A good investor combines passionate curiosity with the relentless pursuit of truth, integrating a diverse set of information to gain unique insights, creatively connect unrelated data, and continuously accumulate knowledge to be a learning machine. For me, a safe and supportive organizational culture is essential. It thrives on open disagreement, collaborative learning from failures and successes, and mutual care. Cultivating this environment requires collective effort but ultimately elevates an organization beyond the individuals' contributions.

For me, a good investor is someone who has a good strategy, really understands the market, really understands your portfolio, and why the stuff you do makes sense. And second is execution: how you step into positions, how you step out of positions, how you manage risks and drawdowns. If you have both of those—a good strategy and sound execution—then you actually might be on to something.

A good investor needs to be confident enough to follow your conviction and take contrarian bets, going against market consensus, because popular opinion is not always correct. However, beware of your ego; be open and humble enough to change your mind when new information appears.

So how do you actually become a better investor? That is the topic for today's conference here at Norges Bank. What we just saw was four of our best and brightest portfolio managers in the fund talking about what in their opinion makes a good investor. Today, we get to dive deep into this question and learn from the very best, and it is our great pleasure to welcome you all.

Today is all about learning the secret sauce of what makes a better investor, some might even say an excellent investor. And so we have four exciting sessions lined up for you on investment philosophy and strategy, on building successful investment organizations, the psychological elements that go on to making better investors, and the behavioral aspects of excellent investors.

And so it's time to kick it off, the first session on investment philosophy and strategy with our first speaker of today. Greg Jensen is the CIO of Bridgewater Associates, where he oversees their investment engine. Not only is he an excellent investor, Greg also is one of the top 100 people in AI, and he is also a gold bracelet holder from the World Series of Poker. So please join me in welcoming Greg to the stage.

Well, thank you for having me. So when I think about our philosophy, and this is really about the philosophy that gets you to be excellent. Excellence is so core to us. And as I go through the different words that define our philosophy, I think it's trying to really focus on what do you mean by a buzzword like excellence. And for us, we measure excellence by what we mean by it is continuous improvement. Everybody starts somewhere, and the question is, can you as an individual and you as an organization continuously improve? That's what we would define as excellent.

And so if I start with what we are trying to be excellent at, and Bridgewater's been doing two things for its whole existence, 50 years. I've been at Bridgewater for 29 years, and we focus on two things, which is to deeply understand how the economic system works and apply that to build great portfolios. So we're trying as an organization to be excellent at that, which means to continuously improve that.

And there's three components that are critical to really understand our philosophy. One is what we mean by fundamental. So fundamental means what actually drives markets. That we believe that you can understand this, that there are decisions that people make, they make them for reasons, those reasons add up to what we consider the fundamentals. That those ideas, you can think of them qualitatively. They're not like, not everything that you're thinking matters is measurable in a traditional qualitative sense. But in any event, that's what we mean by fundamental, which is what are the true causes for the things that you see in the world.

And then the second step that we take is to take whatever you believe and systemize it. What we mean by that is have the rigor to take the reason that's in your brain. It could be a qualitative idea, but there is a reason the synapses in your brain are doing what they're doing. And somehow there are inputs coming in, there's logic being applied to those inputs, and outputs coming out. You can take the energy to systemize that understanding, and it's critical. I'll talk about why that for us anyway, that's so important. And the last thing is have a strategy for being wrong. Our strategy for being wrong is diversifying, but there's different strategies. But you need to know that whatever you believe with whatever confidence, you're going to be wrong a tremendous amount. So those are the three kind of core things I'll dig a little bit deeper on.

So first off, what could we mean by fundamental? What are truths that when we try to discover what's true about markets and economies, there are things that are going to be true now, that are true wherever you place yourself in the world, that are true at any moment in history, and we expect to be true at any moment in the future. For me, the first one of those things we'd start with is that there's two ways, two core ways to make money in markets.

