[00:00:00] Denise Shull: The superficial layer is that arrogance and conceit of a well-formed argument, but then you say, well, what is arrogance?
[theme music][00:00:09] Chris Sweeney: Welcome to Episode 46 of The Acid Capitalist podcast and we bring you a very special episode, Acid Billions today. Now, you’re all familiar with the short-term show Billions, the gregarious, spectacular, flamboyant hedge fund manager, Bobby Axelrod. He, in the show, has a very close character to Wendy Rhoades, played by Maggie Siff, and she is essentially a psychologist who works with Bobby and his hedge fund and his team of traders and helps them get through things, and analyzes them and fixes their problems. Well, today we bring you the real-life version.
First of all, I’m going to bring in my partner in crime, Mr. Hugh Hendry. He’s out in LA. Hugh, there’s a bit of truth in the room that there is parts of Bobby Axelrod that are based on the Acid Capitalist yourself. Isn’t that correct?
[00:01:04] Hugh Hendry: I have no idea. That’s for others to determine, not for me.
[00:01:08] Chris: There is whispers out there that Bobby Axelrod is partly based on Mr. Hugh Hendry. There is characteristics. Is that correct? You can clear that up for us surely.
[00:01:21] Hugh: No comment.
[00:01:22] Chris: No comment.
[laughter][00:01:24] Hugh: Damian is a great guy, but he’s way more posh than I am. Damian is a great guy but no comment. [crosstalk][00:01:33] Chris: Well, Damian Lewis is–
[00:01:34] Hugh: The star of the show is Denise.
[00:01:36] Chris: Of course, of course. Damian Lewis is a character but our real star on the show today is Denise Shull. No, Maggie, sorry, Wendy Rhoades, played by Maggie Siff in the show. She is the real-life psychologist but we have the actual real person that that is based upon. Denise, thank you so much for coming on the show today. How are you?
[00:01:56] Denise: I’m well. Thanks for having me. I’ve been looking forward to this.
[00:02:00] Chris: So have we. Tell us maybe a bit about what you do. You’re a psychology consultant. Maybe you can give us a brief explanation of what that is and also, the fact is that you feel, or the character Wendy Rhoades is taking inspiration from your book and from your career and have brought that onto screen.
[00:02:20] Denise: Yes, that part is. In short, I had just gotten a master’s degree in something called neuro-psychoanalysis, not to there freak everyone out, when a guy that I was dating who was a floor trader at the CBOE, the Options Exchange in Chicago, he’d always thought that I’d be a good trader and he’d tried to get me to buy a weather futures seat on the board of trade, and I was like, “What the?” In any event, I was figuring out if I was going to get my PhD when literally someone came running up to him on Jackson & LaSalle in Chicago and said, “Don, Don, you got to go upstairs trading. We’re opening this upstairs trading office,” and somehow I got swept up into that, like keeping track of their P&L and them teaching me to trade, and the PhD went by the wayside.
For a few year, like five, seven years or so, I was just trading, then I was invited to New York to run a trading desk. I was just dabbling then still in what’s called modern psychoanalysis, which is a little bit different than [unintelligible 00:03:27]. Someone wanted to publish my paper and when I did the research, Antonio Damasio said, “You have to have emotion to make a decision,” and I was like, damn, all this trading psychology about, “Take the emotion out of it, have no emotion, just focus on the probabilities,” if you could do that, which you can’t if you’re human, you couldn’t make a decision. That’s what the science showed, so I just started talking about it and before I knew it, some crazy story happened and someone wanted to publish an article by me then it just took on a life of its own.
People asked me to talk about like how confidence or conviction, which are emotions, really work in a market decision. That was 20-ish years ago, just about 20 years ago it’s actually exactly. The whole PhD and whatever went by the wayside and I don’t run trading desks anymore, I just do this, which is really helping portfolio managers traders figure out why they really do what they do because if you figure out why you really do it, then you can do more of the stuff you want to do and less of the stuff you don’t want to do.
[00:04:35] Chris: Do you make some–
[00:04:43] Hugh: [inaudible 00:04:43] is I think you bore witness to Maggie’s interview with me when I dissected my career fear for important trades. Is that correct?
[00:04:56] Denise: Yes, so I’m actually supposed to be doing a podcast with Maggie about your four trades, but luckily, I’m getting to meet you first. [chuckles][00:05:09] Hugh: I’m lying on the couch. I’m feeling naked and vulnerable.
[00:05:16] Denise: Yes. I try to make it comfortable.
[laughter][00:05:20] Chris: Can I ask you but–
[00:05:21] Hugh: Hesitation about being naked but– [crosstalk][00:05:26] Chris: Denise, can I ask you about the character? Just before we get Hugh naked and we strip off his clothes and get him on the couch, can I ask you about the show then?
[00:05:36] Denise: Sure.
