[00:03:08] Vitaliy Katsenelson: So that’s skin in the game. Soul In A Game is the next iteration of that. And that iteration where you have this inner alignment with whatever you’re doing. It’s something so dear to you, it’s so important to you that your sole focus is to be doing a great job. Like, we’ve seen people that have Soul In A Game.

[00:03:28] Vitaliy Katsenelson: I’ll give you an example. You go to a restaurant and you have this waiter or waitress that gives you just absolutely incredible service. And that person is not really doing it because how much, you know, she’s going to get tipped or he’s going to get tipped, but does it because they want to make you feel good, or you go to mechanic.

[00:03:44] Vitaliy Katsenelson: And you know, like they will, the mechanic will do whatever he has to make sure he does a good job for you because he cares about delivering the value to you as a customer. What you find usually people that have soul in the game, first of all, Their identity is perfectly aligned with what they’re doing.

[00:04:03] Vitaliy Katsenelson: In other words, if they do something that would diminish what they’re doing, it’s actually would go against their identity. Now, that’s point number one, but number two, they’re usually playing an infinite game. And what I mean by this is that this car mechanic, he, like, you know, like when we go to car mechanic, there’s usually a symmetry of information, right?

[00:04:23] Vitaliy Katsenelson: The mechanic knows so much more about your car than you do. The reason we usually don’t like going to car mechanic is because we always afraid to be ripped off. So when you go to car mechanic and says, you know what, your brakes, you can still use them for another year or two. Well, car mechanic knows so much more about those brakes than you do.

[00:04:41] Vitaliy Katsenelson: and that person being honest with you creates a connection to that person and therefore in the long run, it’s going to pay off. So anyway, this is just an example, but that’s what to me, that means having soul in the game, this alignment, that inner alignment you have with whatever you’re doing. 

[00:04:58] Kyle Grieve: Yeah, I really like that definition.

[00:05:00] Kyle Grieve: And obviously, like you said, with skin in the game, I mean, you can have skin in the game, but obviously not have soul in the game, right? Like, like you said, if you were an engineer making that bridge and you hated your job of engineering, well, yeah, you’d still have skin in the game if you’re standing underneath that bridge, but you might not actually enjoy what you’re doing.

[00:05:14] Kyle Grieve: So you wrote about Jiro Ono, the three Michelin star sushi chef featured on the documentary Jiro Dreams of Sushi. So he said, quote, once you decide on your occupation, you must immerse yourself in your work. You have to fall in love with your work. Never complain about your job. You must dedicate your life to mastering your skill.

[00:05:34] Kyle Grieve: That’s the secret of success and is the key to being regarded honorably. Unquote. So it’s very, clear that Jiro had his soul in the game based off of the definition that you just gave, especially in regards to his job. And he’s also thought deeply about why he loves what he does. So do you think it’s possible to be a good investor without actually loving it?

[00:05:54] Vitaliy Katsenelson: I think it’s very difficult to do this in the long run, because what’s going to happen if you’re doing it just for money, you’re going to be competing against people who are doing it for the love of it, who are doing it because they wake up in the morning and that’s all they can think about. So you’re going to be in a significant disadvantage in the long run if you’re just doing it for money and eventually you will lose that game because there’s a lot of people who are doing it as a hobby.

[00:06:22] Vitaliy Katsenelson: I mean, it’s a hobby, they get paid for it. Like I do it. I get paid for it, but I would do the same thing if I didn’t get paid for it. Because I love investing. 

[00:06:31] Kyle Grieve: I remember reading that when George Soros was asked about when he first realized he was good at making money, he replied, quote, I don’t like it.

[00:06:38] Kyle Grieve: I’m just good at it. Unquote. So do you think someone who thought about investing in that light and was successful had soul in the game? 

[00:06:45] Vitaliy Katsenelson: You know, it’s kind of interesting. I question George Soros response a little bit, how honest it is, because he wrote like three or four different investment books, and he’s a billionaire, and I can promise you, you don’t write books for money.

[00:07:00] Vitaliy Katsenelson: I can tell you this as an author of several books. he probably loves it a lot more than he’s willing to admit, but I’m going to hedge my answer a little bit because if you look at, you know, they’re probably around the same age as Buffett, more or less, and Buffett obviously loves what he’s doing. At Soros, he basically stopped managing money professionally.

[00:07:21] Vitaliy Katsenelson: He may still supervise it a little bit. But he had other money managers, other people run more of the bulk of his money. So he probably also, so maybe, you know, maybe that explains in part why he’s no longer managing money. 

[00:07:36] Kyle Grieve: So you mentioned meditation in your book and I think that I’m at a place that you mentioned you were at one place where I have this inability to not think while meditating and it probably drives me away from keeping on doing it when I probably should be doing it over and over again.

[00:07:52] Kyle Grieve: But the benefits of meditation, such as, you know, being better able to manage stress, thinking more clearly, and increasing self awareness, obviously has a huge impact on anyone’s life, regardless of if you’re an investor or not. So how would you suggest someone new to meditation get started? 

[00:08:08] Vitaliy Katsenelson: Dispel kind of a few myths about the meditations first.

[00:08:12] Vitaliy Katsenelson: Number one, I think one of the biggest myths is that because you meditate, you can be calmer. I think, like, let’s say you meditate for 20 minutes, I’m not sure how much benefit that 20 minutes in itself has, but it’s, the side effect, there is a, it’s the other side effect that makes you calmer as a person, and I’ll get to the side effect in a second.

[00:08:32] Vitaliy Katsenelson: But you said something very interesting, you said, you not think when you meditate. And I think this is the most, this is probably the primary reason why most people don’t meditate because they try meditate, they try not to think and they fail. Well, and then when I say the word fail in quotes, that is the feature, not a bug.

[00:08:53] Vitaliy Katsenelson: Like trying to sit and not to think is part of the meditation and you failing, that’s a big part of it. Because what happens is this, when you fail, and again, I’ve used it in quotes, in air quotes. When you fail, what you try to do, you try to observe the thought that on which you failed, okay? And this observation of thought makes you, actually trains you to be mindful, to observe your thoughts, to observe your emotions.

[00:09:23] Vitaliy Katsenelson: The reason it’s important because I think that’s what gives you that, that’s what makes you a calmer person. Because what happens to us, we spend most of our time having this subconscious thought, always thinking about something, always worrying about something. And it’s happening subconsciously, so we’re not noticing it.

[00:09:41] Vitaliy Katsenelson: Now, once you train yourself, you know, observe your thoughts, it’s almost like, imagine like you have a desktop computer and the obvious main processor, and then you have another little computer that sits on its side, desktop computer that analyzes what desktop computer is doing. And that’s what meditation is.

[00:09:59] Vitaliy Katsenelson: And if you start observing your thoughts, and I’ll give you an example, I was driving somewhere a few years ago and I noticed that I’m very stressed about something and I, started to think about it. I realized what I’m stressed about. And the second I realized what it was, it’s almost like you poke a balloon with a needle.

[00:10:17] Vitaliy Katsenelson: It’s kind of, he pokes the story and goes away. And that’s what made me calmer. I think that is the kind of become mindful, be able to observe your own thoughts. And therefore, the pain that comes with incessant thinking about that, that gives you, that’s what causes you pain. That’s what meditation helps you to do is now, how do you start meditation?