One is to take on risk. That's a risk transfer to you that somebody's offering to pay you because you're in a position to take risk they don't want to take. That's what that general category we call that beta. Not to be too, like, there's semantic arguments about what beta means, but for us, we just mean the amount of money you get paid for taking on somebody else's risk.

Then there's a separate point which is Alpha, which is the money you can make by making smart decisions in terms of timing, in terms of valuation, etc., that go beyond just taking on the risk. So that we think about trying to separate that and think of every investment as the risk neutral position plus the beta. So what the asset classes are that you hold and the risk that you're transferring, plus the alpha.

That's very different the way we look at it. That sort of formula of how you get a total portfolio return is different than how most organizations structure their investments. Most organizations think of their total return as their holdings in each asset class: holdings in stocks, holdings in bonds, holdings in private equity, etc., etc. And those sum up. And the difference is you don't have to combine your Alpha with your beta. You can separate those two decisions, and that's a big deal. So first of understanding those two return streams, recognizing they're different, and the way you can combine them together can actually significantly improve how you invest.

So now when we come back to fundamentals and we think about what are fundamentals that are timeless and universal, what can you say about markets that's going to be true 100 years from now, it's true in China, it's true in the United States, it's true here in Norway? Because you really want to base your beliefs on things that are fundamentally true and then build out the deep understanding about those things.

So to give you two examples of what we mean by things that are timeless and universal, the first is that the price of anything is equal to the amount of currency spent on it divided by its quantity. That seems simple, but it's actually a world of understanding to say, well, how much money is going to be spent on something, how much supply of it exists. And you can fundamentally build that, you can build that in any time, in any country. And I'll get into how we check that those things are true anywhere. Similarly, the price of something is equal to the discounted economic conditions that affect it. And so when you look at the changes in prices, it's because something happens relative to the discounted economic conditions in that asset. Those two things are true all the time and everywhere, and those are big building blocks to then build a process around.

So when we've been building processes to measure that, to measure those cause-effect linkages of things that we believe to be true, you're really starting in 1980. So the first thing I'd say now would talk about making decisions systematically. Why do you do this? It's so such a pain, right? Why do I have to write down what I believe? Why do I have to stress test whether it's true? I mean, most people want to skip that step because it's like, okay, it seems like this is going to happen or that's going to happen.

And it's been such a huge building block in our organization to say, no, we're going to have the discipline to always write down our reasoning. Right? So when we talk about making decisions systematically, this is not a quantitative thing. This is about having the discipline to say, this is why I'm doing what I'm doing. That opens up a world. So if you look at the yellow piece of paper that's up there, that was our 1980 bond system. So in 1980, you can picture Bridgewater, it was yellow piece of paper rules that were written out. This is, we're going to buy bonds if this happens, we're going to sell bonds if that happens. That were rules about what we thought about money supply and other things at the time.

The idea itself is not that useful, but the process that it kicked off was critical, which is we just scratched out one of those ideas, put in another one, learned another one. But you start with this building block of what do you believe so that others in the organization can question that. It's forcing you to actually state what your logic is, and that allows constant compound improvement. That's really such a critical element to our philosophy.

And the benefit of that is you can check yourself. So what I'm showing here is just an example. If you said, okay, let me say what I think right now. You might think, well, the capacity utilization in the United States, like the economy is running hot, and that running hot could lead to higher wages and maybe higher inflation, and therefore I want to take this position in markets. And the great thing about forcing yourself to, okay, that seems reasonable, like let's write it down, let's see if that's true, when is it true, if you use that rule, will it actually work in history?

Force yourself through that, put yourself at different points in time, that'll force you to refine your thinking. If you just take that idea that's like just something I've, you know, recently heard a fair amount, so I just wrote it down so it could show. And then you could, you know, have technology to just test, okay, well, let's say you follow that rule, does it work or not? And what you find most of the time is actually a lot of time it doesn't work. So now you think, well, I must not know what I'm saying, isn't that reliable?

