Trust Your Instincts: The Number One Rule of Investing with Phil and Danielle Town

Welcome to the Conscious Pivot Podcast with international speaker, business mentor, best selling author of Pivot, and your host, Adam Markell. The Conscious Pivot shares the stories and wisdom of people who have successfully reinvented some area of their business and personal life. You'll gain powerful insights into how you can fully embrace new opportunities, increase your performance, and master the art and science of innovation and resilience. So please join Adam as he guides you on your Conscious Pivot. Hey everybody. Welcome back to another episode of the Conscious Pivot Podcast. I'm your host, Adam Markell and I'm taking a big deep breath. It's a Monday as we're recording this. I know it's so cool if it's Monday when you're listening or watching, but it may be Tuesday or Thursday or Saturday. I love the fact that this content is consumed all over the world at all times of the day and all different circumstances. That's one of the most beautiful things to me as a reminder of something that I think is a belief for sure. It's a faith for sure. I can't necessarily prove it if he asked me scientifically to prove it, but like I know my own name, I know that we are all connected, that there is we're all sort of a spark of the same mother fire. And you could extend that out and say that we're all one. And again, I can't prove it, but it's a beautiful thing to feel and especially since it feels true as well. So as you're consuming this, you're listening to this, you could be jogging on the treadmill or walking or driving or at the office, wherever you are. I love that as we take a breath in this moment together that we are breathing, we're breathing together. It's all over the world. We're all taking breaths at the same time and it is the breath of life. And that's a beautiful connection point. So in this moment that I'm receiving this breath, I am grateful. I can't think of anything in all the years that I've been on the earth and I've been thinking consciously aware of my thoughts as a husband, as a father, as a business owner, I can't think of anything more important than to take that breath and to be grateful. So with that, I am so happy to be not just here, breathing alone, breathing with all of you and breathing with two beautiful, beautiful friends of mine, a father daughter team. This is the first on our show that we have got that as a daddy, myself, as a daddy of three amazing amazing young women. This is just making my heart swell in this moment so I get a little emotional, a little carried away with that and you guys can rope me in. But Phil Town, Danielle Town, I have two dear friends. I know Phil longer than Danielle but I am so happy that I have gotten to meet you Danielle and I am going to bring you guys on. Just a second. I want to read your bios and share a little bit about the amazing things you've been doing in the world and then we'll get officially started with our podcast. So as I said, Father Daughter Team Danielle Towne, Phil Town are the co authors of How Warren Buffett and Charlie Munger Taught Me to Master My Mind, My Emotions and My Money, with A Little Help from My dad, which will be published by HarperCollins on March 27th. They also co host Invested the the Rule Number One podcast, which US News and World Report named one of the top 10 podcasts of the year and has reached number two on iTunes investing Chart and has been downloaded get this over 3 million times. Way cool. A startup and venture capital attorney, Danielle Towne earned her law degree from New York University and holds degrees in religion from Wellesley College and the University of Oxford. She spent four years as a big law firm corporate attorney before developing her investing practice and now researches, writes and speaks about finding financial freedom through investing on her website danieletowne.com and her social media. Phil Towne is an investor and the author of two New York Times best selling books on investing Rule Number One and Payback Time. Formerly a Broken River Guide in the Grand Canyon. We'll have to explore that a little bit today. A chance encounter led him to start investing with less than $1,000 and five years later he had turned that money into 1 million by following the strategies of investing created by Ben Graham, Warren Buffett and Charlie Munger. As hedge fund manager, podcaster, personal stock investor and venture capitalist, he's grown a portfolio of investments from basically nothing into millions of dollars. Welcome to the show. Dear friends Bill and Danielle, welcome to the Conscious Pivot podcast.

Thank you Adam. It's so good to be here.

It is. It's great to be here. It's great to be here with my daughter. And it's great to be here after hearing you talk about being grateful. Because you know, the obvious things we could say are that we're grateful to be here, which we are. But I don't know if you know this, but the number one best investor in Japan is a man who died recently in his late 80s. Named Wahei Takeda. And he attributed his skill in investing, the success he had in investing, to a daily practice of gratitude. I mean, I spent three days with him in Japan, and this is what he wanted to talk about, being grateful as a basis for making billions of dollars. I thought that was a pretty powerful testimony for gratefulness right there.

Well, and not only that, but he instituted it into his companies. I mean, he would invest in something and then if they. And then insist that the management put that practice into their actual company systems and employees. And if they refused, wouldn't he get out of the investment?

Yep, he would sell it off.

That's wild to me.

He literally thought that the practice of gratitude as a, you know, the way only the Japanese can do it. Right? I mean, just you're going to do it and you do it religiously. And the practice of that every day in the corporation would give the corporation wings to fly. And without it, they were grounded and they would have to struggle. And so he believed in it so deeply that if the corporate CEO did not embrace the concept of gratitude as a practice, a daily practice he instituted in his corporation, wahe pulled his money out and moved on. And those investments, in his view, what he told me was that those investments did uniformly phenomenal. The rare investment that was based in gratitude did badly. And he had learned the hard way that when you go at it just on your own understanding, trying to struggle away, that the results were not as good. So he implemented that in the early 50s and pounded away at it his whole life. And at the end of his life, that was the thing that he wanted to pass on as his legacy. I asked him what of everything that we had talked about in terms of investing that he felt that he had to add to the whole discussion. He said, well, Warren Buffett has pretty well nailed down the way you invest properly. And what he wanted to add to that was this legacy of gratitude.