[00:10:41] Vitaliy Katsenelson: Well, first you’re trying to create a new habit. So when you try to create a new habit, what I suggest you do, try to remove all the obstacles. Make it as easy as possible. Make it something that’s easy to repeat. So if you find a comfortable chair at home, link it to something. In other words, you can link it to something you do every day.

[00:11:02] Vitaliy Katsenelson: You wake up in the morning, you brush your teeth, maybe next thing you meditate. Or you come off to work. You put yourself on a way, you know, on a counter, maybe next thing you meditate to link it to something you do every single day. Also, I think this is a case where you’re repeating it over and over again is more important than how long you meditate.

[00:11:21] Vitaliy Katsenelson: If you start meditating three minutes a day and then gradually increasing anybody, everybody, I can promise you this one. Let’s say not three minutes, let’s say one minute. Anybody can meditate for a minute. I can promise you. Anybody. You can meditate for a minute for sure. And you start with one minute and then you increase it to three to five to ten.

[00:11:38] Vitaliy Katsenelson: And you do it every single day and you don’t miss it. There are so many apps out there. There’s a Sam Harris has an app, Waking Up. There’s another app called Calm. Then YouTube has a lot of videos you can listen to meditate to. The only thing what you’re trying to do is like you are the basic meditation is you sit down, you breathe, you focus on your breath, and then just all you’re trying to do is just focus on your breath and nothing else.

[00:12:06] Vitaliy Katsenelson: And while you focus on your breath, thoughts come to mind. Oh, I’m on a podcast. I should be probably focusing on the podcast, not on meditation. But anyway, so but that’s it. And then you observe this thought and you go back to breathing again. 

[00:12:20] Kyle Grieve: So I really like that point you made just about attaching it to a habit of something you do every day.

[00:12:25] Kyle Grieve: Cause it’s funny, like I, I think I do think a lot, you know, but I don’t know if I’m necessarily focusing on my breathing. So like, you know, I, I guess in some sense I am meditating, but you know, like, can you meditate without focusing on your breathing? In your opinion? 

[00:12:40] Vitaliy Katsenelson: Well, oh yeah, you can, there’s, there are many ways, different ways.

[00:12:43] Vitaliy Katsenelson: You can meditate by focusing on just listening to sounds. Just go, like I say, try this. Go to the park or go outside and sit outside on the bench and just start listening to sounds. First of all, I promise you’re going to hear sounds you didn’t know, like you’re going to hear highway three miles away.

[00:12:59] Vitaliy Katsenelson: Like that sound is always there. We just never pay attention to that. You know, you can, there’s many different ways to do this. You can focus on breathing, you can focus on the subject, working on the subject. Some meditations are with your eyes open. Like they, I mean, I try to meditate, listening to classical music as well.

[00:13:16] Vitaliy Katsenelson: There’s many different ways to meditate. You need to find whatever works for you. 

[00:13:22] Kyle Grieve: So I love the chapters in your book where you talk about the adventures that you’ve had with your children and the challenges of parenthood. So I’m newish father myself as well. I have a 16 month old son. And, it’s clear to me, obviously from reading your book that you made being a good father, a large part of your life and invested a large amount of time into doing just that.

[00:13:40] Kyle Grieve: So what have been some of your biggest realizations about, improving your work life balance that you’ve learned since being a father? 

[00:13:47] Vitaliy Katsenelson: I struggle with this concept of work life balance. Because it’s a balance, like when you think about the word balance, it kind of assumes there is a, it’s a 50-50.

[00:13:57] Vitaliy Katsenelson: There’s some kind of, you know, I think the way I look at it. is that you want to mindfully look at your life and identify important elements in your life. And I’m going to give you an example going through and then prioritize those things. And knowing that, like, if you think about a big part of life is just dealing with constraints.

[00:14:19] Vitaliy Katsenelson: It’s like economics, you think about what economics is, it’s just dealing with constraints. So it’s dealing with life and the biggest constraint in life is time. So the way I look at this, let me just, kind of, as an example, let me go through my life. The way I look at my life, I prioritize things like this.

[00:14:36] Vitaliy Katsenelson: Myself, family, investor, writer, then CEO of AMA. You know, I’m separating writing, I can be an investor, I’ve been portfolio manager, CIO of AMA. and being CEO of AMA and then friendships. You could argue that, well, friendships are not important to me. No, they are important to me. Don’t get me wrong. But if you value everything the same, you value nothing.

[00:15:04] Vitaliy Katsenelson: So you have to this process of prioritization. And you want to make sure that every single thing there is that you don’t run it into deficit. In other words, if I completely neglect my friends, then I’m going to pay for that at some point in time. And it’s horrible. And relations to me are important. But the reason I structured it this way, the reason I put myself first is because, you know, when you’re there on the airplane and they tell you.

[00:15:31] Vitaliy Katsenelson: In the case, in case of emergency first, put a face mask on yourself. Well, if I don’t get enough sleep, if I am, if I don’t eat well, if I’m not a good mental state, nothing else is going to matter. So I want to make sure that I exercise, I eat well, I, get enough sleep. I, you know, and relationships, by the way, are part of it too.

[00:15:53] Vitaliy Katsenelson: So it’s a, I kind of take care of the relationships right there. That’s then my family. And this is very important. Your kids, at some, your 16 year old son, at some point he will be 22, and he’ll tell you, Dad, Kyle, where do you live? Vancouver. Vancouver, okay. So he’ll say, Dad, I want to move to Washington, D.

[00:16:12] Vitaliy Katsenelson: C. And you’ll be remembering the moments you had with, you know, with your son when he was 2 years old, 5 years old, 15 years old. I think, like, when it comes to my kids, I’ll be honest, that kind of approach from regret minimization perspective, I just want to make sure that I’m present and I’m there for them when they’re growing up.

[00:16:32] Vitaliy Katsenelson: Because at some point, they’ll grow up and they won’t need me. that’s when my family comes in, second. Then investing for me, it’s very important because I mean, I make clients hire, you know, basically come to us and say, Vitaly, here’s my life savings, don’t screw it up. it’s incredible responsibility.

[00:16:48] Vitaliy Katsenelson: Plus, I love doing this and that truly gives me meaning so I do have soul in the game when it comes to investing. Then you have, then I have writing and writing to me. Writing and investing, like sometimes you, it’s very difficult to draw the line between writing and investing because I write a lot about investing.

[00:17:05] Vitaliy Katsenelson: And that’s how I think. That is, if you think about writing, it’s just basically focused thinking. For two hours a day, every morning I write, and that is my focused thinking time. So writing is right there next to investing. It’s very important to me. And and then I have, and then I’ve been CEO of IMEI.

[00:17:23] Vitaliy Katsenelson: Now, this is, a very important point. My company now at the point where I am not as much needed as much to run the company, because I have a lot of people helping me. 10 years ago, when the company was much smaller, it was, on the, on the, this priority was higher where it is today. But now, It’s lower priority just not because I don’t care about the company.

[00:17:48] Vitaliy Katsenelson: It’s just because I have so many capable people helping me to do this, freeing me, freeing up time for me to focus on other things. And then finally have friendships. And again, when it comes to friendships, what I’m trying to do, I favor quality over quantity to have meaningful relationships. You can, it’s very difficult to have a lot of true friends just because friendship requires investment of time.