And I show like a profit curve of the alpha of that rule, and it's actually okay for a long period of time and then flat for the last 35 years. Why would that be? Why is that getting priced into markets? What's going on? And the benefit of writing down your rules is you could actually see whether they work, and that's a huge, huge deal.

Beyond that, you can also know what you're in for. For every idea that we ever use to invest, we start with what do we expect from it. And so this cone chart illustrates this, but every idea that we use in investing, we say, okay, what are the risk and the return that we expect from this idea in the future? And that gives us a opportunity to then compare what happens relative to that.

So the cone chart is when we first started the idea. So in 1991, as an example, we started the idea of of Pure Alpha, which is all of the alpha ideas we had at the time put together. And then we've added to them and subtracted from them. But we set out a cone chart and said, this is what we expect the risk return to look like into the future. And every day we mark what's happening relative to that expectation. And we do that with every single idea, which is automatic quality control.

You could say, okay, if my idea doesn't work out consistent with how I expected it to, then okay, the world's different than what I thought. And on the other hand, if there are drawdowns in that idea, which there always will be, you plan for it in advance. You're not reacting to that drawdown. You're saying, okay, if I have a drawdown of this nature, I'm not perplexed by it because I knew it would happen. I expected that to happen. So knowing what's inside the bounds of what you expect and what's not is another critical element.

I want to thank Greg for sharing his knowledge with us today and Nikolai and NBIM for hosting us today. And when I was offered the chance to discuss investment philosophy, I said there's no way I'd rather spend my birthday. I'm extremely interested in investment philosophy. I think it has to undergird everything we do. My argument is that our behavior has to be well thought out and intentional, and so our methodology has to be as well.

It starts with a conscious decision as to what you want to accomplish. Now this may sound easy. Well, we want to have more money rather than less. We want to have a higher return rather than less. But the starting question for any organization in investing should be, will we settle for average or do we want to try to be above average? Now that sounds like an easy one, but you have to recognize that in investing, it's extremely easy to be average. You can buy off-the-shelf products that will guarantee you that you'll do average. Or you can try to be above average, which is extremely difficult, and there is no surefire solution to how to get there. And if you try to be above average, it exposes you to the risk of being below average. The two are inseparable. So thoughtfully, consciously, intentionally, which is it for you and your organization?

Next, I believe that an organization has to have a creed, a religion, the things it believes in, the things it doesn't believe in, the things it will do, the things it won't do because it doesn't trust them. And you have to stick to it. And again, it has to be conscious and intentional.

We have to make decisions. What will be our intention? What do we believe in? Will we trust macro forecasting or will we abstain from it? How do you think about risk? Will you take a high-risk approach or a low-risk approach? Which is your route to success? It's not the same for everybody. Do you believe in the efficient market? This is extremely important. It's the most important concept I took away from my graduate education at the University of Chicago in the late 60s. Many people understand the concept, very few people incorporate it and think about it in their daily lives. These are some of the things that we have to consider.

The theory of market efficiency is that there are a lot of people out there and they're all numerate, intelligent, highly motivated, objective, and rational. And they all want to accomplish the thing you do, which is to end up with more money than you started with. Given the scope of competition, how will you be the one who accomplishes the goal rather than them? Not easily thought out.

Now, what we call the strong form of the efficient market hypothesis says that due to these circumstances, all information is immediately incorporated into the price of assets to the extent that no one person can figure out which are the bargains and which are the overpricing. Now, the really strong form is actually a little different. It says that the prices of assets as a result of this intensive process are always right. You can't beat them, and so you can't beat the market.

Now, I don't think that's right. I think the prices are not necessarily right, they're just the best that the consensus can do, and it's hard for any one person to be smarter than the consensus consistently. Two different things. But the bottom line on both is the same: you can't beat the market. So the question is, do you accept that? And that pushes you toward a passive approach, targeting average performance, low cost, low risk, highly likely to succeed to accomplish your objective, which is being average.

