[Music] well thanks for having me I can't believe actually I think it was six years since I was here I think it was 2017 you know time flies when you're having fun it's good to see some familiar faces that were here back then it's good to see some new faces it's an honor to be here I'm a big advocate for Paul and what he's doing up here in Canada I'm an investor in Canadian micro caps and I think I really appreciate the work he does the the presentation that we have here is multibagger first principles does anybody in this room know who this gentleman is I'm not surprised so he's not a 70s or 80s rock star um he's actually a fairly obscure figure even in his home state of Tasmania which is a state the size of Sri Lanka about 150 Mi south of Mainland Australia but he's now known as the most successful professional better in the world his Syndicate of betting between him and his partner business partner they Place around1 billion of bets globally around the world and across different sports and different activities he was born in Hobart Tasmania in 1953 and from an early age he demonstrated a keen intellect for mathematics and statistics in fact he ended up going to college for statistics and graduated near the top of his class um after that he ended up being an actuary for a number of years before he finally became um interested in gambling and he became a professional better in the early 1980s but now David Walsh's personal net worth is north of $500 million it was made almost exclusively from gambling and bding and we'll get back to his Bing and gambling here in a little bit but one of his art one of his loves is Art and in 2011 he actually built his own art museum in the state of Tasmania called Mona and it's one of the main tourist dellas if you go to Tasmania it gets around 200,000 visitors through that museum every single year and and Walsh has personally spent around $100 million of his personal net worth building out this Museum in fact I think he's in the middle of a $2 million expansion as we speak Mona houses over 1,900 pieces of artistic works from David Walsh's Personal Collection that are valued north of $200 million this is a picture of French artist Christian bansy in 2010 David Walsh commissioned a work from Christian bansky the work that David Walsh commissioned was called the life of CB or the life of Christian balansky and you might be wondering what exactly was this piece of artwork you know was it a painting was it a sculpture well it was actually a production that involved three video cameras being mounted in the artist Paris Studio the three video cameras would live stream bansky's activities back to Walsh's Museum in Tasmania and basically broadcast whatever he was doing 24 hours a day 7 days a week week for eight years straight you know it it's kind of like that that movie The Truman Show from the late 1990s starring Jim Carrey a little bit you know you could basically walk into Mona this Museum during this 8-year period and just see Bal tansy doing anything eating working sleeping whatever and you know you might be wondering you know what exactly did David Walsh pay for this rather intrusive piece of artwork well it was never really disclosed but the due to Walsh's gambling nature there was an interesting bet associated with the purchase price Walsh agreed to pay the full purchase price over8 years paid monthly and this is where it gets interesting if balansky died prior to eight years David Walsh would pay him considerably less so if balansky died in say five years you know he would only pay him five years of monthly payments but if Walsh if Walsh lived past eight years David Walsh agreed to pay him until bansky's death so if he lived for 20 years he would make considerably more from this piece of artwork which was basically a recording of his life well guess what happened balansky ended up living for 11 years and he ended up dying in a hospital in Paris in 2021 and I tell you this story because it gives you a little bit of an idea how David Walsh's mind thinks I mean he was an actuary by trade I'm sure he looked at bansky's age his health his demographic his lifestyle where he lived and prob looked at the statistics and thought there's no way this guy lives past 8 years but he was wrong when now let's get back to David Walsh's betting strategy Walsh got his start exploiting inaccuracies and odds offered by local bookmakers in Tasmania before branching out into other sports his first major successful strategy involved betting on thoroughbred horse races across Australia and he actually uh created his own set of probability tables and betting odds that differed significantly from the public odds by only placing bets when his personal odds differed from the public odds he created positive expected value and this is how he built up his early Bank role as Walsh's wealth grew he branched out into new forms of betting from major sporting events to political elections to even Lottery lottery systems and he would hire analysts to study these markets and identify betting opportunities some of Walsh's biggest wins have come from identifying structural inefficiencies in bing markets across the world I'll give you a couple examples in 2008 uh on the B the 2008 Beijing Olympic Walsh identified inefficiencies in the metal metal betting markets and he won over a million dollars in profits betting on sports like track and field and swimming in 2009 Walsh won over three. half million dollar betting on the World Cup qualifiers leading up to the 2010 FIFA World Cup in 2012 during the US presid presidential election Walsh bet 1. 