Yeah, it makes sense. And I know we don't have any skeptics listening. Some people are probably smiling as I say that, but for the possibility that there's a skeptic out there that might say, great, so the guy's a billionaire. No wonder he's grateful, right? The question is he a billionaire? Is he grateful because he's a billionaire, or is he a billionaire because he's grateful? And I personally believe that gratitude is what precedes pretty much everything that we want in our lives, as is born out of and is rooted out of gratitude, out of love and gratitude. So what I heard you say was that gratitude is good for business and it's good for investing.

And Wahei started. And remember, 1950, Japan was a destroyed country being operated under a military law. And he started there as a kid with no resources, no money, just armed with gratitude. That's the testimony right there, man. Yeah, that's from the man himself. Yeah.

You know, it's funny. Last week we had Ken Honda on the show, and I'm pretty sure he may have been referring. When he was speaking a little bit about a mentor of his to. To Waheg Takeda, and he was talking about money and happiness. And so he was. Part of Ken's message was that we say thank you to create abundance. And the difference between. We were sort of teeing up a conversation about the difference between abundance and scarcity. And he shared that he personally, he thanks the money. He thanks the money. You know, there's 80. 80 million gods or deities, that kind of thing in their belief system. And he says, so I like a lot of things, I thank them. I say, oregato. So the money comes in. Oregato. And the money goes out. Oregato. It's gratitude for it all. So, you know, because so many people, they're grateful for the money coming in. That's easy. That's the part we don't have to think too hard about. Right. But when you're paying your bills, you got to pay your taxes. You got to, you know, you gotta pay your capital gains tax and all the money that people will make when they're investing, following your advice, you still have to pay taxes on those gains. And how many people do we know, even really successful people, who have that little air of, you know, sort of edge of resentment about the money going out. So I thought. And, you know, Ken's got a beautiful story that's very much, I think, a testament to this idea, as you just brought up, that gratitude is so powerful just in feeling better, because people say.

Yeah, okay, I get it.

I'm going to feel better if I'm grateful. Right. But it's actually good for business and produces a wealth well beyond money, but a wealth of money as well. To practice gratitude.

You know, I was completely skeptical. I'm that person who was the one person listening who was skeptical.

You're the one.

Yeah. Because my dad told me this story, and I said, that is so, so lovely. So in reality, like, during the day, how often does he really be grateful? Because he said, what? A thousand times a day? Right. And I was like, yeah, right. So I said, I think I could Maybe dad said, can you be grateful ten times a day? I said, I don't know, that's a lot of times. Maybe once a day I can actually remember to be grateful. It's harder than it sounds. And so we actually came up with what you're talking about, which is quite extraordinary that Ken Honda also said it, which is this feeling for me of sort of gratefulness. Thankfulness can feel kind of forced. It's like, of course, like, of course I'm grateful for the house I live in and my family being healthy and the money coming in. Like, of course, of course I am. And so are you and so is everybody. And is that really like that useful to me to acknowledge that it's nice, but is it that useful? So for me, I started being thankful for my problems. Like, what is it that's stressing me out right now? And can I take that and turn it a little bit and shift it a little bit in me and not in a fake way, like in a real way? Can I find something that's real? Okay, I have a cold today that is hurting me because I have so much stuff to do. Alright, well, at least, you know, it's making me focus on my body a little bit. That's something that I can be grateful for. And even just that tiny little bit makes it a little bit easier for me. And it's come into my investing practice as well because I find lots of obstacles in my investing practice as a total beginner newbie at this. It's hard sometimes and it's scary sometimes. And so when I can feel the fear and say, okay, that's what's, what can I be grateful for? Let me, let me make sure I practice this. It's letting me know how I'm feeling in my body. Yeah, it feels fearful. Okay, fine, it doesn't matter. Like, just accept it. That's how I'm feeling in my body right now. Now, is that feeling reflected in the data that I'm seeing or is it me? Is this something where, like the market is all being afraid and so I'm following the market, or is this something where, like my intuition is saying to me this company isn't quite right or it's not quite the right time and just by doing that and trying to notice kind of those pain points and shift them a little bit has really helped me work through the stuff that's hard in this practice of investing.

I'm just thinking that instincts are so important. They're instincts on the field of play. So in sports, instincts are really important to have. And in parenting, as I said, I'm a dad, and I think there was no manual that came with the kids when they were born. I don't know if Phil got a manual when you were born, but we.

Didn'T get one, so.

So we have to figure all that stuff. Figure it out. And probably it's a kind of a gag that Randy and I will share with each other. But we couldn't believe when we left the hospital with our oldest daughter, who's 25, who you got to meet.

Yeah, she's wonderful.

So when we left the hospital with Chelsea, I just remember I looked at Randy and I said to her, I go, are they letting us leave with this baby? Like, for real? Don't they know us?

Like, don't you need a license for that?

No kidding. But if they knew who we were, like, we were just like two really young, dumb, inexperienced kids. But we're gonna leave with this baby like a baby baby. They let us leave the hospital with that kid. And so anyway, over time, you develop instincts as a parent, you develop instincts as an investor. Phil, has that been your experience? Because you're the most experienced, not the oldest, I'm not saying that, but the most. The most experienced person on this call. When it comes to investing, how much is instincts a part of the success recipe?

