Farnam Street helps you make better decisions, innovate, and avoid stupidity.
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Farnam Street helps you make better decisions, innovate, and avoid stupidity.
With over 400,000 monthly readers and more than 93,000 subscribers to our popular weekly digest, we've become an online intellectual hub.
One of the most impactful books we’ve ever come across is the wonderful Seeking Wisdom: From Darwin to Munger, written by the Swedish investor Peter Bevelin. In the spirit of multidisciplinary learning, Seeking Wisdom is a compendium of ideas from biology, psychology, statistics, physics, economics, and human behavior.
Mr. Bevelin is out with a new book full of wisdom from Warren Buffett & Charlie Munger: All I Want to Know is Where I’m Going to Die So I Never Go There. We were fortunate enough to have a chance to interview Peter recently, and the result is the wonderful discussion below.
The short answer: To improve my thinking. And when I started writing on what later became Seeking Wisdom I can express it even simpler: “I was dumb and wanted to be less dumb.” As Munger says: “It’s ignorance removal…It’s dishonorable to stay stupider than you have to be.” And I had done some stupid things and I had seen a lot of stupidity being done by people in life and in business.
A seed was first planted when I read Charlie Munger’s worldly wisdom speech and another one where he referred to Darwin as a great thinker. So I said to myself: I am 42 now. Why not take some time off business and spend a year learning, reflecting and write about the subject Munger introduced to me – human behavior and judgments.
None of my writings started out as a book project. I wrote my first book – Seeking Wisdom – as a memorandum for myself with the expectation that I could transfer some of its essentials to my children. I learn and write because I want to be a little wiser day by day. I don’t want to be a great-problem-solver. I want to avoid problems – prevent them from happening and doing right from the beginning. And I focus on consequential decisions. To paraphrase Buffett and Munger – decision-making is not about making brilliant decisions, but avoiding terrible ones. Mistakes and dumb decisions are a fact of life and I’m going to make more, but as long as I can avoid the big or “fatal” ones I’m fine.
So I started to read and write to learn what works and not and why. And I liked Munger’s “All I want to know is where I’m going to die so I’ll never go there” approach. And as he said, “You understand it better if you go at it the way we do, which is to identify the main stupidities that do bright people in and then organize your patterns for thinking and developments, so you don’t stumble into those stupidities.” Then I “only” had to a) understand the central “concept” and its derivatives and describe it in as simple way as possible for me and b) organize what I learnt in a way that was logical and useful for me.
And what better way was there to learn this from those who already knew this?
After I learnt some things about our brain, I understood that thinking doesn’t come naturally to us humans – most is just unconscious automatic reactions. Therefore I needed to set up the environment and design a system that helped me make it easier to know what to do and prevent and avoid harm. Things like simple rules of thumbs, tricks and filters. Of course, I could only do that if I first had the foundation. And as the years have passed, I’ve found that filters are a great way to save time and misery. As Buffett says, “I process information very quickly since I have filters in my mind.” And they have to be simple – as the proverb says, “Beware of the door that has too many keys.” The more complicated a process is, the less effective it is.
Why do I write? Because it helps me understand and learn better. And if I can’t write something down clearly, then I have not really understood it. As Buffett says, “I learn while I think when I write it out. Some of the things, I think I think, I find don’t make any sense when I start trying to write them down and explain them to people … And if it can’t stand applying pencil to paper, you’d better think it through some more.”
My own test is one that a physicist friend of mine told me many years ago, ‘You haven’t really understood an idea if you can’t in a simple way describe it to almost anyone.’ Luckily, I don’t have to understand zillion of things to function well.
And even if some of mine and others thoughts ended up as books, they are all living documents and new starting points for further, learning, un-learning and simplifying/clarifying. To quote Feynman, “A great deal of formulation work is done in writing the paper, organizational work, organization. I think of a better way, a better way, a better way of getting there, of proving it. I never do much — I mean, it’s just cleaner, cleaner and cleaner. It’s like polishing a rough-cut vase. The shape, you know what you want and you know what it is. It’s just polishing it. Get it shined, get it clean, and everything else.”
