JUSTINE UNDERHILL: Welcome to Real Vision's How I Got My Start in Finance. In this interview with Real Vision co-founder Grant Williams, Ben Hunt, author of Epsilon Theory talks about his upbringing in Huntsville, Alabama, how his interest in finance began at an early age, and the critical importance of one's reputation.
BEN HUNT: Well, I grew up outside of Birmingham, Alabama and-- you know, little suburban unincorporated place. My dad was a emergency room doc back before it was called emergency medicine way back in the day. And growing up in Alabama, still family down there. Huntsville, Alabama was settled by my great, great, great, great grandfather.
And I say that only because he was just this traveling guy, you know, built a shack there on the big screen. So there's a plaque there in the little town, that's all we've gotten out of--
GRANT WILLIAMS: Hey listen, I've got no claim on Williamsburg, so you're way ahead of me.
BEN HUNT: And Alabama's such a funny place. I use Huntsville as an example because it's north Alabama, nobody'd ever heard of Huntsville, Alabama. But that's where they brought all the German scientists-- the rocket scientists after World War II. They brought them to BF Alabama. So all the-- basically the Nazi war criminals they brought over to build NASA and our space program.
So Huntsville grew up to be a pretty big city and a pretty technologically savvy city even today because of the government, and bringing in NASA, and building that there. And there are all these interesting stories, I find, about the South, and Alabama, and the way it's grown meteorically over the last 50 years. I think you may be in Atlanta recently, and that's a prime example. Nashville is a crazy growing city today. So I do come from the South, and that did really inform my way of thinking and living.
GRANT WILLIAMS: But yeah, the South is the place, but the time that you came from, as well, was just post a time of great upheaval, but the ripples were still--
BEN HUNT: I was born eight months after the dynamite bombing of the 16th Street Baptist Church where four little girls, four African-American girls were killed. I was born 12 months after Bull Connor was sticking dogs and getting the fire department to use the high pressure hoses on kids.
And I wrote recently about this because here's the thing, I never experienced any of that growing up. None of it. And it's not because I was in some well-to-do bubble.
I'm the kind of-- it's this very modest house out in the burbs. It was really a set of choices, I think, that my parents made about how to raise their pack, their family. And I've really had to wrestle with that recently because I think that it is important, certainly, to look down the family tree, and support your family, and the like. But I also think it's so important to live our lives as citizens and to pick and choose, but choose where we want to be active in our lives as citizens.
But to get back to your point, my fascination with markets and with investing was that I would-- back then, the only news you got was the newspaper. So I'd spend all this time-- it was just the tickers, you just get the ticker, and the open price, and the closing price. You remember those, don't you?
GRANT WILLIAMS: I do sadly. I wish I could act dumb, but no, I do remember those.
BEN HUNT: And the newspaper, the business section, was essentially that's what it was. It was just very tiny print of the tickers and the numbers. And I found that endlessly fascinating because I said, well, there's some pattern in here and there's some way to make money, apparently, from this. So the key is I just have to find the pattern.
And this is a young 8, 9 years old, and it's basically kabbalah numerology where I'm writing down numbers, and seeing how they repeat, and stuff. Totally useless, right? But that was the way I'm wired is to try and solve these puzzles.
GRANT WILLIAMS: Where do you think that came from? Because you're growing up the son of a doctor in the South. I'm always fascinated how people who say, oh, my grandfather was into the stock market, or it tends to come from somewhere. I'm fascinated that this would be what you just found yourself drawn to.
BEN HUNT: Well I tell you, I think it comes from-- there are places on both sides of the family of risk takers, and entrepreneurs, and frankly puzzle solvers. Because that's what it is for me, and this is why I've always been fascinated by game theory, that's why I ultimately found the stock markets, because it is the biggest game, it's the biggest puzzle to try to solve.
And card games are another form of this. So gambling is big-- it's big everywhere, I guess, but it's really big in the South. I mean, bet a quarter on which snail gets to that rock first if there are two snails there, or bet on which raindrop comes down the window first. You know that, right?
GRANT WILLIAMS: I know, I've played these games.
BEN HUNT: So what I also grew up in the South was a culture of gambling. And to be effective in that culture, you have to have some-- you quickly need to develop a sense of probability, and odds, and edge. Odds and edge. So I remember buying Edward Thorp's book when I was 9 years old, and I saw Edward Thorp, who I think some of your viewers probably know, he went on to develop some really interesting-- the Kelly criteria, and they're all notions of how you apply these ideas of edge and odds to, in his case options, but to financial markets more broadly.
But he really got his start, he was playing blackjack. And I'd seen him on television, I think it was What's My Line? or something, these old shows. Black and white little TV out there on the porch, I was watching, and he was describing his book, Beat the Dealer. And so I had a paper route or something, I had a $10 bill, so I had to send-- this is back in the days where you send a SASE.
GRANT WILLIAMS: Self addressed envelope.
BEN HUNT: Self addressed stamped envelope to this address, include $10 cash or COD. So I had a $10 bill and I sent it off to get my copy of Beat the Dealer from Edward Thorp. And I just remember reading that book and thinking about how-- it just opened up so much for me. These inchoate notions I had of odds and probabilities, the numerology approach to looking at the numbers of the business section. Wait a second, there's a logic and there's a way to try to put that into action to try to solve these puzzles? So those were some really formative moments.
GRANT WILLIAMS: Well that's really interesting to me because in so many of these conversations, I talk to people and they get to the point where they say, I'm fascinated by this-- well, I call it a game. No one ever finishes the thought and says game without explaining, I call it a game. And when you talk about solving these puzzles, to me that's always been what this is about.
And I think this is the greatest misconception that people outside the finance industry have is that it's all about the money. Because I think for a lot of people it is.
BEN HUNT: Amen, brother.
GRANT WILLIAMS: But I think when you're in this, it's a puzzle solving exercise. And if you can solve the puzzle, yeah, the money takes care itself. And I know I've talked about this before, but it's so central to me that people do think it's a game. They do think it's something winnable, and you win by staying at the table rather than actually any great part. Some people will walk away, but it's an exercise in getting this right and not much more than that.
BEN HUNT: Not much more than that. There's so many places to go with what you just said, but I'll take this one for now. I've gotten a couple of wonderful pieces of advice in my career, both in academia, and starting a software company, and now in financial services. And one of the best is always live to play another day, which is true in poker, true in gambling, and it's actually true in markets, just like you're describing.
Because this is what I talk about in some of the things I write about the meta game, meaning it's the big game that we're all playing of which this job, or this trade is only a small part of the big game that we're all playing. And in this field that we're in, as in so many other fields, 90% is just showing up, and showing up every day, and not going all in, not facing that risk of ruin. Which if you let the numbers and the odds take over with you, our brains are hard wired at times to go on tilt as it is often called. And we can talk about all the ways in which-- small ways and big ways we go on tilt.
The important thing I really think to remember is never go on tilt in this meta game. You go all in with a trade just like you might in this poker tournament, but in the meta game, the big game you're playing, stay in the game. And I'll tell you the biggest part of staying in the game, the thing you can't repair-- you can rebuild your bank account, you can rebuild your stake if you're playing professional gambling. What you can't rebuild is your reputation.
JUSTINE UNDERHILL: Ben Hunt's unique background colors the way he views the world. From tinkering with numerology as a child to writing about the meta game we all play with Epsilon Theory, Hunt's fascination with game theory and gambling has helped him hone an incredibly powerful investment philosophy. For Real Vision, I'm Justine Underhill.