Gerard O’Reilly Gives Commencement Address at UCLA

Thank you very much. Thank you very much. So it's my honor and privilege to be with you today. Thank you for the invitation. Thank you to Dean Osborn, Professor Longstaff, Professor Jornof, visiting Professor O'Brien, Class President, Jonathan Vieva, distinguished faculty, staff and friends. And congratulations to the class of 2018. You should be proud of having earned and attained your MFE degree from UCLA. And to the parents of today's graduates, thank you for all that you have done to support your sons and your daughters. Now I understand from a previous graduate from the UCLA MFE program, that the Caustic Calculus is one of the most popular courses offered by the program. In fact, there's two of them, not just one. And so I always think that it's a good idea to start off a presentation by embarrassing yourself. If you set expectations low, there's nowhere to go but up. And so I'm gonna tell a mathematics joke and I'm expecting it to fall pretty flat. So now you can use caustic calculus to help explain why there's no alcohol at an MFE party because you cannot drink and derive. That kind of takes a little bit of bravery but I want you to know that I'm a math nerd at heart and I share a bond with you today. Now, on the trip out here, I was thinking about what remarks I should make and whenever you're trying to prepare for a presentation, I always think that it's a good idea to set a goal for yourself. What are you trying to achieve? And what I really want to achieve today is that each one of you take one or two of my remarks and they help influence you. They help change you, that you find benefit in those remarks for your future careers, whether those careers are in finance or some other discipline. So that's the goal that I set for myself today. And to facilitate that goal, what I thought I would do is talk about three subjects and share my observations from having spent 10 years in college and almost 15 years working in the field of finance about the importance of education, about models in finance, how to use models in finance and a life beyond models. And then probably echoing some of Dean Osborne's comments, some of the softer skills that turn out are very, very important in the real world and that's skills like empathy, communication, collaboration. So I'm going to begin with some thoughts about education. Now, my parents, they were always interested in learning. They are always curious and from a very early age, they instilled in me the importance of education and it's really because of them that I went to college, that I ended up pursuing a PhD and I'll be eternally grateful to them for that. I think that I'm kind of with like minds here today in terms of understanding the importance of education. You have your undergrad degrees, you have now your MFE degree and I was reading your class profiles on my trip over here and I understand that 30% of you have earned either master's degrees or PhDs even before this degree. So certainly, we have a shared love for education. Now, when seeing so many degrees in the room, it reminds me of a very apropos conversation I had many years ago. So it was in 2004 I just finished up my PhD and I went to work for Dimensional Fund Advisors. Now at that time, there was a few of us joining the firm kind of around the same time. And the global head of portfolio management and trading decided that she wanted to see the new joiners to Dimensional. So her name was Jeanie Sinfield and the first thing she said to us was a warning. She said that trust takes a lifetime to earn but a second to lose. Don't mess up. The second thing she said was also a warning and it was directed straight at me. She pointed at me and she said, "You have a PhD." And I quite proudly said, "Yes, I do." And she said, "Well, let me tell you a story. "A person with a PhD learns more and more about less "and less until eventually, "they know everything about nothing." Okay. She said, "A person with an MBA learns less and less "about more and more until eventually, "they know nothing about everything." Okay. She said, "You have a PhD. "You know everything about nothing." And then she pointed herself, "I have an MBA and a PhD. "I know everything about everything. "Don't you ever forget that." Now, that was kind of an important lesson for me and I'll tell you why. I had spent 10 years in college doing undergrad, PhD and so on and I very much value that experience. There were some lessons about learning that I picked up in college that I think are important to share. The first thing is that if you're interested in a topic, there's almost always somebody who knows more about that topic than you do. Find that person, make yourself useful to that person and they will be happy to teach you. The second item that I picked up when I was in college is that learning by doing is an incredibly efficient way to gain knowledge. If you are working on a project, you're only going to get out of that project what you put into that project. So give it your all, make a lot of effort and you will learn more quickly. Probably the most important piece that you learn from college is that sometimes you will fail and in my case, it was more than sometimes it was pretty often, but my mother always said to me when I was growing up that a person who never makes a mistake and never makes anything. So I went out there and made a ton of mistakes and I think that that's a really important lesson in life that life will give you successes and it will give you failures. And so when you're thinking about organizing how you work, if you can set yourself up so that your failures have bounded consequences, it gives you a chance to learn from those failures. Yes, sometimes it takes a big leap of faith to make that progression, but organize your work appropriately. It's my belief that you should hate your failures, but you should never fear failure. You should learn from your mistakes. Never repeat a mistake. So with those lessons, in 2004 and I don't know what my logic was, to be