Exiting the Narrative Matrix: AI, Storytelling, and Markets with Ben Hunt





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Which pill would you take, red or blue? Today's guest shares insight into what it may mean to exit the narrative matrix of today.

In this episode of the FEG Insight Bridge, Greg Dowling welcomes Ben Hunt, the creator and CIO of Epsilon Theory and Co-founder of Second Foundation Partners as he explains the narratives in markets and intertwines game theory and artificial intelligence (AI) concepts.

We explore Ben’s transition from the world of academia to a successful foray in the investment business, all driven by his profound enthusiasm for game theory. Ben describes his journey of unravelling the enigma behind one of the world’s most prominent games, investing. His insight includes comprehending the significance of narratives and identifying underlying patterns to forecast better investment outcomes.

Epsilon Theory is Second Foundation’s principal publishing brand and a widely read newsletter and website offering unique insights into market dynamics through the lenses of game theory and history. Epsilon Theory's audience spans across 180 countries consisting of over 100,000 professional investors and allocators. Ben’s diverse background includes teaching political science, authoring academic books, founding technology companies, and working in venture capital and hedge funds before joining Salient, where he applied his expertise in portfolio management and game theory to enhance client outcomes. He holds a Ph.D. in Government from Harvard University and is a Vanderbilt University graduate.

You can find every episode of FEG Insight Bridge podcasts in one place and sign up to receive our other publications here.


Key Takeaways
  • We are wired to respond in predictable patterns to the stories we are told.
  • Our media system has changed significantly to an always-on, 24/7 information provision.
  • Smartphones today allow for a continuous intake of messaging in our lives.
  • Society acknowledges and accepts this higher-than-ever level of information receptiveness. It drives and impacts our world today.
  • To be an informed investor (or informed citizens), it isn’t what you read, but how.  Maintain critical distance from the information, and ask yourself questions including “why am I reading this now?”


Episode Chapters
0:00 Introduction
0:34 Episode Introduction
1:02 Ben Hunt joins Greg
3:35 Ben's Hedge Fund Journey
6:32 The Role of Narratives in Investment Management
10:12 Patterns in Narratives and Scripts
13:35 Are Narratives Intentional?
15:12 Three Structural Changes in Messaging
21:41 Technology and AI's Impact on Narratives
26:01 How to Read to Stay Informed?
29:03 The Stories of Wall Street and Language of Investors
31:51 Epsilon Theory Explained
34:32 Lightning Round
38:09 Closing Remarks with Ben




Greg Dowling, CFA, CAIA

Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.

Ben Hunt

Co-Founder and Chief Investment Officer, Epsilon Theory

Ben Hunt is the Chief Investment Officer at Second Foundation Partners, a consultant and asset manager for institutional investors, and the author of Epsilon Theory, a newsletter and website that examines markets through the lenses of game theory, history, and nature. Over 100,000 professional investors and allocators across 200 countries read Epsilon Theory for its fresh perspective and novel insights into market dynamics. In prior positions, Ben has managed a billion-dollar hedge fund and served as chief strategist for a $13-billion-dollar asset manager.

He has a Ph.D. from Harvard University, was a tenured political science professor, and has co-founded three technology companies.


Greg Dowling: (00:05)
Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG, an institutional investment consultant and OCIO firm serving non-profits across the U.S. This show spans global markets and institutional investments through conversations with some of the world's leading investments, economic and philanthropic minds, to provide insights on how institutional investors can survive and even thrive in the world of markets and finance. Our next guest on the FEG Insight Bridge is Ben Hunt. Many of our listeners may be familiar with him through his Epsilon Theory platform, but if you are not, he is an author, philosopher, political scientist, and darn good investor. He is certainly one of the more thought provoking people I know. We caught up with him recently at the FEG Investment Forum, where he was one of our keynote speakers. Yes, he thinks very deeply. Ben, welcome to the FEG Insight Bridge.

Ben Hunt: (01:05)
It is great to be here, Greg. Thanks for having me.

Greg Dowling: (01:07)
Well, Ben, you know, you are a, a bit of a recovering academic

Ben Hunt: (01:11)
That's a great way to put it.

Greg Dowling: (01:12)

Ben Hunt: (01:12)

Greg Dowling: (01:12)
Tech Investor,

Ben Hunt: (01:15)

Greg Dowling: (01:16)
Hedge fund manager,

Ben Hunt: (01:17)

Greg Dowling: (01:17)
Investment strategist.

Ben Hunt: (01:18)
All that.

Greg Dowling: (01:19)
So tell us a little bit about your journey and who are you today.