I think that if what we mean by instincts in investing is that specific feeling level that. Let's just crank it. I've got this one. Or there's something to be concerned about. I don't know what it is. I don't have any rational backing for that, But I need. I need. I'm feeling that feeling. I would say it's uber, uber critical that you need to be in touch with that part of you that's. That's. That needs that tells you to pay attention here, either in a good way or a bad way. Right. And dig deep at that point, because I think that's. That there's a little warning sign that probably comes from millions of years of evolution that says your senses are picking things up that your rational mind hasn't processed yet or isn't able to process because it's just data that's out there, but your senses are picking it up in some capacity. You've read something somewhere in terms of investing. You've seen something on tv, some book you read, some person talked to you, and it wasn't. It's not in a structured way. It isn't about Whole Foods, that conversation. It was about something else. But it's ringing a bell. And that bell needs your attention. And so Danielle said it very well. You look at that and dig deeper because something's asking for attention right there.

I love the question. Danielle and I wrote it down. I think this is one of those questions that, that in any area of our life, again, whether it's your investing, whether it's parenting, whether it's your business, any area, how am I feeling in my body? Is a magnificent question to get present because there's so much, at least again, and just talk from my own experience making better decisions. Ultimately, when we talk about investing, successful investing, just like we're talking about any other outcome in our lives, any other result in our lives, we're talking about being able to make quality decisions in a given moment under sometimes easy circumstances, whatever kind of kind circumstances, and other times under really extreme circumstances of stress and the rest. So that ability to make spontaneous right decisions has a lot to do with trusting ourselves. My own experience with investing is when I trust myself, when I trust my instincts, which is advice my dad gave me early on, trust your instincts, I go, great. What the fuck does that mean?

Right?

How do you learn how to trust your instincts? But when you learn, when you have learned how to trust your instincts, you're more often than not going to be right about those things. And so you've taken us to that essential place where your instincts become apparent to you through feedback. I mean, I forget what the percentage was, but your, your body will provide feedback. Biofeedback 1 million times. I'm going to make up a number 1 million times faster than your mind will. So to pay attention, Daniel, like you said to what's going on inside, which is more of a, by the way, it's more of a female. This is more female, more of a yin than a yang way of being. Men are much less inclined to pay attention to their bodies. This has been discussed for a long time. Men are less inclined to pay attention to their emotions. So I think what's really amazing, I want to get into how you guys work together, because I'm not saying Phil is more leaning toward less emotionality, but he's a man and it possibly is that he spent more time in his head. And you as a woman may in fact spend a lot of time in feeling state. So I'd love to know how it is that you guys have worked together and how you've rubbed off on each other in that regard and how important you really do believe it is that we learn how to trust ourselves and Is the body that place of. Of sort of a first, you know, first sign of, you know, I should go or not go or trust or not trust kind of thing. So, Danielle, would you start us off there?

Yeah. You just said something really interesting, which is, how do you get enough experience to trust your intuition? And I think that is so important to this question of emotions and trusting your body. Because I have trusted myself in moments when I should not have. I was overly optimistic about my skills. And that is just as bad when it comes to money stuff as doing something when you should have stopped, when you should have noticed that there was some hesitation there. So that's really. That's experience, that's learning, that's saying, hey, I'm not very good at this yet. So actually my instincts might be a little awry or might be based on incomplete information. And so the way my dad and I have worked together on this is. First of all, he's my teacher in investing. I mean, we started. He started really teaching me about three years ago. Right, Dad, I think, and we started our podcast about two and a half years ago. And so he's definitely the, you know, the guru of investing to me. We talk a lot about the tradition of masters and in value investing, we have. Well, for me, so it's my dad, and then for him it's Warren Buffett and Charlie Munger, and I've learned about them through him. And then they always speak about Benjamin Graham who taught them, and it just goes on like that. So there's something really beautiful about that, I think, and knowing that we're following along with this great tradition of people who have really proven it over a.

Lot of years, that's a great lineage.

It is. It's pretty extraordinary.

Right?

And then I think I've also added my own information and experience to our investing practice together because as you said, I'm very different from him. Like, he's a guy, I'm a girl. So we have that. He's the expert, I'm not. We have that. We're also just different people with different emotions and experiences about things. And I mean, I'm a lawyer, I'm naturally risk averse. He's not and not. So we come at things pretty differently, and I think that that's what's made it work so well for us. There are lots of people who are like me out there, and there are. I mean, it's. It's a fantastic quality that my dad has. And dad, there are not a lot of people like you out there. When it comes to investing, like, you're very, very good at it. You're very special. And so for me and all the people like me, I think it's important to acknowledge that it can be difficult, that it can be fearful, that it can be isolating sometimes and talk about that stuff and get it out in the open. And that's really what we've done with our practice together.

