Homeroom with Sal & David Siegel - Wednesday, July 14

Hi everyone, Sal Khan here from Khan Academy. Welcome to the Homeroom live stream! It's been a little while since we last saw each other, so it's so good to see you again. We have an exciting conversation today with David Siegel, who's a co-chair, co-founder of Two Sigma, which we'll learn more about, and also the founder and head of the Siegel Family Endowment. We’re going to talk a bit about that and, maybe most importantly, at least from my perspective, someone who has been a longtime supporter of all of the incredible work we've been trying to do over the years and someone who I also consider a close friend and advisor. So, I'm very excited about that conversation.

Before we jump into it, I will give my standard announcements. First of all, a reminder that we are not-for-profit, primarily funded with philanthropic donations. So, if you're in a position to do so, please think about going to khanacademy.org/donate. I also want to give a shout-out to several organizations that stepped up—some of them longtime supporters, some of them relatively new—but when they saw that, especially during the pandemic, our costs had gone up and our usage had gone up, special thanks to Bank of America, AT&T, Google.org, Novartis, Fastly, and General Motors. And, of course, this is not an exhaustive list of the many folks who have been supporting us over the years and also through the pandemic.

Last but not least, there's a version of this live stream that you can get in podcast form wherever you would get your podcasts: Homeroom with Sal, the podcast.

So with that, I'm very excited to introduce David Siegel. David, good to see you. Good afternoon! Happy to be here.

There's many things that I want to talk to you about, David—some of which we've talked informally about—but I think people are going to be really interested. I do want to encourage folks who are listening in, especially on social media, to start putting your questions in the message boards on YouTube and Facebook. Questions about investing, questions about the economy, questions about philanthropy and education—these are all of the things that we will talk about right now.

But, David, maybe we'll start with your day job, which is co-running Two Sigma. Can you explain to folks what Two Sigma is?

Sure! We're an investment management company. We like to say that we're involved with financial sciences. A lot of people say they're a financial services company. We've kind of coined the expression "financial sciences" because we try, as best as we can, to apply the scientific method, data, AI, and analytical and quantitative methods to the investment process.

A lot of people think of investing as something that is done, you know, seat-of-the-pants; that, you know, you use your intuition, gut instincts. You know, we've always believed that applying science to a problem always gives you a better answer. It really doesn't matter what field that you're in. The application of the scientific method has really advanced virtually every domain that we know of.

When medicine was done, you know, in the dark ages, you know, seat of the pants, the outcomes weren't all that good. When the scientific method was adopted and the field of medicine advanced into something really disciplined, then we began to have the breakthroughs that we have in modern medicine today. I firmly believe that investing is the same story. So, at Two Sigma, we really apply algorithms, data, and various other, let's call them scientific approaches, to try to drive a better investment outcome.

It's really fascinating because, you know, you have a very deep academic background, and as you know, many academics will tell you that markets are efficient, you can't beat the market, you know? Just modern portfolio theory—just buy a big basket of things, diversify, and just, you know, let it ride, so to speak. But clearly, you and John Overdeck, who you founded Two Sigma with, believe differently. Other people believe differently—that no, there is a science to this; that there actually can be ways to outperform the markets. Generally, what gave you that conviction? I am curious, on your entrepreneurial journey, how did you fall into this? How did you make the decision to start an investment firm like Two Sigma?

Well, you know, the statement about the markets being efficient is, at a high level, true. The markets are pretty efficient, particularly these days, when the markets benefit from ready access to lots of information. A long time ago, the markets were not particularly efficient because people had advantages on information; very few people had access to the markets. So, the world is moving in a direction that is making the markets more efficient, but they're not perfectly efficient.

When people do make the statements that the markets are efficient, I think really what they're saying is that they're pretty efficient. What that means is that it's actually a little bit more difficult than you might think to actually outperform the markets. But that doesn't mean it's impossible to. The question that you have is if you have a belief that you're going to be able to outperform, you know, an index like the S&P 500, what would some people call your advantage be? Why do you think you know what you have access to that would give you the ability to do that?