[00:18:13] Vitaliy Katsenelson: And so what I do, I have a handful, very close friends with whom I talk all the time. I go for a walk in the park and I call them, but I know that there’s a lot of, I have a lot of wonderful friends slash acquaintances, but I know there is just so much time and I can’t have a deep relationship with them.

[00:18:32] Vitaliy Katsenelson: So I have a handful of friends. And that’s how I kind of manage my friendships. My point is this, what I just described to you is prioritization of my life. And that is going to be different. It was different for me at different points in life as well. I mean, before I had kids, obviously kids were not, you know, were not part of that.

[00:18:51] Vitaliy Katsenelson: And studying was a big part of it. But the key here is this, you want to kind of mindfully create categories and figure out how much time, what’s more important to you. And then you look at your time. How do you spend your time? Because, like, attention is really a currency of time. How you spend your time is basically tells you exactly what your priorities are.

[00:19:13] Kyle Grieve: When I was researching you, I came across a great comment on stoicism and why it resonates with you so much. So you said, quote, when we were born with the same hardware and software. We all have similar hardware and the software from an operating systems perspective is basically a blank slate, unquote.

[00:19:29] Kyle Grieve: So your point was that, you know, your operating system is largely shaped by things like our own experiences, our parents experiences, books we read, you know, things that happen in the world while we’re alive. I’m interested in knowing how stoicism fits into how you’ve upgraded your own operating system.

[00:19:45] Vitaliy Katsenelson: Well, it provides an operating system, basically. What stoicism basically helped me to reduce the volatility of negative emotion. It allowed me to, when I go through life, to remove stress from it. And so now I look at life differently because of stoicism. 

[00:20:05] Kyle Grieve: You discussed a few really good investing tools that you’ve learned from your studies in Stoicism.

[00:20:13] Kyle Grieve: And the first one I’d like to discuss is the dichotomy of control. So do you mind outlining that tool and how you’ve used it? 

[00:20:21] Vitaliy Katsenelson: That is the concept that got me into Stoicism. That was like a, it’s so simple and I’m going to tell you what it is. And you’re like, What? So they say that’s, that was it. But it’s so brilliant and it basically says some things are up to us, some things aren’t.

[00:20:38] Vitaliy Katsenelson: I mean, that’s the part where you say, oh, what’s up? Is that, no, but then, so let me just a little, give a little bit contest. Toto says, so stoicism, it’s a 2000 euro old philosophy that came from ancient, Greece. There were basically three kind of main Stoics. There was Marcus Aurelius. He was an emperor of Rome, the most powerful person in that universe at that time.

[00:21:05] Vitaliy Katsenelson: There was a Seneca who was kind of the Renaissance man, I don’t know, seven or 10 centuries before Renaissance. And then there was Epictetus and Epictetus was a slave who was freed and then he became a Stoic teacher. So the concept, the Academy of Control is a concept that came from Epictetus. and he says some things are up to us, some things aren’t, okay?

[00:21:26] Vitaliy Katsenelson: But then he continues and he says, things that are up to us are our values, our decisions, how we react to things. I mean, I’m paraphrasing. Everything else is not up to us. Kyle, you drive into work and you get a green light every single time. That’s good. But another day you drive to work and it’s a red light, well, you get a green light or red light is not up to you.

[00:21:51] Vitaliy Katsenelson: But what’s up to you is how you act to it. You go to a grocery store and a clerk is rude to you. There are a couple of things, we can double click on that. First of all, you have zero control how other people will treat you. And also sometimes you should ask yourself a question, do I really expect to go through life and every single person I’m ever going to meet is going to be kind to me and nice to me?

[00:22:15] Vitaliy Katsenelson: Probably not. So you should be prepared that there will be a time when people are not nice to you. And again, what you can control is how you respond to them being not kind. Also, and we can talk about this now, when somebody is not with root to you, it’s a, you just, what I just did, I just basically framed somebody saying, words and said they were rude.

[00:22:39] Vitaliy Katsenelson: Actually, I will give you an interesting example. it’s a fascinating example. I have, we have some Israeli clients and I, don’t know if you ever communicated with Israelis, they’re incredibly direct. Like it’s the, they direct to the point that you think they’re rude, but they are not. They just being direct.

[00:22:57] Vitaliy Katsenelson: It’s, very interesting because it’s like, I tell my staff when they talk to, you know, to my coworkers, when they talk to Israeli clients. They’re not being rude. They’ve just been direct. That’s what culturally they do. So we really have a choice to frame anything. We can put, we can color it any way we want.

[00:23:16] Vitaliy Katsenelson: We can color it as people basically being direct to us, or we can color it as they’ve been rude. If you color it as they’ve been direct, suddenly, You don’t have a negative reaction to it. If you color it as they’ve been, you know, if you frame it as they’ve been rude, you start interpreting them in rude and it has negative reaction and you have a negative reaction.

[00:23:37] Vitaliy Katsenelson: It’s a, that’s kind of an interesting example. I’m sure the cultural differences. Like a very true story. Let me just say, I think it’s just a wonderful story. So we have this client and we’ve been clients for a long time. And we actually became very good friends. And we managed a significant sum of money for the family.

[00:23:55] Vitaliy Katsenelson: And she sends me this email and she says, Vitaly, which never happens like this. This stock is too expensive. We need to sell this. This stock, the dividend is too low. We should sell it. This stock dividend is high. We should buy more of it. And this is like, I’m not a broker. I’m a money manager. So people usually give me money and say, well, people not usually always give me money and say, invest it for us.

[00:24:15] Vitaliy Katsenelson: So I never get a treatment like this. And here’s what I did. I basically wrote this two line email basically says, They said, listen, I understand this is not your words, this comes from your family, but you have a couple of options. I can do everything you want me to do, but then why am I charging you fees?

[00:24:33] Vitaliy Katsenelson: And they all say, if you want me to do those things, you probably don’t need me, so we can just move on and terminate the relationship. So this was the first line. And then what I did, I took this and put it in the chat GPT and said, please make it very nice. And it said, dear Chris, I hope the sun is shining in your part of Israel.

[00:24:53] Vitaliy Katsenelson: And it’s basically what was two lines became like half a page. And I sent her both versions. I said, here’s an Israeli version, here’s an American version. You decide. She laughed so hard about this. It’s just like, I love the Israeli version so much more. But again, the point I’m trying to make, you’re going to meet people.

[00:25:10] Vitaliy Katsenelson: And what you think is rudeness, sometimes just, it’s a different style of communication. And sometimes people just have a bad day. Like, if you assume benevolence, your life is going to be so much easier because you realize we all have a, you know, the, You may be dealing with a person who just really had something bad happen to them and they’re reacting to you.

[00:25:33] Vitaliy Katsenelson: It’s not really to you. It’s really, they’re reacting to other things happening in their life, but you taking it personally, what you’re doing, you’re making your life worse, but you reframing it, what you just did, it. You made, you remove unnecessary stress out of your life. 

[00:25:49] Kyle Grieve: It’s funny because, you know, obviously in investing the dichotomy of control is, so powerful because there’s so much stuff that is completely out of our control in the market.

[00:26:00] Vitaliy Katsenelson: Let’s double click on this. Let’s, because I think investing in this, that’s a perfect, if you’re an investor, you need to practice the economy of control every single day. And that’s what you do. Because what’s up to me is my process. It’s up to me learning, trying to get better, having a, executing, doing a good research, executing a good process.