And I think that there's something about this that. That I want to add, because you were talking about making investment decisions under stress, and a lot of people are not familiar with that. They're used to investing in a sort of not rigorous way. Just put the money in and put it in every month. And that's what's called investing. But good investing is done almost entirely under tremendous stress because we are waiting for an opportunity to invest. When fear is rampant, when people are afraid of putting money into things, is when we're looking for the opportunity to do so. So we have to set up something that protects our intuition and our inner life, our emotional life, from that outside mass feeling that's going on so that we are able to follow our own instincts, to follow and trust ourselves 100%. It's more important to trust yourself 100% in investing than in many things that people do, because the downside is so significant when you're investing the way we do for having a failure. And one of the failures that you can have is, Is to not trust yourself when you knew you should. Everything in you is telling you you should. Your intellect is saying, this is the thing you've studied and waited for. And now it's time to load up the truck. And you don't do it because you're afraid. You haven't gotten yourself to that place where you're able to fully pull the trigger on a major investment. So that's one thing I wanted to say. Second thing is that I come out as an investor. I'm coming out of a pretty high risk couple of jobs that I did for years before I invested. One was to be a river guide in the Grand Canyon and guide down big whitewater rapids and explore rivers that haven't been commercially run yet. And before that I was in Army Special Forces and I was in Vietnam as a platoon leader. And I'll tell you for real that missions that Special Forces guys go on, I know the guys that were with me, and then I know many guys who are still in Special Forces, active operators. I know lots and lots of them. And they'll tell you, Adam, that many missions that they've gone on, every intuition in their whole body was telling them they were going to die, that they weren't coming back. And they learned to overcome that and go anyway because that's their duty. And laying down their life is part of what can happen in that environment. But I'll tell you, it's really strange when everything in you is telling you for sure this bad thing is going to happen and it doesn't. It's just like you just go on and do it anyway and it doesn't happen. So you sort of learn that there's really 200% of what you want. You want 100% of intuition and you want 100% of your rational intellect that's there to deal with the fear that happens in these really intense environments. And I think what Danielle's talking about when she say, I'm willing to be. I'm not risk averse. I'm extremely risk averse. I just.

You are. You are. It's true.

I'm just confident.

Yeah. That's the difference.

At a different level.

Yeah.

Well, I mean, very risk averse. Honestly, I am.

I think this is a pivotal or. And I see the word pivot used in a lot of different contexts these days, but a lot, a lot of times it's, it's with stocks. So I track through, you know, Google the use of that word and oftentimes it's used in stocks. So a pivot point, for example, might be where the market turns and let's say it's a. The herd. I'll use that word for the market for just a moment. Right. But the herd turns in one direction and your indicators are saying, load up the truck in the opposite direction. Because this is the moment you've been waiting for where there's this misinformation or there's a gap between what is really happening in a company, what's really happening in terms of what the valuation of a company might be and what the market perceives, whether it's through news or some other thing that drives the market in a particular direction. And now there's this imbalance, if you will. And that might be a buying point when all the indicators are the herds moving away, moving to sell, but yet there's a buy sign that you get. And you're saying that's a moment in time when somebody has to make that decision. Am I going to load up the truck and deal with the fear that you're wrong, for one thing. I mean, that's the greatest fear is going to be Wrong, but really that other people are right, that somehow they're right and you're wrong, that they're smarter than you, the market is smarter than you in that moment. So, I mean, right there and then you've got to trust your instincts. Like I look back, the first book I read on investing was probably in 1990 or so it was the New Market Wizards book, Jack Schwager's book about, about where he interviewed these traders that came out of the Black Monday, the stock crash of 1987. And he interviewed all these, you know, the titans of the space at the time and the ones that made money, I mean, that crushed it, not just survived, but crushed it there that day and thereafter were the ones that were able to see the forest for the trees that day and not. And not just do what the herd was doing, which was to sell, sell, sell. So is that what you're referring to in terms of that instinct to be able to pivot there and then when the market might be sending a signal or showing something and, you know, better? Is that what you mean?

In our way of investing, there's rarely a pivot point in the sense of a technical signal that says that, okay, the herd's going that way. I'm now, you know, they're now changing their direction or something. What's more, what happens with us is that we have a very logical, cranked out hard come by, you dug the ditch pile of information about a company that we've come to understand deeply and have a great deal of confidence in our ability to see that that company is going to be more productive in 10 years, which means it'll survive 10 years or longer, that it's going to be around in 10 years, more productive than it is today, then it's well run. And none of that comes from intuition that all is just digging the ditch. And then here comes the market selling that wonderful business off. And as Danielle so amazingly pointed out to me, I mean, I've taught her a lot, but she's taught me a lot too in this last three years of stuff. Often if you want to learn something, try to teach it to your kid, right to your very smart child. And what she taught me was that the market doesn't have to be wrong for me to be right. And in fact, they're probably right in almost, in fact, they're almost certainly right because they're smarter than I am, they've worked harder than I've worked, they have more resources than I have. So for me to say that, oh, well, yeah, these Guys are wrong right now would be unlikely, and yet they're wrong. So we have to have a situation where paradoxically they're right and they're wrong at the same time. And what makes that happen is the fact that their incentives as fund managers are in operation over the course of a very short period of time. I think Danielle could probably find a better way to say this, but they get incentivized to do things well over a 1/4 to 1 year period of time. Doing things well over a 5 year period of time but not over the first 4 years is a wonderful way to lose your career. You are dead meat. In other words, if you have, you.

Don'T live to see the end of that five year period is what you say.

No, you're right on the money and you're going to make a bazillion dollars. And if you have any question about that, have everybody go watch the Big Short where they're watching Michael Burry banging drums on his desk and listening to heavy metal music while his investors are screaming bloody murder to get the hell out of this fund. And I'm going to kill you. I'm going to kill you. They're so mad at him that he is short real estate and then he makes billions of dollars and he never gets a single letter from any of them saying thank you. And they would have fired him in the intervening three years that he was doing that if they could have, but they legally couldn't. So they would have fired him and fired him and fired him. Why? Because every year for three years he lost money and then he made it all up and a fortune beyond that because he was right. And so what Buffett says is you're not wrong because the market thinks you're wrong and you're not right because the market thinks you're right. You have to trust yourself to make a decision over the timeframe that you're investing. So for me and Danielle, that time frame is five to 10 years. And I'm perfectly comfortable for being less than the market for four of those years if in the fifth year I'm proven right.