One, our answer would be, "Well, we're going to be very scientific about it. We're going to use a lot of data." And, you know, we're going to look at the markets, primarily using a lot of computer algorithms in a way that it's hard for the old-fashioned, very gut instinct-based approach to compete with. So, that's the reason that we believe that despite the fact that the markets are pretty efficient, we can do better.

When you all were starting the firm, you did have experience working at previous firms like this. Was it like, you know, "I think we could do better. I think we can do better than the state of the art"? That's out there. I'm curious—did you and John have some initial algorithms that you had back-tested? And, you know, for those who don't know, back-testing is, "Hey, we have a theory, we have an algorithm; let's take this algorithm on historic data and see how it would have performed," and you're like, "Yeah, I think we got something interesting here." How did it start? I'm always curious about that phase of an organization.

No, it wasn't like that. It was more just a—you know, it's like any entrepreneurial exercise. I think that people just have a belief and a conviction. So, you just start with a blank sheet of paper, but just, you know, literally, a belief that this is the future. This is no different than I think virtually all tech startups. Most of the successful companies that you have today, that have emerged out of Silicon Valley and elsewhere, they often just started with a belief that, you know, this is how we can do better. So really, just a belief.

That belief has been validated. I am curious—someone who studies markets with a scientific lens, as you mentioned, you know, there’s been a lot of talk about a K-shaped recovery, about some people doing just fine, while other people are doing less fine. Even before the pandemic, people have been talking about how automation and technology are going to benefit some folks, but they could hurt other folks. I know this is an area that you've thought deeply about, and obviously, you're in it in certain ways. Where do you think we're heading from an economic point of view? What do you think the impacts of the pandemic are? What do you think is going on in markets right now, and what do you think we need to be hopeful for or watch out for a little bit longer term?

Well, you know, these are really going to be just my personal views, not of the company. You know, I just want to be clear: these are not exactly the kind of investment approaches the firm takes—so speaking really just entirely personally. I don't think this is actually a new trend in America. It really does appear that our economy has been moving in a direction where certain people are doing better and better, and other people are falling behind. I think that this accelerated during the pandemic for a number of reasons. I can really quickly go into them, and we can talk about this for hours and hours.

But I think a lot of the bifurcation of economic outcomes is being caused by fundamental changes in our economy that are driven by technology. You know, the rapid transformation of the global economy because of technological innovation—the internet—you’re all familiar with, obviously, Google and Uber and, you know, there are dozens of companies that are virtually brand new, you know, Amazon. These firms have changed the way all aspects of our economy function.

When you have a big economic dislocation occurring, driven by technological change, that is going to restack the deck. The people that benefit will be different from the people that benefited before. Other people who thought that they had stability in their work will find that they no longer have stability. The kind of skills that you need to get ahead change. Everyone knows today that technical skills are more valuable than they were ever before. People who have mastered certain kinds of technologies—and AI is one of them—have had unlimited opportunity in the new economy.

People with certain other kinds of skill sets, where automation has taken over, have been falling behind. This trend accelerated during the pandemic, in part because people were investing—firms were investing very heavily in more automation, looking at more ways to reduce dependence on traditional human-based approaches for doing things. This is one of the many factors that are driving what I would call an alarming change in our economy which we, as a society, need to address.

And do you think this is something different about what we're going through now versus previous periods of technological change? Obviously, people talk about the Industrial Revolution, and yes, people who were driving horse carriages—or I guess even the horses themselves—did lose a lot of work during the automation with cars. But a lot of people point to that and say, "Well, you know, yes, there was a lot of flux, a lot of change in things. But, at the same time, overall, jobs were created. There was a broad-based middle class that came out of the Industrial Revolution." So, this revolution might not be any different. It could be change, but overall it'll be better. But then you hear on the other side people say, "Well, I don't know—artificial intelligence, automation, they're kind of getting deeper into what human beings are oftentimes capable of." Where do you fall on that debate?