[00:26:20] Vitaliy Katsenelson: That’s it. After I bought the stock or when I own the stock, what happens to the, you know, there’s so many good things and bad things that can happen. None of those things are up to me. Okay. So now, and also the market will price my stocks. My market, in addition to this, has an opinion that every single stock I own in the portfolio about 5, 000 times a day.

[00:26:41] Vitaliy Katsenelson: Again, that opinion is not up to me either. Realizing that what’s up to me is also to react, you know, doing research and reacting rationally when, by the way, bad things will happen. And when bad things happen, me reacting rationally is up to me. that’s, I think the Academy of Control is very, important and invested.

[00:27:03] Kyle Grieve: Yeah. So you wrote, this really good Viktor Frankl quote, which is between stimulus and response, there is a space and in that space, our power to choose our response. And in our response lies our growth and our freedom, unquote. this quote is a powerful introduction to the EJR framework, which is kind of along the lines of what you’ve already discussed, but The EJR framework, in your words, stands for Events, Judgment, and Reaction.

[00:27:29] Kyle Grieve: So do you mind just going over this framework in a little more detail and discuss how it’s impacted you the most? 

[00:27:34] Vitaliy Katsenelson: Yeah, so the, if you think about story philosophy, it’s just really, there’s a whole bunch of mental models that you can use interchangeably with each other. You can sometimes say, Multiple mental models can be used at once.

[00:27:45] Vitaliy Katsenelson: Event, judgment, reaction. something happens. At this point, you have an opportunity to judge. Like the, you know, you’re driving to work and you have all the red lights. It’s the events and you’re judging it as just part of life. You’re kind of accepting it as a part of life. Somebody is rude at you, you know, rude at you.

[00:28:08] Vitaliy Katsenelson: Now, first of all, you may choose to reframe it. The event judgment, you can, now you can use a reframing as a framework. You can also, therefore, once you reframe it, your reaction is going to be different. It’s a basically, and this is where meditation comes in. That space between the event judgment, that’s where mindfulness comes in.

[00:28:31] Vitaliy Katsenelson: And this is where you feel like, okay, this is an opportunity where most likely I’m going to react negatively. You identify that, and then you change something. You can use negative visualization in other concepts. I’ll give you an example. You’re driving, your wife calls you up and says, Kyle, I have this incredible turkey and gravy.

[00:28:51] Vitaliy Katsenelson: Come home. We’re going to have a bottle of wine and turkey. And you’re driving home and you’re stuck. There was a car accident and stuck in two hour traffic. And now you can frame it as I’m sitting in this, metal box. I just, you know, and there’s a turkey and gravy waiting for me and wine and how horrible my life is, or you can say, I have an opportunity to sit in the car and to listen to wonderful podcasts.

[00:29:19] Vitaliy Katsenelson: My guest Vitaly has. Okay, so you could do that. Or, and this is where negative visualization comes in. You say, how many people, like, I could have been driving home from the hospital where the doctor told me I have two weeks to live, or I could be living in Ukraine right now and being bombed by Russia, or whatever.

[00:29:39] Vitaliy Katsenelson: So negative visualization often, a lot of times what it does creates this contrast that makes us appreciate what we have, which we take for granted because we get used to it. And a lot of times, I tell you, like, we went to Mexico a couple of years ago and we ordered, we had, we’re supposed to have this ocean view, you know, room, and we didn’t get it.

[00:29:58] Vitaliy Katsenelson: And I literally was going through this and I was like telling my wife, you know what? We get to spend a vacation in Mexico. Nothing could be that bad. It’s not so bad. Like this negative visualization, what it allows you to do, it’s you start looking at your situation and realize it’s not so bad because it could be so much worse.

[00:30:16] Vitaliy Katsenelson: And suddenly what you just did If you think about it, a lot of times what we’re trying to do, we’re trying to trick ourselves to basically kind of to remove stress out of unnecessary stress out of life. And this is what Stoytson helps you, just gives you all these different tools, frameworks to remove that unnecessary stress.

[00:30:35] Kyle Grieve: So I just wanted to touch a little bit more on negative visualization because it’s a tool that I’ve used for a long time, and I think it’s really powerful. because I really like the way you’ve molded kind of everything in together with the human operating system, right? Because if we don’t use negative visualization, then, you know, these events happen, we make our judgments and then we just kind of react kind of not really with much thought, which usually tends to be we overreact and we react in a negative way.

[00:31:01] Kyle Grieve: But obviously, if we use negative visualization over a long period of time and become aware of our reactions, it becomes imbued into that operating system and we’re able to just do it more naturally. Is that kind of how you’ve viewed it? 

[00:31:14] Vitaliy Katsenelson: Yeah, oh, absolutely. Let me give you a couple examples. Every day before I write, I get a cup of coffee, but before I get a cup of coffee, I linked push ups to the cup of coffee.

[00:31:26] Vitaliy Katsenelson: And, when I do this push ups, and I’m not a big fan of working out in general, I’m not a big fan of doing push ups, but I tell myself I’m so lucky that I can actually do this push ups. There will be time when I won’t be able to. Just think about it. So now I actually, I appreciate that I get to do push ups.

[00:31:43] Vitaliy Katsenelson: You can use negative visualization this way. We already talked about your kids growing up. If you realize how scarce your time is with your kids, it’s, you’re going to appreciate that time more. And I used to, this is a true story, I used to, dread is not the right word, but I used to look at driving my kids to school as a chore.

[00:32:06] Vitaliy Katsenelson: I used to put it in the same category as taking out trash, so it’s horrible, but it’s like I love taking out trash as much as I loved before I go to work, you know, putting two kids in the car and you hear the yelling, screaming, driving, okay. And then when I realized that my time is so finite.

[00:32:24] Vitaliy Katsenelson: After your kids go to college, you spend probably 90 percent or 95 percent of your time with them. And once I realized how finite it is, actually now I volunteer to drive my kids to school. Now I want to drive my kids to school. But the irony of this is the action is the same. I’m driving my kids to school, but I changed, I reframed how I look at it.

[00:32:47] Vitaliy Katsenelson: And see again, it’s a reframing and negative visualization together. 

[00:32:53] Kyle Grieve: Let’s look at this more in an investing light. So how would you use negative visualization and, you know, your day to day investing and how does it help you think better and react more rationally? 

[00:33:04] Vitaliy Katsenelson: I think the, it’s a kind of, when you look at, when you buy, before you buy a stock, you kind of visualize it’s been down 50 percent and been fine with that.

[00:33:13] Vitaliy Katsenelson: And I think that’s easy. Yeah. Because at some, or by the way, same thing with your portfolio, because at some point it will be. Again, I love this phrase, like, do you really expect to go through life as an investor and not see your portfolio decline by 20, 30, 50 percent? And if you do, then you should not be an investor.

[00:33:33] Vitaliy Katsenelson: You should not be investing. You should buy money market funds or bonds or whatever. You should not be in stocks. That kind of phrasing, do you really expect to? And that’s, and then you, know, I do it all the time. 

[00:33:45] Kyle Grieve: The last old tool that I want to talk about, which you’ve already discussed, is the is reframing.

