and lets them kind of rehearse   what makes sense for them. The other thing that  teams get from this is that they get to see   how their decision-making process changes  under volatility where they may have to make   decisions more rapidly if they have gone with  a strategy of being more dynamic in volatility.  So, that same group dynamic that I explained  earlier where the head of the team may   sit back and really listen to everybody’s  point of view in an independent manner,   you know, maybe doesn’t work when you’re making  decisions under the pressure of the clock.   And maybe that type of leader needs to be  a bit more active in those situations of,   you know, going to the expert for their point  of view, getting a counter point of view,   why are they wrong? He may needs to  be more directive in how they manage   uh the group dynamics under those situations. There are also states in which you actually   just shouldn’t be making investment decisions.  Like like are there certain hot states where   you need a cooling off period? >> 100% and  I think that that’s particularly true where   the investment team’s strategy is to look through  volatility, is to hold risk through volatility.  You know, and maybe that helps them think through  some of the edge cases like where they wouldn’t   do that. So, you know, here we’re putting  them in a pressure cooker environment, right,   to make all of the mistakes here and think through  and rehearse how they would make decisions in a   real setting. >> One of the things that [clears  throat] I also really like about the game is that   when teams are making decisions in volatility, you  know, in the real world, it’s often not pleasant.  It’s often like very painful. You know, and we’re  drawing down their portfolio in the game in the   same way as the portfolio would draw down in  real life. But the reactions that they’re having   when they’re playing the game is fun. Like  they’re stressed, but they’re smiling,   and they’re having fun, and they’re  they’re laughing, and it’s exciting.  And so that’s also like really interesting to me,  right? Like it’s the same situation and like when   it’s a game that gives you an opportunity to have  like a totally different emotional experience   around the problem-solving  compared to when you are   actually in the situation and actually losing  real money. And there maybe there’s a bit of   gallows humor, but generally it’s just a  very unpleasant um difficult situation.  So I I really like that contrast because it  helps you look at the problem from like a   totally different emotional standpoint. >> I  remember Bill Miller once saying to me that,   you know, theoretically everyone on his  team was a value investor when he was at   Legg Mason. They all understood the theory,  and then when he said it came down to it,   um and they were getting absolutely crushed  in 2008, 2009, he was like, I discovered   almost nobody was really a value investor. And you know, I think that’s one reason why um   Samantha McLemore became his successor  was because she was one of the few people   who really did have kind of an extraordinary  temperament when things truly went wrong. And I   I think that’s one of the big challenges if  you haven’t gone through a period of real pain,   you don’t like physiologically know  what it’s actually doing to you.  You know, it’s it’s like when I gave a when I  gave a speech once and I I totally screwed up.   And I just, you know, it’s like my body’s shaking,  and my voice was quivery, and it’s like, you know,   you can practice as much as you want, and then  you stand up, and it’s like, I didn’t really   have control. How do you deal with that issue that  there’s like this gap between the theory and then,   you know, the actual reality of when you’re  losing money, when it’s all going to hell.  Yeah. I mean, so First of all, I’ve had the  exact same experience of you. One of the first   times I felt I just felt like I had a like  an important piece of public speaking to do,   and I look back on that experience now, and  I am so grateful because anytime I have to do   public speaking subsequently, I’m like, it’s never  going to be as bad as that, and I survived that,   and I learned so much from that. So, I’m really glad and grateful for   that experience. And I think the same is true for  investors that might make a mistake in volatility,   right? Like if they’ve gone through  it, and they’ve panicked into error,   or they haven’t kept their convictions, right?  Like or they they’ve gone with the herd instead   of like what they believe or what their edge is. Right? Like if you’ve gone through that once, like   okay, yeah, that that’s a horrible experience, but  you’re not going to make that mistake again. And,   you know, that’s a lot of like the point of this  exercise is this is the place to kind of like, you   know, to make those mistakes. And yes, in in real  life you might have more like cooling off period,   or you might have like research processes,  you might have trade diaries and processes   that that serve as these cooling off periods, but  here’s the place like, you know, to make those  mistakes. Um and to learn because not everybody  has had the benefit of living through a difficult   market environment yet, right? So, >> It feels  like that’s a big part of your life philosophy   in general. I remember we’ve talked in the  past just briefly about um Joseph Campbell   and the hero’s journey, and like the power of  making mistakes and suffering and going through   that sort of initiation phase of the journey. Can you talk a little bit about that cuz it seems   like there’s a connection between what you’re  doing in your work, where you’re identifying   fund managers’ mistakes, their  vulnerabilities, the ways they screwed up,   and this part of your kind of life philosophy  where, you You there’s this kind of hero’s   journey where, you know, you were talking  when we first started the conversation about   your sense of your false starts leading in this  kind of blessed way to where you are today.  