[00:00:00] Cold Open

[00:00:00] Dan Dickson: Some people fear investing and as a result they risk nothing. Uh, but they gain nothing. Others fear nothing and risk everything, and they lose everything. and so neither is really an optimum outcome.

[00:00:14] Introduction

[00:00:14] Daniel Greening: Welcome to the Mindful Agility podcast. If you're just joining us, this podcast helps you develop two uncommon skill sets, mindfulness and agile. These skills have delivered social and corporate success to those who understand them. Neither mindfulness nor agile are intuitive. Otherwise, everyone would be a lot more successful. But if you develop those skills, and we're here to help, you'll have a leg up.

I'm Dan Greening.

[00:00:42] Dan Dickson: I'm Dan Dickson.

[00:00:43] Daniel Greening: And we are here to talk about experiments.

[00:00:46] Body

[00:00:46] Dan Dickson: One of, My favorite quotes is from Albert Einstein, and he said, "No amount of experimentation can ever prove me right, but a single experiment can prove me wrong. And the reason I like that is a couple of reasons. Number one is that, you know, we are both reading Neil deGrasse Tyson's book, uh, starry Messenger. One of the points he makes is if two scientists are arguing either I'm right and you're wrong, or you're right and I'm wrong, or we're both wrong, we can't both be right. 

[00:01:13] Daniel Greening: Well, sometimes you're kind of right. You're each kind of right. 

[00:01:16] Dan Dickson: Well, kind kind of, I suppose. But the reason I like that it really chimes in with one of the subjects we talked about before, which is how you can learn more from failure than from success.

And so that's the whole premise of a low-cost experiment. Figure out if something is gonna work and don't bet the company or your life or your savings or whatever on it and still get the benefit of that experiment.

[00:01:38] Daniel Greening: Yeah. And really good experiments do have a significant chance of being wrong. You know, your hypothesis is wrong. Um, and so sometimes experiments that are wrong, there's a cost of that failure, so you wanna keep that cost low.

[00:01:55] Dan Dickson: Exactly. Exactly.

[00:01:56] Daniel Greening: Yeah.

[00:01:57] Dan Dickson: Yeah. One of the pillars of Agile is the low cost experiment. And that's what we're gonna talk about today. one of the examples that we're gonna use, we'll talk about it more, is that Warren Buffett effectively went through this process and he paved his way to making a 106 billion.

[00:02:12] Daniel Greening: that's a lot of money. 

[00:02:13] Dan Dickson: Yeah, there's certainly some value here. 

let's talk about an example and, uh, we talked about Warren Buffet. Some people fear investing and as a result they risk nothing. Uh, but they gain nothing. Others fear nothing and risk everything, and they lose everything. and so neither is really an optimum outcome.

I'm gonna referred to that as mindlessness. It really keeps them from learning the investment basics. You can use agile practices to learn fast and cheap so that even if you have a failure, it's not going to hurt you. I'll tell you exactly how you can do it.

Create a no trading fee brokerage account. They're all over the place. You choose a cheap stock, buy one share and sell it a month later and evaluate the results. Research why the value changed. You've experienced the full stock market investment cycle without going broke. You've completed an agile sprint.

[00:03:02] Daniel Greening: For the benefit of our audience, I'm going to define a sprint. It is a short term inexpensive experiment to test whether the way you're doing something works or whether the goal that you're trying to achieve is possible.

So this idea of buying a single stock and selling it a month later, is a very low risk short term experiment. You learn a lot in that process and its downside is very low. It's a sprint. 

[00:03:39] Dan Dickson: Yeah it's worth a try. That's an example of how you can test a premise. And if it doesn't work, then okay, you can try it a different way. Try a different stock, try different parameters, try different reasons for buying the stock, and you could do it all with a minimum exposure.

[00:03:54] Daniel Greening: So I wanted to chime in about these two different extremes. The people who fear investing and risk nothing, and others who fear nothing and risk everything. Well, we know people like this, right? The people who fear investing are the people who just follow the rules through their whole life, and they just do what everybody else tells 'em to do. And they're often working at lower level jobs. But the people who fear nothing and risk everything, we know who they are too. They're the people at the casinos that go and fear nothing, because everybody knows the house always wins and then they risk everything. They stick lots of money in there and just hope for the best.

So under performance is present in both of those groups of people.

[00:04:44] Dan Dickson: Yeah, and it's interesting, you just, uh, raised an example where low cost experiment may actually mislead you because if you go to a casino, you have a good night, you think, oh, okay, , this worked. And, uh, then you go to the next night, bet everything and you lose it. And that's again, another underline of how, you know, you learn more from failure than from success.