Well, you know, again, a very complicated question. I’ll try to give an overly simplified answer, but I do not believe that there will be a lack of jobs. There is plenty of work that only humans can do. As we automate certain kinds of work, we're freeing up people to do other kinds of work.

We have an aging population; there's going to be a need for more people, just as one example, more people to take care of the elderly. There is crumbling infrastructure all around America—we need more people to rebuild this. The robots are not going to be handling this kind of work. People have now changed their shopping habits—we need more people to deliver all the packages. It's unlikely that we're going to have, despite all the hype, drones really changing how we get deliveries anytime soon.

So the amount of work for people to do is not going away. But the problem is that we have to have an adjustment here, and we have to decide if we are going to be able to pay middle-class wages for the new kind of work. It is possible that a lot of the new work people are only going to want to pay relatively low wages for, and maybe these workers won't have the ability to, in any way, organize to get higher wages. So, you might end up with a relatively large amount of work at wages that are not really suitable for middle-class living.

Now, you know, the previous—the Industrial Revolution—which has been well-studied, of course, the outcome was a vibrant, thriving middle class. But you have to remember that the transition from, say, the beginning of the Industrial Revolution to the thriving middle class also brought with it World War I, World War II. There was a lot of trouble; there was a depression in there. So it wasn't really a smooth transition. But eventually, you got to a spot that was actually pretty good. The goal here is to make sure that we don't have a bumpy ride; certainly, we don't want to repeat anything like that as we go to this new economic phase that is being heavily driven by a new wave of technology.

Yeah, that’s a really good point. Oftentimes, the economics and the history of things like wars often get disjointed, but they are connected in probably more ways than even the history books try to draw connections.

What do you think—just to stay on this question, and I'm getting a lot of questions from, I'm assuming, young people on, you know, what advice would you have for them? Given the world that we're going into and all that, I'll make it a double question: What advice do you have for them as individuals, but also what advice, are you thinking about for society? I know you've thought and you've written about some of this—what's the role of government, the not-for-profit sector, the for-profit sector? How do you think about this?

Well, you know, government—again, Sal, every question—give me an easy question! The role of government is obviously incredibly important in society. I think people—in many, in my own personal view—essentially take government for granted, because in many cases, what the government is doing is providing infrastructure: they’re providing things that are kind of behind the scenes. The excitement that the infrastructure provides then leads to a vibrant economy and good outcomes.

So, you know, the private sector is built upon the foundation that the government has created. When I'm talking about infrastructure, I'm using a very broad definition. You know, the government—in many cases—is involved with physical infrastructure like roads, bridges, and tunnels. And the government may very well be involved with more modern infrastructure as well; either directly or indirectly through policy decisions, the government is obviously involved with education. The government is involved with the rule of law, creating an environment where businesses can contract.

You know, there is no such thing, by the way, as capitalism without government intervention. The economy is—every economy, the US and every country in the world—they're not just the private sector without any rules. The government creates the rules of the road, and so this infrastructure, very broadly, is critical for a thriving economy, not only for the economy but just for people to live good lives. So I think that well-functioning government is incredibly important.

And what's your advice?

And I know there's a lot that we could talk for hours just on the government piece or the for-profit, and we'll talk about philanthropy in a second, but on the question of individuals—you know, for a lot of the young people who are asking questions like, "What should I do with my life?" People like, "Should I go to computer science? How should I do it? How should I navigate?" What's your message for folks on how they should be thinking about their life, given what seems like likely to happen—the cross currents of technology and the economy and all of that?

Well, you know, first and foremost, I would start by telling people that they really need to pursue their passions. There’s no right answer. Like if I were to say, "Yeah, the right thing to do is, you know, become an AI specialist." Now sure, there’s going to be a lot of opportunity for such people, but that is not going to necessarily be interesting to everyone.