[00:05:37] Chris: What Maggie does day to day, is that very similar, or in the show, Wendy, is that very similar to what you do day to day, is it very similar?
[00:05:47] Denise: Well, of course, it’s a dialyzed dramatized version suited for television, but when she talks to Axe or Taylor about what they feel, like in their intuition and their level of conviction, yes, that’s a lot of what I do. When she talks about like, when in Season 1 and Axe lost $400 million being stubborn and they took that walk at night and she was analyzing what that was really about, and essentially, that he felt guilty about Donnie dying, that’s the kind of thing. People have big– [crosstalk][00:06:32] Hugh: Denise.
[00:06:33] Denise: Yes.
[00:06:34] Hugh: I’m conscious that, owing to the asset capitalist, there is a secret intelligence force that infiltrates our locations and tries to pull the plug on our broadcasting so we’ve lost precious time. What shall we do, you and I? Shall we go through one of those? Shall we get to know each other? Will I present myself to you? Would you wish to inquire further?
[00:07:04] Denise: Yes. You know what I thought was super interesting, a lot of what you said is super interesting, of course, but I was particularly intrigued by your reaction to the financial crisis. What you described is getting- being very, very angry and feeling like no one had been held accountable. I’d actually love to hear more about that.
[00:07:30] Hugh: Well, I label it, I become a model curmudgeon. I think the anger is an emotion. I think it was so acute because of the journey of holding that precious and very dreadful news for so long, being one of the first and few people to know just that there was a storm coming and it was going to be quite devastating, and to see how, from both the private to the public sector, there was a desire that it was almost as if because the truth was so unpalatable, that it had to be denied and it had to be prevented from escape if you will. Yes, there was a relief with the salvation of my returns for 2008, but I left that year exhausted by it.
[00:08:30] Denise: You would think that personally, you’d get some satisfaction out of how well that trade turned out for you, but really, from what you’ve talked to Maggie about, it sounded like you’re really overwhelming reaction was that you were just so angry that this thing happened. You made money from it, but for the damage caused elsewhere.
[00:08:56] Hugh: Well, I tell you, talk about the juxtapositions that present us in life because Lehman’s had gone on the Sunday night, and so I knew that I had finally, at the stroke of midnight, I had not turned into a pumpkin, but I was Prince Charming and that was a relief, more than a relief. I jumped on the banister and slid down and shuffled into the kitchen and presented myself as Keith Richards, I was a god. I took my two young daughters to the private school in the neighborhood, and I’m skipping and the girls are like, “Hugh, what–” [crosstalk][00:09:39] Denise: Dad, what’s going on?
[00:09:39] Hugh: They can’t gauge it, but then I get to the school gates and of course, a school in West London, the parents are invested in markets, and there was a lot of Lehman Brothers partners who had gone overnight to zero. It’d been like a cult. No one sold, they all believed, and so I could see fear and tears and life’s changing. This is for privileged people, but people nevertheless, and so my great joy, if you will, run headlong into this profound sadness, and it threw me back. It jolted me.
[00:10:25] Denise: I had to wonder if, as you mentioned, we are essentially products of our childhood, and your own experience with your parents, I didn’t exactly understand the mechanics, but it sounded essentially like being given a house through a government program-
[00:10:48] Hugh: [unintelligible 00:10:49] Yes.
[00:10:53] Denise: -and that if somehow you transposed it even in your mind to what could have happened to them or what could have happened to you, and that played a part in the intense disgust I’d call it.
[00:11:08] Hugh: Yes. Well, I have pursued a lot of reflection. My parents were allowed to conduct a financial transaction that we take for granted today, to take a mortgage on a property. They worried about the financial consequences, a lot like families. When you watch [inaudible 00:11:37] a documentary, the thing that struck me was her parents just talking about their anguish after 2008 and not knowing whether they could keep that house. A bad fish smells from the head, they say, and if the parents have got this vibration of worry, it seeps into the furniture.
[00:12:03] Denise: Oh, totally.
[00:12:04] Hugh: That was ingrained in me, to worry, and so again, I’ve tried to rationalize and I believe that my career choice is optimal because I hear voices in my head. [chuckles] I take investment decisions on behalf of other people’s money, and then I’m terrified about the consequences. I think I’m a world-class worrier.
[00:12:33] Denise: Well, we absolutely absorb styles of navigating from our parents, and we don’t even realize that we’re doing it. The other thing that happens is little kids, that you’re more narcissistic, and you feel like you should solve this problem for your parents. In a lot of situations, that helps a kid navigate because they feel like somehow if they can do something, they have a sense of agency and it keeps the kid more optimistic, but obviously, the kid can’t really solve the problem, but I suppose you could argue that you’re always solving that worry problem, right? You’re trying to provide enough money while worrying that you can’t, which is really not your life experience. It is your life experience, except it’s not, it’s a repetition of the experience you had growing up. There’s stuff to worry about and I need to act to prevent whatever the threat is.