perfectly honest with you. I decided after 10 years of studying mathematics like yourselves, studying computational methods like yourselves, studying physics, studying engineering, that I would enter the ultra competitive field of money management with never having taken a course in finance in my entire life. And I said, okay, let's give this a go. Now, I was lucky. I found Dimensional Fund Advisors and at Dimensional Fund Advisors, we have some of the best practitioners, the best academics in the field of finance pretty much in the world and somehow I made myself useful to those folks and they were willing to teach me. I was also lucky that my first boss and his name was Eduardo and he was my mentor for many, many years. Gave me projects from day one. Day one he gave me two projects the day I walked in the door and he said, "Here, take these. "I wanna see what you'll do with them." And what I told myself is do it right, do it right now. Do it right, do it right now. If I got a project, I wanted to finish it I wanted to move onto the next one and I learned a lot by doing and completing projects. I learned a lot about finance and I learned a lot about business. Now, I was also a novice in finance learning from some very talented people. People like David Booth, people like Eugene Fama like Kenneth French, like Bob Merton, like Myron Scholes. The list of people who have helped me in my career and finance is very extensive. But I can tell you that if you're a novice in a particular field and you want to learn it in the real work environment in real time, be prepared to stay humble because you're gonna be wronged by a lot of things a lot of times. But I was okay with that. They were always very generous with their lessons. They were always very generous with their insights. However, they expected to teach each lesson only one time. So learn, learn quickly, learn from your mistakes. And you know, I got lucky in some respects with where I ended up. So when you think about Jeanie's story of people with PhDs and people with MBAs, when it applied to me and I think it applies to many people, it was very prophetic. There was a lot of truth to it. You're going to go out there, you're going to move on from your college education, and you're going to learn things in ways that you have never imagined. And what's more important than that you're gonna learn things and some of those lessons are gonna be painful and they're gonna be uncomfortable. And in particular, those lessons to teach you something about yourself that teach you something about reevaluating your own skillset, that teach you how to reevaluate some of your prior actions. But those are some of the most important lessons to learn. And so it takes courage. So I say to you, when it comes to education, when it comes to learning, keep an open mind, be curious, be brave, be introspective and make sure you keep on learning for as long as you live. Now, when it comes to models in finance and a life beyond models, that's a second topic that I wanted to talk to you about today. And as Dean Osborne mentioned, you have attained a wonderful set of skills. You have attained a high level of mathematical skills. You've attained a high level of computational skills and the world of finance needs more people with those types of skills. I truly believe that. And like you, I share a technical background, but when I first came to Dimensional, a lesson that I had to learn was that you cannot rely too much on any one model. I think I must've forgotten what Einstein had said when he talked about mathematics. In as far as the laws of mathematics refer to reality, they are not certain. In as far as they are certain, they do not refer to the laws of reality. And when you think about models and how you wanna use models, first off, let's think about what a model really is. When I think about using models, when we think about using models at Dimensional is because we ask an interesting question about a real world phenomenon. Then we gather data about that real world phenomenon and models help us organize the data so that we can learn something from the data. So the real use of the model, because it's the basic building block of the scientific methodology, is to help you organize and learn things from real world data. And when you think about, well what makes a useful model? Well I think that there's broadly three criteria. There's probably more, but three that I'll list. One is does it describe the data well. Two, does it give you some insights from the data? Three, do those insights help you choose a course of action so that you can do something with that data? And if you have yes as answers to all those three, you probably have a useful model. An example might be helpful. If you're ill, you might go to the doctor. The doctor might give you a diagnosis. That diagnosis is a model of what is wrong with you. It's not actually what's going on inside your body, but it's a model of what's going on inside your body. Is it useful? Well, does it describe your symptoms well? Does it help you understand why you're experiencing those symptoms and does it give it a path of action by which you can improve your quality of life? Well, if yes, great. You have a useful model. Now, I think that's important because pretty much how we understand the world is through models and you have mathematical models and you have all different types of models and models are wonderful. They can teach you a lot of things, but get ready for a bucket of cold water. All models are false, every last one of them. In particular, all interesting and useful models are false. They have to be. They're simplifications of reality. So to teach you something, they have to be false. And I'm gonna come back to that point because it's very important as applies to the field of finance. So second point to make about the field of finance is that financial markets are complex and adaptive systems. Now, what's a complex and adaptive system? Okay, let's think about your family. You have lots of family members here today. Each one