Seeking Wisdom because I had to do a lot of research – reading, talking to people etc. Especially in the field of biology and brain science since I wanted to first understand what influences our behavior. I also spent some time at a Neurosciences Institute to get a better understanding of how our anatomy, physiology and biochemistry constrained our behavior.
And I had to work it out my own way and write it down in my own words so I really could understand it. It took a lot of time but it was a lot of fun to figure it out and I learnt much more and it stuck better than if I just had tried to memorize what somebody else had already written. I may not have gotten everything letter perfect but good enough to be useful for me.
As I said, the expectation wasn’t to create a book. In fact, that would have removed a lot of my motivation. I did it because I had an interest in becoming better. It goes back to the importance of intrinsic motivation. As I wrote in Seeking Wisdom: “If we reward people for doing what they like to do anyway, we sometimes turn what they enjoy doing into work. The reward changes their perception. Instead of doing something because they enjoy doing it, they now do it because they are being paid. The key is what a reward implies. A reward for our achievements makes us feel that we are good at something thereby increasing our motivation. But a reward that feels controlling and makes us feel that we are only doing it because we’re paid to do it, decreases the appeal.”
It may sound like a cliché but the joy was in the journey – reading, learning and writing – not the destination – the finished book. Has the book made a difference for some people? Yes, I hope so but often people revert to their old behavior. Some of them are the same people who – to paraphrase something that is attributed to Churchill – occasionally should check their intentions and strategies against their results. But reality is what Munger once said, “Everyone’s experience is that you teach only what a reader almost knows, and that seldom.” But I am happy that my books had an impact and made a difference to a few people. That’s enough.
It was more fun to write about what works and not in a dialogue format. But also because vivid and hopefully entertaining “lessons” are easier to remember and recall. And you will find a lot of quotes in there that most people haven’t read before.
I wanted to write a book like this to reinforce a couple of concepts in my head. So even if some of the text sometimes comes out like advice to the reader, I always think about what the mathematician Gian-Carlo Rota once said, “The advice we give others is the advice that we ourselves need.”
Some kind of representation that describes how reality is (as it is known today) – a principle, an idea, basic concepts, something that works or not – that I have in my head that helps me know what to do or not. Something that has stood the test of time.
For example some timeless truths are:
I favor underlying principles and notions that I can apply broadly to different and relevant situations. Since some models don’t resemble reality, the word “model” for me is more of an illustration/story of an underlying concept, trick, method, what works etc. that agrees with reality (as Munger once said, “Models which underlie reality”) and help me remember and more easily make associations.
But I don’t judge or care how others label it or do it – models, concepts, default positions … The important thing is that whatever we use, it reflects and agrees with reality and that it works for us to help us understand or explain a situation or know what to do or not do. Useful and good enough guide me. I am pretty pragmatic – whatever works is fine. I follow Deng Xiaoping, “I don’t care whether the cat is black or white as long as it catches mice.” As Feynman said, “What is the best method to obtain the solution to a problem? The answer is, any way that works.”
I’ll tell you about a thing Feynman said on education which I remind myself of from time to time in order not to complicate things (from Richard P. Feynman, Michael A. Gottlieb, Ralph Leighton, Feynman’s Tips on Physics: A Problem-Solving Supplement to the Feynman Lectures on Physics):
“There’s a round table on three legs. Where should you lean on it, so the table will be the most unstable?”
The student’s solution was, “Probably on top of one of the legs, but let me see: I’ll calculate how much force will produce what lift, and so on, at different places.”
Then I said, “Never mind calculating. Can you imagine a real table?”
“But that’s not the way you’re supposed to do it!”
“Never mind how you’re supposed to do it; you’ve got a real table here with the various legs, you see? Now, where do you think you’d lean? What would happen if you pushed down directly over a leg?”
I say, “That’s right; and what happens if you push down near the edge, halfway between two of the legs?”
“It flips over!”
I say, “OK! That’s better!”
The point is that the student had not realized that these were not just mathematical problems; they described a real table with legs. Actually, it wasn’t a real table, because it was perfectly circular, the legs were straight up and down, and so on. But it nearly described, roughly speaking, a real table, and from knowing what a real table does, you can get a very good idea of what this table does without having to calculate anything – you know darn well where you have to lean to make the table flip over. So, how to explain that, I don’t know! But once you get the idea that the problems are not mathematical problems but physical problems, it helps a lot.