What the latest brain research shows is that we’re always predicting some emotional storyline playing out. That prediction is based on the emotional storyline we experienced in basically, our first 10 years of life. Over and over, and over again, I can see how, if you understand a trading scenario, someone’s some situation, and their actually emotional arc of their first 10 years of life, you can see that in the trade, and the market is like the perfect Rorschach block, right, because you can project onto it whatever you wanna project onto it. It just becomes a character in a storyline and an authority figure character in a storyline.
We interact with that cast of characters, the market, which is really just other people, and our brain knows it’s other people by the way. That’s what your voices are, your ability to read other people, playing out a storyline, but the trick ends up being untangling the historical storyline from adult reality. That’s the trick, which is what I spent my time helping people do, totally. [crosstalk][00:14:53] Hugh: Yes. You go back in time in their journey to find that fulcrum point, the sliding doors moment where their life– where the photocopier made perhaps, a pure copy, a pure representation of their reality– [crosstalk][00:15:10] Denise: For some reason, this example just popped into my mind. I had a portfolio manager who, the reason they hired me a couple of years ago is they always get out too early when things are going well and get completely flat. Things start going really well, they put on these long-term positions, it’s working, and all of a sudden, they get really foggy and nervous and confused and go flat, and then are like, why did I do that because their original plan works. Well, we ended up figuring out this person had a nanny who was either shot or committed suicide.
They were four or five years old, their primary relationship was with their nanny, not their parents, well-off European family, and it was never explained to them what happened. That’s a childhood trauma that needs to be resolved and I think it’s being repeated. When things are going really well, you get nervous that something bad going to happen because that was your experience.
I have another London guy I talk to every Thursday morning, right before you guys today. He was always, always criticized, so he’s always second-guessing himself. Really, really talented and really, really talented to the market, but never quite gets big enough, stays big enough, never quite completely capitalizes on his ability to read the market because he’s always second-guessing himself. Because why? He was always second-guessed.
[00:16:41] Hugh: Do you think you can– Can you translate that? Can you logically extend that to, let’s call it retail investors, so there you are, and you are this high-performance coach for these real pros, but I’m thinking these are universal tenets. For some of the folk watching this, are there any things that they could– Have you got trigger points where they could maybe identify, again, who they are and perhaps why they find themselves in this grind of making the same either errors or characteristics? [crosstalk][00:17:17] Denise: Yes, totally, which was always, in a way, my motivation, to be honest. I saw so many people suffer trying to become traders and being given this horrible advice about their brain, take the emotion out of it. It’s not going to work. It seems like it’s going to work, but it’s an illusion. Anyway, I always say, look, first of all, you’ve got to accept that you do use emotion in making trading, you use emotion in everything. The brain’s bottom line thing is how you feel and how you expect to feel.
I think that’s like a flat earth to around earth change. You’ve got to realize your brain is round and it is using your feelings, so, therefore, they’re a data set, so, therefore, you need to research this data set, and the goal is to be able to tell which of your feelings are unconscious pattern recognition, intuition from whatever training and experience you have in the market, and which are impulsive or irrelevant.
Jennifer Lerner of Harvard calls it integral versus incidental, meaning which feelings are about the trading decision and which feelings are about you and your self-image and your expectation of yourself, or the repetition of your experience. Because those feelings are not the ones you want to act on, you want to act on the ones that are about the market. If you try to cut them all off, you don’t know you can’t, and eventually, the impulsive ones will break through and you’ll act out in a way that’ll just reinforce your self-image. That boils down to being able to answer accurately what am I feeling and why am I feeling it?
[00:18:47] Chris: Sorry, I was going to ask, Denise, can I ask about Hugh because when Hugh launched his hedge fund, Eclectica, one of the things it was about was being uncorrelated. That was one thing that he prided himself on. He didn’t follow– His was completely uncorrelated, and also, he’s like the centipede, he’s involved in a lot of different things, hence why it was called Eclectica, and he could always cut off a leg or an arm and then carry on. Him doing that, what does that say about him as a person that he chose his hedge fund to be structured and focused that way?
[00:19:23] Denise: I didn’t think that’s what you were going to ask so I wasn’t thinking in those terms. I was thinking in terms of how he got to be that way because I can’t help myself. I think being a super-smart kid obviously, in the environment that you grew up in, it sounds like you were also, I don’t mean this in any negative way, but like on your own. Like your parents were busy trying to make a living and make sure there was food on the table and that roof stayed there, and so they weren’t overly managing you, and you being really smart, you were looking around the world trying to figure it out from the get-go really.
You were free to do that as opposed to someone who goes like, I have some clients in big formal families where there’s a lot of rules and pressure to be certain ways, and they don’t have that same ability to read the world because they were told how everything was and how they were supposed to behave and what they were supposed to do, and they didn’t get to be intellectual– [crosstalk][00:20:25] Hugh: They had customs.