Or will you try to be above average in the face of the very strong competition that exists? Will you endure the costs? Will your pursuit of being above average permit you to be exposed to the risk of being below average? And will you engage in this pursuit of superior performance which is not that likely to succeed? You know, the first thing I learned at University of Chicago was that on average, most people do average before fees and below average after fees.

Now, another important question is, will you bet on macro forecasts? Everybody makes macro forecasts, and yet I don't believe that they are of any use. That's a mild exaggeration, but not so great. The truth of the matter is that most of the time, things continue as they are. So a forecast of extrapolation is correct most of the time, and most people share that view. Most people expect extrapolation.

Extrapolation of the recent trends, the long-term trends, is incorporated in security prices. So when the extrapolation turns out to be correct, it's not a profitable expectation because everybody else had it as well. It was in the price you paid. The forecasts that are very profitable are the ones that call for radical deviation from trend, radical deviation from extrapolation. These are very significant when you make them and they're right. The trouble is they're not right very often because most of the time things are extrapolated.

And so we have forecasts of extrapolation which are usually correct but not profitable, and forecasts of deviation from trend which are potentially very profitable but not often correct. I take that analysis to mean macro forecasting doesn't work. And when we started Oaktree 29 years ago this month, we sat down and we wrote out the things we had been doing because we had the benefit of having worked together for nine years already on average. And we have a very simple investment philosophy of six points which governs everything we do. And number five says that our actions are not driven by macro forecasts. We are bottom-up investors, selecting individual companies, not top-down selecting markets and countries.

So that's a different, we think we can get an advantage. By the way, where does outperforming come from? In short, it comes from having a knowledge advantage, and you have to know something better than most other people to outperform. Just trying is not going to help you if you don't know something they don't know. So we think we can get a knowledge advantage in studying the micro—companies, industries, and securities—not the macro—countries, markets, and rates, for example. So, you know, we bar that from our approach. One of my heroes is John Kenneth Galbraith who said, "We have two kinds of forecasters: the ones who don't know, and the ones who don't know they don't know." And I've known for decades that I don't know, so I think we have an advantage in that.

And I quote the American humorist and novelist Mark Twain who said, "It ain't what you don't know that gets you into trouble. It's what you know for certain that just ain't true." No sentence that starts with "I don't know, but" or "I could be wrong, but" ever got anybody into trouble. The ones that get you into trouble are the ones that say, "I'm sure that's such and such," because if you believe something strongly and you bet on it heavily and you're wrong, that's how you get into big trouble. So will you bet on macro forecasting? This in my opinion is a critical and overarching decision.

**Pedro Faria:** Welcome. It is such a privilege to have the four of you with us today. Greg, Howard, what a way to start this conference today. That was incredible. Thank you so much. We are now joined by Jean and Patrick, and we'll aim to take the discussion further.

**Pedro Faria:** Jean, I'll start with you. So Greg and Howard ran through their investment philosophy and the need for an investment creed. You run Wellington, which can be seen as a federation of investment boutiques. What are really the advantages and the pitfalls of not having to have an overarching investment philosophy?

**Jean Hynes:** Thank you. And thank you for sharing all your insights. That was really fascinating. When I was sitting there listening, it made me think, you know, we have about 60 teams. Like you said, we're not organized by one overarching philosophy and process. I guess our overarching philosophy and process is that we believe a philosophy and process is critical to the investment team. We have about 60 teams, and each of those teams have a very strong philosophy and process, very similar to what Greg and Howard do. And that's what they practice every day, and that's what they believe.

**Jean Hynes:** We combine that at Wellington. Every, I think every company has an edge. I think our edge is that we are really collaborative. So we have over the, you know, I've been at Wellington for 33 years, over those 33 years, we have really broken down silos. And so that our long-only investors on in equity collaborate with our fixed income colleagues who collaborate with our private colleagues who do private assets and who do long-short. That's the secret sauce. Like, how do we, we don't have one CIO, we have 600 CIOs. And we have normalized debate, having different perspectives on any topic. And then each of those teams can go and practice their very well-thought-out, strongly held beliefs about how they're going to make money for clients. That's how we're organized.