4 million on a Barack Obama uh reelection he hired an and identified an Arbitrage opportunity between the prediction markets and the bookmakers odds for that election he won over a million dollars betting on Roger Federer early in his playing career when he noticed that bookmakers consistently underrated the future star he won over $10 million by taking advantage of bookie's biases against against African soccer teams he even bet on lottery systems it was back in I think in early 2022 he ended up buying $10 million worth of German lottery tickets that reportedly paid out over 60 million in winnings the crazy thing about all of this is Walsh has stated that he loses money on 70 to 80% of his bets but the 20 to 30% he wins are enough to produce substantial profits Walsh will only place bets when he identifies a significant Edge specifically he looks at human biases and crowd behavior and then he takes the other side of those bets here are some of the human biases he looks to exploit pick a number which is kind of my name for what it is long shot bias hot hand bias attribution bias bias and survivorship bias pick a number bias which is what I call this if I were to ask all of you pick a number between 1 and 10 what would you choose in fact this is a question that was asked to tens of thousands of individuals in different academic studies would you believe that between 28 and 48% of respondents will always choose the number seven when asked to pick a random number between 1 and 10 and it's partly due to the way the question is phrased you know pick a number between 1 and 10 you're probably not going to choose one or 10 Studies have shown that people normally don't choose an even number so the numbers 2 4 six eight are out people won't choose the number five because it doesn't seem random because it's right in the middle and people won't choose three or nine because it's too close to the edges so what numberers left number seven what's also interesting is if I would rephrase this question a little bit and say pick a number between one and 100 would you believe that 10 to 15% of people will still choose the number seven and so you can use this kind of to your advantage if there's Sports associated with numbers um and that's what Walsh tries to exploit and another example is of this is if you buy lottery tickets which I do from time to time I'm sure you do what I do and what everybody else does which is you choose birthdays well when you choose birthdays you're choosing numbers between 1 and 31 and you're leaving out all the higher numbers and what happens is a lot of smart people know that most people choose between 1 and 31 so everybody chooses higher numbers but what Walsh says is the the key is to pick an even amount of numbers 1 to 31 and an even amount of numbers that are over 31 the next bias is Longshot bias and the way was um exploits this is he says long shot bias as race day approaches People BET long shots more and more you know when race day is off when race day comes around people don't View kind of betting on horses like with the odds they actually just view it like gambling like buying a lottery ticket and so he looks to exploit this he said often times those long shots actually become a poorer and poorer value as race day approaches kind of sounds similar to investing right another bias is hot hand bias hot hand bias is mostly talked about in sports sports which is why it impacts betting so much the best example is basketball if a basketball player averages 50% making 50% of his shots his field goal percentage is 50% what hotand theory would stipulate if that if that player gets hot so they make two three four five shots in a row the field goal percentage for that next shot is greater than that player's average 50% most players and most coaches believe in this but actually there was a seminal paper written in 1985 that completely debunked the hotand theory but like I said coaches and players still think that it's real in fact the one of the best players in the NBA Stefan Curry was recently asked about it and he said oh I know for sure I know when I make two or three shots in a row I know the next one's going in well guess what a group of academics looked at Curry statistics the last few seasons um guess what they found when he makes one shot the field goal percentage for his second shot is about the same as the first shot when he makes two shots in a row his field goal percentage for that third shot actually dropped 2.