[00:33:49] Kyle Grieve: So there’s just a couple cool things I want to add. Just, there was a really good Epictetus quote that you had in your book, which is, quote, It is our attitude towards events, not events themselves, which we can control. Nothing by its own nature is calamitous, unquote. And then you had this really good example of taking cold showers, which I know you do.

[00:34:06] Kyle Grieve: and, You talked about basically how the cold shower itself is not particularly enjoyable, right? But it’s our kind of our fear of how we’re going to react and feel towards that cold shower. And you’ve kind of reframed that into a different way of looking at it. So can you talk to me a little bit about that?

[00:34:23] Vitaliy Katsenelson: I think when we call stoic philosophy, a philosophy, I think it’s, we do a little bit of disservice to it. That’s called stoic practice. And the reason it’s practice is because it’s a muscle you need to train. Okay. They, just like you need to train yourself to meditate. And, by doing this, you’re going to start observing your own thoughts the same way you’re going to, the more you use this tools, the better you’re going to become as this tools.

[00:34:50] Vitaliy Katsenelson: Okay. So it’s a constant, never ending practice. And cold shower is the kind of, it’s a basically, if, so like when you go to the store and the clerk is not rude to you, you don’t get to practice stoicism, unfortunately. However, you can create this kind of practice every day of stoicism when you do cold shower, because basically, like there’s a lot of studies that tell you that taking a cold shower is good for you, but that’s not what I’m talking about.

[00:35:17] Vitaliy Katsenelson: I’m talking about turning on cold shower and actually like it’s almost like you break it up into two parts. You look at the shower. I mean, actually three parts. Before you get into the shower, during the shower, and after the shower, after the cold shower. the part I’m talking about is you standing right before the cold shower and you’re getting in, and you really don’t want to.

[00:35:40] Vitaliy Katsenelson: And then you start asking yourself, so what’s the worst thing that’s going to happen to me? And you start, preparing, you know, start thinking about this, like you start preparing yourself that you have, you know, if you think about life, a lot of things that we have to do in life, you don’t want to do them, but a lot of times you overdramatize them in our head, in our heads, how horrible they are.

[00:36:01] Vitaliy Katsenelson: And once we go through that, it’s not such a big deal. By the way, that relates to stock market all the time. The stock market loves it, hates its uncertainty. And a lot of time you can take advantage of that because they are afraid what’s going to happen in the next six months. Well, you know what happens in the next six months?

[00:36:17] Vitaliy Katsenelson: There is another forever. So if you get, if you can live through the next six months and the company doesn’t die, you may have an opportunity. It’s a, this cold shower is basically, I look at it as an exercise of basically kind of practicing, like identifying my thoughts, like my fear and conquer it. every single day.

[00:36:37] Vitaliy Katsenelson: And I’m sure there are a whole bunch of other health benefits, but that’s unrelated to stoicism. 

[00:36:43] Kyle Grieve: So I know that you’re in Colorado, which definitely isn’t a hotbed of investing like other states such as New York. So I’m interested in learning more about some of the hidden advantages that you’ve noticed from living in Colorado compared to a very noisy city such as New York.

[00:36:59] Vitaliy Katsenelson: You know, it’s interesting. I ended up in Colorado, not because I wanted to be like Warren Buffett. I was just, it was a lack of a draw. I, when we came from, when my, aunt left Moscow in 1979 and moved to Brooklyn, she married the rabbi and they moved to Cheyenne, Wyoming. So when she invited us to come over to United States, Luckily, she invited us to Denver.

[00:37:22] Vitaliy Katsenelson: It’s a hundred miles away. So that’s how I ended up in Denver. And so initially anything, you know, living in Denver was not a choice. I didn’t make the choice. My aunt made it for us. But then later in life, I actually made, deliberately made the choice. I would go to New York and I love going to New York.

[00:37:43] Vitaliy Katsenelson: I love going to Manhattan. I love the energy. I love the culture. I love going to restaurants. I love going to theaters, museums, Central Park, walk in the streets. I love it. The only problem is I also love coming back. Three days is plenty for me. I mean, I come back, I’m completely drained and exhausted. Now, but there was something else there too.

[00:38:02] Vitaliy Katsenelson: If you are in the finance industry and you live in New York, you are basically, you get plugged into this rat race. Everybody compares, like there was this pecking order comparison all the time. How far you live, do you live on the East side of the park, Central Park or West side? Does your apartment has a balcony?

[00:38:22] Vitaliy Katsenelson: How far is it? You know, what floor? Does it have a doorman? So it’s a, Oh, and by the way, do your kids go to private school? Which private school? So it’s always what happens. Again, I’m generalizing, but if you’re not careful, that rat race, that environment is so toxic that suddenly you start living by somebody else’s values, which I would argue is not a good way to have a life, you know, it’s not, okay, at least I’m speaking for myself.

[00:38:52] Vitaliy Katsenelson: That’s not a life I want to have. I mean, again, there’s a lot of it. It’s possible to live in New York and not experience that. but I think it’s the uphill battle. Living in Denver, I don’t experience that. I live in this little micro bubble where I go to the park, I drive my kids to school. I don’t experience the social pressure.

[00:39:10] Vitaliy Katsenelson: And I love that. And I think it’s allows me to have a longer time horizon. And I think it’s allows me also not be as focused on material things. Again, I know it’s like an investment guy writing a book about stoicism in life and then telling you how important material things are. You know, I’m not living on the street and eating banana, you know, that’s not, you know, that’s not the point, but my point is, it’s not the material things do not dominate my life.

[00:39:35] Vitaliy Katsenelson: I mean, they’re still important, but don’t get me wrong, but then they don’t dominate my life. And so I think that’s a huge advantage of living in Denver. So I still have a lot of friends, investment friends whom I talk to all the time. So we share stock ideas, et cetera. And it could be New York and London or Zurich for that matter.

[00:39:53] Vitaliy Katsenelson: But, I feel like today you don’t have to live in New York anymore. And I think that’s kind of Buffett, I think at some point identified him living in Omaha, being far away from everybody else. allowed him to, it’s almost like you have your own internal clock and your clock is not set by the environment.

[00:40:09] Vitaliy Katsenelson: And I think when in New York, if you’re not careful, that’s what happens to you. 

[00:40:14] Kyle Grieve: So you wrote quote, by making small but conscious decisions about the environment around us, we can influence our creative output and our ability to make good decisions. We have to be extraordinarily careful to choose the right environment to work with and even socialize with the right people, unquote.

[00:40:30] Kyle Grieve: So you had a wonderful example of how you use this to stay healthier by not eating desserts when you’re in the state of Denver. But I’m interested in understanding more about how you’ve crafted your work environment to optimize your investing. 

[00:40:42] Vitaliy Katsenelson: Okay, I’ll give a couple examples. Number one, I find that my most productive time is before 2 p.m. So I rarely, if ever, have any appointments before one o’clock. The, from five to seven, roughly I write, that’s my writing time. And from eight to one or two, this is the time I focus on investing. Every day I go for a walk in the park. And I would argue, and to me, it’s almost like a religious experience because I find it incredibly important for creativity because If you look around you right now, every single object around you has a symmetrical form.

[00:41:19] Vitaliy Katsenelson: Everything, from this phone, to the screen, to everything is symmetrical. And therefore, it’s almost like you’re, the electrons in your brain kind of move in a symmetrical form, you know, in a parallel form. When you go outside and you are around trees, there is nothing symmetrical about trees. And so suddenly your thoughts start to interact with each other slightly differently.