Yeah. Yeah. Um one of the reasons I really  love the hero’s journey is I just think it has   so many different messages in it. And one of  the um you know, so many that basically like   the the value of trials and tribulations  and not being afraid to come out of your   comfort zone and learn new skills and just the  understanding that, you know, life is change.  Like it’s it’s just everywhere. It’s in markets  and the economy, it’s in the seasons, it’s in   our aging. There’s no coming away from it. And I  think that if you stop resisting change, you stop   you know, trying to have stop expecting like  certainty and predictability, right? In your   life and in markets and you begin to instead  embrace the adventure, that you do much better,   right? Than if you’re you’re clinging to the past  or you’re clinging to old ways of doing things.  And so, you know, that’s part of where I try  to instill that in, you know, investors as they   evolve their process and learn from their  mistakes. And I also try to cultivate it   in myself, always trying to do things  that put me outside of my comfort zone.   And you know, people kind of talk about  the impostor syndrome as a problem,   right? Of people feeling like an impostor. And I kind of think actually when you don’t   feel like an impostor, that’s the problem, right?  Because that means you’ve just been doing exactly   what you’ve always been doing, right? And you’re  not pushing yourself forward. So, you know,   so I think there’s a lot of lessons there. I think  also one of the the main lessons of the hero’s   journey resonates with what we were talking about  earlier around ego, where in the hero’s journey,   there’s a kind of there’s almost always this this  death of the ego or like a sacrifice of the self  um for some greater good. And the the punchline,  the secret, is that actually you unlock   everything. It’s by sacrificing your ego. It’s a  false sacrifice. And actually, you know, you like   once you align yourself with some greater sense  of meaning or mission, whether that’s being a good   steward for the millions of people that trust  BlackRock with their money, or whether that’s   a mission about ESG investing, or whatever it is  that you’re aligning yourself to, it’s often these   things that feel like sacrifices that actually unlock you from the chains of your own ego   and unlock your potential. >> Yeah,  it feels like in a way you found um   this oddly little ecosystem, you know, very  idiosyncratic ecosystem, where you can kind   of listen humanely to people’s talking candidly  about their mistakes and their vulnerabilities,   and you can kind of guide them to see things in  a gentler way, but you can also help them to be   honest with themselves and dedicate themselves  to continuous improvement and accountability.  It’s like it’s a really unusual  position you found yourself in,   where I mean, I remember you saying to me when  we spoke a couple of weeks ago that you always   worried about your research, you know, your  academic research. What if it’s like kind of   totally useless and not applicable? And it  seems what’s in a way like the adventure of   your career has been to discover actually that  you can be like this very humane, helpful figure   in this totally unlikely setting. Yeah, I mean, I think that again,   I come back to this inclination like I I had like  as a young person that there was so much that   psychology could bring to bear in the real world.  There were so many more applications um, you know,   outside of the disease model of psychology. And  then, you know, with positive psychology and focus   on wellness, you know, it doesn’t even stop there. There’s so much that psychology can do in policy,   in organizations to improve things. And when I  left academia and I moved from the US to London   and I moved out of academia into the corporate  world, I was really struck that, you know,   the greater culture shock was from academia to the  corporate world rather than from the US to the UK.  But also, I was struck by that fear, that  intense fear I had that everything I was learning   might not be applicable just almost immediately  got wiped away. And I I joined a behavioral   finance team at BlackRock. And I was like a kid  at a behavioral finance team at Barclays at that   time. And I felt like a kid in a candy shop in  that everywhere I looked, I saw the potential   to apply behavioral science, to apply psychology,  to apply these insights in the corporate world.  