So I think the key thing is that, you know, in today's world, it's a relatively tough world. People are struggling to find their way in our economy because it's changing very quickly, and the skills that people need are not obvious. But I think the thing that's most important is to have a passion for what you're doing, and if it's something that you really want to do, it's much more likely that you will put the energy into it to succeed.

You know, look, the obvious answer, of course, is that STEM skills are more important. You know, you should really get your basic math skills down. You know, you should spend time on Khan Academy to perfect the material that that wonderful organization has put together. But I would definitely vote for—you've got to be pursuing something that brings you joy. Your life will be better.

You know, don’t pursue something simply because you read somewhere that it’s going to be the career of the future, and it’s very hard to predict the future. You know, you might end up getting that totally wrong. Another thing I would mention is that the world is changing very quickly, and what this means is that you’re going to have to really become a constant, lifelong learner. Whatever your interests are today, whatever skills you develop through your education today, keep in mind that you’re going to have to continue to invest to make sure that you’re ready for the next curveball that our vibrant world is going to throw at you. So, this again points to trying to go in a direction where you have a passion—it’s kind of hard to force yourself to continue to improve and gain new skills in something that you don’t like at all.

So, passion, passion, passion!

I couldn't agree with that more. It's funny because, you know, I remember when I was a kid, and I had—I didn't have a passion for math and science and things like that and for computers, but I also had a passion for art and drawing. The message that I got oftentimes is, you know, first-generation immigrant family: "That's not going to be practical, Sal. That’s a nice hobby, but ..." You fast forward today, and you see that, wow, fields like design are actually highly sought after and can be very pragmatic, and you can do very, very well in them.

Even my own journey—I used to be in at least a tangential field to yours. We were a different type of investment firm, but we were in markets and things, and I enjoyed that. I had a passion for it, but I had this deeper passion for education, and that if you just create a little bit of space for it, you know, we're in a brave new world where no one could have predicted the job that I have or even the type of organization.

So, I think that's really good advice—that the combination of having really strong skills in probably anything that you want to do at some form of reasonable scale and impact will involve some type of technology, but then you couple that with your passions, and you can be quite formidable.

Moving on to another big piece of your life, which is philanthropy—and as I mentioned, I'm very biased because actually both you and John have been great supporters of Khan Academy, and your families have been great supporters of Khan Academy over the years. But what got you into philanthropy, arguably at a relatively young age? A lot of people go through their stage where they're kind of earning, and then later in life they start going into philanthropy. What got you into it? Why did you prioritize it? And how do you—what's your framework of philanthropy? Where do you think that you can make the biggest difference?

Well, I think the journey that I took into philanthropy started a long time ago. You know, doing things to help people has always been important. We all have to do that. I think that everyone in society has some obligation. I mean, some people say, "If everyone gives back a little bit more than they take, the world would be forever a better place."

If you think just logically, you know, how did you get to where you are? How did I get to where I am? I was benefiting from all kinds of philanthropic things over my lifetime. Education in America is largely supported with philanthropy. I got a really good education. Everywhere I look, I'm the beneficiary of other people who decided that they wanted to give back to society, and that made me recognize at a relatively early age that I wanted to do the same thing.

And also, you know, as you start to do philanthropic things, it makes you actually want to do more. I find philanthropy to be, you know, in a way, addictive. You know, you get your feet wet, you get involved with an organization, you help them—you know, you give with your heart, you give a little bit from your checkbook—whatever you can do. And I think virtually everyone concludes, "Wow, that felt great!"

It's so easy to get involved with philanthropy because there's needs everywhere. So I started in a small way, and my own journey was, "How can I apply what I know?" You know, what are the special things that I might be able to do to help? The area that I ended up focusing on and that my Siegel Family Endowment focuses on is essentially to help people in the journey through the technological change that our society is going through. How are we going to prepare and help people navigate an increasingly technical and technologically-driven society?

These changes that are occurring, you know, as we talked about earlier, are very challenging for individuals, for institutions, for governments. This technological transformation is something that I think my foundation can help improve the outcomes a little bit, and that's what we’re really committed to being focused on.