[00:41:41] Vitaliy Katsenelson: I find going outside is very important for my creativity, and by the way, I would argue investing is a creative endeavor. So I usually have phone calls after 2 o’clock. Any tasks that are not creative, I usually push it after 1 or 2 o’clock. In addition to this, right now we’re sitting in my office where there’s two big monitors.

[00:42:00] Vitaliy Katsenelson: I have another office next door, which basically has an armchair, a giant iPad, headphones, a nice blanket, and my father’s art around me. And this is where I go and I read. That iPad basically is connected to internet, but it doesn’t have any communication software in it. So I just download 10Ks, transcripts, whatever magazines I want to read.

[00:42:23] Vitaliy Katsenelson: And that’s where, you know, that’s where I read. So that is because I find that what you want to do, you don’t want to fight your environment. You want to be environment to be your friend. So use as little willpower as possible. So if I’m sitting, imagine this, let’s say, let’s say you don’t look like you need to lose weight, but let’s say you decided you want to quit sugar.

[00:42:42] Vitaliy Katsenelson: And then what you did, You put apple pie, donuts, Mars candy right next to you and said, yeah, I’m trying, yeah, I’m trying, you know, I’m trying not to eat sugar. That’s going to be like, you’re basically, it’s very exhausting because how much energy is going to consume you? Willpower going to consume you?

[00:42:59] Vitaliy Katsenelson: Not to reach for the donut or for the Mars bar, whatever, right? So you want the environment to be a friend, not your enemy. Let me give you another example. I changed my diet to actually now my lifestyle where I basically eat meat and vegetables. So we have, the, I’m a benevolent dictator at my global headquarters.

[00:43:21] Vitaliy Katsenelson: The company actually, not Google, but the company basically buys groceries for the office. But there’s a condition, you can buy high quality protein, high quality vegetables and fruits, no processed food is allowed in the office. Okay? Because again, I want the environment to be my friend. And therefore I’ve been eating very healthy for the last six months.

[00:43:42] Vitaliy Katsenelson: Like, you know, once we instituted that, I tried to kind of mold the environment to be my friend, knowing my weaknesses. 

[00:43:51] Kyle Grieve: And the next thing I wanted to go over was your formula for happiness that you actually talked about in your book, which was basically to take things that you enjoy the most. and divide them by the things that you don’t enjoy.

[00:44:01] Kyle Grieve: And then the goal is to make that number higher by hopefully maximizing the numerator and minimizing the denominator. I’m interested in knowing the best strategies that you’ve come across to minimize a denominator, both in, life and also in, from an investing lens. 

[00:44:17] Vitaliy Katsenelson: We went through prioritization of my life, right?

[00:44:21] Vitaliy Katsenelson: I should be spending most of my time at work basically on investing, but other things come in, like, I write articles and then what we do, we have a podcast where basically that article is turned into kind of an audio form, like an audio book. If you don’t have time to read my articles, you can listen to them.

[00:44:40] Vitaliy Katsenelson: At some point in time, we had to make a choice who’s going to read those articles. I realized that I enjoy, first of all, I enjoy writing those articles. I don’t enjoy reading them. Also, reading them would consume another 30 to 50 minutes per article. So what we decided to do, we just hired somebody who would read those articles out loud to my listeners.

[00:45:00] Vitaliy Katsenelson: So what I did, I basically realized, okay, number one, I love writing and I can add this way, add value. Somebody else, can do my probably much better job reading than I can. And if I take this 15 minutes, and if I do this, it means I’ll have less time doing something else. either spend time with my friends, doing research, whatever.

[00:45:22] Vitaliy Katsenelson: I started to delegate things a lot more. So if I, don’t, you know, if it’s basically two categories, I add a lot of value, I enjoy it. I’ll give you a couple more examples. When it comes like in the past, I remember 10 years ago, 10, 15 years ago, When I would try to schedule a call or an appointment or dinner with my friends, some of them would have their, you know, secretary or their assistant, would do those, you know, would schedule those appointments.

[00:45:51] Vitaliy Katsenelson: And I felt like my friends were trying just to show how successful they are. And by doing this, and now I realize I was completely wrong. What they basically realized that the time they spent on scheduling when, you know, the appointments, et cetera, they add very little value. And over time, that time adds up.

[00:46:15] Vitaliy Katsenelson: So by delegating this task to somebody else, they will actually, it’s actually like buying time basically. There is another kind of interesting dilemma here because you almost, I used to have this feeling like, I don’t like feeling like I’m superior to somebody else. When I ask my assistant to do something, I don’t like the kind of the, feeling I get.

[00:46:38] Vitaliy Katsenelson: I used to not like the feeling I get that I’m asking to do things for me. But then I read this book, there’s this wonderful book, completely unrelated to investing called Shantaram. And it’s incredible, by the way, I highly suggest the book. It’s about India. And, there was this, it’s about this Australian going to India in 1980s.

[00:47:01] Vitaliy Katsenelson: And he tells this wonderful story. He lived in Mumbai and he lived on the third or fourth floor, and it was very hot and muggy. So he would take a shower three times a day. And one day he’s walking down and see a guy carrying buckets of water. He’s like, why are you carrying buckets of water? He’s like, well, sir, you’re taking a shower.

[00:47:19] Vitaliy Katsenelson: That’s the, there’s no pump. So that’s the water we use for you to take a shower. And the guy says, Oh my God, I’m taking three showers a day and you have to do this. I feel so horrible. Like, I’m going to start taking one shower a day. He’s like, and the guy says, no, sir, please take five showers a day.

[00:47:36] Vitaliy Katsenelson: because if you’re taking showers, I have the job. Okay. My point is this, you have, like, you haven’t, like by me having a need to have somebody schedule appointments. I created the job by me not doing recording podcasts myself. I created the job. So once you start looking this way, you realize you’re actually doing a good thing.

[00:48:01] Vitaliy Katsenelson: Like I’m creating, I’m doing, spending more time doing things where the most value and I’m creating jobs for people that wouldn’t have had jobs otherwise. So anyway, so this is, I thought that’s reframing. It’s kind of very liberating. 

[00:48:16] Kyle Grieve: So the next thing I wanted to go over was the four modes of communication that you discuss in your book, which was preacher, prosecutor, politician, and scientist.

[00:48:25] Kyle Grieve: So can you briefly discuss each of these modes and go into detail about scientist mode and why it’s so important to spend time in that mode to foster the learning process? 

[00:48:33] Vitaliy Katsenelson: I think so. I got to give a credit for this to Adam Grant who borrowed it from another of his, I forget the guy’s name, from another colleague of his.

[00:48:43] Vitaliy Katsenelson: So you have this, the preacher mode. So we all, so basically we all at different times use this mode. When a preacher, imagine somebody like a preacher, you know, in the church, right? He has his idea and he’s basically wants to communicate this and he wants everybody to kind of, to buy into whatever he’s selling.

[00:49:04] Vitaliy Katsenelson: Like his ideas, right? It’s one way of communicating. It’s a kind of, it’s going out, communication going out. Then you have a prosecutor. And prosecutor is basically a person who is trying to change your mind. Doesn’t really care about the truth. The whole point is there is just to change somebody’s mind.