And that was from everything towards, you know,  nudging people to save more or encouraging,   you know, wealth clients to overcome their  myopic loss aversion to become fully invested,   or whether that was doing work in financial  well-being for Barclays customers. There were   so many opportunities. And I’ve continued to  see that as I’ve gone um to different firms.  Before I let you go, Emily, I wanted to ask  you about a very formative influence of yours   who is obviously a really remarkable man, Robert  Hazley, who is your father’s brother, your uncle.   Can you tell us a little about him because  in some ways he sort of set you on this path   without you really knowing it, and he just  sounds like a really remarkable human being.  So, I’d love to hear a a little more  about him. >> Yeah, he’s someone who um   you know, I like I’m really grateful to you.  Like I’ve had so many figures in my life who   have introduced me to to, you know, different ways  of thinking and different ways of being creative.   Like my mother’s like extreme like academic focus  and my father was a very very creative focus.  And my uncle um Robert was also a very creative  person, but he also had quite a strong,   I don’t know if I if I would call it spiritual  angle, but he had this real strong interest in   understanding the ego. And he would talk to me,  you know, even when I was a a young child and   give me like various bits of literature to read  um and even taught me how to do yoga as a child.  And a lot of what he was really interested in was  the conflict that’s going on in everybody’s brain   between like between like the ego want that  might be like ambitious or concerned with like   other people’s with managing one’s impression. And  then on the other side the part of you that could   observe the ego and the part of you that just  wanted to live and that just wanted to eat life   and that just wanted to sort of just in  its nature without wanting to be anything,   just in its nature was kind of like a positive  force of light in the world. And he had a very  unusual existence. He had an infection in his  heart when he was a child. And so he had a very   weak heart and the doctors didn’t think he would  live as long as he would. He had lived into his   uh late 70s. And but they expected him to  die much earlier. And so I think he always   felt that death was right around the corner. He always fully had like internalized that he   could die at any moment. And so because of that  he just thought he just lived in the moment.   He just lived without fear. Because once you  really take away like that fear of death like   like you know, or what you’re you know, once  you you who have to confront that fear of death,   right? Like what else Like what else is really  going to scare you if you confronted that? Um and   you know, that was something as a child  like I I really really marveled at and   something that you know, as I happen to  have like a few, you know, near-death  experiences over the course of my life have  like actually like really really learned from   um at like how much like this intimacy with  death can really like enrich enrich your life.   Um so that that was one thing. >> You told  me also that he >> so many things. >> Yeah,   I mean you mentioned that he gave you books  and the like and you mentioned me when we   last spoke that he gave you a book by  Krishnamurti, this great Indian sage.  I think he was born about 1895 who wrote a a book  called on right livelihood. And I of course being   obsessive and then ordered it last week and and  so I was reading it the other day and it’s really   interesting, right? Cuz Krishnamurti who was like  obviously a really important figure for your uncle   was in some ways so anti-corporate, right?  Like he’s warning against being greedy and   envious and ambitious and focusing on power and  position and self-seeking because he said if   if we’re ruthless in our desire to succeed,  it leads us to exploit others. And so, it’s  all sort of against um self-aggrandizement and the  psychological expansion of oneself, as he put it.   And I I’m kind of curious about how you’ve kind  of thread that needle because you’re operating   in a very corporate environment, right? That’s  sort of I mean these are very driven, very smart   very ambitious people and they’re  they’re playing in the world of money.  And yet, you have kind of found right livelihood,  right? You found a way to kind of help them deal   with their pain and their emotions. And like,  you know, I just wondered how you think about   that sort of eternal question that your uncle  kind of set you to thinking about about how to   have a kind of meaningful career in a world where  we also need to get paid and we need to support   ourselves and our our families and the like. But as a So, you just made the ten tainted   altruism mistake. >> Yeah. >> If we  pay, we must be doing something bad.   And so, that you know, and and I just um I don’t  think that’s necessarily true. I think that   of course there are areas in you know, in  in every industry and whether you’re in like   if you’re in in government, it’s the same. If you’re in in nonprofit sector,   it’s the same. I think that in every industry,  there’s opportunities to do harm and good on   a macro scale and a micro scale of your daily  interactions. Um but I think that particularly   in like the worlds of finance, there can be  this this perception that it’s not serving   any public good. And and I dispute that. I think giving, um everyday people access to   capital markets to invest for their future and to  grow their wealth and to do that in a way that is   value for money and that is properly risk  managed. I think that serves like a real purpose.   