Ben Hunt: (01:24)
Well, I have to tell you, it's like my wife tells me I can't keep a job that that's the problem. And it's true that I've had a lot of different things in my career. There really is a common thread to link them that I'll get to. But I think the first thing to recognize and the reason why I am a recovering academic, you know, I got a PhD. I was a tenured professor and I left, which typically, you know, people don't do. You could knock over a 7-11 and not get fired from a tenured spot. But I did leave because I think, like I suspect a lot of your listeners, I've got the entrepreneurial bug. And for those of us who are afflicted with it, we know that it is a bug, not a feature. It's a bug. You can't help yourself. So, I left academia to co-found a software company, and I had done a couple of companies on my own within academia, which is why I was kind of a weird fit within academia from the go.

Ben Hunt: (02:15)
But then I finally left to start a software company and loved that experience of being out on your own. We started the company right as the NASDAQ bubble burst. So it was March 2000, pretty much to the day when the NASDAQ bubble burst, we started a software company. Luckily we were in a very niche field, so we did well. I found that I enjoyed the entrepreneurial aspect of it, the finance aspect of it, more than I liked the coding aspect of it. So I ended up selling my interest in the software company to go into the business of investing. And uh did that privately for a couple of years. A friend of mine was the head of research at a long-only investment shop. He said, "Hey, you know, we're always talking about companies and markets. I know you've never done this before, but why don't you come join me? We're starting a long short hedge fund inside our larger fund. Why don't you come and do that with me?"

Ben Hunt: (03:07)
This is 2005. And the pitch to me was investing, and this is one of the strands that go all through this. It's the biggest game in the world. I love playing games, you know, did that formally, you know, in academia into game theory. I hate even saying that I do game theory because it's kind of a joke . People say, "Oh, it's a game theory." But there really is a thing, called game theory. But more fundamentally, I just love playing games and public markets- it's the biggest game in the world. So intrinsically, I found it really rewarding to get into this business that most of your listeners are in, which is trying to understand the game of markets. We started that hedge fund.

Ben Hunt: (03:46)
We did well in '05, '06, '07, but a lot of people did well during those years. We killed it in '08. We had a great '08, and then the money really started flowing in. So the hedge fund got pretty big. We were up to about a billion dollars. But in March of 2009, it's like you went to the wall and you flipped the switch on the wall. Our returns flatlined, our shorts got killed, our longs did fine but in line with everything else. We never lost money for our clients. And that's something that to this day I'm really proud of. But by the end of 2011, it was clear to me that what we did, which was investing on the basis of catalyst and fundamentals, it didn't work anymore or it didn't work in terms of alpha. Investing other people's money and charging them a hefty fee for doing it. So in 2012, and I'm pretty sure my wife still hasn't really forgiven me for this, we gave all the money back to clients. I wanted to give it back before I ended up losing them money. Which, you know, it was an incredibly hard thing to do-

Greg Dowling: (04:45)
Oh, sure

Ben Hunt: (04:46)
personally, financially , right? Because you're getting the carry off of, you know, a lot of money. But in a larger perspective, a career perspective, I think it's probably the smartest thing I ever did. Because the fact is that since really March of 2009, my strong belief is that there has been no alpha from the type of investing that I did. And I think that all of us as students, practitioners of the game of markets, would have to agree , right? That the traditional moorings or guideposts for investing for alpha, for outperforming the market, it's been 14 years since value worked. That's the church I grew up in. The idea that no, if you're a well-managed company, if you are a company with a fortress balance sheet, and strong and capable earnings, and great management, like so, you will do better than companies that don't have those things.

Ben Hunt: (05:44)
I think most of us as value investors, what we really are, are quality investors. Let's be honest, as factors, as isolatable things, they have not worked for 14 years. So gave all the money back, and then it was was like, okay, well I gotta figure this out. What does matter for managing other people's money and understanding that managing other people's money, we are being judged on a different timeframe and a different scale than we might judge ourselves for our own money. We don't have the luxury of, well, on a 10 year horizon, et cetera, et cetera. And so this goes back to the common thread that I promised I'd get to from all these disparate activities. And that is that I've always, whether it was the academic research, whether it was the software company, now it's my work in public markets, been trying to understand the role of, I'll call it broadly human behavior.

Ben Hunt: (06:36)
But more specifically, what I mean is the role of narratives. What I mean by that is the role of the stories that we are told by politicians, by people we see on CNBC, you name it. You know, we're exposed to all of these messages daily from people telling us how to vote, how to invest your money, how to live your life. And my work, the common thread is trying to understand the structure of that. It's not random, it's not amorphous saying, "Oh yeah, you know, we're influenced by what other people say." I really believe that there's a pattern to the stories that we're told and that we as human animals are in fact hardwired, biologically evolved, socially trained to respond in fairly predictable patterns to these stories that we're told. So that's the common thread through everything. Through the academic research, through the tech companies that I've co-founded, and now in what I try to write about and how I try to think about developing investment strategies.