[00:20:27] Denise: Yes, right. [crosstalk][00:20:28] Hugh: They had a rule of engagement.
[00:20:31] Denise: Yes, and I actually have a client that we’ve identified, and I’m not saying this is true in your case, but people who grow up with narcissistic parents, in a way, they get to be more themselves because the parent never actually really pays attention to them and they get to figure out the world for themselves. That actually is an asset in asset management because you just become this independent thinker because no one’s directing everything that you do because the parental focus is on themselves. [crosstalk][00:21:07] Hugh: I see that in my kids, actually. I would be the quintessential narcissist father and thank you actually because that just shone a light into a chasm of my private life.
[laughter][00:21:25] Hugh: I have very independent thinkers because I would always say to them, really, question your presumptions, but I never actually give them an answer.
[00:21:35] Denise: Well, you literally also taught them. You taught it by example and you taught it by instructions. I don’t know you well enough to know whether you’re actually really narcissistic or if that’s just your view of yourself. [laughs][00:21:50] Chris: Denise, we could spend a whole episode on that question. Let’s not go down that rabbit hole, but Hugh, I think one thing that’d be great to ask about is the famous Reader’s Digest trade. Maybe you could tell it from your point of view, Hugh, what you did, why you did it, and then maybe Denise, you could break it down for another end for us because I think that’d be quite a good thing for you guys and also for the listeners.
[00:22:15] Hugh: Yes. I think actually, it relates very much to what Denise was saying that I joined this institutional investor and they were aristocrats. They’d been around forever and they had customs, they had a way of doing things. I learned those customs and my Reader’s Digest was the pinnacle of my understanding of those customs and I thought that that would therefore reward me, except those customs were really not appropriate for my chemical makeup and what it exposed, my tagline as everyone knows, is it exposed the conceit and the arrogance of a well-formed argument.
The customs of the employer at that time were to conceive of rock-solid intellectual arguments, and that’s how you would control risk, and I discovered that you could control risk. The means to controlling risk was much simpler that you should buy things going up and sell things going down. [laughter] My ego blinded me to the reality that I was buying something which was falling and therefore I was inflicting self-harm on myself. That’s my takeaway.
[00:23:40] Chris: How much did you lose and can you tell us what you did at the Reader’s Digest so just so we have got a wee bit of context before Denise tells us?
[00:23:48] Hugh: Sure. Chris, I lost, this was one of the most costly trades ever, I lost my reputation, and that would’ve been roughly 1994, I want to say. ’94/’95 [crosstalk][00:24:05] Chris: Within this organization and you were the quintessential dead man walking really until you left.
[00:24:10] Hugh: Yes, but also remember, I don’t know if Denise knows, but I was actually hired as a diversity candidate because consultants had advised that there was too much of the same gene pool and they wanted some diversity, and so I think if they’d been less fantastically successful and rich and less gentle they would’ve fired me, but they would never do that. They would just wait for you to leave the building.
[00:24:40] Chris: Denise, over to you. Denise, maybe you can talk us through, and then the Reader’s Digest from the psychoanalytic point of view and what Hugh was thinking and why he did what he did.
[00:24:49] Denise: Yes. First of all, these things are always layered, so the relatively superficial layer is that arrogance and conceit of a well-formed argument, but then you say, well, what is arrogance or conceit? It’s a feeling of certainty that you’re right, right? So what is that? That’s overconfidence, that’s excess conviction, but I think that was probably more driven by a desperate need to be right at that moment, to fit in, to garner or reclaim their respect, to become a part of them.
The thing that always people fear, you get in a trade, it starts going wrong. You feel a little bit there’s that little voice that maybe you should get out that is counterbalanced by the argument, right? The intellectual argument overrides that little voice that no, this isn’t, but then the thing that comes into play is what if I get out now and then it works? If there’s a number one motivator, it’s fear of future regret, it’s I can’t get out of this loser because as soon as I listen to that little voice that tells me this isn’t working, I’m going to get out, I’m going to book the loss, and then it’s going to work and I’m going to have been right, and that is a completely untenable emotional prediction about the future.
Back to even your retail question, the thing that anyone can do, and I talked about this on CNBC when I was on Squawk Box before the whole Billions blow-up thing, like fear of future regret, know when you’re acting because you’re afraid that if you do this or that, you will regret it. That is the number one thing that keeps people losing trades, so I think that was really going on.
Now, I also think there’s, in some fairness to you, you were still relatively young and didn’t necessarily understand the market as a social game. You thought it was actually like a probability game or an algebra game. That there was an answer, that’s the thing of the argument. There was this answer, but it’s all just human perception, poker at best, but poker and the cards are always changing their meaning. You not only have to figure out how someone’s playing their cards but what three Aces mean in this particular game. Because they mean something different today because what they meant yesterday.