[00:05:02] Daniel Greening: Yeah. And the risk is the same either way, right? The risk is the same. It's just that we delude ourselves by our win in thinking that that's how it's always gonna be. 

[00:05:14] Dan Dickson: it's, A situation where you had a quote unquote, successful experiment, but it didn't really teach you anything?

[00:05:19] Daniel Greening: So let's talk about how Warren buffet did this, long ago.

[00:05:24] Dan Dickson: In 1942, when Warren was 11 years old, he made his first trade. He bought six shares of Cities Service preferred at $38. He bought three for himself and three for his sister, Doris who served as his customer. The stock immediately fell to $27, but then it climbed back to $40. So Warren and Doris sold and, uh, that was successful. And that essentially was a sprint value chain. He bought stock, he watched it gyrate, and then sold it. And he communicated with a customer about this, his sister Doris. Warren is now worth 106 billion.

 and he is not buying stocks anymore. He's buying companies. So, we can make an argument that, the key to Warren Buffett's success was Mindful Agility.

[00:06:07] Daniel Greening: Yeah. Yeah. I think he does own a little bit of stock. He, you know, a little

[00:06:11] Dan Dickson: Oh. And, and I know, I'm, I'm, I'm being simplistic, but.

[00:06:15] Daniel Greening: No, but I was gonna say, I think he owns five or 10% of Apple computer, which is a lot of stock. Yeah. Pretty funny, huh? I just imagine Warren and his sister having discussions about this, they ended up spending $228. 

[00:06:35] Dan Dickson: Yeah. In 1942, that was a lot of money. 

[00:06:38] Daniel Greening: Yeah, I wonder where they got the money. 

I don't know. 

[00:06:42] Dan Dickson: that's, that's, that's beyond my pay grade. I have no idea.

[00:06:46] Daniel Greening: It's roughly $2,400 today, but still it's not the farm, right? , well, he might have betted everything he had, I'm not sure that's interesting, but it was, uh, recoverable. He would recover from that. So it was a low risk experiment. It was fairly low as well because Cities Service preferred, when it says preferred, there's some protection for the investor. So he is probably gonna get back most of his investment even if it declined. So that was a wise lower risk 

[00:07:21] Dan Dickson: Mm-hmm. 

[00:07:22] Daniel Greening: investment.

[00:07:22] Dan Dickson: Yep.

[00:07:23] Daniel Greening: One beta reviewer, a fellow Berkshire Hathaway investor, like me, felt we were oversimplifying Warren Buffett's strategy as it exists today. I'm not saying that Buffett runs these $228 experiments today. He does not, but when he was starting in the field, he used a low cost experiment to learn fast. 

As he learned more about the investing field, his experiments got more expensive in absolute terms, but in relative terms, one could argue that owning $159 billion of Apple today, roughly 20% of Berkshire Hathaway's present day value. Is comparable to 11 year old Warren investing $228 in city service. 

In addition, that first experiment taught Warren a lot. He ran a number of other experiments after that, through the last 82 years. He's 93 today. As we learn more skills, we define low cost differently. 

 The other thing to be aware of is that famous people often rethink the past. Even though it sure looks like Warren Buffett did an experiment, today Warren Buffett talks about how he wished he could have kept Cities Service. His perspective could have been so much better if he had trusted his instincts. 

This characterization is common in the rose colored retrospection of successful people, who actually learn from their mistakes and early experiments to discover their principles. If Warren had kept Cities Service, he wouldn't have sold a stock. He would have delayed his experience of selling until later, and might've become someone who succumb to sunk cost bias and not become the Warren Buffett we know. this story remains a good example of a low cost experiment. 

If you wanna find out more about how to do such experiments, check out a reference in our show notes, "Pattern: Experiments to Improve" by yours truly, actually.

 What should people try, Dan?

[00:09:45] Dan Dickson: Sprints are a way to learn a lot and not spend a lot of time or money on it. And it's a good idea to try one before spending more time and money on an expensive, long-running project. And, I think you might get hooked. And when you do get to the point of going into your large project, think of breaking it into a succession of short sprints, each of which will give you more information.

And I think you're gonna be hooked, and I think you're gonna become agile.