Ben Hunt: (07:36)
"How do we understand the stories that we're told?" One last thing, and then we'll move on to how this actually works. But what I've given up on is trying to find alpha in the fundamentals of companies. I think that matters. I still have faith that value and quality matter, but for managing other people's money and getting paid for doing that from outperformance, I think the sources of alpha today, you're not going to find them in the modern market structure from those sort of fundamentals. Where I think you can find them still today, is in understanding how we as human beings respond to all of the messages and the words that we hear.

Greg Dowling: (08:16)
You talked about, and I've heard you talk about the water in which we swim.

Ben Hunt: (08:18)

Greg Dowling: (08:18)
It sounds a little bit like the matrix. Are we living in the matrix?

Ben Hunt: (08:21)
Yeah, kind of. The fact is-, the fact, my belief is that just like we can't see ultraviolet radiation, we can't see gravity. There is a world of words and language that permeates our existence. I'll give you a quick example. So there are only a handful of species of animals on earth that are as technically defined social animals. There are a number of characteristics for what makes a social animal. You have multiple generations take care of, call it "the brood," because most of these species are insects within the same nest. Again, most of these species are insects, but the most salient quality of what defines a social animal is that they are immersed in an ocean of "intra" species, meaning among themselves, communication. As I mentioned, most of these species are insects. You've got bees, you've got termites, you've got ants, and you've got human beings. Now, it's not a coincidence that these are probably the four most successful species on the planet Earth.

Ben Hunt: (09:25)
And that defining characteristic of swimming in an ocean of communication is what really demarcates these species. Now, ants, bees and termites, they're swimming in a chemical ocean of communication from pheromones and the like. We communicate, the ocean, we swim in, the water in which we swim, are our words. And I, I know that because we are swimming in this ocean of words, we don't feel it, we don't recognize it. It is as natural to us as a fish swimming in water. It's as natural to us as the air in which we breathe. And so that's what I mean about the water in which we swim. It's everywhere. It's incredibly impactful on us. But because it is the water in which we swim, we don't notice it as a separate thing.

Greg Dowling: (10:11)
So when you talk about narratives and, and the water in which we swim-

Ben Hunt: (10:15)

Greg Dowling: (10:15)
Are there common narratives? Are there-

Ben Hunt: (10:17)
Oh yeah.

Greg Dowling: (10:17)
Four narratives? Two narratives? That we get told over and over again.

Ben Hunt: (10:21)
For sure. So, it's the old story in Hollywood that there are only a handful of scripts. And that's absolutely true. In fact, take any movie you've ever seen, type in the name of that movie plus three act structure, and you'll get a chart. Every movie you've ever seen has three acts to it. It has a very specific pattern of what's called rising action. About a third of the way through act three, that'll resolve itself. And then you'll have declining action. There's a recipe for every movie you've ever seen, every scripted television show. This is true for comedies. This is true for horror, this is true for drama. This is true for all of it. Tolstoy, the author, you know, famously said, or supposedly said, that there are only two stories. A man goes on a journey and a stranger comes to town. That's it. Right? And once you start looking for these sort of patterns and narratives in the movies and the TV shows, you'll start seeing it everywhere. And my point is that it's exactly the same thing in politics. It's exactly the same thing In markets. We tell ourselves the same stories. The stories have a pattern and a lifecycle that repeat themselves over and over and over again.

Ben Hunt: (11:26)
"I'm bullish on x, y, z." "I'm bearish on that." "I think this is cheap." "I think this is expensive." "The central bank is hawkish." "Dovish." These are stories that are repeated over and over and over again. And once you start looking for that structure, you'll see that they're real. Like I said, there's a life cycle. You can actually measure this today with the tools we have at our disposal in terms of big data, but more importantly, what I like to call big compute. And once you start identifying the structure, you can start thinking about, "Well, if I see the structure and I see how impactful it is on behavior, can I anticipate what's next?" There's the alpha.

Greg Dowling: (12:03)
So is this similar to Robert Schiller? He did some work on- he did a lot of work on behavioral, but-

Ben Hunt: (12:09)

Greg Dowling: (12:09)
narrative economics? Is it similar or different or? Explain?

Ben Hunt: (12:12)
No, it's very similar. So, I know Bob well, what I think is valuable about that book, narrative economics, is that he accurately describes the math here. The way to think about it, as Bob describes in his book, as we do in our research as well, is that, you know, I mentioned that there's this, I really feel like there's this separate world. We can't see it directly. A world of words and narrative. Well think of that as like the world of viruses and microbes, right? We can't see it, but we know it's there. We can measure it. We can perceive it with tools like a microscope or the like. There's a math that we use to describe the spread of viruses and disease and the like. That's exactly the same math that you use to describe and understand the spread of story and narrative. It's network math. You can visualize it in different ways. The math here, you're looking at things like centrality and it's called betweenness. It's a different kind of math than we're used to in our physical world. No one's inventing cold fusion here. The math and the methods, these are things that I was using in academia, you know, 35 years ago. What's different today is that we have the raw computing power to actually measure this stuff and apply the math in a way that we didn't have even 10 years or so ago. That's the change.