**Pedro Faria:** Very good. Patrick, I'll pull you into the conversation. Does the private nature of what you do have any direct implications on your investment process? Is there anything intrinsically different between private market investing and public market investing?

**Patrick Healey:** Well, I suppose given my demure nature, I might sound like the poster child for private equity. But I'll say, look, I think private equity is an advantaged asset class if you're going to be in the investment business. And you sort of start with just the structure. You know, we have a 5-year investment period, we can have the money invested for 10, maybe 12 years. So we don't have to be invested all the time. You can pick your spots. That's a huge advantage. You get to do inside diligence. That's an absolutely huge advantage. You get to choose and select your management teams. You get to borrow money, and I've been doing this for 30 years, and I can remember over my first 15 years, you actually borrowed money with covenants. But for the last 15 years, we get lent money without covenants. So that's sort of extraordinary. You get to choose when you want to sell a business, and you get to have alignment, you know, in the boardroom. It's sort of the investor and the management team. You get to choose three to four things that you really want to go for. I think that's a huge advantage.

**Pedro Faria:** Greg, Howard, how does investment horizon fit into your investment philosophy?

**Howard Marks:** Like Patrick says, maybe half of our assets are closed-end funds where you have the money for a period of time. And the great advantage is that the clients can't withdraw. So, you know, people out of control of their situation love to buy when they're excited and sell when they're depressed. And our this approach keeps them from doing so. That's one of the greatest advantages one can have in the investment business.

**Greg Jensen:** Well, I think the main thing is in the long term, you have to know what your advantage is. And that's the big thing. So for us, our time frame that we really understand well and we focus on is 6 to 18 months. So for some, that's very long term, for some, that's very short term. But 6 to 18 months is what we've thought really hard about. And believe, despite Howard's thoughts on macro investing, that we have an edge in understanding what's happened in the world. Now, we are wrong a lot to his point, and so you have to know how to be prepared for being wrong. And within macro, there's a lot of macro things going on, so you can diversify across many different things that you're talking about.

**Pedro Faria:** Howard, you touched on market efficiency. There's now endless information and a lot of noise in the market, but markets have arguably become more efficient over time. So a question to both of you, how do you compare the alpha generation opportunity of your investment strategies now compared to say 10, 20 years ago?

**Howard Marks:** I think it's gotten a lot harder over time. You know, Warren Buffett talked about having bought dollars for 50 cents 60 years ago. You could do that 50, 40 years ago. I myself bought things that I thought, this can't exist, and yet you got bargains virtually that couldn't miss. It's very hard today. If you think about it, everybody knows everything today. There's no such thing today as not knowing something if it's fact. And so over time, knowledge is cumulative, markets become more efficient, it has become harder to beat markets. Still, I believe some people can be superior. Their margin of superiority may shrink, their work day may get longer, but I still think it's possible, but it becomes harder every day.

**Greg Jensen:** I look at it a little differently. I think it's like the Indy 500, or whatever. The cars get better every year, so you have to get better every year, but there's still a winner. If you don't get better, then any advantage will seep into general understanding. But if you continue to get better, it is like the Indy 500. And the core, at least the core things that I believe our alpha is generated from, really aren't changing much. I don't think we're getting any better as a species on things like love and fear and greed. Like we keep doing the same things more or less over and over again. So I agree on things like calculating and arbitrage, that is like much easier to do, it's generally well known, those things are not there anymore. But the fact that people are going to make, we all will make really dumb mistakes, and if you have ways of understanding that and doing that, that continues.