Anyway, that’s just two ways of solving this problem. There’s no unique way of doing any specific problem. By greater and greater ingenuity, you can find ways that require less and less work, but that takes experience.
Ideas from biology and psychology since many stupidities are caused by not understanding human nature (and you get illustrations of this nearly every day). And most of our tendencies were already known by the classic writers (Publilius Syrus, Seneca, Aesop, Cicero etc.)
Others that I find very useful both in business and private is the ideas of Quantification (without the fancy math), Margin of safety, Backups, Trust, Constraints/Weakest link, Good or Bad Economics slash Competitive advantage, Opportunity cost, Scale effects. I also think Keynes idea of changing your mind when you get new facts or information is very useful.
But since reality isn’t divided into different categories but involves a lot of factors interacting, I need to synthesize many ideas and concepts.
I don’t know about that but what I often see among many smart people agrees with Munger’s comment: “All this stuff is really quite obvious and yet most people don’t really know it in a way where they can use it.”
Anyway, I believe if you really understand an idea and what it means – not only memorizing it – you should be able to work out its different applications and functional equivalents. Take a simple big idea – think on it – and after a while you see its wider applications. To use Feynman’s advice, “It is therefore of first-rate importance that you know how to “triangulate” – that is, to know how to figure something out from what you already know.” As a good friend says, “Learn the basic ideas, and the rest will fill itself in. Either you get it or you don’t.”
Most of us learn and memorize a specific concept or method etc. and learn about its application in one situation. But when the circumstances change we don’t know what to do and we don’t see that the concept may have a wider application and can be used in many situations.
Take for example one big and useful idea – Scale effects. That the scale of size, time and outcomes changes things – characteristics, proportions, effects, behavior…and what is good or not must be tied to scale. This is a very fundamental idea from math. Munger described some of this idea’s usefulness in his worldly wisdom speech. One effect from this idea I often see people miss and I believe is important is group size and behavior. That trust, feeling of affection and altruistic actions breaks down as group size increases, which of course is important to know in business settings. I wrote about this in Seeking Wisdom (you can read more if you type in Dunbar Number on Google search). I know of some businesses that understand the importance of this and split up companies into smaller ones when they get too big (one example is Semco).
Another general idea is “Gresham’s Law” that can be generalized to any process or system where the bad drives out the good. Like natural selection or “We get what we select for” (and as Garrett Hardin writes, “The more general principle is: We get whatever we reward for).
While we are on the subject of mental models etc., let me bring up another thing that distinguishes the great thinkers from us ordinary mortals. Their ability to quickly assess and see the essence of a situation – the critical things that really matter and what can be ignored. They have a clear notion of what they want to achieve or avoid and then they have this ability to zoom in on the key factor(s) involved.
One reason to why they can do that is because they have a large repertoire of stored personal and vicarious experiences and concepts in their heads. They are masters at pattern recognition and connection. Some call it intuition but as Herbert Simon once said, “The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition.”
It is about making associations. For example, roughly like this:
Situation X Association (what does this remind me of?) to experience, concept, metaphor, analogy, trick, filter… (Assuming of course we are able to see the essence of the situation) What counts and what doesn’t? What works/not? What to do or what to explain?
Let’s take employing someone as an example (or looking at a business proposal). This reminds me of one key factor – trustworthiness and Buffett’s story, “If you’re looking for a manager, find someone who is intelligent, energetic and has integrity. If he doesn’t have the last, make sure he lacks the first two.”
I believe Buffett and Munger excel at this – they have seen and experienced so much about what works and not in business and behavior.