5% when Curry makes three shots in a row his field goal percentage for that fourth shot actually dropped 7 a half% from average so this data showed Not only was the hot hand Theory debunked but the opposite occurred and I think it also kind of shows how hard it is to change our own beliefs I mean I would believe that the hot hand Theory would be true another version of this is when we overweight Trends and so if a horse wins two races in a row you'll see the odds get considerably worse or better for that horse to win the third race in a row and this is the type of thing that Walsh seeks to exploit in public markets we see hot hand bias or overweighting trends when a company Beats earning estimates 1 2 3 four quarters in a row the PE on that stock when they beat the first time was probably at 15 times the PE by the fifth time is probably 70 times investors are betting on that hot hand of the business continuing another bias is attribution bias which is when people overvalue certain characteristics when they shouldn't an example of this is in horse racing there was actually a gambling Guru that created a whole horse betting system based on the weight of the horse and uh Walsh looked into this Theory and he found it to be completely untrue but it really had such great influence over the public because everybody started betting on the way to the horse that he looked to take the other side of that bed as investors we tend to overweight certain characteristics as well I remember I had Jim o shanesy speak at our Summit several years back and he's a Quant and he's looked at every different way to make money quantitatively and I remember sitting down with him at Denver dinner and he said you know Ian the the data actually shows that large Insider ownership doesn't yield higher returns over the long term it's a belief that investors want to believe is true but it isn't and uh you know I thought about that for a little bit and I said you know Jim I said even if it's not true it's something that I need for the type of investing that I do I need to know that management has to live with the consequences of their decisions but I do think it's important the point that he was making I I think it's important for us to excuse my French not ourselves it's important we don't add things to the investing process that don't matter it's important we are aware of our own biases it's important we don't over complicate and already difficult Endeavor like investing you know what are the true first principles of multi Baggers well we'll get into that in a little bit I think what makes David Walsh so interesting is how rational he is when he talks about his success he immediately mentions luck and timing and that there were tons of other smart mathematicians with a similar intellect that made similar strategies that completely failed he considers himself an outlier because of luck and timing the luck and timing of his early successes and early losses Walsh says we all survivor we all suffer from survivorship bias we look at someone like himself David Walsh or a Jeff Bezos or Tiger Woods or Roger feder or Michael Jordan or you know 100 other super successful people across multiple fields we love to Look Backwards at their lives and extrapolate in error that all it takes to succeed when in reality there were 10 million other people that did the exact same things with the same work ethics same intellect that were far less successful or even failed for 99. 9% of people luck and timing just didn't fall into place it's similar to how we look we love to look at companies like constellation software or Costco or Franco Nevada and try to form pattern recognition to find the next one we love to study these massive winners you know it doesn't take us long to see copycats pop up in the public market saying they're the next ones even companies that kind of look the same but they're they're doing kind of a similar type of strategy in a different industry or vertical or geography I mean 10 years ago how many Canadian micro caps said they were the next Paladin Labs I swear it was like half the marketplace right but very few produce the same as the original there are 30,000 Elvis impersonators in the world that are paid to impersonate Elvis and their combined earnings are less than the original Elvis the big Winners they're usually the originals and there isn't going to be another one like them even though we would love to find another one just like them would make our jobs a lot easier right but it just doesn't happen that way you know speaking of Originals a couple actually a few weeks ago um we had our micro cap Leadership Summit and I had Ryan Pape speak at this event and um well first all you know hats off to paully andreola for profiling expel at 36 cents per share and June of 2013 um but we had Ryan Pape there and I first thought I was like man it' be great I'm going to interview him up on stage and then I was like you know what instead of me interviewing Ryan Pape how about I have the private investor that made more money than anyone in expel actually interview him and Lead that discussion and so it was great to have Jason hman up on stage and Lead that conversation and we actually just published that that video that conversation on YouTube this morning it was an amazing conversation Ryan P became CEO in February of 2009 and on the far left of that chart and at the very top if you can squint and read it it was 4.
