Nick Gogerty: Part 1 of an interview by Bob Morris

GogertyNick is the author of The Nature of Value: How to Invest in the Adaptive Economy (Columbia University Press 2014) and was involved in a technical confidential project with one of the world’s largest global macroeconomic hedge funds. He lectures in Columbia University’s MBA value investing program on innovation, macro-economic portfolio, and scenario risk management. Meanwhile, he is a top 1% performer as a portfolio manager for a long/short hedge fund (+20% v. -60% for S&P 500 2007-2009) and advises large banks on risk management, including the Flash Crash, and was a chief analyst managing commercialization for a science research institute modeled on the MIT Media Lab. His primary fields of inquiry include biotechnology, nanotechnology, artificial intelligence, renewable energy, genetics, quantum computation, and others such as

o Venture capital screening and start-up advisory work

o Founding software startups in social media and crypto currency space

o Expert testimony to the United States Senate on the international risks associated with the $200 billion Y2K technology issue

o Human behavior studies with an undergraduate degree in cultural anthropology from the University of Iowa focused on sustainable economic development in West Africa

He earned an MBA from The Ecole Nationale de Ponts et Chaussees in Paris with a thesis on a quantitative approach for hedge funds and is a designated Chartered Alternative Investment Analyst (CAIA). Nick resides in Greenwich (CT) with his wife and daughter.

Here is an excerpt from Part 1 of my interview of Nick. To read the complete interview, please click here.

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Before discussing The Nature of Value, a few general questions. First, to what extent has your formal education been invaluable to what you have accomplished in life thus far?

Gogerty: Formal education isn’t invaluable, it is incidental. Most formal education revolves around gaining a social credential as an extrinsic reward. An unquenchable thirst to learn and pursuit of intrinsic goals are more important than an increasingly pricey piece of paper which confers social recognition. The intrinsic rewards of pursuing discovery and personal mastery of a craft or body of knowledge are far more important than most formal education. Formal education can provide a base, but true achievements and breakthroughs, scientific, leadership, cultural or artistic come from a deeper place.

Morris: What do you know now about the business world that you wish you knew when you when to work full-time for the first time? Why?

Gogerty: I wish I had been introduced to value investing at age 13 when I bought my first stock. I am quantitative by nature and chased the ghost of price for many years.

Morris: From which non-business book have you learned the most valuable lessons about business? Please explain.

Gogerty: Many books stand out as providing pieces to the puzzle, from autobiographies to history etc. I could easily create a list of 50-75 very worthwhile books, half of them come from outside the traditional “business” domain.

Within the business domain, The Essays of Warren Buffet are useful in combining many sound concepts into a clear narrative. Poor Charlie’s Almanack is useful for acknowledging the importance of multi-disciplinary thinking while simultaneously keeping things as logical as possible. Bridgewater’s public site ( is great on macroeconomics and credit.

Morris: Here are several of my favorite quotations to which I ask you to respond. First, from Lao-tse’s Tao Te Ching:

“Learn from the people
Plan with the people
Begin with what they have
Build on what they know
Of the best leaders
When the task is accomplished
The people will remark
We have done it ourselves.”

Gogerty: Having taken a class or two in Taoism and Confucian rhetoric but not being a gifted writer, I respond with a quote from someone else and my own lines.

“If you want to build a ship, don’t drum up people to collect wood and don’t assign them tasks and work, but rather teach them to long for the endless immensity of the sea.” — Antoine de Saint-Exupery

“When leading inspire others to their greater self.
When challenged ingest the lessons within the gift of failure.
When winning reflects success onto others and only rarely accept it personally.” — Nick Gogerty

Morris: From Howard Aiken: “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.”

Gogerty: I agree with this suggestion that the truly novel idea is often so novel that no one thought of it or thought enough of it to give it a go. Having managed scientists, entrepreneurs and software entrepreneurs; often the first lessons are a discussion of how truly common “good” ideas are. Well-executed and elegantly designed solutions are another matter altogether.

Morris: From Richard Dawkins: “Yesterday’s dangerous idea is today’s orthodoxy and tomorrow’s cliché.”

Gogerty: I respond with another quotation, this time from Arthur Schopenhauer: “All truth passes through three stages. First, it is ridiculed. Second, it is vigorously opposed. Then, third, it is accepted as being self-evident.” Arthur Schopenhauer

Morris: From Isaac Asimov: “The most exciting phrase to hear in science, the one that heralds the most discoveries, is not “Eureka!” (I found it!) but ‘That’s odd….’”

Gogerty: I agree with Asimov after having seen scientists involved with basic research. Willful ignorance to counterfactual evidence is all too common and often hides far greater truths. Willful ignorance can be illustrated by frauds like Bernard Madoff or a scientific “truth” advanced only for the sake of career or tenure.

Science, “truth” and facts are often misunderstood as physical fixtures. They are all processes involving creation and destruction. The nature of progress means our “truths” will become tomorrow’s folly’s clung to during a naïve age. It has always been like this.