Buffett referred to the issue of trust, chain letters and pattern recognition at the latest annual meeting:
You can get into a lot of trouble with management that lacks integrity… If you’ve got an intelligent, energetic guy or woman who is pursuing a course of action, which gets put on the front page it could make you very unhappy. You can get into a lot of trouble. ..We’ve seen patterns…Pattern recognition is very important in evaluating humans and businesses. Pattern recognition isn’t one hundred percent and none of the patterns exactly repeat themselves, but there are certain things in business and securities markets that we’ve seen over and over and frequently come to a bad end but frequently look extremely good in the short run. One which I talked about last year was the chain letter scheme. You’re going to see chain letters for the rest of your life. Nobody calls them chain letters because that’s a connotation that will scare you off but they’re disguised as chain letters and many of the schemes on Wall Street, which are designed to fool people, have that particular aspect to it…There were patterns at Valeant certainly…if you go and watch the Senate hearings, you will see there are patterns that should have been picked up on.
This is what he wrote on chain letters in the 2014 annual report:
In the late 1960s, I attended a meeting at which an acquisitive CEO bragged of his “bold, imaginative accounting.” Most of the analysts listening responded with approving nods, seeing themselves as having found a manager whose forecasts were certain to be met, whatever the business results might be. Eventually, however, the clock struck twelve, and everything turned to pumpkins and mice. Once again, it became evident that business models based on the serial issuances of overpriced shares – just like chain-letter models – most assuredly redistribute wealth, but in no way create it. Both phenomena, nevertheless, periodically blossom in our country – they are every promoter’s dream – though often they appear in a carefully-crafted disguise. The ending is always the same: Money flows from the gullible to the fraudster. And with stocks, unlike chain letters, the sums hijacked can be staggering.
And of course, the more prepared we are or the more relevant concepts and “experiences” we have in our heads, the better we all will be at this. How do we get there? Reading, learning and practice so we know it “fluently.” There are no shortcuts. We have to work at it and apply it to the real world.
As a reminder to myself so I understand my limitation and “circle”, I keep a paragraph from Munger’s USC Gould School of Law Commencement Address handy so when I deal with certain issues, I don’t fool myself into believing I am Max Planck when I’m really the Chauffeur:
In this world I think we have two kinds of knowledge: One is Planck knowledge, that of the people who really know. They’ve paid the dues, they have the aptitude. Then we’ve got chauffeur knowledge. They have learned to prattle the talk. They may have a big head of hair. They often have fine timbre in their voices. They make a big impression. But in the end what they’ve got is chauffeur knowledge masquerading as real knowledge.
One trick or notion I see many of us struggling with because it goes against our intuition is the concept of inversion – to learn to think “in negatives” which goes against our normal tendency to concentrate on for example, what we want to achieve or confirmations instead of what we want to avoid and disconfirmations. Another example of this is the importance of missing confirming evidence (I call it the “Sherlock trick”) – that negative evidence and events that don’t happen, matter when something implies they should be present or happen.
Another example that is counterintuitive is Newton’s 3d law that forces work in pairs. One object exerts a force on a second object, but the second object also exerts a force equal and opposite in direction to the force acting on it – the first object. As Newton wrote, “If you press a stone with your finger, the finger is also pressed by the stone.” Same as revenge (reciprocation).
One that immediately comes to mind is one I have mentioned in the introduction in two of my books is someone I am fortunate to have as a friend – Peter Kaufman. An outstanding thinker and a great businessman and human being. On a scale of 1 to 10, he is a 15.
Their ethics and their ethos of clarity, simplicity and common sense. These two gentlemen are outstanding in their instant ability to exclude bad ideas, what doesn’t work, bad people, scenarios that don’t matter, etc. so they can focus on what matters. Also my amazement that their ethics and ideas haven’t been more replicated. But I assume the answer lies in what Munger once said, “The reason our ideas haven’t spread faster is they’re too simple.”
This reminds me something my father-in-law once told me (a man I learnt a lot from) – the curse of knowledge and the curse of academic title. My now deceased father-in-law was an inventor and manager. He did not have any formal education but was largely self-taught. Once a big corporation asked for his services to solve a problem their 60 highly educated engineers could not solve. He solved the problem. The engineers said, “It can’t be that simple.” It was like they were saying that, “Here we have 6 years of school, an academic title, lots of follow up education. Therefore an engineering problem must be complicated”. Like Buffett once said of Ben Graham’s ideas, “I think that it comes down to those ideas – although they sound so simple and commonplace that it kind of seems like a waste to go to school and get a PhD in Economics and have it all come back to that. It’s a little like spending eight years in divinity school and having somebody tell you that the 10 commandments were all that counted. There is a certain natural tendency to overlook anything that simple and important.”