Um, and I don’t see really any contradiction  necessarily with that and right livelihood.  And then, you know, in the more micro  scale, I’m sure, you know, there there are   elements of every corporate culture that are  dysfunctional or that may be a bit toxic.   But that doesn’t mean that you can’t go into that  corporate culture and try to figure out what might   be driving the dysfunction and alleviate it. And everybody can do their part for that to   work towards the public good of the firm and of  society more broadly. And everybody can kind of   have that in mind and at the same time be really  ambitious and make a good living and do, you know,   and do their best for themselves. I don’t see  that there is necessarily that conflict and boy,   do I see a lot of opportunities um, for doing good  and for doing well for yourself at the same time.  I mean, I mean, BlackRock  manages money of something like   35 million Americans investing for retirement. I  mean, there is an aspect of this work that is a   kind of sacred trust where you’re taking people’s  life savings and helping them, you know, pay for   their kids education, pay for their retirement,  pay, you know, save money for a rainy day.  I mean, I think it’s a false conflict, but I think  it’s an important one to address. You know, I just   knew that you had thought about it seriously. >>  Yeah. Yeah, I I and I also have to say that I do   feel really blessed to be a Blackrock where um,  you know, I do feel that the culture is has been   created by a very kind and very smart people. And one of the things that I was struck by   coming when I first came to Blackrock is  how much everybody seems to want to uh,   everybody wants each other to succeed. And  you know, of course it’s not going to be like   that every minute of every day, but you know,  you ask yourself if it’s not going that way,   what’s going wrong? What am I doing? What’s  this What is there a structural problem here?   Is there a personality clash here? And you  just try to um, is there a real debate to   be had that I’m taking too personally, right?  Like you reflect on those moments and you try  to and you look to the future of how to make  things better. >> I I wanted to ask you one last   thing before I finally let you go um, having  exhausted your patience totally. Um, you you   you’ve spent much of your time as a behavioral  psychologist and in academia when you start   off looking at nudges, these ways of  nudging people towards better behavior.  Um, and I know that you’ve used nudges a lot  in your own life to nudge yourself toward   better habits. And one aspect of that that I was  really really interested in when we last talked,   you mentioned your New Year’s resolutions  from the last three years, which sort of   seemed to me in some ways ways to nudge  yourself. Can you talk about that cuz   they were all really beautiful things to be  working on that resonated deeply for me as well.  So tell us what what you do and how you think  about um, these things that you’ve been working   on for the last three or so years. >> Yeah.  So the one that changed my life the most,   they’ve all kind of changed my life. The  one that changed my life the most for years,   you know, I I had and I think many people  do, I had uh the inner critic um speaking   very loud, saying very mean things to me. [laughter] >> And um and I from time to   time see a therapist and and the a therapist  like several several years ago said to me,   “I think that you’re just doing it out  of habit. I think it’s just a bad habit.”   And that really really landed with me actually  years later. And then years later I decided it   was going to be my New Year’s resolution  to stop saying mean things to myself.  And so, you know, the spiritual practice  philosophy that the first thing you do is you’re   just mindful and then you just notice when you do  it. And so you just like bring like a scientific   lens to it. Like when do I do it? I was like,  “Oh, I tend to do it more in the morning.” And oh,   I tend to do it on my commute into work. And oh, I tend to do it at this particular   point in my commute about a minute before  I walk through the doors of the office.   And so then you’ve turned it into like a game um  of noticing. And you just become curious about it.   And just noticing it is often enough to release  its hold on you. Just notice it and let it go. So,   I recommend that that everybody do that if they if  they’re having problems with their inner critic.  Um the second year’s resolution that really  changed my life quite a lot was to just   notice my breath. Just again about noticing. Just  noticing it. When I’m feeling awkward, notice it.   When I’m feeling afraid, notice it. Has it  increased? Am I feeling shame? Am I feeling   nerves? What’s going on? And to just use the  breath um again as a way of becoming the observer.  