You didn’t know that the market was that, you learned that through the Reader’s Digest, that it doesn’t matter what you think, it matters what other people think. At the time, you weren’t that well aware of it. You were thinking about the people you worked with, but you weren’t thinking about the other market participants who needed to see what you saw, so some of it was inexperience.
[00:27:43] Hugh: Yes, but well done you because there’s a lot of shysters on social media and commentators and stuff, but for people who are perhaps not pro investors, everything you’re saying is absolutely on the mark. 100% I get it, I’ve processed that. Because the next step for me was joining a hedge fund business and coming under the tutelage of a remarkable character, who you could make a TV, an absurd TV program about,
[00:28:18] Chris: Hugh, but you got to tell her– Sorry to cut into you, I really apologize, but Denise, do you know how he got his job at the hedge fund? He didn’t apply. Do you want to tell her how you got a job at a hedge fund?
[00:28:32] Denise: I think I read it in these parts that are crossed off on Real Vision but don’t remember exactly– [crosstalk][00:28:36] Hugh: I think that the short story is yes, let’s say by happenstance. There was a series of fortuitous events which seemed to characterize my life. Like I said, in Edinburgh, I was selected owing to the happenstance that the company had to. They had an obligation to hire a local kid. Boom, I came in, and then there was happenstance that got me into the hedge fund. Again, I think there’s the golfing saying that the harder you try, the more lucky you become, so that sort of thing. [crosstalk][00:29:08] Denise: Yes. I get that happenstance thing totally.
[00:29:10] Hugh: Sure, but I was working with this chap, Chris Manoti, that was the second and almost the finishing school, and that was the opposite. Where my past career, again, had been aristocracy and rules, I now found my, ’cause this is England and this is the management of money, so we have to still remain in the aristocracy, right, but this was aristocracy which was not foolishness. It was curiosity, it was playfulness, it was being naughty. It was daring to be different, wanting to know what the consequences were, right? That’s what I needed.
[00:29:56] Denise: Right, right, right.
[00:29:56] Hugh: I came, this piece of iron and I was treated with this hot air to make me malleable and to be able to see around corners. My question is- because I don’t think I am giving away any secrets, whatever, but Chrispin would never take ownership of his mistakes. That was his makeup and that fascinated me because I said, “Well–” and that’s another form of conceit. There was the conceit of the argument and now, there was this conceit of the ego, again, as a protective layer.
The ego could not be pierced by an error, and so the traders made errors, the analysts made errors, the secretary made errors, the postman made errors so to speak. I said to myself, “Do I have to be like that? In the Olympic 100 meters final where the winning distance is infinitesimal, is it the person that says, “I am the zeitgeist”? The ego has to take you and propel you forward. I could never accept it and I never really found the answer to that question.
[00:31:19] Denise: Inability to admit your prediction is wrong in the markets is not a good trait. [chuckles] It’s surfing in a hurricane, so staying up on the damn board is the most important thing. The waves might be a little bit different, so you’ve got to adjust if you want long-term consistent success. I don’t even know what to say about– I can figure out why someone is so dependent– Because what is like the feeling that you can never be wrong, that you can’t tolerate being faced with a mistake. Well, that’s like maximum insecurity, actually, because the admission that you’ve made a mistake becomes such a threat to you that, by the way, it just sets you up to what? Make mistakes. We always get the thing we don’t want.
[00:32:27] Hugh: I don’t know. I want to challenge you on that. I’ve spent a lot of time reading up on the character of Steve Jobs. I think he was an amazing man, a kind man, and a beastly man, a man of contrasts and paradox. I think it’s comforting to say that that profound ego is only setting you up for errors. For sure, I did see that setup, but I also say there are people like Tiger Woods when he just won everything, and I’m saying, is it like to have that form of success, and again, we periodically see that form of financial success by hedge fund managers, do you truly have to sell your soul to the devil like the Angel Heart movie with Mickey Rourke? That to get that level of success, you really have to believe that you are uber and you never make errors. That’s the pedestal, that’s the danger, the high-octane where you have to travel.
[00:33:34] Denise: I think the first way that you answer that is ask what is the environment? Steve Jobs wanted to put an all-powerful computer in our hands that we could do everything. That was something we were all going to want once he had this vision and he could predict our desires. Tiger Woods, who had been watching golf since he was literally three days old when his dad put him in a swing thing and putted in front of him, that’s why he became the golfer that he did. Again, though, there’s a physics to golf. It’s hard to attain but there is an actual physics to it. The market’s not like that. The market is that surfing in a hurricane-like anything can happen, right?
You can predict more or less predict the weather over the long term but you’re not going to have exactly the wind speed exactly this place very often, no matter how good you are at predicting the weather. In all these other environments, you can make something happen. You can’t make anything happen in the market. All you can do is react to what’s happening.