Greg Dowling: (13:35)
You'd think it is intentional, you're right. Like all these movies, the Hero's journey-

Ben Hunt: (13:39)

Greg Dowling: (13:39)
you know, that's a common theme or, or storyline and we know that works. Is it that intentional or is it just a fallback that everything kind of goes into these? Are we just hardwired, not only to receive them, but to tell stories like that? So how intentional or manipulative is what markets politicians are trying to do to us?

Ben Hunt: (13:58)
Well, it's intentional because it does work, because we are hardwired for this. It's intentional. You see it most clearly in Hollywood, right? Where there are a certain number of scripts, you can't go off script, you can't go off the structure. And they have the structure, they have the scripts because it works. It's exactly the same thing in Wall Street. Wall Street, I think this is really so important to get across, the business of Wall Street is flow. It's not price, it's flow. The whole business of Wall Street is being the, the intermediary in transactions. The whole business of Wall Street with asset managers is in capturing that flow, keeping that flow, keeping the assets. That's the business. And in exactly the same way that it works for Hollywood to tell a very certain set of stories because we are hardwired to respond positively to those stories.

Ben Hunt: (14:46)
By positively, I don't mean the sense that we love them. There's a very specific structure to a horror movie. Stranger comes to town and we respond to it in the way that makes us do a transaction. It scares us. It's exactly the same way in social media. The content is not necessarily designed to make us like it. The content can very much and actually more often designed to make us angry because that's a form of engagement that's just as powerful as liking something, probably more powerful. In Wall Street, in our business of finance, we tell stories that impact flow, that make you want to buy, to sell, that make you want to transact, that make you want to move your assets from this manager to that manager. These are the stories we tell. There's a finite number, right? There's, there's probably more stories in Wall Street.

Ben Hunt: (15:33)
I know there are, than there are scripts in Hollywood. That's exactly the same principle, Greg. And so is it intentional? Successful, I'll call it, entrepreneurs, in politics, media, tech, finance. I think they've always understood this, that it's telling the right story. What has changed, I really believe over the last, I'll call it 15 years, I think we've had three structural changes that make the importance of telling a good story that much more important. So let me go through those three changes. The first is that our media system has really changed pretty significantly to being 24-7 always on information provision, not news provision. Even the self-styled news channels like a CNN, MSNBC, Fox, CNBC, Bloomberg, they're on all the time. And their business is to have you engage with them and to listen to what they're saying. There's not enough raw news to fill that time to fill the 24-7 time.

Ben Hunt: (16:31)
So to fill the time, what you have to have is, I like to call it fiat news, like fiat money, but just fiat news. It's not fake news in more than the sense that fiat money is counterfeit money. It's real money, but it's made up. It's the printing press. It's in the case of fiat news, it's opinion, it's opinion presented as news. 99% more of what you'll see on CNBC programming are people coming there and giving their opinion as if it were news. It's not reporting, "Here's the unemployment rate." It's, "Here's how you should think about the unemployment rate. Here's what this change in the unemployment rate means." That's the programming. That's what we call fiat news. That's been an enormous structural change. It's not just the TV channels, it's all of our print publications, New York Times, WaPo, Wall Street Journal. These are now 24-7 organizations where their business model requires them to have a constant stream of new quote unquote news being published.

Ben Hunt: (17:29)
It's not news. Most of it is opinion analysis being presented as the news. That's structural change number one, hugely important. Structural change, number two. You and I both turned off our smartphones before we started recording this podcast. I dare say that's the only time today that either of us will have our smartphones turned off. I like to call it our dopamine machines. We have voluntarily taken on a device all of us have that allows messaging to come to us all the time. mean, my smartphone is the last thing I look at when I go to sleep. It's the first thing I look at when I wake up in the morning. Not my wife, my smartphone. That's pathetic and sad, and I am angry at myself about that. And yet, that is who I am right now. It's an enormous structural change, just enormous. Because even 15 years or so ago, we had messaging from devices, television, radio, we had messaging from other human beings. But we've now opened ourselves up to constant messaging. Constant.

Ben Hunt: (18:28)
Where, I for one, I can't go without checking my feed or checking to see if I got that email. It's not analyzed enough other than people to say like, "Oh, ain't that awful." But I really do believe it's an enormous structural change in the way that we interact with this, again, invisible but very powerful world of stories and narrative.

Greg Dowling: (18:48)
We haven't done enough, but I think there's a groundswell. We're realizing that this is impacting our mental health, especially in children.