Yeah, that's really. Man. I think there's some really important nuances here, and I don't know that we can dig into the nuances at a great length in this show, but I think they're worth trying to get more clear. Because Warren Buffett, I think, said this. I've attributed the quote. So I hope I'm not wrong that when people are greedy you should be fearful and when people are Fearful, you should be greedy. That's Buffett. And that sounds a lot like emotion to me. And so when it comes to instincts, like you said, use that great example of the big short. I mean, when people, when the market is saying, you're wrong, you're wrong, you're wrong, you're wrong, you're wrong. And you know that long term, like, we just pull back far enough, we can see the market's usually right longer term, but in the moment, they're wrong. And for him, the market was wrong for three years. That's a long time to hold onto your instincts and your gut. And, man, talk about a gut check, right?

Sure. I mean, Keith McCullough is a great fund manager, and he made the call on real estate in 2006 and was paying money out of his fund for two years. And he got fired in November of 2007 because he refused to change the investment structure of the fund. And his boss said, you've been wrong for two years. You're fired. And three months later, real estate started to crumble and proved that, of course, by then his boss had liquidated those investments and lost money with everyone else. So Keith was 100% right. And then that formed the basis of his new company, which he's been extremely successful with. So you have to play the investing game with a set of rules. And the rules that they're playing with at a bank or at a big fund are rules about the survival of the people who are running those funds. They're not rules about great rates of return. They're rules about hanging on to the bottom rung because that rung sufficient, right, that's going to keep you above the lines. That's all you need to do. You don't have to climb the bloody ladder to the top. And in fact, my world is full of cautionary tales of people who have done extremely well in the long run would have been fired in the short run. I mean, I can give you one example after another, and what that means is that if you don't control your own capital, then you almost have to play it the way most fund managers do, which is short term. But we do control our own capital. You control yours. I control mine. Danielle controls hers.

Well, actually, you control ours, don't you? Or at least some of it, anyway.

Yeah. And so that capital I have control over, and I wouldn't have been willing to manage money for people unless I knew they understood. So Randy went through our classes and Max and Chelsea. And Max and Chelsea and Matthew. Yeah. And they've gone through our classes so they understand what I'm doing. Right. And so when I'm sitting here and the market's going up like a rocket ship and actually you've been doing pretty well, I sort of left you alone there. But at some point I'm going to pull out of that thing.

Well, you just read my mind. Yeah, I know. There's no prognostication like so we, there's no disclaimer on the podcast. We're talking as philosophy, I think more than anything else about marketing, about investing and what makes for good, good investing and what rules and how much the head plays a part and as Danielle said, how much the emotional body and our intuition are some deeper knowing plays a part in this. But I still feel like I want to ask you, what are you guys thinking? And do you, do you both align on the same side of your sort of prognostication about the future? Are you both lined up, feel the same way gut check wise? Do you feel the same way or do you you different about what the near and longer term looks like for the markets?

I generally listen to my dad on that. So yeah, I'd say we're aligned because he knows he's been through so much more than I have. I mean, I've been doing this for three years. I'm still a total baby investor in my opinion. So I definitely look to him for some guidance on that. But I will say I disagree with him constantly and I think that on that one, on the markets, he's generally right. So I'll let you talk about that one.

Dad, meaning company specific, you have different views on.

Oh, company specific. No, I thought you were talking about the market overall.

I was, yeah. I just meant when you disagree, what are the types of things that you disagree about? Like I'm digging as a dad, I'm curious now.

Well, we honestly, we don't really end up disagreeing because we, we have to convince each other. He's kind of, not only is he my teacher, but he's kind of my investing partner. So I have to be able to make sure he gets it or else I haven't done a good job doing my research. I haven't made a good argument for that company. So we've had different perspective on whether an executive is really trustworthy or not. I mean, something like that, that's so subjective and that two people of sound mind can have very different opinions on. That would be something we could disagree on. But then we have to convince each other or what price to buy A company at. I mean, there's a little bit of a range that you can come up with based on the equations that we've developed. And, you know, some people want to be more conservative sometimes, and some people want to be a little less conservative sometimes. But you have to make a good case for it. You have to be able to make your argument really convincingly to somebody you respect. That's a really important part of the investing practice, actually.

Yeah, it really is. Charlie Munger is Warren Buffett's. He calls him his partner. They don't control money together, but Charlie and Warren have been investing together since the 1960s. And Charlie, well, Warren calls him the abominable no man. So Charlie has a much more rigorous set of criteria than Warren does. Charlie doesn't feel at all responsible to any investors who have put money with him to do anything with it. So, for example, Charlie has not bought a new stock for the last three years.

So he's just sitting in cash while.

The market went from what, 14,000 to 24,000. Market's up 60 or 70%. And Charlie doesn't care.

Right.