[00:10:09] Daniel Greening: Hmm. Yeah, I mean the, the point of these sprints, the first sprint is great, right? Like you learn everything in a short amount of time. But when you really win with this strategy is when you have a succession of short sprints, because you learned a ton in that really short time. Now you can take that learning and try what you think you learned and see if that actually works. And it might not work, but because they're short, fast, inexpensive sprints, that learning accelerates very rapidly and that's what many have discovered in business agility and engineering in all sorts of fields.

[00:10:51] Dan Dickson: Yeah, and the way I try to explain it to people who weren't familiar with the concept is that let's say you're gonna build a rocket ship. You got two versions. You can sit there and spend years and years in research and keep on, working on things until finally everything is put together. You light the fuse and either it goes or it doesn't go, it blows up. But the other way to do it is incrementally in stages. So to speak. Let's say the first experiment is to make something that gets off the launch pad and goes a thousand feet up. You achieved that then move to the next level and so forth. 

[00:11:19] Daniel Greening: You know what's kind of interesting is NASA did not use this strategy in building its rockets, and it took them forever to build rockets. They were very careful. They wanted to make sure everything was done perfectly well, and so they would just extend these timeframes for these rockets.

One of the contemporary examples we see is SpaceX. It's, Starship, I think is the name of the craft. It blew up on its first try. It actually did take off, but the booster and the top of the rocket did not separate as they should, and so they blew it up, when that happened, so that it wouldn't hurt anyone.

There was no one in the craft. A lot of people initially said, "oh, that was a failure." But in actuality, SpaceX plans for this stuff, it tries very hard to do sprints. I mean, its sprints are like, I don't know, 12 months long. But they recognize that they're pushing hard to get all the way through the cycle of deploying a rocket to see what's gonna happen and what are the most difficult things and what are the things that just seem to work.

That's the way they have run their space program.

[00:12:40] Dan Dickson: Yeah,

[00:12:40] Daniel Greening: Many of us remember when they were the first to create a rocket that could actually land on its own engine on a floating barge. I mean, for me, that was unheard of. But if you remember the sequence of events that occurred, Those rockets blew up, or initially they tipped over and fell into the ocean. There were a million things that went wrong.

 They never had any people in them because that would turn a low cost experiment into a very high cost experiment. They controlled for that, but they learned fast and these rockets are the best on the planet right now. 

[00:13:21] Dan Dickson: Yeah, they're extremely reliable and that you're pointing out something is that people tend to forget about these early failures that SpaceX had. In fact, there was at one point the company was about to go under and, uh, after a, number of these failures, but they just kept at it until they, they finally figured it out.

Now, the Falcon Rocket is extremely reliable.

[00:13:40] Daniel Greening: If you're listening to this podcast, you can try a low cost experiment on your own. We suggest you start with a significant project you are considering. Doing a low cost experiment early can help you decide whether you want to continue with the project at all.

The first step is to write down the things you're most uncertain about. Those are the long-term risks. 

Sometimes you can construct a short-term low cost experiment to build skill around those long-term risks. Warren, for example, might've been worried that he could lose everything on a bad bet. So he picked a preferred stock. He might've been worried about something called sunk cost bias, which is a very human flaw where we double down when our luck is down. 

We don't know if he controlled his risk by deciding to sell at four months, which is what he actually did. But you can do that. You can make a decision in advance that you are going to complete your partial project by a particular time and deliver value at the end of that period. 

These low cost experiments are called sprints. Sprints are fast, cheap learning. Try one before spending more time on an expensive, long running project. You might get hooked. When you run your behemoth project as a succession of short sprints, you are considered agile.

Good luck with your experiment send us a note to info@mindfulagility.com, if you actually run one. We'd love to hear about it. 

[00:15:27] Credits

[00:15:27] Daniel Greening: For more information on this topic, references and other useful data are in the show notes. Many thanks to our paid subscribers on Substack. Their contributions are earmarked for a community server where we'll host interactions and courses. We are 30% there as of this episode. 

Thanks to Stephen Tryon, Eve Rubell, Amelia Hambrecht, and Divya Maez for their valuable beta reviews. 

The Mindful Agility project team includes Marella Petalli, Dan Dickson and me Dan Greening. If you want to support our efforts, share the Mindful Agility podcast with your friends.

If you'd like to read about this topic or any episode topic, they often appear in our weekly brief called The Mindful Sprint. That brief is a super short two minute read. You'll get it in your inbox, if you subscribe at mindfulagility.substack.com. You can comment on those briefs right on our Substack page. We also have a website at mindfulagility.com. 

Thanks so much for listening. Have a great week. I'm Dan Greening.