Ben Hunt: (18:55)
I call it a dopamine machine specifically, because it goes directly at our neurotransmitters, dopamine, and norepinephrine. It's an addiction. There's no other way to put it. And I know that I, I have a really hard time going without, I get anxious and nervous. Where's my phone? Wait, my phone's not with me. Why? Where? Where's my phone? I suspect that a lot of people listening to this call are the same way. That's two of the structural changes. Third one, everyone's in on the act. The enormous change. I'll focus on markets here for a second. Politicians have always understood that it's messaging and telling the right story. One of the big developments that came outta the great financial crisis was that central bankers recognized that it was their words that were their most powerful tool. People often tell the truth in their, it's called a valedictory address, the last thing that they talk about.

Ben Hunt: (19:43)
So, you know, Washington, George Washington, "beware of entangling alliances." Dwight Eisenhower, "beware the military industrial complex." Dwight Eisenhower, for God's sake warning about the military industrial complex. Well, the last formal speech that Ben Bernanke gave, he talked about their use of words. He said, look, we had a tough road to hoe here. First we tried taking rates down to zero. Did that. Wasn't enough. We didn't know at the time we could have negative interest rates. So we didn't even try that. Second thing we did, balance sheet operations. Buying stuff, quantitative easing. So that really worked well. QE (Quantitative Easing) one worked okay, I think QE two by QE three. It was nothing. In fact, I think it was maybe a little counterproductive. But here's the third toolkit we found, and it was incredibly useful. And you can call it forward guidance. You can call it communication policy.

Ben Hunt: (20:30)
It's using our words, not as a direct assessment of what we actually think, but constructing our words, using our words for their impact on behavior. What we might call lying under other circumstances. But his point was this was incredibly effective. It remains incredibly effective. And whether it's central bankers, whether it's CEOs, I mean look, this is the hallmark of an effective CEO today. It's not, "oh, can I get another turn of leverage?" Right? It's not, "oh, can I improve my gross margins or utilization by 200 basis points in this operation?" That's not it. The hallmark of success for a CEO today is, "can I tell a story that'll make the stock go up?" That's it. So those three things, systematic change in our media system, our adoption of our dopamine machines, and the realization by everyone in politics and business that this is what works. To your question before, right? This is what works. This is what has really changed our world in the last 15 years. It's why I think it's more important than ever that we are able to step back and recognize that this is what is impacting market prices, electoral outcomes. This is what drives our world today.

Greg Dowling: (21:41)
How does technology and specifically AI factor into this?

Ben Hunt: (21:45)
Well, you know, I mentioned earlier that what I call big compute gives us the ability to I think see the water. We know what the math is for, understanding how narratives are born, how they grow, how they live, how they divide, and how they ultimately subside. We know the math, we know the, I'll call it the mechanism. What we haven't had is just the raw computing processing power to understand all the messages that we're inundated with today. It's an enormous computing scale problem. And that's why the development of really on demand computing, you know, we can plug into the wall today and get as much computing power as we need. And we need a lot, because these are not difficult math problems to solve, but they are enormous math problems to solve. The number of calculations we'll have to make to make the math work. These are the things that 30 years ago I would program a computer and a deck mini frame. Right? That'll take some people back.

Greg Dowling: (22:43)
I'm envisioning punch cards.

Ben Hunt: (22:45)
Yeah. It's one step up from that, right? One step up from that. And you'd submit your program and a week later you'd get the results on really a small amount of data. Today we plugged directly into Dow Jones. We plug directly into Thomson Reuters and LexisNexis. We get everything that's published in the English language every day, and we get it immediately. That's big data. More importantly though, is our ability to tap into AWS Azure, one of these computing cloud services, and get the enormous computing power that's required to analyze all of it in a matter of seconds. That's what makes the difference. It's not that we've, like I've said before, invented cold fusion. It's that we now have the computing power because that's how generative AI, in general, big compute works. It's not some big brain, right? What it is, is the ability to handle computational problems where we just didn't have the scale in the past and now we do.

Greg Dowling: (23:36)
You know, what's amazing to me is it's not a fourth factor. I think it's just an outcome from the first three, is the speed that things are disseminated. And I think of January 6th.

Ben Hunt: (23:47)

Greg Dowling: (23:48)
I think of Silicon Valley Bank.

Ben Hunt: (23:49)

Greg Dowling: (23:49)
There are a few tweets that went out and then all of a sudden-

Ben Hunt: (23:52)

Greg Dowling: (23:52)
Boom. Are things just happening quicker and faster because of all this?

Ben Hunt: (23:56)
The short answer is yes. The slightly longer answer is that I do believe in the same way that CEOs and central bankers have learned that this is the way we as investors, citizens, and the like, especially as investors, we've learned also. What the market is, is a phenomenal learning organism to learn what works and what works today is to recognize, "Okay, here's the story. You can think whatever you want to think personally about the story, but the rational thing to do is to recognize 'what does everybody know that everybody knows about that story?'". It's what's called common knowledge, and it's what drives so much in our world, not what you personally believe about the world. Right? I think all of us as investors have had this experience. You'll get a piece of information and you'll say, "Well, I think that means x, y, z." And you can invest on that and maybe it'll work for you, maybe it won't. My personal view is on average you have no alpha in that - your own personal assessment of the information. But the next level of thinking, this is something that John Maynard Keynes wrote about in the 1930s, and he was right then and -

Greg Dowling: (25:05)
The beauty contest?