He's just sitting in cash waiting for what he's always waited for his whole life, which are very easy bars to jump over. He's not trying to jump over six foot bars. And this is what I've been teaching Danielle, and why we share information kind of as investing partners is because an investing partner can usually do a better job of poking holes in your beloved company than you can after you've spent a week or two falling in love with it. Right? So, you know, I'm not in love with it yet. I can look at it pretty much objectively and say, well, what about this? And it might not be something she's considered yet. Right. And now she has to go consider that before she can make that investment. And Charlie's criteria are so rigorous about what to look at. He doesn't want to jump over anything that's hard. He doesn't want to invest in anything that's hard. And therefore he has to be very patient to wait until fear builds up in something he really likes, which comes about because of some short term kind of a problem or a recession in the US economy, some kind of problem that doesn't affect the business in the long run, but affects it in the short run. And then he can jump in, but he sticks to that rigorously and aggressively. So that kind of is the state, the kind of things we trade back and forth with with Danielle in terms of the market itself, the overall market. There's several fundamental things that I look at that I've learned from Buffett, and one of those is the relationship between the value of the overall stock market, let's say 25 trillion, and the GDP of the United States, let's say right now it's 20 trillion, 18 trillion. And when that ratio gets skewed and you can just look historically at where it's been when the market is much less than gdp, you have a great time to be buying stocks in general. And when it's much higher than GDP like it is right now, it's a pretty bad time to start historically to be buying stocks. Your next 10 to 20 years are likely to be not very good overall because it's gotten too high too fast. And so we look at that. Then we also look at some signals that are proprietary that we run with computers that give us an idea of whether the big money is starting to leave the market. And as that big money starts to leave the market in a market that's overpriced, we start to exit on those signals. So we've been pretty good with this. Gotten out in 2007 before the big crash and got back in in 2009 after the big crash. And that ultimately is the secret. And by the way, I told Maria Bartiromo in 2009, she's going like, how do you know it's the time to get back in? How do you know it's not just crashing down to 2000? And I told her I didn't know. All this is, is me knowing the businesses that are on my watch list are now on sale, and I'm going to start buying them. I'm buying $10 bills at 5 bucks and I'll buy more of them at 4 and 3 and 2 as the market goes down. But right now they're on sale and I don't have a crystal ball. So I'm going to start buying them. And that's what I'll do with your funds as well. Adam, is I'm going to wait patiently as this market melts up. It's melting up like a son of a gun right now. Like 1928 kind of a melt up. And as it melts up, we want to be there. So we'll ride this thing and ultimately it's going to start to melt down. And when it does, we'll get signaled out and then we'll wait patiently for great things to go on sale and we'll buy back in. And that's just Warren Buffett. 101. That's what he does.

Would we call it value investing? Is that the term to use for that?

Yeah, it's value investing with a kind of Charlie Munger rigidity thrown in there, which is to say you must buy things on sale, so you have to wait for that. And you must really understand the businesses you're buying. So you don't want to distribute across 100 businesses. You want 10 or 15. Like you have to be the ones you want to be in and you want to know what they are.

And I'll add an and, and you could tell me if that's appropriate or not. And you have to be sensitive to irrationality or looking for that irrational behavior in the market, because that's a signal of something, right?

Well, here's the thing. I wasn't saying it well, but what Danielle pointed out to me is that it's actually rational behavior that you're looking for. You're looking for the fund managers to do what they do, which is to get the heck out of a burden theater as fast as they can. And so if it looks like this company is burning because there's a well that's on fire in the Gulf of Mexico for a literal burning, then the market, out of the fear of the well that's burning, exits every company that's drilling in the Gulf of Mexico, regardless of whether they had anything to do with the world well or not. And so all of a sudden great companies go on sale, 50% discount. And if you understand that the fear is relatively short term, you can buy these things on sale without much of an IQ being involved here. You don't have to be super smart, you just have to be patient and have a narrow focus of the market that you really understand and wait patiently for fund managers to do what they do, which is to unload on short term fear.

Well, and again, that was a completely rational move on their part. This was a short term event that they knew was going to essentially shut down the Gulf of Mexico for the short term and their short term investors. So of course they all exited. That's their job. So it wasn't in that case to make a long term investment. It wasn't that we were acting on people's irrational rationality, we were acting on people's rational choices that made sense to us. And that kind of knowledge and everything that you just said about the market overall and the Buffett indicator and ways to see that the market is rocketing to the moon right now are really, for me, the antidote to fear. The Antidote to being worried about taking that step. Because once you understand it, it's easy.

You've made such a great point here, Danielle. Because it's when you don't understand it, when it looks irrational, Adam, that's when it's scary to me.

Yes.

If I don't understand why they're getting out, I'm not getting in. Does that make sense?

It does. I mean, I think that reframe is important because even the herd mentality, which means that somebody yelled fire. And now, as opposed to orderly leaving the theater, people are trampling each other to leave the theater. And a lot gets lost in that. And that's what I was thinking about, what was irrational. But looking at it from the standpoint of what started it all and why it's happening to begin with is entirely rational. From that framework, sure, man.

If that theater's actually burning to the ground, you'd be pretty dumb to sit there, right? So if I don't understand why people are getting out, I'm not getting in. I mean, you have to understand. Charlie, put it like this. You have to understand the reasons not to buy this thing better than the guys who are not buying it better than the guys who are selling it. And if you don't, you better step back, because they might be smarter than you are.

I think this is a really great time to hold up the galley. I know this is not the finished copy. I hope it's okay that I hold this up, guys.

Oh, yeah.

Great.