Yes, belief in ourselves is really important and it’s shown, I mean, even you take me, I learned that you had to have emotions to make a decision and I went to the Chicago Mercantile Exchange in 2006 and gave a talk that they signed the pass to the world at that point, and told everybody, you have to have a motion to make a decision. I had 254 traders, I think 249 of which were male, in the office, or in the audience, no one said anything. I got a call from Northwestern University said, “How did you get up and tell those 250 guys they had to have emotion to make a decision,” and I was like, “Because they do.”
Because I knew it was true and I had the confidence to say it which is what’s gotten me here. Yes, having a belief in ourselves propels us, and yes, there are these crazy extreme beliefs selves, Jobs, Elon Musk Tiger Woods, but again, when the environment is in the markets and any other group of people can make anything happen, you might be right, like you may have been right about Reader’s Digest, it should have been valued differently, but the other groups of people just didn’t see it, so you were completely right and you did believe in yourself, but it didn’t work because that gain, that market gain is different than providing consumer product. It’s different than hitting a golf ball. It’s even different than surfing, although surfing is a little bit in the ballpark-
[00:36:14] Hugh: It’s close.
[00:36:15] Denise: -the way you– Yes.
[00:36:16] Hugh: Denise, for the record, I was not right with Reader’s Digest. It was an appalling trade. [laughs][00:36:24] Chris: Denise, one thing he was right about was gold. I want to ask you, I know you’ve got a ghost in this, but just before you go I want to ask you about Hugh’s gold trade because Hugh made a lot of money in gold about 2003. He did really well but the thing interests me about it is, when you ask Hugh, where did you see that? How did it come to you? He talks about a night in Milan where he had a night out and he had a few drinks, shall we say, bought an extremely expensive odd suit from Dolce & Gabbana which he wore once, it was never seen again, but he’s lying in his bed and the Wizard of Oz comes into his mind, and he starts to see the Wizard of Oz, and that told him to go buy the gold and do what he did.
Now, is that how it happened, or did Hugh imagine it that way? Because to me, what’s going on in his mind? Because subconsciously, he says he dreamed about the Wizard of Oz and that’s what made him do it, and he’s not joking. How does that play out because, to me, I can’t get my head around that logically if you know what I mean?
[00:37:24] Denise: Well, dreams are a source of information, without a shadow of a doubt. It’s literally just your unconscious processing things you’ve encountered while you’re awake and conscious, and your unconscious taking these different things that you’ve observed in the world and working them out together in a way that you can’t do intentionally, and delivering to you what the implication of the pattern is. I am 1000% believer in a dream can deliver you a piece of information. In fact, I will with certain clients, and a lot of clients in the hedge fund world aren’t willing to go there but will analyze their dreams for what they need.
I have a 22-year old was going to be professional soccer player whose life has changed through analyzing his dreams. I think that’s totally possible. He had his body of knowledge, he had this world experience, he’s very observant about what’s going on, and he went to sleep and his mind started putting factors together and woke up and said, I should be long gold because both of his education in markets and experience and the unconscious pattern recognition of how these factors were going to interplay in what the implications were, and everybody could make better market decisions if they learned how to leverage that, their unconscious in that way, but people don’t believe [crosstalk] in an unconscious. They don’t believe in it or they’re afraid of it or they think it’s too Freudian, or whatever.
[00:39:04] Hugh: Is that the reason because I, in defining how I would engage with other risk-takers when I launched my hedge fund, I reasoned that because this was very early with the infancy of the modern creed of hedge funds, the early 2000s. Back then, we didn’t really have the tech billionaires of now. Back then you could argue with the 2 and 20 compensation that it was one of the highest returns on intellectual capital on capital endeavor. Therefore a rational person would assume that that would attract perhaps the brightest minds on the planet to manage hedge funds and therefore they would be my adversaries.
I reasoned that it would not make sense for me to attempt to outsmart the smartest people on our great planet but rather to ask the question, why is it that you are not guaranteed to make money from financial markets with this million-dollar education? Could you respond to that?
[00:40:14] Denise: Well, because it’s not an engineering problem, it’s not a math problem. Those things get mistaken– you know they’re clues. The market is just like the sum total of what people feel, honestly, and people feel different thing- different categories of people feel different things based on their education about the market and based on their experience. There’s a whole group of people who think that it really is an algebra problem when it’s really not. Unless you understand that it’s that poker game with the value of the cards changing, it doesn’t matter how smart you are.
There was a woman, Tony Turner is her name, and she did some consulting and psychology of training. I don’t know her well but 20 years ago, I heard her say if you’re smart, it’ll take you at least five years, and if you’re really smart it’ll take you at least 10. It’s true because if you’re so intellectually– Even like my husband who’s intellectually gifted beyond imagination and now is an options trader and loves all and was an economist at the Fed, I had to really teach him and still, even now, I really can’t get him to trade unhedged momentum.