**Pedro Faria:** Jean, how do you institutionalize learning from mistakes in your organization?

**Jean Hynes:** So we do a number of things. We have a daily meeting every day, and in that daily meeting, which happens in our London office between Asia and London, and between Boston and our US offices and London, every day we talk about all kinds of things. And including sometimes we talk about if something's happening in the market, you know, what did you learn from the last time the market was like then? What mistakes did you learn? We have normalized sort of not being a star and not being right all the time, which is, as we know, being an investor, you're wrong quite often. We also do these things called Lessons Learned. So we would have someone who's been investing for 25 years or 30 years, and we ask them to be vulnerable, like what really was the reason and the seminal moments in your investing career? And those are all recorded, and people watch them and learn from them.

**Greg Jensen:** It's so critical to our philosophy. And we, to be clear, it's very hard because the last thing you want to do is punish mistakes. You have to help people learn. And so we've struggled with the right institutionalization. Having a real issue log is so valuable. And for us, it's very easy for people to enter issues. And again, when you think through what are the issues that matter, everybody's got issues, but the issues that matter to us are the things that are preventing you from achieving your goals.

**Greg Jensen:** It's easy to talk about problems, but are you actually changing anything? And oftentimes, the right answer is I'm not changing anything, like that mistakes are a normal part of it. But knowing whether actively deciding are we going to change something or are we not going to change something is super important. Mostly, most important is that the most senior leaders, the CEO, the CIO, they're the ones getting issue logged, and they're the ones staring because they make the biggest, most important decisions. So making sure the arrow of accountability goes up, not down, was a huge lesson in our organization.

The first thing that you need to do right if you want to be a successful long-term investor, and that's strategy. And here's a quote from the great Norwegian polar explorer Amundsen: "Victory awaits him who has everything in order. People call it luck." What a nice succinct way to talk about strategy. You have a goal, you need to build a plan, a strategy to achieve your goal. The next key pillar that we have to get right is execution. And this is one of my favorite quotes from the American inventor Thomas Edison: "Opportunity is missed by most people because it comes dressed in overalls and looks like work." So the final pillar of investment success is governance. And this one is talked about less, but it's just as important. Here's a great quote from another incredibly impressive Norwegian polar explorer, Nansen: "The difficult is what takes a little time, the impossible is what takes a little longer." And this is a great quote about governance.

We have two key goals for the Stanford endowment. One, we want to be able to be a material part of the academic life of the current generation of students and scholars at Stanford. Goal number two is we want to be as at least as impactful and supportive for all future generations of students and scholars at Stanford. So that introduces a concept that we call the preservation of purchasing power. So that just means that if you're spending 5% every year from your endowment, you have to earn back at least that 5%, but you'll also have to earn enough to offset the impacts of inflation.

The way that we do that is we have an equity bias in the portfolio. Equities have a higher expected return than fixed income or cash, and that's really important in the long run if you want to achieve that second goal. Unfortunately, as we all know, equities are very risky. How do we deal with that extra risk? We diversify. We look for something that Nobel laureate Harry Markowitz called the free lunch. So we own different types of equities. We own some equities in the United States, some equities in Europe, some equities in Asia.

Execution has a couple parts. The first is portfolio management. So every day we get a flash estimate of where the portfolio is. We may start to make one of two types of actions. The first is we may rebalance the portfolio between asset classes. The second type of portfolio management that we conduct is rotating capital inside of asset classes. The security level decisions for the Stanford endowment are made by external partners that we find, we identify, we try to build long-term relationships.

Good governance supports the disciplined execution of the right strategy, and this is really critically important, particularly in times of market extremes. So you can think of a time of extreme euphoria where there's some hot sector, some hot asset class of the day that's dramatically outperforming everything else. And by definition, your diversified portfolio will underperform that hot sector. And bad governance would say, chase that sector. The other type of extreme is fear and panic. So think of the fall of 2008 when everybody was selling every risky asset and trying to raise cash. The right thing to do in that environment if you were an institutional investor was to buy the things that people were selling.

I tell my organization, don't be defensive, be curious. Change is a constant. We as investors, we in financial services, I think have consistently underestimated the impact of change. We've been resistant to change, we've denied change, we stick to the status quo.

