Notes from an awesome podcast episode of The Busines Brew, featuring Adam Robinson.

This one was not easy to digest, as Adam touches on A LOT of topics. I did my best to capture it all but I got tired near the end, so surely I missed some.

Everything here is just a write-down of Adam’s ideas. If you spot a mistake, please let me know.

Confirmation Bias

We all attempt to make sense of the world. Most of the time, the world does make sense to us. When we make an investment, we do it according to a model, some assumptions, and things we expect to happen. When they don’t happen, or where things act counter to our expectation, our standard response is: “Huh…that doesn’t make sense!”.

We then either stay embedded in our position, or we decide to stay on the sidelines. In other words, we either fight reality, or we ignore it.

Everybody behaves this way. Whether it’s a pundit on CNBC or a Fed Chair, when they say “We don’t understand what’s going on, the world’s gone mad”, it means that there is a really powerful trend in place, just under the surface; and that trend has a long way to go until it does make sense to all the people on the sidelines. But by that time - the time when it makes sense to everybody, the trend might well be over! The opportunity largely will have gone.

One of the hardest things in investing is seeing clearly. Confirmation bias pushes us to see only what is in accordance with our internal models. It always gets in the way; distorts our view and totally blinds us to what is going on. Confirmation bias bedevils even the most experienced investor.

So how do you fight it?

As soon as you put on a trade on or even before, you have to describe precisely what you need to see in order to know that your thesis doesn’t hold anymore and that you need to get out. Then you don’t look for evidence that you’re right. You look for anti-confirmation bias, the signals that would disprove your thesis.


All the greats know their edge, whether it’s investing, chess, sports, or any other competitive discipline.

They all have a very distinctive hammer, one that they know very well because they have crafted it through the years, and all they do is look around for a a very specific type of nail that they can smash. Every single one of the greats plays their own game.

You have to know what kind of situations are you optimal in. And don’t deviate from it. For example, whether you are a day trader, a swing trader or a long-term investor, be careful about switching your timeframe. Just do what you do best.

Stay in your sandbox, develop a thesis and limit your thinking to just a few things. While it’s good to study Warren Buffet, understand that you’re not him. What’s good for him might not be good for you. Are you really prepared to sit on an investment for 20 years? After a year or two, you might discover that you weren’t.

So steal from your heroes what works for you and build your own hammer.

You need to be disciplined. No matter what the domain, to make it to the top, you’re gonna need a very disciplined process, and never ever deviate from it. You only need a few moves - even one edge is enough, but as long as you work them to death, you can win the game.

Charlie Munger has one of the best quotes: “Pick a simple idea and take it seriously”.

The discipline is to stick to your strengths. You will be tempted many times - “Oh it’s too sweet I can’t let it go!”. But Buffet and Munger have let go of any number of opportunities. For example, they would have made 5x more money if they used leverage. But they stuck to their discipline, and that’s why they did so good over such a long time.

But that doesn’t mean that your strategy should never change. That you should double down on it and just go harder no matter the results you get. Not at all. If you don’t like the outcome, you need to change what you’re doing.

For example, people get stuck with their trade, they don’t want to sell at a loss. But think about the opportunity cost. While your capital is tied up in that losing trade, look at the rest of the market, look at your winning trades. You have to be ruthless.

Investing might be the hardest game there is, because you’re up against the most inventivized, savviest players in the world, all of them devoting a lot of brain power to it; and you’ve got to look for an edge within that environment. And then you’ve got to deal with your own emotions.

To make all of this a bit easier, you need to develop a thesis around every investment you make, and then you should calibrate your risk properly. What’s your conviction level? How bullish are you? You should be able to have nuance and flexibility in your conviction levels.

If you don’t what what your edge is, you’re gonna get taken. In every trade, there’s someone on the other end of it. You can get lucky a few times. But long-term, you’re not gonna last on luck alone.

First Level vs Second Level Thinking

August 5th, 2011. Standard & Poors downgraded US government debt for the first time since the second World War.

First order thinking: “Sell bonds”.

Second order thinking: “Buy them. Hand over fist”.

Why? Because if things are so bad in the world that US bonds are getting downgraded…it means it’s really bad out there. And it such a situation, what’s the safest investment in the world? US bonds. So they were downgraded, but it was a buying opportunity.

Eventually, if you’re right, the second level will become first level. It will become obvious. In the meantime, if you can get there faster than everyone else, you’ll make money and profit from the hidden trend, the one that seemed to not make any sense…until it did.

Probabilistic Thinking

Suppose a bunch of friends of yours invested some money in 2020 and made big gains without knowning anything about valuation. They just bought some shares or options on hyped up stocks which went higher, and they made a killing. They don’t know anything about second level thinking or circle of competence, yet their results trounced yours that year.

How can we make sense of that?

The answer is: they took risks that they didn’t know they were taking. In the same way that if a professional racecar driver challenges a teenager to a race through residential streets, if’s very likely that the teenager wins. Because he’s just gonna floor it. Whereas the more experienced racecar driver, knowing all the risks, is gonna watch out for other cars, pedestrians, strollers, children running into the street, etc.