I’ll be like, “Just buy the [unintelligible 00:41:35] because it’s going down.” “No, no, we have to hedge it.” “No, no, you don’t have to hedge it. Just trust me.” You can’t interact with this thing outside of the mathematical formula. I can understand the mathematical formula but I don’t need it. I can make more money just stating the momentum. That’s a long-winded way of saying they don’t understand the game they’re playing.
[00:41:59] Hugh: Right, and so is the answer to encourage them to be playful? Is that the answer?
[00:42:05] Denise: Well I think that’s a very practical way of putting it. Like to understand that it is a game. What does it mean to be playful? It means to kind of experiment, it means to not be really attached to anything. It means to listen to your senses, allow yourself to feel joy and curiosity, and humor. What is that? What’s the experience of being playful? Experimenting as opposed to getting attached, like you did in Reader’s Digest. This is what I think is going to happen and it’s not happening but it’s going to absolutely have to happen because you had a formula that just wasn’t the right game. Like it wasn’t the game- you didn’t realize the game you were playing and most people don’t.
[00:42:50] Hugh: Thankfully, that was year 5, and by year 10, I was managing the hedge fund. Like you said, 10 years to work it out. Another thing, so my seed investor had been the seed investor with Soros, and they took me aside and they said to me, our concern is your age. I was 32 and they recounted the story that George was 40. George started the hedge fund at 69, so what is he now? He’s like 93 or so. He said there’s something about having witnessed and experienced an adult life that sets you up to be a risk-taker. Whereas the kids, they haven’t lived enough. I don’t know if you come across that.
[00:43:40] Denise: Well it’s true and they are– there’s a million people who will educate them that it’s– they don’t say it’s an algebra problem but they give you the feeling it is. You walk away from the education and you think that there’s an X equals 3Y and you just have to figure it out but that’s the feeling they get, but what you’re really referring to is what’s called theory of mind. Theory of mind is we all have theory of mind capability. Like theory of mind has been shown in brain research to be the thing that makes a great trader.
What is theory of mind? It’s predicting how other people are going to behave. Again we’re back to there’s so much misperception of what the game of markets is. It’s not about the answer to that math problem or that probability problem, or that whatever, gamma, vega, theta thingy. It’s about how are people going to react to the factors as they evolve? We all have this theory of mind but very few of us know how to use it. If you are older, you have more life experience, you naturally get better at understanding people just because you have to, to survive, and therefore you can apply that to markets
[00:44:56] Chris: Denise, the people that maybe come talk to you or ask for your advice or are willing to speak, are those people tend to be people who has achieved but maybe he’s unique. Do the people that achieve, do they just carry on and not worry about why, to find out, to know why they’re doing what they’re doing? Because, again, people have been on a bit of a journey, or do you find people that have achieved still want to know why they’ve done what they’ve done?
[00:45:22] Denise: Yes. I think it broadly falls into two categories. People want to say, like, I’m good but I have this pattern, this thing I do. I don’t get big enough, I get too big. I get in too early, I get out too late, whatever. I have this thing and I see that I’ve done it over all these years, help me stop that thing. There’s that. Then there’s the like, I just got a $1 billion from, fill in the blank hedge fund platform, and I want to be the best, and I heard that you help with intuition.
A lot of people do understand that intuition, which is just unconscious pattern recognition or visceral intelligence, what the scientists call it, is a thing. They’ve been taught some, investment process that’s supposed to drop out like some multiple out of the bottom of the spreadsheet and give them the stock price, but they understand that there is this feeling aspect, like this sense of what’s right, but they don’t know how to deal with it in any organized way. I’ve had a number of people from name hedge funds, who said, “Teach me how to use my intuition.”
[00:46:27] Chris: That’s really interesting.
[00:46:29] Hugh: I think that you that the 40 years of age is irrelevant because it takes you that long to finish some French intellectual philosophy. Once you have attained that high level of understanding, and you’ve come across Albert Camus, that you begin to recognize that life is absurd, that the [unintelligible 00:46:53] and there are no rules, that we’re on our own.
[00:46:56] Denise: Yes, a certain amount of realism.
[00:47:02] Hugh: Don’t you think that strikes at the crux of the matter, that fundamentally, the day job is absurdly silly? Mostly men, and some ladies, endeavoring with great intellect to conceive of something which hasn’t happened yet? Can they see the future and can they see the future with their linear calculations?
[00:47:30] Denise: Well, I talk about this all the time, but look, you actually, do you know what’s going to happen tomorrow? You think you know what’s going to happen tomorrow. Chances are they’re even right because a lot of things in life are predictable, but you don’t really know and a lot of things are really unpredictable. People they don’t know that on a visceral level. They really do viscerally think that they can accurately predict. They don’t understand that they’re just essentially guessing based on maybe a lot of factors that matter, but it’s still really just a guess and there could be factors they’re not, but it’s that feeling that they can get it right.