I look back again over 40 years, and I think we've lived in a period of tailwinds for my career. I think I've been very fortunate. I think most of you have been very fortunate. We've had four tailwinds: rates have gone from high to low, we have printed an awful lot of money, we have borrowed forward future demand through fiscal borrowing almost everywhere in the world, and we've had the benefit of globalization. Are any of those four things true going forward? I don't know. I think there's a healthy debate as to whether they are headwinds, but I would argue I think we're in the absence of tailwinds.

Why would we think the investment strategies that work for the past 40 years would work going forward? Is there actually any value to track record over the last 10 years, or should we just completely throw it away? We all as investors take great comfort of looking at the last five years, the last 10 years. What are the chances that we're going to print in the US another 8 trillion dollar and everything will go up to the right? Why would track record be relevant?

I think I'm wrong at least 40% of the time, which would make me in baseball terms the most productive player ever. Well, let's create an organizational culture that accepts that you can fail and fix your mistakes quickly. Let's not get, let's not fire people for making bad decisions. Let's fire them for making no decision.

Are public markets liquid? I don't think so. Maybe on the equity side that's true. On the fixed income side, no. 2008 put an extreme penalty on market making capital in fixed income in particular. Market making capital is 10% of what it was today of what it was in 2008. Markets are three times their size. Yes, we are living with a 30th of the liquidity. It now takes 5 days to sell an investment grade corporate bond outside the top 20.

Why do we want to be public? Why do we actually distinguish between public and private? What is actually the difference between public and private? It's not clear to me that there's any liquidity difference, equities aside. Second big fundamental change, 2008, most of the regulation around the world, not just then but continuing to today, has to reduce the role of banks in the economy. Everywhere in the world is going through de-banking at different rates.

This whole rethink of the role of a bank, the role of an investor, is a massive change. We as investors are going to experience products in the financial, excuse me, in the fixed income space that we've never seen before. Risk rewards, products, returns that have been locked on the balance sheets of financial institutions for the last 40 years are on their way to you as investment products. We're all going to have to overcome biases that we have about public and private.

Uncertainty makes it very hard to start things, and that's because there's two forms of uncertainty that are exerting themselves on any decision that we make. The first is just plain luck, which means that we can make a great decision, we can make a decision that's going to work out 90% of the time, but 10% of the time it's not going to work out.

The good news for us is that for most things that we decide to do, we have the option to quit later. That quit might have varying costs associated with it, but almost anything that we decide to start, we can actually quit. And what that means is that the uncertainty that makes it really hard for us to start things, this option to quit later makes that start easier because we can anticipate the ability to exit when we observe that the world isn't going in our direction, or when we observe that we're getting signals that we're learning new things that tell us that our choice wasn't actually that good.

But here's the really big problem: is that even though we have this incredibly valuable option, and I would actually argue that it's the single most valuable option that we have in decision-making is this option to walk away, the problem is that we actually are quite bad at quitting. We tend to walk away from things much too late compared to when, if you were just judging expected value, would be the correct time to actually walk away.

We have this very strong intuition that when we get information from the world that things aren't going that well, we'll actually pay attention and walk away. But that intuition is actually wrong. Instead, in the face of those negative signals, we escalate our commitment. This is a well-known effect, it's called escalation of commitment, that we get these signals and instead of actually reducing our commitment to the cause, having gotten those adverse signals, we actually escalate our commitment to the cause.

I think the first very big barrier to making good decisions is the notion of overconfidence. Now it turns out overconfidence, which is often considered the root of all problems, comes again in different varieties. The one that we're most interested in, I think, is this concept of overprecision. We actually think we understand the future better than we actually do.

We've had now about 20,000 people do this exercise, and this is the scatter plot of all the responses. The average confidence is 70% and the average correct is about 60%. People are 10 percentage points overconfident in their own judgments. When people are 100% sure they know the answer, they're only right 77% of the time. When they are 90% sure, they're only right two-thirds of the time. There's this yawning gap, especially in this range of "I am very sure what's going on."