Ben Hunt: (25:05)
The beauty contest. That it's not what we personally think about the attractiveness of this company or the like. It's not even what we think the consensus is - what we think the crowd thinks. It's, "what does the crowd think that the crowd thinks?" You would think that that would be an impossible thing to try to analyze. "What does the crowd think that the crowd thinks?" It ends up though, that this is what we call in game theory, a missionary - that famous investor or politician or central banker who gets up there and tells you a story, shakes their finger at you and tells you, "here's how to think." The rational thing for a single investor to do is to act as if the crowd believes that the crowd believes what that statement is. So I think all of us have learned that this is the way to be effective in today's market. So that has the impact of making a statement, and any kind of news event is a statement, propagate through the system that much more quickly.

Greg Dowling: (26:00)
That makes sense. If we want to be informed investors, informed citizens, what should we read?

Ben Hunt: (26:08)
The response to that is, you know, what should you read? - I mean, we all read the same stuff.

Greg Dowling: (26:11)
There's one Wall Street Journal.

Ben Hunt: (26:12)
Right. There's-

Greg Dowling: (26:13)
one Financial Times

Ben Hunt: (26:16)
Exactly. I think the better way to approach it is thinking about how do you read, not what do you read, but how do you read? What I mean by that is, I'll use the old poker saying, I know you've heard it, right? That if you sit down at the table to play and then in 30 minutes you don't know who the sucker is at the table, it's you. I think it's very much the same thing when we're consuming information. The goal here is not to be the sucker at the table. I strongly believe that the way not to be the sucker at the table is not to disbelieve what you read, but to maintain some critical distance. To not embrace what you read without asking yourself a couple of questions, the most important of it, which is, "Why am I reading this now?"

Ben Hunt: (26:52)
Now, sometimes the answer to that is, "Well, this event just happened. I'm reading about what the unemployment rate is because they just announced the unemployment rate." That's fair. But for 99% of what we read, it's not a specific news event. It's somebody telling you their opinion presented to you. Their analysis often about events that happened a week ago, or two weeks ago, or two months ago. Therefore it's so important to ask, "Why am I reading this now?" Again, not to say that it's fake news, that it's wrong, that it's misleading, none of those things. Although, that may also be true. But it's to try to get you to step back a little bit so that you don't embrace it in your heart. That's particularly true in politics I think. To not embrace what you read or hear in your heart. I give this as advice but I've had a professional career trying to analyze this stuff.

Ben Hunt: (27:39)
Look it's always two steps forward, one step back. I mean, I'll read something and I'll be outraged, right? Or I'll say, "Oh, that's great" or "Oh, I'm angry." It's really hard to maintain that critical distance and to step back. But I think that by recognizing that Wall Street and Hollywood are storytellers, first and foremost, we know that's true for Hollywood. I think people don't recognize it so overtly with Wall Street, but it's absolutely true. Storytellers, and that's fine. But, recognize that it's a story. Try to step back, particularly on social media, because everything you hear- Elon Musk, God bless him, when he said, "there's freedom of speech, but not freedom of reach." I mean, he was a jerk about it, but he's right. That reach, when something reaches you on social media, one way or another, it's been bought and paid for.

Ben Hunt: (28:26)
It either fits the algorithm for what's going to drive engagement or it's been directly paid for. Although advertising like that is increasingly an ineffective way of getting that sort of engagement. But one way or another, something that actually reaches you - it's intentional. Recognize the intention. Ask yourself, "why am I reading this now?" Understand that the underlying principle of so many of our most important entities are storytelling. That I really believe can give us all the critical distance to make up our own minds about how to act and what's right for us and our needs.

Greg Dowling: (29:03)
So I know politicians do it, right? They survey the voters, they find what issues are important. And I know Wall Street is an amazing sales force, and they often use stories. But what, I guess, are the stories they're telling us right now?

Ben Hunt: (29:20)
Greg value is a story. When someone tells you, "the stock is cheap" or "this stock is expensive," that's a story. What is a multiple? Let's say you've got a PE multiple eight, somebody tells you, "that's cheap," or somebody tells you, "that's expensive." That's a story. That's a story. I think understanding that, and this is the hard part about seeing the water, right? That things that we take just for granted, like, "well, we're investors, so of course we're talking about multiples. Of course we're talking about, the impact of this policy or that policy." These are all stories that we're telling each other. It doesn't mean they're wrong, right? It doesn't mean that it's a lie or that it's fake, but it's recognizing that it's a story and that we are in fact, hardwired to respond to these stories. What I found is that different types of investors, we have different languages.