(I must admit that in the past I had a tendency to be extra drawn to elegant concepts and distracting me from the simple truths.)
The best thing I have done is marrying my wife. As Buffett says and it is so so true, “Choosing a spouse is the most important decision in your life…You need everything to be stable, and if that decision isn’t good, it may affect every other decision in life, including your business decisions…If you are lucky on health and…on your spouse, you are a long way home.”
A good “investment” is taking the time to continuously improve. It just takes curiosity and a desire to know and understand – real interest. And for me this is fun.
Every day is a little different but I read every day.
There is not one single book or one single idea that has done it. I have picked up things from different books (still do). And there are different books and articles that made a difference during different periods of my life. Meeting and learning from certain people and my own practical experiences has been more important in my development. As an example – When I was in my 30s a good friend told me something that has been very useful in looking at products and businesses. He said I should always ask who the real customer is: “Who ultimately decides what to buy and what are their decision criteria and how are they measured and rewarded and who pays?”
But looking back, if I have had a book like Poor Charlie’s Almanack when I was younger I would have saved myself some misery. And of course, when it comes to business, managing and investing, nothing beats learning from Warren Buffett’s Letters to Berkshire Hathaway Shareholders.
Another thing I have found is that it is way better to read and reread fewer books but good and timeless ones and then think. Unfortunately many people absorb too many new books and information without thinking.
Let me finish this with some quotes from my new book that I believe we all can learn from:
Finally, I wish you and your readers an excellent day – Everyday!
Before you get started: Filter the book by reading the preface, index, table of contents, and inside jacket. This tells you where the author is going to take you and, importantly, the vocabulary they will use.
The three steps to effectively taking notes while reading, which I elaborate on later, are:
Can you tell me how you take notes while reading?
I’ve been asked this question a lot. Everyone wants to know how to read a book. Well, one of the best ways to better filter and connect ideas is to read with pen in hand so you can take notes while reading. This Marginalia — the tiny fragments that come into your head while reading — is a dying but important art that helps you remember what you read.
Like almost everything in life there is no magical answer that fits everyone. I can speak to the three-step process that works effectively for me on up to 150 books a year. However, you’re going to have to see if that works for you. While this sounds like a bit of trial and error (because it is), it’s the only way to create lasting habit changes, improve your recall, and be able to easily find that passage you’re looking for.
The first thing I do when I pick up a book is read the preface, the table of contents, and the inside jacket. Often, I’ll glance over the index too. This doesn’t take long and often saves me time, as a lot of books do not make it past this filter. Maybe it doesn’t contain the information I’m trying to gain. If it seems crappy, I’ll flip to a few random pages to verify.
This filter is a form of systematic skimming. This isn’t my term, Mortimer Adler, a guy who literally wrote the the book on reading, came up with it. Adler says there are four levels of reading. I tend to blend inspectional reading and analytical reading together for most books.
When I start reading the book, I have an idea what it’s about, the main argument, and some of the terminology involved. I know where the author is going to take me and the broad strokes of how they will bring me along.
While reading, I take notes. I circle words I need to look up. I star points that I think are critical to the argument. I underline anything that strikes me as interesting. I comment like a mad man in the margins. I try to tease out assumptions, etc.
Essentially, I’m trying to engage in a conversation with the author. Maybe my questions will be answered on the next page or in the next chapter. Maybe I’ll need to find another book to answer them. Who knows. But I write them down.
At the end of each chapter I write a few bullet points that summarize what I’ve just read. When I’m done, I let the book age. I put the book on my desk and I won’t touch it for anywhere from a few days to a week.
When I pick the book up again, I re-read every scribble, underline, and comment I’ve made (assuming I can still read my writing).
I’m not the same person I was the first time I read the book, two things have changed: (1) I’ve read the entire book and (2) I’ve had a chance to sleep on what may have seemed earth-shattering at the time but now just seems meh.