So pretty, that book.

I love books. I think what's more important than how pretty this book is is how chock full of incredible insight is in this book.

Oh, thank you.

So I am. I am thrilled to be reading it. I'm thrilled that you guys collaborated on it. I mean, just as a. Because I know and love you both. So to have you be doing this is a. In collaboration and to have it be coming from different disciplines. So as you said, Danielle, you were a lawyer, and you and I, as we said before, we Turn on the record button, we have a lot in common. Only you're a lot smarter than me. So you got out of practicing law after four years.

It took me.

It took me 18. But I'm just kidding. All the lawyers, always.

That just means you were better at it than I am.

The lawyers never send me any kind of hate mail about any of this stuff. All they ever do is ask me, how do I get out?

Please.

So true, Adam. I mean, literally, I think maybe the first or second page of the book. I say I looked at the partners in my law firm, who I adore, by the way, and I did not want their life. And I said, why am I working this much for something I don't want want? And that's how this whole thing got started.

Talk about wisdom. Uncommon wisdom. So, you know, seriously, I'm not even kidding. Hats off to you. That is such a. You ask better questions, you get better answers. It took me a long time to look at the other people in my profession, including the people I shared office space with and who had been practicing 30, 40 years and said exactly or asked that same question. Is that how I want to be end up? You know, and these are super successful people. Wasn't like from all the world's definitions of success, had all the success, you know. You know, and then some, but didn't want to end up like that. So. Great question. Wow. Phil, I would love if you just spend the last couple of minutes, both you and Danielle, sharing a little bit about your, Your rituals, the practices, the things that you guys do to stay in a. In a headspace and a heart space. A headspace. Both that, that combination of both thinking and feeling to be able to have perspective. Because a lot of what you guys are talking about, being able to know the rules, be able to follow the rules. I mean, one of the things I learned in that book, New Market Wizards, was the people that succeeded, they had rules, which pretty much they all did rules. And the ones that kept the rules were okay. And the ones that violated the rules because the world was changed in that, you know, like all of a sudden a macro event that changed everything. And so the rules no longer applied. They lost their shirts. And this ability to be the eye of the storm. So we've had storms. We can be sure of one thing for certain, right? It just is. The sun is going to come up tomorrow. We know there's going to be storms again. Storms in the investing world and everywhere else. And so to be able to know that the rules are there, that you follow the rules, that you trust the rules and that you're okay so you don't act out of fear when everybody else might be and that you're actually looking there great opportunities in those moments when other people are doing that, you must have ways to keep, to keep yourself really in a good space. What are those rituals or practices that you guys have?

Go ahead, Danielle, shoot.

Oh, sure. Well, honestly, we already spoke about the first one. The first one is thankfulness for your problems. That's something that just immediately grounds me down. In a really good way. That sounds weird. It just immediately makes me feel solid. It puts me into a good space of consciousness of what's happening around me. Secondly, I do a meditation practice. I've done that since I was little. So I have that. When I'm feeling really stressed and kind of haywire and overwhelmed, I can go sit and have a moment of just silence. And that is incredibly helpful to me. And then the last thing that's specific to investing for me is to continue educating myself. And in the moment, what that means is just read the investing news, like see what's happening in the world with my companies that I'm following and with the market as a whole and with other companies. Just continue educating myself so that I don't have that feeling of being not in the know. And that also somehow grounds me into my practice. It makes me feel solid in my practice. And then maybe the last thing, which almost goes without saying, is thinking of it as a practice. I've been saying that the whole time, but I think of it as a practice. So I don't have a goal. I don't have pressure to get to a certain place. For me, the process of this is the goal. And that also keeps it from being too heavy and too overwhelming.

Wow, Beautiful. That's. There's a book in just that all by itself.

Oh, it's in there.

Adam, what you just said, it's in the book. It could be a book by itself, but I'm so glad it's in there. So, Phil, what's a routine or ritual, I like to call them, you know, these practices that you've got.

I started meditating right after I got back from Vietnam in 1972. And it's a twice a day practice. I've been doing it for over 40 years and. And that's why Danielle started when she was 5, is because I'm her dad and she was what I told her and my meditation teacher. And it's a. But it's a great practice. Gratitude is a great practice. We still do church and every Sunday Melissa and I, we go to church at our house because we can watch Andy Stanley on tv and he's great. So we watch this guy at North Point here in Atlanta. He's phenomenal teacher. So those are our spiritual practices. I try to make really certain that I get outdoors every day. My wife is really, really good about doing that and getting me out of the house. Because the other ritual that I have is I read everything. I read a lot. I read really broadly, you know, I'm reading, you know, right now I've got a biography on Da Vinci that I'm partway through while I'm reading Ray Dalio's book Principles, you know, and then I'll read stuff for fun. I've got Lowenstein's book on Buffett right here. It's just sitting on my desk, which I'm reading. I've got. This is Thinking in Bets by Annie Duke, who's a professional poker player. And phenomenal ideas come out of there to me about things that, you know, are important in my life and, you know, how to invest better. And that's something that Charlie Munger said, is that all good investors read widely. And so that's the major rituals. Outdoors, I do horses, like aggressively do horses. I try to ride an hour or two every day. And that's both a spiritual practice and a physical practice. And then I have a basic structure in the morning that I. I kind of walk through that is pretty loose, actually. It's just designed to make sure that I'm paying attention to the companies that I own and to the companies I would like to own on a daily basis just to kind of check in and see where they are. And that might surprise a lot of people that it's that loose for investing. But one of my favorite investors is Monash Pabrai, who I'll call him a mentor because he wrote a phenomenal book called the Dhandho Investor. Monash manages well over a billion dollars, and he gets up in the morning at 10am according to his book, gets up at 10am and he plays golf most every day. He lives in Irvine, California, so he's paying almost no attention to the market. So spending a lot of time on top of the market is really not. Not about investing. It's more speculative kinds of investors that do that. Really. We're just reading and we're trying hard to understand a few businesses well and then understand clearly what they're worth and then just wait patiently for those to come around. So the ritual is to read. That's the ritual of investing.