And then once you notice it, you of course don’t  just notice it. If If shallow, you deepen it and   it calms you down. So, you use it to control  your state. And that and some other breath work   techniques that I did, I quite like breath  holds. I find them quite blissful. Um   So, other types of breath work that I’ve  done um has just really unlocked like a   whole world for me of that I never thought  that I never could have imagined was there.  And so, that’s aside from mindsets, sleep, and  good sleep hygiene, and prioritizing sleep,   um and meditation, breath work is right up  there with one of the things that I recommend   for for investors to try. And um one of my  uh more recent New Year’s resolutions was   I do listen to people all day long, but it’s  to really, really try to be a better listener.  And not only be a better listener of people, but  to be a better listener of my nervous system and   what my nervous system is trying to tell me  um that I need in the way of food or rest or   stimulation or different types of people etc. And  to just really be present, to really be here. Um   to not go anywhere when I’m having a conversation  with somebody, to really listen to them.  It’s really interesting cuz in some ways  there’s a common thread between all three of   those, right? Where it’s getting a little bit  more emotional distance from the story and the   phenomenon, which is also really, really important  for investors, right? I mean, it seems to be one   of the key things that you’re teaching investors  is to kind of get a little bit more distance from   their emotions so that they can see more clearly. 100% Absolutely.   What I’m trying to help them do, I myself am  [clears throat] on that journey as well. >>   Yeah, it’s very rich, very rich. It really struck  me the other day all three of those things that   you shared with me, those resolutions, but as you  pointed out, probably the one I’m most likely to   be worst at is the uh the one you mentioned first  of stopping thinking mean thoughts about myself.  Um I think it’s really hard because I think for  most of us who’ve been strivers, who’ve you know,   gone through super competitive businesses,  whether it’s journalism or investing or   you know, getting into the best  schools and PhD programs and the like,   we had to drive ourselves really hard, which  is something that your mother obviously you’ve   talked to me about like, you know, she really  valued like good degrees and grades and stuff.  And then it is so we get into this habit of  succeeding by beating ourselves up. And then   we get positive reinforcement for it. We’re like,  oh well, that worked. I overcame my laziness and   procrastination and fear and stuff. And then  at a certain point, um I had this discussion   once with Tony Robbins who’s really smart  about this stuff and he was like, well,   yeah, I you know, I was like, well, if I stop  being like really fearful and anxious and stuff,   won’t I kind of lose my edge in some  ways? And he’s like, you know, William,  it’s time to upgrade the system. Like that’s just  your old paradigm. You need to upgrade the system   and get, you know, new hardware. Uh instead you  know, but it’s really hard because it worked for   us for so long. >> Did it work or could we have  been better if we didn’t have that? Like we don’t   have the counterfactual, but I I will say though  that I I share that fear that you articulated.  I I share that fear in myself. It keeps me  clinging to it. Um but what I least need to get   rid of is like, I know I burn energy by  thinking um I’m not working hard enough. I’m   not doing enough. I’m not smart enough. I’m not  X enough. Like I know that I know those thoughts   take my focus and they’re about me when  again I want the focus to be on the task.  The same thing I’m trying to get the  investors to focus on is to take their   own ego out of the equation and focus on the  task at hand. And so you know, sometimes the   things that we think help us hurt us. There’s  a lot of different um experiments in psychology   that show, you know, the value of breaks and the  value of pacing yourself, going slow to go fast,   right? So you don’t wind up in a hole that  then is inefficient for you to climb out of.  And there’s instead there’s this illusion that  we should, you know, keep working and pushing   and pushing and pushing when there’s diminishing  marginal returns to that work and actually we’d be   more productive over the long term interspacing  the work with more rest. So it is there’s a lot   of illusions that uh that lock us in. Yeah. This has been such a rich   conversation and I could keep going forever, but  I I’m looking forward to many more conversations   with you over the years and it’s just been a it’s  been a real joy to chat with you, Emily. So thank   you so much. >> Thank you so much, William. >> I  wrote a memo called fewer losers or more winners.  You have to make a choice. And if  you’re going to try to win in investing,   which means win in our business  means having superior results.   How can you possibly get superior results?  And the answer is you either have more of the   things that go up or less of the things that  go down. Or both. Most people can’t do both   because the skillful aggressive player  might be able to get more of the winners.  The skillful defensive player might  be able to have fewer of the losers.   Very few people have enough equipment to do  both. Most people that means you have to choose.