How can we improve? One of the concepts that Danny Kahneman popularized is this idea of the inside versus the outside view. The inside view says when I give you a problem, you gather lots of information, you combine it with your own experience, and then you project into the future. The outside view, by contrast, says I'm going to think about my problem as an instance of a larger reference class. I'm going to ask what happened when other people were in this situation before. What psychologists like Kahneman have demonstrated is some combination of the inside and the outside view lead to better forecasts.

The second major problem, this is confirmation bias. Confirmation bias, as you all know, even if you struggle to make a decision, once you've made a decision, you seek information that confirms your point of view and you discount, dismiss, or disavow information that does not support your point of view. Now there's a very interesting point about confirmation bias. It turns out almost all the biases that are out there are mitigated to some degree by intelligence. The one that that's not true for is confirmation bias. This affects everybody, no matter who they are and how bright they are.

2005 was the first chance I ever had to meet Danny Kahneman. At the very end of it, I said, "Danny, if there's one thing an investor can do to improve his or her results, what would it be?" Without hesitation, he said, "You must keep a journal of your decisions." Write down what you think is going to happen, why you think it's going to happen. The most important thing is as you're expressing your variant perception, as you're expressing your view that's different than what's in the market, communicate using probabilities, not words. Because if you use words, they're going to be vague enough that you can massage them after the fact. But if it's a probability, it allows you to keep score.

In our business, the theory is relatively straightforward, which is we make money on technological disruption. And so we make money when these new upstart startups form and either try to go take down a big incumbent or try to create some kind of new market.

The theory and the hope is that AI, and specifically these new breakthroughs around AI like generative AI, represent a new platform. And in the tech industry, that's a sort of very powerful concept because the idea of a new platform in the tech industry is sort of a new foundational technology that you can then imagine reinventing thousands and thousands of application categories on top of. We certainly believe that AI is a new platform shift. We believe that AI is one of the really big platform shifts. We think this, you know, might, the possibility exists that this is on par with the microprocessor.

There's sort of two policy debates happening around AI. One policy debate which is, you know, AI is sort of weird and scary and we should regulate it and we should kind of prevent it from happening in different ways. There's a completely different conversation which is the geopolitical conversation, and that's the conversation of basically geopolitical competition with China. And of course, you know, the minute you get into that conversation, it becomes very clear that we need to win. We need to win the AI race with China, you know, sort of a very analogous way that we won the technology race with the Soviet Union.

The West has, I would say, all of the advantages and disadvantages of a decentralized system and a market economy and a sort of a system in which governments don't control everything. The huge advantage of that is innovation and entrepreneurship. The disadvantage of that is, you know, very, it's very difficult for our systems to plan. The Chinese have both the advantages and the disadvantages of a centralized system, much like the Soviet Union did. They have a command and control system where the Communist Party owns and controls everything.

In the last 50 years, I think both American society and EU society has sort of lost faith in the idea of technological progress and lost faith frankly in the idea of economic progress and, you know, decided to become, let's say, much more cautious, much more risk averse, much more sort of unwilling to to think of change as a positive and exciting thing.

A big thank you to everybody who's made this conference possible. We've had a lot of people working behind the scenes. And then next year conference is going to be something very different from this year. You may remember that we had the CEO of Ferrari on the podcast a little while back. Now he was very keen to come to Oslo to cook. He's very keen on his reindeer. A lot of people want to join the CEO of Ferrari when he comes to Oslo. So we have a preliminary lineup here. In addition to Ferrari, we have the CEO of Novo Nordisk, which is now the largest company in Europe. We have DoorDash, which is the biggest delivery company outside of China. We have Otis, which I think in a way is exemplifying the importance of recurring revenue streams. We have Nestle in terms of pricing power, talking about the importance and how you build brands and how you do that. We have Adidas, Bjørn Gulden, coming to talk about brands. And then lastly, I mean, we, Elon Musk has also said that he's coming, but this is not a super final program yet.