To me, yeah, this is really helpful. I think one of the. Some of the feedback we get from people that have been listening and watching the show is in regard to the rituals, the things that we all do. Again, the few times when I've had the opportunity to speak about Warren Buffett in particular, and I say that tongue in cheek because I've actually had a lot of opportunities to speak about him, I would say, you know, he puts. And I knew this and I don't. I've never met him, and I hope to meet him someday. But I know one thing about him. He puts his underwear on one leg at a time, just like I do, and just like all of us do. And I think it's really important that we know what other successful people are doing and how we can learn from their habits. You know, as Covey said, you know, those seven habits. To me, what I like about ritual, and I'm glad it wasn't, you know, it's not a word of. That's about religion for me. And I know that's not the way you're using it either. It said it is. There's a sacredness to it. There's a consciousness to it. So it's not like the way I brush my teeth with the same hand, because that's my habit to do it. It's that I'm consciously, as Danielle so aptly put it, practicing it. It's a process. It's a practice, which is.

I like the way she said that, too.

Just beautiful. Just beautiful. So I will once again, just hold this up. I would love for folks to pick this book up. It launches March 27, which is great. How Warren Buffett and Charlie Munger taught me to master my mind, my emotions, and my money, with a little help from my dad with an asterisk, which is so flipping cool. So I adore that. In fact, Chelsea and I are going to do some podcasting together, and so I'm really excited about that. So as we are closing out this session, I don't know where the time goes. It's just always so remarkable how fast, fast it goes by.

I'm sure it has been fast. It's so fun to chat with you.

Oh, my goodness. I want folks who crave more, who are listening and really crave more of the two of you and want to learn more about what's going on in the markets and in the world of investing. They can tune into the rule number one podcast, which is already getting great reviews, rave reviews, and downloaded, gosh, so many, so many times. So please feel free to go ahead and do that. There'll be full show notes with information about Danielle and Phil and the book and where you can find out more about them as well. So check out the show notes. Of course, if you've not left a review on itunes, we would so love to do that. We're actually going to come up with a sweepstakes, and I'll let you know soon about what that's going to be. Like, but we're going to give away something, reward somebody who did something for us. I mean, the reviews are great because it's great feedback for us, but it's also great feedback for other people who might, you know, want to invest their time in education and podcasts, just like so many other areas we've been talking about is about our education. So your time is valuable, we value your time and your time in leaving a review will be rewarded. Just don't know what the sweepstakes is going to be yet. So please leave a review. If you've not yet subscribed, you can go to AdamMarkel.com to subscribe. And lastly, before we close out, our Facebook community is growing and people are just doing magnificent things like being really vulnerable and authentic. How cool is that? And you can access the Pivot facebook group@pivotfb.com pivotfb.com and find that you are in great company and great community with other people, like minded, like hearted people who are pivoting in their lives, in their businesses, in their finances, in some areas of health and relationships as well. So it's a really great space and we look forward to seeing you there. And lastly, I want to close out our show with a reminder about something that we began with and that is how important gratitude is in this moment. And so, so I will share my morning ritual, my waking ritual. It's the first of a series of things that I do, but this one is the first minute of waking. And so it starts with a hope, with a prayer and an intention that all of you, everybody listening, everybody watching, and you, Danielle and Zurich and Phil, I think you're in Atlanta today and I'm here in San Diego, that we all get to wake up tomorrow, we get to wake up a little more tomorrow. So on a metaphorics way of looking at things, that we're a little more conscious tomorrow than we are today, a little more open and willing to be even guided by spirit and by the universe and by all the other divine beings around us tomorrow, a little bit more tomorrow than today. And that will put our life in just a wonderful trajectory, keep us on a beautiful path. And that of course, as we wake up, as we take that first breath of the day tomorrow, as we all will, we realize that that's no guarantee that in that moment of waking and taking that breath, there will be people taking their very last breath in that moment. And there will be babies born that will be taking their first breath in that moment as well. And so it is sacred, it's a holy moment and very purposeful. So please be grateful for that. I know that's the one thing I remind myself every day is I take that breath. And no matter what the challenges may be, I'm grateful then for that breath and for how important it is. And lastly, if you're willing to do this three step morning ritual that you wake up, that you're grateful, and that you say out loud and you intend by these words to mean them, mean them. I love my life. I love my life. I love my life. It's been a pleasure and we'll see you guys again soon. Ciao for now everybody. Thanks for listening everyone. We hope you now have the tools and greater insights to navigate your own pivot. Help us inspire others by sharing this episode and and leaving your comments over@adammarkel.com podcasts for more tips, strategies and support as you consciously pivot into a new business and lifestyle you love. Join our Pivot community on facebook@pivotfb.com.