If something still strikes my interest, I write a note in the first few pages of the book, in my own words, on the topic. Often this is a summary but increasingly it’s ways to apply the knowledge. I index this to the page number in the book.
Sometimes, and this depends on the book, I’ll create a sort of mental summary of the book’s main arguments and gaps. Sometimes I’ll cross-link points with other books.
Step 3 (optional).
Wait a few days. Then go through the book and copy out excerpts by hand and put them into your repository or common place book.
If you liked this article, you’ll love these four.
The Feynman Technique: The Best Way to Learn Anything — Nobel winner Richard Feynman shares his secret to learning anything, which also works as an excellent framework for thinking and identifying gaps in other peoples knowledge.
A System for Remembering What you Read — The system I use for non-fiction books that enables me to remember quite a bit. And when I can’t remember I generally know where to look to find the answers.
The Art of Reading — We literally created a course to help people learn to read better and more effectively.
The Most Effective Way to Retain What You Read — Become a more effective reader with these simple tips from Nassim Taleb and psychologist Robert Cialdini designed to help you retain more of what you read.
“Nothing so much assists learning
as writing down what we wish to remember.”
One of the keys to getting smarter is to read a lot.
But that’s not enough. How you read matters.
But reading is only one part of the equation. You need to remember what you read.
We’re going to borrow tips from Robert Cialdini, author of Influence: The Psychology of Persuasion, and Nassim Taleb, author of The Black Swan and Antifragile, to make our reading go deeper and stay with us longer.
Cialdini revealed a trick that he uses, to a reader of Farnam Street, who was kind enough to share it with me.
While on the flight to Omaha, he was reading. He took notes on the material itself, and every time he completed a chapter he pulled out a sheet of white paper and wrote a single page summary on what he had just read. He places the paper in another folder. This is how he gets his learning deeper and this also enables him to refer to summaries in the future.
This isn’t the first time we’ve talked about this. In his book, The Little Book of Talent: 52 Tips for Improving Your Skills, Daniel Coyle writes:
Research shows that people who follow strategy B [read ten pages at once, then close the book and write a one page summary] remember 50 percent more material over the long term than people who follow strategy A [read ten pages four times in a row and try to memorize them].
But is there something more we can do?
Nassim Taleb says “Don’t write [a] summary, write bullet points of what comes to mind that you can apply somewhere.”
Still curious? Check out my system for remembering what you read. And read The Little Book of Talent and Influence. Also, if you want to learn to read better, see The Art of Reading: How to Read A Book.
We’ve all been there. At the bookstore trying to figure out what to read.
On one side of the store is the safe bet. The best-selling books that everyone else is reading. These are (generally) the mediocre books that time hasn’t yet filtered for us. When time casts its shadow, most of these will fall away into the night. And yet we read them anyways. Why? Because one of the six principles of persuasion is social proof.
Not only does this often waste time and money but it gums our our brains. If we’re reading what everyone else is reading it’s harder to think differently about problems, decisions, or life.
This excerpt form Norwegian Wood by Haruki Murakami perfectly encapsulates a core truth about reading.
And so we became friends. This happened in October.
The better I got to know Nagasawa, the stranger he seemed. I had met a lot of strange people in my day, but none as strange as Nagasawa. He was a far more voracious reader than I, but he made it a rule never to touch a book by any author who had not been dead at least thirty years. “That’s the only kind of book I can trust,” he said.
“It’s not that I don’t believe in contemporary literature,” he added, “but I don’t want to waste valuable time reading any book that has not had the baptism of time. Life is too short.”
“What kind of authors do you like?” I asked, speaking in respectful tones to this man two years my senior. “Balzac, Dante, Joseph Conrad, Dickens,” he answered without hesitation.
“Not exactly fashionable.”
“That’s why I read them. If you only read the books that everyone else is reading, you can only think what everyone else is thinking. That’s the world of hicks and slobs. Real people would be ashamed of themselves doing that. Haven’t you noticed, Watanabe? You and I are the only real ones in the dorm. The other guys are crap.”
This took me off guard. “How can you say that?”
“’ Cause it’s true. I know. I can see it. It’s like we have marks on our foreheads. …”