[00:49:22] Vitaliy Katsenelson: Then you have a politician mode. And I argue that politician mode is where we spend a lot more time than we realize. When you go on a date, you’re on a politician mode, because what you’re trying to do, you’re trying to get somebody to like you. So when the person says something you don’t fully agree with, you kind of miss, you know, you kind of brush the side, don’t focus on this, you try to omit the negatives.

[00:49:45] Vitaliy Katsenelson: Because you’re trying to get somebody to like you, a politician tries to get other people to like him, to get reelected. We do this when we look for jobs, when we, go on dates. So we spend a lot of, we spend a lot of time in those modes and they’re important. However, if you spend a lot of time, like most of your life in these modes, you are not going to progress as a human being.

[00:50:06] Vitaliy Katsenelson: You will not learn much because none of these modes are, you’re not learning in those modes. Those most, for the most part, you just, You are, it’s the outward communication modes. Now the scientist mode is the mode where investors especially should spend most of their time. Seneca has this wonderful quote that I need to frame, time discovers truth.

[00:50:32] Vitaliy Katsenelson: And if you think about it again, time discovers truth. If you think about investing, that’s what investing is. Like, when I make an investment decision, I’m trying to discover truth before time does. When I discuss ideas with other investors, I want to be in a scientist mode. What it means is that anything we discuss is a theory, and if it’s a theory, it’s moldable.

[00:50:57] Vitaliy Katsenelson: If it’s a theory, then you also, again, if you’re trying to discover truth, You basically want to say, here are the assumptions I’m making. I’m assuming this, and this. And, you know, when you debate investing stocks with my friends all the time, they say, well, let’s debate this, let’s figure out this assumption.

[00:51:15] Vitaliy Katsenelson: And suddenly, you’re just, it changes the way you look at it because you start looking for the truth. And, as an investor, you want to spend a lot more time in that mode. Also, there is a, another very, important thought here is that a lot of times our beliefs are formed completely randomly. There is this Hebrew word, Abracadabra, and that word means I create as I speak.

[00:51:47] Vitaliy Katsenelson: as you start saying things, you start believing them. If I ask you something, and it’s something like, it’s something you haven’t thought about before, and the first thing that comes to mind, if I start, you know, you say, this is what I think, what I believe, and I start debating you, even though you haven’t had a chance to think it through yet.

[00:52:09] Vitaliy Katsenelson: But because you and I started debating it, if you are not in the scientist mode, if you are not one of those three other modes, then especially in prosecutor mode, then that idea gets calcified and becomes part of your identity. So you should be very careful. You should have a lot of ideas in your head should be really be theories and you should be very careful.

[00:52:32] Vitaliy Katsenelson: what becomes your identity. Like for me, a part of my identity has been kind. When it comes to politics and many other things, whatever, that’s not part of my identity because I’m willing to change my mind. If, you know, I’m willing to change my mind. So it’s very important to examine how your beliefs are formed, to re examine your beliefs.

[00:52:54] Kyle Grieve: So I really liked that, that part there about you talking about how beliefs are formed and, you know, I agree most people probably don’t spend nearly enough time in, in science mode. So my question is, how can we, I mean, I guess this kind of probably builds in with your thing on, your emphasis on meditation and, you know, kind of knowing yourself and having that self awareness, but how can we kind of know when we should be in scientist mode, but we’re not, or, you know, how can we make ourselves as self aware as possible for.

[00:53:21] Kyle Grieve: To know which mode we’re in so that we can hopefully try to allocate more time to growth and thinking and being in scientist mode. 

[00:53:29] Vitaliy Katsenelson: Well, okay, let me, let’s, go through some examples. You get pulled over by a policeman, probably don’t want to be in the scientist mode. There is a time for every mode, but I think it’s a, if you are trying to get your employees riled up to achieve something, again, scientist mode is probably not the right mode.

[00:53:50] Vitaliy Katsenelson: Like Steve Jobs was famous for his, I would, would be, would be preacher mode, right? Like his, distortion reality field, right? That was not a scientist mode. However, at the same time, when somebody, he wanted, you know, Steve Jobs really wanted to make an iPad originally. And when they created the first iPad for him, he looked at it and said, perfect, let’s go make an iPhone.

[00:54:12] Vitaliy Katsenelson: And because he realized it’s a much bigger product than iPad, and he could see what iPhone is going to look like. I think as an investor, when you’re doing research, that is a scientist mode behavior. When you’re learning something new, like when you’re learning something and you should spend a lot of time as a human being learning a lot, then you should be in a scientist mode.

[00:54:34] Vitaliy Katsenelson: If you’re trying to get the girls to like you, politician mode here is more appropriate. So it’s a, but I think whenever it comes to learning, whenever you have debates and especially Like, if, okay, this is very important. I would argue, you want to spend as little time as possible in the prosecutorial debates.

[00:54:54] Vitaliy Katsenelson: If at the end of the debate, nobody, there is zero possibility that any party is going to change their mind, probably should not have the conversation because it’s a waste of time. this is why I avoid this. Talking politics, because people thoughts already get calcified and they won’t change their mind.

[00:55:14] Vitaliy Katsenelson: what’s the point of having this debate? So there’s no point in this, but I think if you look at your life and just ask yourself how much time I spend in, in, modern communication, if you spend a lot of time in a on the 3P modes, unless you are a lawyer. If you’re a lawyer and you’re in court all the time, you probably should be spending more time with the prosecutor mode.

[00:55:39] Vitaliy Katsenelson: But if you’re doing research, you spend, you should be spending most of your time in a, not a prosecutor mode, but in a scientist mode. Let me give you one more example. Have a friend who is a very, famous short seller, Jim Chanos. And, what’s fascinating about Jim Chanos is that this is a person who seeks out a He wants to understand the other side.

[00:56:05] Vitaliy Katsenelson: Because as a short seller, you are in a minority, almost by definition. He always wants to understand what the other side argument is. And he usually can state the other side argument better than the other side. And, I found on a different, we, it was several times where we were on opposite sides of a stock, he was short, I was long.

[00:56:32] Vitaliy Katsenelson: And I found it fascinating because how, like, unemotional, fact based our discussion was. And I also know other short sellers who look at anybody who loans a stock as a, mortal enemy. And not Jim Chanos. And I think I respect him a lot for that. Because he’s in a scientist mode. Because he’s just trying to make money for his clients.

[00:56:54] Vitaliy Katsenelson: It’s not a He just wants to be right. He wants to discover truth before time does. That’s it. 

[00:57:00] Kyle Grieve: I really enjoyed how you broke down your writing process, especially as it pertains to metaphors to help you better communicate with your readers. So I’m interested in knowing how you utilize your extensive background in writing to help you create narratives for your investments that you’re obviously researching.

[00:57:17] Vitaliy Katsenelson: If I think about my writing, what I try to do is storytelling. If you think about storytelling, it’s probably the least efficient way to communicate, and what I mean by this, if KPI for efficiency number of words you use, because you can probably say everything I say in that paragraph. What takes me a page to say, a page or two to, you know, to tell the story, you can sum it up in a sentence.

[00:57:41] Vitaliy Katsenelson: But the problem, the thing is, we as human beings need stories. This is how basically we go through life through story. That’s how we experience life through stories. The finance could be very dry and boring and get people to explain like the, like, so like, let me give you an example. Three or four times a year, I write letters to my clients.