of your family members have their own personal traits and characteristics. Each one of your family members hopefully, has a relationship with every other family member. Those relationships change the characteristics and traits of the family members, which in turn change the relationships that has all the hallmarks of a complex adaptive system. And there's a whole field of mathematics designed to understand the evolution of complex adaptive systems. So if you've ever wondered why it's so challenging to predict the outcome of your annual family get togethers, know that you are not alone. The mathematicians can't do it either. It's a complex system, there's no predicting the future of it. When you think about financial markets, they are complex adaptive systems. Each component has its own traits. You can't describe the whole system without describing each component individually and how each component interacts with all of the components. It is a complex adaptive system and it's even worse than that because you don't know what all the important components are and you don't know what all the important interactions are. And by the way, the components and interactions change through time. So when you put that together with the fact that all models are false, what does it tell you about predictions of future states of financial markets? They come with a lot, a lot of estimation error and noise. So how should you act? What should you do? Well, I think that goes back to some of the comments that Dean Osborne made about what a career in finance actually means. A career in finance means responsibility to others. Investors are going to come to you and they're going to come to you with their hard earned money. That money represents their past and their sacrifices. What is your job? Your job is to help them achieve their future and their dreams. That is a lot of responsibility and you have to take that very, very seriously. They're trusting that you will be able to help them live a better life in the future. They're trusting that by saving today, you will be able to help them afford to send their kids to college or you will be able to help them afford a dignified retirement. Your actions will impact people. You want to make that impact a positive one because those are people from your communities and communities all over the world. So it's a very, very important job. You have to act with integrity. Dean Osborne talked about integrity. Integrity means doing the right thing for your customers, even when no one is looking. The field of finance, whether an academic or practitioner is an honorable one. And when you look at the innovations that that field has brought to society at large, they are wide, varied and many. Financial practitioners have improved people's lives, whether it's through innovations and options, in financial derivatives, in integration and electronic exchanges in modern portfolio theory, in systematic ways of investing, finance has impacted many, many people's lives. So you've gotta take that responsibility seriously. So what does that mean when it comes to models and models of financial systems? Well, it means that if you use a model, don't ever bet the house on a model. You gain insights from models and those insights can help you build robust solutions for clients, for investors. But you have to look beyond the model to build those robust solutions. Robustness is key to whenever you're designing an investment strategy. Why is that? Again, I'll repeat. The field of financials and honorable one. Bill Bradley who used to be a US senator, comes to Dimensional all the time and he tells the folks at Dimensional that every dollar has a face attached to it, a story attached to it and that's a really important thing to keep in mind because if you rely too much on models, well reality has a way of teaching us just how false our models can be at the very worst time and that can be a very painful lesson for you to learn, but more importantly, it's not your money, it's your client's money. So it's an even more painful lesson for them to learn. Try to avoid them having to learn such painful lessons. So I say to you when you think about models, models are not a panacea, but they are a very, very useful way to help you gain insights from the data to help you learn from the data so that you can build robust portfolios for your clients and so that you can make the world a better place so that you can make a difference. The last topic I want to talk to you about today is empathy, communication, collaboration. These are skills that personally I have not mastered. These are skills that before I started working at Dimensional, I didn't pay too much attention to, but these are skills that I have found that are incredibly important if you want to make a difference in the world and if you want to be successful. So I would encourage you to take them seriously. Now, after I came to the U.S in the 90s, I got married to a lady here in the U.S and her name is Cece and she works in education. When we lived in here in LA, she was a principal of a middle school in downtown LA and then after we moved to Austin, we live in Austin, Texas now, she's doing her PhD in educational policy at the university there. And I'm going to use another mathematical analogy to describe my relationship with my wife. Given that you guys are math folks here today. And I'm going to use a conversation between the number i, the square root of minus one and that's gonna be me in the conversation and the number pi 3.141 and so on and that's going to be her in the conversation. What did i say to pi? Be rational. What did pi say to i? Get real. Exactly. And given that most people agree that pi is probably the more important number than i, pi usually wins that argument. My wife has been telling me for 18 years now how she's a much nicer person than I am, much kinder person than I am and much more caring person than I am and she tells me so frequently, it must be true. Now she's also been trying to teach me empathy for many, many years and I have to say