I do specific, in workshops or with people. I do like specific things about getting comfortable with not knowing. Making your best guess based on whatever factors you like to interpret the market through, but emotionally getting like, you just don’t know, you’re blind, blind.
[00:48:44] Hugh: Fantastic.
[00:48:45] Denise: That helps people. If they get more comfortable with the– Because they’re nervous and anxious and worried, they want to force the answer. They’re way better to get comfortable not knowing and just learning to cope with not being able to actually know, and then just make your best prediction. Again, it’s understanding what is the game really? It’s not an algebra problem.
[00:49:12] Hugh: Indeed. Denise, I’m thinking of you as some form of wall street goddess with this power, and I’m wondering as we very much used up your time and I’m sure we will continue these conversations, I think there will be more because I think that there is an engagement here I think we understand this path, but you’re someone that people listen to. You’re someone that people take instruction and guidance from and I wondered two things. I wonder firstly if you could just let the folks tuning in, how do they find you? How do they come into your orbit? Can we do that first and then I’ve got a special request for you?
[00:49:53] Denise: Perfect.
[00:49:54] Chris: It’s not anything rude, is it, Hugh? Your special requests are like, it’s nothing X-rated, is it? No.
[00:50:00] Denise: I’m used to whatever. I am Denise, my middle initial, K, Shull, S-H-U-L-L on Twitter. My company is The Rethink Group, which is really meant to be like rethink thinking. It’s therethinkgroup.net, and you’ll find a Contact Us and you’ll find a vlog and you’ll find my bio.
[00:50:24] Hugh: You’ve got the book.
[00:50:26] Chris: Yes, you’ve got a book.
[00:50:27] Denise: You’d think I’d remember that I wrote a book, but I always forget. It’s called Market Mind Games, came out in 2012, the radical psychology of trading investing in risk or investing trading in risk, or– [crosstalk][00:50:42] Chris: Before Hugh makes his request, can I ask you very one simple quick question is, being a woman and when you’re talking to all, most of these people, I’m sure your clients will be men, does being a woman help you?
[00:50:54] Denise: I think it does because I think, first of all, I don’t have any like I was never taught that I shouldn’t have my emotions, so it’s just a thing. To me, it’s the way it works and I just talk about it but I think some men are more comfortable talking to a woman about their emotions than they would necessarily be talking to a man. I also find there are some other male performance coaches who, frankly, I’m going to be nasty and blunt, but who have copied me. When I actually listened to them, they still don’t get it quite right. They say stuff I say, but they always throw in that intellectual overlay that’s actually the answer. Anyway. Sorry– [crosstalk][00:51:37] Chris: Interesting. No, no. Hugh, your request, over to you.
[00:51:43] Hugh: My request is, Denise, we do not know how to influence the algos on you. We don’t know, maybe one day we will, but we have created a hack. The Apple Podcast, we understand how that works. It works, basically, the algo gets excited when people give a star rating and when they leave a review. What I know doing is for those wonderful folk who join us on YouTube, you will find the link to the Apple– The Apple Podcast is audio. I think the show is better for its chaos, you need to see both sides. Every week we get about 70 comments and I just wonder if you could take those comments and copy and paste them into that link on the Apple and give us a star rating because we are at 83 reviews and our world will change if we can get that to a thousand, that algorithm will flip and will start giving us favors.
The people who are as generous as to do that for us, I’m very close to selling the hats, not this one, it’s my buddy’s hat. The first thousand will certainly get a huge discount on the first hat purchases. [inaudible 00:53:09] to tell them that if they don’t, you’re going to reprimand them. Oh, that’s not. No, that did. Hey, listen, I just fell into that stereotype thing, the Wendy thing. It shows you how where that’s still– subconsciously, I went there and now I feel embarrassed.
[00:53:29] Denise: Oh, don’t give it a second thought, like, can’t help it. I induce that in people, blame me.
[laughter][00:53:39] Denise: I probably should go because I think someone waiting for me.
[00:53:41] Hugh: Yes, you should. [crosstalk][00:53:42] Chris: Well, thank you so much. Thank you so much, Denise, for coming on.
[00:53:47] Denise: Thanks for having me.
[00:53:48] Chris: Yes, if you’re looking for the– If you’re a fan of Billions or you haven’t seen Billions, go watch it and you can find out more about Denise through the TV, through Showtime, but obviously, you can go straight to the– You can go straight to her directly but you can also, can see a sort of fictional character, and it’s been great having you on, Denise. This has been a lot of fun. I think we’ve enjoyed this and I’ve enjoyed it, and I’m sure everybody else listening has, so thank you so much.
[00:54:10] Denise: Yes, I was looking forward to talking to you guys and I’m glad I did. I look forward to talking to you again [unintelligible 00:54:15] California and Canada. See you soon. Bye.
[00:54:18] Hugh: Thank you, Denise. Back to you.
[00:54:19] Chris: Thank you, Denise.
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