Ben Hunt: (30:08)
In fact, I think there are three great languages of investing, meaning old languages of investing. And honestly, the best work in game theory today is being done in linguistics, is being done in evolutionary biology. Those are the two areas where I really believe the best game theory is. That's the forefront of game theory today. But, there's a different language that growth investors use when they talk to each other. There's a different language that value investors use when they talk to each other. Then finally, there's a different language that middlemen, traitors, use when they talk to each other. Once you recognize that, it's phenomenal! When you see these two different populations try to talk to each other. The words they use don't resonate with the other group. But, within your own tribe or group, you understand. So much, I think of understanding the world is trying to understand, "Well what language am I speaking?" Also recognizing that there could be some truth and good ideas in these other languages, but I've got to translate them. Also to recognize that within my own tribe, I'm predisposed to saying, "oh, yeah, that makes sense," when it's spoken to me in words that I'm accustomed to and attuned to.

Greg Dowling: (31:13)
If you think about that and I think that's very true. If you talk to a venture capitalist, they're gonna talk about TAM's, Total Addressable Markets.

Ben Hunt: (31:19)
Oh, yeah.

Ben Hunt: (31:20)
Blitzscaling. If you talk to a value person they're like, "I don't know what you're talking about."

Ben Hunt: (31:23)
Right, exactly.

Greg Dowling: (31:24)

Ben Hunt: (31:25)
It's not easy. It requires you to again, step back and look at yourself with as clear eyes as you try to look at others. But I think the reward from this, for maintaining that critical distance, for understanding that there is this world of words and stories that you can't reject. We are that human social animal. But we can understand its importance in our lives. Certainly its importance in our investing lives and protect ourselves.

Greg Dowling: (31:50)
So I wanted to allow you to plug Epsilon Theory.

Ben Hunt: (31:53)
That's it.

Greg Dowling: (31:54)
Which is great, but first isn't Epsilon Theory the error term in most equations?

Ben Hunt: (31:58)
It is, and that is exactly the origin of this work. After I gave all the money back in the hedge fund, and I'm sitting around at home trying to figure it out and saying "well, what am I gonna call this?" It's specifically because what we always talk about in investing is this formula. "What are the returns from my investment portfolio?" Well it's the alpha, it's the idiosyncratic, the edge we have. It's beta, it's how we go along with markets.

Greg Dowling: (32:24)

Ben Hunt: (32:24)
But if you look at the actual formula, then there's, "plus e" epsilon symbol where it's epsilon for "error." What I believe so strongly is that it's not error. Everything to do with strategic interaction between humans, everything to do with behavioral economics, as it's called, everything to do with what I'm describing as the impact of words. It's not random. Right? There is a structure to how words and stories are told to us and how we respond to it. It has nothing to do with the factors that would go into alpha and beta. So that's why I called it Epsilon Theory, because it's really, I think by unpacking that, so-called error term - that we can in fact become yes, better investors. But even more importantly I think, better voters and citizens. And even more importantly than that, better friends and partners.

Greg Dowling: (33:16)
So you do a newsletter, you do your own podcast?

Ben Hunt: (33:18)

Greg Dowling: (33:19)
I would've to say though, it feels like, and I know you're also a football fan-

Ben Hunt: (33:23)
, that's true.

Ben Hunt: (33:24)
It reminds me a little bit when Dennis Miller was doing Monday Night Football and he'd make all these esoteric references-

Ben Hunt: (33:30)

Greg Dowling: (33:30)
to literature and history, and every once in a while you'd actually understand what he's saying, and you'd be like, "ah, I feel that way sometimes." I'm like, "oh my gosh, I remember my seventh grade lit class and I get the reference!"

Ben Hunt: (33:42)

Greg Dowling: (33:42)
It's some pretty heavy stuff.

Ben Hunt: (33:46)
Well, it's-

Greg Dowling: (33:46)
In a good way.

Ben Hunt: (33:47)
No, no, no. I take that comment in a good way. I think understanding the role of story is why I like to use so many movie references and cultural references, including literature references. Sure. The most common, you know, reference in my work though, are Godfather movies. Once you start seeing these common threads of the role of story, and you start to say, "hey, wait a second, this applies to markets and politics too." it's the same story arcs over and over again, the same scripts. I find that that is an "aha!" Moment that I think can actually, well, I really do believe it can make for a life more worth living, and you can kind of have fun with it too.

Greg Dowling: (34:27)
It is very good. We are big fans here at FEG.

Ben Hunt: (34:30)
Thank you, Greg.