I strongly recommend that people read Thomas Kuhn’s Structure of Scientific Revolutions and The Half Life of Facts by Samuel Arbesman to appreciate the fleeting nature of truth and the dangers of pursuing fixed dogmas and cultures. According to Arbesman, so-called economic “facts” have a 3.5 year half-life while physics-based facts average a half-life of 13 years.

The power of Science comes from the fact that it is an evolving collection of knowledge possessing zero truths. Science is the process of a set of hypotheses awaiting their fate to fail, eventually, on the path to deeper understanding.

Morris: Finally, from Peter Drucker: “There is surely nothing quite so useless as doing with great efficiency what should not be done at all.”

Gogerty: Not much to add to that.

Morris: In one of Tom Davenport’s recent books, Judgment Calls, he and co-author Brooke Manville offer “an antidote for the Great Man theory of decision making and organizational performance”: organizational judgment. That is, “the collective capacity to make good calls and wise moves when the need for them exceeds the scope of any single leader’s direct control.” What do you think?

Gogerty: I have not read the book, so must place my comments out of its context and will focus on when things go spectacularly wrong as I am a bit of an obsessive on the subject of systemic risks and failure.

Many decisions associated with the largest failures are not due to individual stupidity or actions, but rather, they tend to be due to evolved structures or collective beliefs and behaviours doomed to fail. Historically, large credit crisis involving vast quantities of money (both credit & debt), created to pursue expected value, are often collective failures.

Genius leaders can occasionally create amazing outcomes, but often the largest failures involve bright people either deluded by each others brilliance or locked into a system destined for a catastrophic “normal accident” (see Normal Accidents: Living with High-Risk Technologies by Charles Perrow). We are social animals with psychological biases taught to believe far too much in our own free will and ability to reason effectively. See specifically Group Think.

Morris: Here’s a brief excerpt from Paul Schoemaker’s latest book, Brilliant Mistakes: “The key question companies need to address is not ‘Should we make mistakes?’ but rather Which mistakes should we make in order to test our deeply held assumptions?'” Your response?

Gogerty: Mistakes are the key to learning as they are the only way to validate or invalidate a hypothesis. Pursuing this path requires a personality to look for the counterfactual. That attitude isn’t popular in many cultures that may feel threatened by challenges to their status quo. The faster a person can make mistakes, the faster a better hypothesis can be created. Constantly pursuing truth and not settling for less is the key to relative power.

When debating with others or oneself, the most important question to ask about any held belief is: “What fact would make this opinion untrue?” If there is possibility or means of falsifiability, there is no science or rationale behind the opinion.

Great and incredible things are often the result of intrinsic motivation. Great leaders inspire beyond extrinsic factors like monetary reward.

Two people may cut stone for a living in the 16th century. One cuts viewing himself as an hourly stonecutter. The other may realize he is part of building a cathedral or temple bigger than himself and that period in time. The quality and craftsmanship of their stone cutting work will vary dramatically. Instilling intrinsic motivation has been the source of most great history for good or evil.

Morris: Most change initiatives either fail or fall far short of original (perhaps unrealistic) expectations. More often than not, resistance is cultural in nature, the result of what James O’Toole so aptly characterizes as “the ideology of comfort and the tyranny of custom.”

Here’s my question: How best to avoid or overcome such resistance?

Gogerty: As an anthropologist, I can suggest that “culture” is an especially complicated term. Most change initiatives are designed to change beliefs and behaviors leading to an outcome. Culture is driven by individual beliefs in self and organization. Changing beliefs that have been cultivated and re-enforced for years or decades is difficult.

Often an existential threat or a “burn the boats” strategy is the only one that can drive such change by removing the viability of retaining or returning to current beliefs. This is not easy when people and their culture are inflexible. Individual and group free will are limited by past experience, enculturation, and shared beliefs.

Morris: In recent years, there has been criticism, sometimes severe criticism of M.B.A. programs, even those offered by the most prestigious business schools. In your opinion, in which area is there the greatest need for immediate improvement? Any suggestions?

Gogerty: My own opinion is that MBA programs are often the equivalent of giving a person many case studies on how to ride a bike, combined with anecdotes from successful bike riders. Most of business involves people and generalizable problems so a learning attitude and flexible responses are more important than a few techniques.

Starting a business, failing at it, running a portfolio, P&L, having skin in the game (no matter how small) is a wonderful teacher. The MBA should be re-thought and somehow integrated into 2-3 year apprenticeships with meaningful internships that have a sting when failure occurs. Consulting does a good job of this, entrepreneurship is even better.

Morris: Looking ahead (let’s say) 3-5 years, what do you think will be the greatest challenge that CEOs will face? Any advice?

Gogerty: I can’t really say what the “greatest” challenge will be. One factor that looms large is unfunded pension obligations in the publicly traded and government sector in the U.S. Many 7.5-8% return assumptions are wildly optimistic. For example, privately owned companies average something like a 5.5% return estimate on their pensions. Governments and publicly traded companies are strongly tempted to increase their returns because of political impacts and balance sheet hits.

Deflation followed by a policy response-driven whipsaw inflation is also a potential risk.

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Nick cordially invites you to check out the resources at these websites:

His Amazon page link

The Nature of Value Amazon link

The Nature of Value website link

Eric J. Chaisson link

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