I'm getting a ton of questions—a question related to that from Catherine Marchand from Facebook: "What are your suggestions for teaching young children how to be responsible philanthropists? Guidance for giving, please."

And I'll expand her question: What's your advice for philanthropists in general? Because, you know, philanthropy doesn't always have the same type of objective function that you can get in the investing world or the for-profit world where you can say, "Oh, I put this much money in, and I got this much money back." In philanthropy, you're putting some dollars and potentially time and effort and energy in, and there is a return and impact, but how do you think about that? What advice do you have for people with children or other philanthropists like yourself to do it well?

I, you know, first of all, I particularly for younger folks, you know, I would put a little more of the emphasis on time rather than dollars. Because, you see, making a donation to an organization, you know, it’s wonderful; you should do that. You know, as Sal mentioned, the Khan Academy has a donate page and I think everyone should click over there. But there’s something even, I think, more transformative if you actually put your time into it.

Putting your time into it will actually make you more likely to want to put your dollars into it. And young kids generally have more time than dollars. So I think there’s an opportunity to get the youth involved with philanthropy by picking community service activities. In fact, by the way, I think that there’s a big argument that, you know, in America, we would benefit by having far more involvement of young kids in community service. I think that this would actually, in general, make a more cohesive society.

So my recommendation would really be to pick philanthropic community service activities, and I think as a great introduction, do it close to home, because then you can see the impact of what you're doing. It can be much more direct. Then, this will, I think, convince even young people about how incredibly wonderful philanthropy really is, because you can just see that your time and your efforts really made something better.

I couldn't agree more! I actually think there are tons of people who want to provide—they see more outlets. I will put a plug for another related nonprofit, Schoolhouse.world, where folks listening, they can tutor and give their time. But you really are giving resources there. Your time has a lot of value that you can give to other people. I couldn't agree with you more.

You know, these conversations—these fun conversations—always go way faster than I expected. So maybe I'll just finish with one kind of big question. You clearly are already doing many big things and have already done many big things, but when you look at your next five years, 10 years, 20 years—what do you hope to be the impact? What do you want the world to look like based on the work that you're doing, maybe in collaboration with others?

Funny enough, just this morning, I was meeting with some people from my foundation talking about that very question. Maybe they mentioned that too! Some kind of, you know, quantum effect.

Sal, that's a really actually the hardest question yet! I really don't know. I think that the thing that I'm learning over time is that you've got to live—you're—the amount of the most valuable thing I've got left is my time, and I have to be very careful of what I focus on, and I have to also be realistic about what I can accomplish.

Over the coming decades, what I would really like to be able to do is to impact a broad range of—I'd like to make our society—and this is really why the mission of the foundation is about the impact of technology on society. I'd like to make our society more fair, that it is more inclusive so that it has better outcomes for a broader set of people.

I think that if we all look back maybe 20 or 30 years from now, I think we'll all be incredibly happy if we can all say that over the last couple of decades, America and the world were able to deliver good outcomes for a diverse set of people—that we were able to bring to the world the kind of equity that, in the past, hasn't existed. So I'd like to be able to make an impact there.

Those are inspiring words, and I think we're worth pursuing. Well, David, thank you so much for the time. Thank you, you, your family—I mean for just being longtime supporters of not just resources but your time, your advice. As I mentioned, I consider you a close advisor on all things we're up to. So, thank you so much for joining us, but even more important, for being part of our journey here at Khan Academy.

Sal, it was my pleasure. I'm really happy to be here today.

Thank you!

Thanks, everyone, for joining. I got to tell you, David is someone I could speak to for hours—and sometimes we have—about everything from investing to the economy to philanthropy, and we have a lot of similar interests.

So, anyway, thanks for joining this conversation. I really appreciate your questions. I’m sorry I couldn’t get to all of them, but I look forward to our next Homeroom with Sal. See you then! Onward.