If you’re not concerned with risk, you expose yourself; and as long as the sky doesn’t fall, you do OK. The teenager driving at break-neck speed is fine, till he gets into an accident. Then he kills someone or gets killed himself. Either way, his life is over.

If you calibrate around risk that other people were blind to, and the risk doesn’t materialize, they’re gonna look like geniuses whereas you’ll do just OK. But if the risk turns to reality, their capital evaporates, whereas you survive.

Notice that in this example, it could very well be that when you calibrated your position, your assessment of the risk was wrong. Then we’re back to first versus second level thinking. But that’s not the same thing as going all-in on a hunch or because everyone else is going all-in and ignoring the risk all-together. That might work a few times, but the time it doesn’t, it’s game over.

Play to Win vs Play not to Lose

In certain domains, such as Chess, the very best always play to win (Magnus Carlsen, Bobby Fisher, Gary Kasparov).

But Warren Buffet - arguably one of the investing GOATS, plays not to lose.

How do we reconcile that?

If Bobby Fisher plays a game and loses, he can play another one. He has the same brain power. In fact he’ll probably have learned something from the loss and be a stronger player.

On the other hand, when you make a mistake in investing, you lose capital. You’re smarter…and poorer. The game of investing is unique in that when you lose, you have less to go forward with. That’s why Buffet’s only rule is “Don’t lose money”.

And while it sounds obvious and noone is actively trying to lose money, they don’t trade like that. They trade to win. Whereas if your sole gole is not to lose money, it forces you to do certain things, have discipline and a system that you can apply ruthlessly and consistently.

Risk management, which we talked about earlier, and position sizing both are important tools to cap your losses. Two traders can have exactly the same ideas, one of them is good at risk management and the other isn’t. The first will survive, while the other one might not.

To finish first, you must first finish.

When do we become stupid

Stupidity is the act of overlooking or dimissing conspiciously crucial information. Some crucial piece of information is in front of your nose, and you either don’t notice it, or you see it but dismiss it.

Here are seven conditions that systematically push us towards the stupid zone:

  • Information overload

  • A feeling of urgency

  • Being outside our normal environment

  • Being in the presence of a large group

  • Being in the presence of an authority (or being the authority)

  • Physical or emotional compromise

  • Intense focus on one thing & tunnel vision

All seven don’t need to be activated, a few will do.

When you are in the stupid zone, you’re not aware of it. You do stupid things, but they don’t seem stupid to you. If you were to witness someone from outside of the stupid zone doing exactly the same things, you’d think they are a fool. Same when you think back on what you did when you were in the stupid zone; you wonder: “Why did I do that?!”.

What’s partciular about those seven factors is that in modern life, one or several all of them are always in play. If somehow you realize you might be in the stupid zone, don’t make any decision. But you can’t realize that you’re in the stupid zone, because in the stupid zone, you are blind and deaf. But you can pay attention to the seven conditions enumerated above and watch for their occurence. If you find yourself in any of those conditions, you will not be thinking straight - period.

So in a way, you try to anticipate going in the stupid zone, and while in there, you move as little as you can.

Having people around you that you trust can also help. They can sound the alarm for you. As well, you can make it a habit to pause before acting; train yourself and acquire that ability. If you’re able to temporarily pause and step outside of the stupid zone even for a second before taking action, you will avoid a lot of blunders.

The Russians invented a clever way to have a built-in pause for their top chess players; before making any move, the players had to write it down on a sheet of paper first. This forces them to think about their decision before commiting.

The key take-away is that anyone in the stupid zone will make stupid things. It doesn’t matter how smart or how trained they are, or how many of them are in the stupid zone agreeing with each other.

The World Situation

After World War 2, the world was rebuilt out of the American dream. “I want what mom and dad had, but more. And I’m willing to in debt for that.”. Or “If I have enough stuff, I’ll be OK”. We lost touch with family values and the joy of connectedness. It made sense at the time because we had to rebuild everything, but we kept piling up the debt. With the assumption that we would grow out of it. But what happens if we don’t?

Growth comes from two primary sources: population and consumption.

Right now, there is a global population collapse everywhere in the developed world. China for example has a problem that is direct consequence of the one-child policy, on top of a huge gender imbalance. The only areas that are not shrinking in population are Africa and the Middle East.

The only way that the central bankers have adressed this is by piling on more debt to keep the world going. But the engine of growth is gone. Demographics are unavoidable.

So we are a world that is awash in debt, and people are starting to wonder how much “stuff” they really need. At the root of it is a spiritual crisis. People are more than ever feeling lonely, lost and empty all the while being overexposed to the beautiful instagrammed lives of everyone else.

Is there a better way to engineer evil than by isolating everybody and making them hate themselves and think everyone else is having the time of their lives?

Keys to success and happiness

  • Have fun & enjoy the ride

  • Engage and connect with others

  • Stick to what you’re good at

  • Findh a higher purpose (a mission)