that I've been a particularly poor learner of that skill, but it is a very important skill. My parents taught me that I'm my own person. My choices are my own, my life is my own. Live it how I want to live it. And they always instilled that in me but they also said you also have to live with the consequences of your actions. And I was always okay with that. My wife has taught me that my actions have consequences, not just for me but for others. And in working at Dimensional, we have 1400 employees in nine countries around the world. It's never been so clear to me as I make decisions in running and managing that firm along with my Co-CEO partner, Dave Butler, how my actions are going to impact the lives of many, many people. And so when I'm making decisions, when I'm trying to think through problems, I try to put myself in others' positions and see how will my actions impact those people? And that's challenging because you're not gonna be able to make everybody happy all of the time. But I think it's a really, really important skill because any company is only as strong as its employees and what you really wanna have happen is that the employees feel like they're winning. If they feel like they're winning, they'll be more engaged, they'll be happier to participate, they'll be better in helping the overall company win. Empathy is a very, very important skillset to have. If you wanna be part of a team, if you want to manage or if you wanna lead a group. The second item that I would talk about is communication. Some people think good ideas speak for themselves. Well, it's been my experience that they rarely do. If you can't communicate your ideas clearly and succinctly to other people, you will not be able to influence other people. And you might say, "Why should I care?" Well, I have to tell you that if you can give somebody that aha moment when you're speaking to them, that moment where suddenly a problem becomes clear or that moment when you open their mind to the possibility of things that they hadn't imagined before, they will value you for having given them that aha moment. It's not just valuable for them, it's valuable for you. They will value it and that's people on your team, that's people in your company and that your clients. It's good for you and it's good for them. So when you're thinking about communication, strive for ideas like brevity, succinctness, clarity of thought. Think about those things when you're trying to communicate a concept or idea. Finally, I talk about collaboration. Every endeavor in industry requires collaboration. There is no such thing as a self made person. All of us have a lot of help along the way, and teamwork is critical for the success of any organization. Critical. So when you think about collaborations, some of the important components are respect. If you are a member of a team, respect your teammates. One way that you think about respect is if you're having a discussion with somebody, about a particular topic, focus on the topic. Don't try to undermine the person to win the argument. In the end of the day, you should be striving to have the right solution win. It doesn't have to be your solution, it has to be the right solution. And that's about collaboration and that's about respect. So I say to you, when it comes to some of those softer skills, take them seriously. They take a lot of hard work, they take a lot of effort to improve, whether it's being more empathetic, whether it's being a better communicator or a better collaborator. I know that I'm very much a work in progress on all of those fronts, but I think that there will be important depending on what winning means to you. And I don't know about winning will mean to you. If it means working on a team, if it means leading a team, if it means convincing others of your good ideas, or if it means making the world a better place, those skill sets are important skillsets to have. So in closing, I know that one I'm of the few things that stands between you and a champagne reception. So I'll keep my closing comments brief. At Dimensional, we say "Do the right thing, "do it the right way, and do it right now." They're very, very important. Trust takes a lifetime to earn, but a second to lose and the financial industry is all about trust. It's about doing the right thing for your clients so that you can earn their trust over time. You know, there's a great quote from Hemingway. One of my favorites from Hemingway. I like a lot of his books and it goes something like, I'm probably going to butcher it here a little bit, but it goes something like, "There is nothing noble "in being superior to your fellow man. "True nobility lies in being superior to your former self." And I really try to live my life that way and I'm not saying I'm successful, but I want everyday I want to improve myself, I want to be better. And that's how I think we should all live our lives. And when you think about that, when you think about how any industry evolves through time about how knowledge improves and changes through time, you're going to have to keep on learning, you're gonna have to find mentors, people to teach you because that's what it takes to do it the right way. There's no time like now. There's no time like the present. Earning your client's trust or having clients to begin with, it's a privilege and it's a privilege that you have to earn every day. Do it right now if you're working on a project. Don't put it off. Do it right now. And when people come to me at Dimensional and they say, "Hey, what do you think it takes to be successful? "I tell them, "If you do the right thing, "you do it the right way, you do it right now, "you're probably stacking the odds in your favor." So with that, I wanna thank you all for having me here today. It has been my honor and my privilege. I wanna congratulate you again on earning your MFE degree from UCLA. It is a big milestone in your journey through life and I wish you all the best as you pursue careers in finance or whatever other field and in life. Congratulations and thank you.