Greg Dowling: (34:30)
Hey a couple just fun personal things. So I know you're a bit of a gentleman farmer. What is-

Ben Hunt: (34:37)
Dilaton farmer. Yeah. My grandfather north Alabama, he had a dairy farm and he would laugh at the idea that I'm a farmer. We've got chickens, goats, sheep, bees, horses, and you know, I live in the wilds of Connecticut, so-

Greg Dowling: (34:51)

Ben Hunt: (34:51)
There's WIFI down at the barn and if I have a bad day, I can get artisanal mezcal at the, the local amous boucherie that, anyway, it's so different. I'm a comic character, is what I am the dilaton farmer. That said, it has been so impactful for us to have animals and to be out in the woods. Both for raising our daughters, four daughters, where they take care of the animals and they understand that. It's also been impactful for me to not get away from the machines and the screens because I am addicted to my dopamine machine and I do have WIFI down at the barn. But there's something about actually working with your hands, understanding the cycles and the forgivingness of nature. It's been a source of a lot of my writing and it's really helped me, I think, communicate the ideas of this invisible world of words and stories into a form that connects with people. So, it's been a great thing for us.

Greg Dowling: (35:49)
So you definitely make reference to bees and insects.

Ben Hunt: (35:52)

Greg Dowling: (35:52)
I've heard you talk about compound eyes-

Ben Hunt: (35:55)

Greg Dowling: (35:55)
and how we see. So, I know you're a beekeeper as well. What is happening to all the bees?

Ben Hunt: (36:01)
No one knows and I think that the answer is with so many things in our world is overdetermined. We certainly see that in markets. You know, "why is the price of oil up?" Well, it's a dozen different things and I think it's a dozen different things with bee colony collapse. But I think the largest impact for us is that bees have become industrially necessary, particularly for pollination, whether it's almond crop or the like. And there's so many things in this world: eggs, protein, bees, our children's education to name four, that the practices that we have around them, we take for granted. They are largely invisible to us. I don't begrudge them. I understand that these practices are necessary for 300 and, whatever, 40 million people here in the United States, 8 billion people in the world - I understand that we need industrialization for eggs and pork and bees and how we educate our children. But, don't tell me that this is the only way to do it, or this is the best way to do it.

Ben Hunt: (37:01)
Don't tell me that. Don't tell me that the eggs you get in the supermarket that are clean, washed, and cold refrigerated, don't tell me that that's a good egg. Because the truth is that they are scrubbed clean and refrigerated because that's what they have to be to survive all the bacteria and disease in our egg production farms. I get it. I understand that these are industrially necessary practices, but I also believe it's very important for us to step back and recognize that just because something is industrially necessary doesn't mean it's the only way to do something, or that it's the best way to do something. The importance, I think, is to preserve our own autonomy of thought and to see all of these waters in which we swim. So that's what beekeeping has helped me do. It's not easy, right. Going down a different path, whether it's with educating your kids or chickens or bees. It's not easy to go down a different path. But I will say that, at least in my experience, it's been enormously rewarding.

Greg Dowling: (37:59)
I love it. So remind me, going back to the matrix, which pill am I supposed to choose?

Ben Hunt: (38:02)
I think you take the red pill.

Greg Dowling: (38:05)
Take the red pill.

Ben Hunt: (38:06)

Greg Dowling: (38:06)

Ben Hunt: (38:06)
Yeah, you've been red pilled.

Greg Dowling: (38:09)
Alright, last question. You're a Vandy grad.

Ben Hunt: (38:11)
I am.

Greg Dowling: (38:11)
However, you are a big Alabama Crimson Tide fan. Did you pick the school-

Ben Hunt: (38:16)
Roll Tide!

Greg Dowling: (38:16)
that beat you the most? How did-

Ben Hunt: (38:19)
No, no, no, I come by it honestly and my grandfather played at Alabama. My uncle played at Alabama. I was raised in the Church of Bear Bryant. Trust me, I get it. It's like rooting for the death star. And it's maybe it's like being a Patriots fan. I don't know, right. I get it. I'm not expecting anyone to think well of me by rooting for the Borg, for Alabama, but it's part of who I am.

Greg Dowling: (38:39)
The Crimson narrative.

Ben Hunt: (38:41)
I love it. That's great, Greg.

Greg Dowling: (38:43)
Hey Ben, thanks so much for spending time with us. I really enjoyed this.

Ben Hunt: (38:46)
Absolutely, a pleasure. Anytime.

Greg Dowling: (38:48)
All right, thank you. If you are interested in more information on FEG, check out our website at www.feg.com. Don't forget to subscribe to our communications so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed with the unique risk and return objectives of each client. Therefore, nobody should consider these to be FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views and opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of their firm or of FEG.

This was prepared by FEG (also known as Fund Evaluation Group, LLC), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directly to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it. Past performance is not an indicator or guarantee of future results. Diversification or Asset Allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss. The views or opinions expressed by guest speakers are solely their own and do not represent the views or opinions of Fund Evaluation Group, LLC.


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