[00:58:06] Vitaliy Katsenelson: A lot of my clients are just very smart, professional people who are not investors. So I need to communicate to them why, like how I look, how I analyze a company, you know, how I look, construct portfolio, and I need to do it in a way that doesn’t put them to sleep. Because I write, like I literally write 30 page letters and I want them to read that.

[00:58:27] Vitaliy Katsenelson: So therefore, I need to, I know that it may take him more than a day to read it and it may maybe take a few bottles of wine, which is fine, but I want him to finish it. So therefore, I need to tell him through stories and so they can, something that’s complex, it’s going to be easier for them to relate to.

[00:58:45] Vitaliy Katsenelson: So I think the storytelling are very powerful. Also, I think the Charlie Munger was very big on mental models. And mental models to some degree, kind of a form of storytelling in the sense that you can port one framework, one, like the beat of mental models, you can.

[00:59:07] Vitaliy Katsenelson: So I think the story and mental models, combining mental models and storytelling is a very important technique because I just, I guess I, I actually, it’s such a great question because I didn’t even realize until now, I guess I was telling stories because I just wanted people to read my boring content.

[00:59:22] Vitaliy Katsenelson: And I just didn’t want it to be boring. I guess that’s how I became a storyteller. I didn’t even realize it until now. But yes, but I think it’s an incredibly important tool. And a lot of times I know what I want to say when I sit down to write, but I don’t know, but it’s the, I spend most of my time discovering how to say it, what analogy to use, metaphor, whatever.

[00:59:44] Vitaliy Katsenelson: And I think this is where I spent probably the most of my time. And, but also a lot of times, And if you talk to almost anybody who writes, what they sit down to write. like, and when they end up finishing writing looks very different because a lot of times you start writing, you start discovering new things as you’re writing and new concepts.

[01:00:06] Vitaliy Katsenelson: And this part is the reason why I love writing because it’s again, it’s a focused thinking. It’s I think as I write. I’m sure there’s a very cute word in it, Aramaic or something like, like abracadabra like word, but I think as I write, so writing is probably one of the most important things that has happened to me as an, adult, because think about it.

[01:00:28] Vitaliy Katsenelson: I write two hours a day. almost every single day. And that’s like 700 hours a year. That’s 700 hours of focused thinking. That is a significant competitive advantage. I, when people ask me what advice would you give to you know, a young person, I would say number one, write. Just write every single day. And again, We can go through the same kind of, exercise if you went through meditation, find the time that works for you.

[01:00:56] Vitaliy Katsenelson: I’m a morning person. I write in the morning. If you are, Walter Isaacson, you know, writes at night, so he’s a night person. Great. Just link it to something you do every day and write every day. It doesn’t matter how much you write. Just start writing and then over time, this is what writing is so powerful because what happens.

[01:01:15] Vitaliy Katsenelson: if you write long enough, it’s you develop what I call a writer’s brain. A writer’s brain has a kind of a mind of its own. I like this, the mixture of all this different analogies, but basically what happens when you start writing all the time with the writer’s brain, you start constantly looking for stories, for ideas.

[01:01:35] Vitaliy Katsenelson: You’re going to look at life differently than other people because you’re going to constantly looking out for those things. Something that goes unnoticed by others, I noticed because again, I’m looking for ideas. A friend of mine asked me, how can I write so much? Because I write probably maybe 40 articles a year.

[01:01:53] Vitaliy Katsenelson: And I said, on January 1st, I have, like, I don’t have 40 articles. I don’t have 40 essays. But as life happens, I get ideas because I constantly look for them. I get ideas. And I ended up writing 40, like when I started writing, I was so concerned I was going to run out of ideas. I was paranoid about this. So it’s a, this writer’s brain is extremely powerful because it’s basically, so I think this, the writer’s brain, the more you write, the more writer’s brain, you know, you develop.

[01:02:25] Vitaliy Katsenelson: And then I think it just changes how, the way you look at life, period. 

[01:02:29] Kyle Grieve: So last question I wanted to discuss was, a little bit about your other book, which I read and I really enjoy, but we didn’t get to talk about, which was the little book of sideways markets. So it was published back in 2011. And obviously a lot has happened since then.

[01:02:43] Kyle Grieve: I’m interested in knowing how you’ve viewed the markets since the book was published. 

[01:02:48] Vitaliy Katsenelson: I think the, in the book, I just, I discussed the framework and I was very direct about this, that the one thing like this framework was based, the framework is very simple. Whenever the markets have become very, expensive.

[01:03:02] Vitaliy Katsenelson: They usually, the markets that follow are not kind of bear markets, kind of the markets that decline for a long period of time, but are kind of a sideways markets where basically you have a lot of volatility in the markets, but the slope of them is flat. And so the, what, during the flatness, what’s happening is just price earnings is declining while earnings are growing.

[01:03:23] Vitaliy Katsenelson: So if earnings price earnings was 25. earnings, as earnings have, you know, have increased and prices haven’t changed, the price earnings goes, you know, goes down to eight or nine times earnings. Everybody who, you know, loved to own stocks, they were 25 times earnings. And now they’re at nine, they say they will never own stocks ever again.

[01:03:42] Vitaliy Katsenelson: And that’s how the next bull market started, starts. That’s it. I just described the whole book in 30 seconds. However, What’s interesting about this, after I wrote the book, I never expected the interest rates to decline to zero or in some countries to negative levels. And that changed the dynamics because price turnings declined and then they just went up.

[01:04:02] Vitaliy Katsenelson: Because interest rates were so low, the stocks became a lot more attractive than zero, almost negative interest rates. And I think we’re at the point today where probably my book is a better, is more appropriate than even when I wrote it because the market is expensive. And there is an interesting if here.

[01:04:25] Vitaliy Katsenelson: Since I wrote the book, the corporate profit margins have increased tremendously. We are at the highest level today in the kind of in the corporate history. And therefore, profit margins historically have been mean reverging. So they were high, they declined. Now you have, in the past, you had a couple of things going for corporations that benefited profit margins.

[01:04:49] Vitaliy Katsenelson: Number one, we had very low interest rates. And number two, outsourcing. The, we basically, we shifted a lot of our industrial capacity out to the United States, to other countries. Now, as we bring this industry, you know, the world is a lot less friendly, place than it was three, five, 10 years ago.

[01:05:08] Vitaliy Katsenelson: And therefore we’ll be, bringing a lot more industrial capacity to the United States or to our friends. And therefore I would argue, most likely we benefited from outsourcing. Now we’re going to be insourcing and that’s going to be the good, that’s going to put pressure on corporate margins. I’d argue this book is actually more relevant today than it was in 2011.

[01:05:31] Kyle Grieve: Vitaly, I want to thank you so much for coming on the show. Where can the audience learn more about you, your fund, and your books? 

[01:05:38] Vitaliy Katsenelson: I’ll give you one link and there you can read my articles, listen to my podcast, and it’s very simple. investor.fm. Like, like FM radio. investor.fm. You can read my articles, sign up for my newsletters, which are absolutely free, and you get to really learn about classical music, art, different things.

[01:05:58] Vitaliy Katsenelson: and you can listen to my podcast, which is going to be read to you, not by me. 

[01:06:03] Kyle Grieve: Okay, folks, that’s it for today’s episode. I hope you enjoyed the show and I’ll see you back here very soon. 

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