The Natural Order of Money: Roy Sebag (Transcript)

Full text of Dr Jordan B Peterson and Roy Sebag’s discussion on ‘The Natural Order of Money’…

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TRANSCRIPT:

JORDAN B PETERSON: Hello everyone watching on the YouTube platform and associated podcasts. I’m here today with Roy Sebag who I met about a year and a half ago, continuing my investigation into the field of economics, I suppose in monetary policy, monetary conceptualization as well something, I’m woefully under educated in relationship to.

Roy’s had a remarkable career as an entrepreneur, businessman and as a thinker he’s recently published a book The Natural Order Of Money which is what we’re going to talk about today, trying to puzzle through just exactly what constitutes money and how it might be productively contemplated psychologically, biologically to some degree at least in terms of its potential biological implications, economically, sociologically, philosophically, theologically — kind of we’re going to try to cover all the bases as Roy’s book does.

And so I thought we’d begin this conversation by having Roy talk about his background so that all of you who are listening have some reason to understand why he’s doing what he’s doing, and perhaps why his ideas might be regarded as compelling and credible.

Yeah, so Roy, we met a year and a half ago. You started to talk to me about the thought that you’ve put into the idea of money for really decades really and you handed me this manuscript which was an early version of the book, and we’ve been talking about it to some degree ever since, or variants of it.

And so let’s walk through the history of the development of your businesses, so people can get an idea of the range of activities that you engaged in. So what did you start with on the entrepreneurial front?

ROY SEBAG: The first thing I started with an entrepreneurial front was actually buying and selling physical mines. So iron –

JORDAN B PETERSON: And you did that at how old?

ROY SEBAG: 25. Yeah, 25, 26.

JORDAN B PETERSON: So that gave you a taste for real-world engagement because there’s something very concrete about mines and from what you’ve told me, you went visited a number of —

ROY SEBAG: Yeah.

JORDAN B PETERSON: And so how did you get involved in investing in something as complex as the mining industry at such a young age? And why did you pick mining?

ROY SEBAG: It’s actually a good question. So when I started in finance, I was what you might call a value investor in the Graham and Dodd Method which is the method espoused by Warren Buffett and a lot of the famous investors. So the idea was that you were looking at a share of stock as a piece of a actual business, and your task as a security analyst was to essentially value the business come up with an estimation of value known as intrinsic value. And then you would seek to capitalize when the price in the market was that a discrepancy or a delta from that, you know estimation of intrinsic value.

JORDAN B PETERSON: So you had to learn to investigate something like intrinsic value conceptually right from the beginning, that started you thinking about what intrinsic value might actually constitute in some deep sense, I would presume.

ROY SEBAG: Absolutely but in this case the method is simply an abstract one. I mean, you know, you’re looking at financial statements. So you’re analyzing filings the companies that are publicly traded have to make such as 10-K filings, 10-Q filings or annual reports in other countries and then you’re learning to study basically three statements: the balance sheet; the income statement; and the cash flow statement and you’re building models either in your mind or in actual spreadsheets, and you’re looking to see if you can make an estimation of intrinsic value.

Now normally what you’re doing is you’re taking the sum total of potential cash flows that the business might earn and then you’re discounting it back to the present at an appropriate discount rate, now this becomes very important. So actually what you’re really doing is you’re valuing time, but I don’t want to get into that just — it’s a bit of a complex issue.

But the other aspect of this of this theory or method of investing is Benjamin Graham, the founder he had this view that the stock market had evolved into a kind of dual nature beast. On the one hand there were speculators that were just trying to buy something and sell it for the sake of — like a hot potato, but the actual –

JORDAN B PETERSON: For a quick profit.

ROY SEBAG: For a quick profit, right? They were like the merchant in the bazaar that was just turning over their inventory. But on the other hand there were the business owners, the large shareholders, the proprietors and to them the machinations in the market the daily movements were meaningless. So the way they looked at a business was actually what was the profitability of the business? What would be potential dividends be? What would the sum of parts of the business be in a liquidation?

And what he noticed was that, he called it Mr. Market. You know, Mr Market shows up every single day and tells you that your share of stock is worth this or that, and he’s kind of a schizophrenic. You know one day he says your shares are dear and the other day, you know they’re not, and your job as a security analyst is to disregard those daily machinations. The only thing that’s important for you are the actual business results.

JORDAN B PETERSON: Right? So you’re trying in some sense as a value investor to put yourself in the seat of a legitimate business owner and to see what the productive potential of the business is over time.

ROY SEBAG: That’s right.

JORDAN B PETERSON: And so in some sense you have to get down to whatever the fundamentals are, and it’s not so obvious what the fundamentals of a business might be.

ROY SEBAG: That’s right. So you have to familiarize yourself with a few things but on the surface the idea behind the method is that you would take the financial information that’s available to everyone. You would come up with an estimation of intrinsic value; you would use, you know your discounting mechanism whatever it is. And then you would go out into the market and look for these situations where there was a large discrepancy.

JORDAN B PETERSON: A good purchase.

ROY SEBAG: Yeah, you’re looking to buy a dollar for 15 cents or for 50 cents. Now here’s the problem as Benjamin Graham famously said in the short run the market is a voting machine, but in the long run it’s a weighing machine. That long run we never truly know how and why it happens, but mysteriously eventually in time companies will trade at their intrinsic value. And what often happens is they’ll overshoot their intrinsic value before they’re undershoot their intrinsic value.

JORDAN B PETERSON: The short-term is trying to estimate that with within parameters — they’re indeterminate.

ROY SEBAG: That’s right. So as you stretch the arrow of time you find that the kind of volatility that you see in the short run somewhat disappears, but there’s a problem here because there’s nothing guaranteeing that the share of stock which is basically a security to claim especially for a minority owner with no rights to just take control of the business shut it down and cash out the intrinsic value. There’s not necessarily a forcing mechanism that would that would cause a share to appreciate this intrinsic value and oftentimes or as would be believed in modern economic theory the market is so efficient that if investors decide that a share of stocks to trade below intrinsic value, there’s a reason for it, the market sensing something in the future whether it’s you know –