Over 500,000 people visited Farnam Street last month to expand their knowledge and improve their thinking. Work smarter, not harder with our free weekly newsletter that's full of time-tested knowledge you can add to your mental toolbox.
Over 500,000 people visited Farnam Street last month to expand their knowledge and improve their thinking. Work smarter, not harder with our free weekly newsletter that's full of time-tested knowledge you can add to your mental toolbox.
Naval Ravikant (@naval) is the CEO and co-founder of AngelList. He’s invested in more than 100 companies, including Uber, Twitter, Yammer, and many others.
Don’t worry, we’re not going to talk about early stage investing. Naval’s an incredibly deep thinker who challenges the status quo on so many things.
In this wide ranging interview we talk about reading, habits, decision-making, mental models, and life.
Just a heads up, this is the longest podcast I’ve ever done. While it felt like only thirty minutes, our conversation lasted over two hours!
If you’re like me, you’re going to take a lot of notes so grab a pen and paper. I left some whitespace on the transcript below in case you want to take notes in the margin.
Enjoy this amazing conversation.
German Philosopher Arthur Schopenhauer (1788–1860) influenced some of the more prominent minds in the world. His writings and lessons traverse time and discipline. Schopenhauer confronted similar problems with media to the ones we face.
We live under a constant onslaught of content that is not meant to live beyond the moment in which it appears.
Weaving together two of his essays, “On Authorship” (from The Essays of Schopenhauer: The Art of Literature) and “On Reading.” we can see that he foresaw the problem of clickbait in terms of its distraction from what’s important and how we can fend it off.
Let’s first turn our attention to Schopenhauer’s beliefs on the two kinds of authors and their motivations:
[T]hose who write for the subject’s sake, and those who write for writing’s sake. The first kind have had thoughts or experiences which seem to them worth communicating, while the second kind need money and consequently write for money. They think in order to write, and they may be recognized by their spinning out their thoughts to the greatest possible length, and also by the way they work out their thoughts, which are half-true, perverse, forced, and vacillating; then also by their love of evasion, so that they may seem what they are not; and this is why their writing is lacking in definiteness and clearness.
The author has a moral duty to not cheat the reader. You could write about how our media demands this cheating. For example, the 24-hour news cycle broadcasts only for the sake of filling up time and generating pageviews. It has changed our definition of ‘news.'
The author is cheating the reader as soon as he writes for the sake of filling up paper; because his pretext for writing is that he has something to impart. Writing for money [is], at bottom, the ruin of literature. It is only the man who writes absolutely for the sake of the subject that writes anything worth writing.
(There is an argument to be made that media fragmentation and low barriers drive down the monetary value of success. If this were true, it is possible that people will once again begin to create for the value of the activity and not the dollars.) We should only read good books. More than read them we should re-read them.
What an inestimable advantage it would be, if, in every branch of literature, there existed only a few but excellent books! This can never come to pass so long as money is to be made by writing. … The best works of great men all come from the time when they had to write either for nothing or for very little pay.
The problem is these bad writers, offering little timeless value, monopolize the time and attention of people that could be otherwise spent on more profitable pursuits.
They are written merely with a view to making money or procuring places. They are not only useless, but they do positive harm. Nine-tenths of the whole of our present literature aims solely at taking a few shillings out of the public’s pocket, and to accomplish this, author, publisher, and reviewer have joined forces.
The fact these views consume us underpins why our views are so shallow. Remember, Schopenhauer was writing at a time when people valued deep work and attention in a way we no longer do. As an audience it is easier to skim the surface of the volume that is available.
Oh, how like one commonplace mind is to another! How they are all fashioned in one form! How they all think alike under similar circumstances, and never differ! This is why their views are so personal and petty. And a stupid public reads the worthless trash written by these fellows for no other reason than that is has been printed today, while it leaves the works of the great thinkers undisturbed on the bookshelves.
We often forget the existence of words is no statement on their truth.
Incredible are the folly and perversity of a public that will leave unread writings of the noblest and rarest of minds, of all times and all countries, for the sake of reading the writings of commonplace persons which appear daily and breed every year in countless numbers like flies; merely because these writings have been printed today and are still wet from the press.
This is where the art of not reading comes in. We have a choice, even if we refuse to exercise it. Schopenhauer offers us guidance on what to read.
Remember rather that the man who writes for fools always finds a large public: and only read for a limited and definite time exclusively the words of great minds, those who surpass other men of all time and countries, and whom the voice of fame points to as such. These alone really educate and instruct.
Furthering this notion, he adds:
One can never read too little of bad or too much of good books: bad books are intellectual poison; they destroy the mind.
Which can equally apply to the websites and articles that consume us. Before we know it, we develop a Pot-Belly of Ignorance.
Inverting the problem Schopenhauer suggests “in order to read what is good one must make it a condition never to read what is bad; for life is short, and both time and strength limited.”
It is because people will only read what is the newest instead of what is the best of all ages, that writers remain in the narrow circle of prevailing ideas, and that the age sinks deeper and deeper in its own mire.
“That was Louis’s way – to find something of value from every printed page.”
— Daniel Boorstein
The author Louis L’Amour (1908-1988) was among America’s most prolific and most beloved. He wrote 105 books, most of which were fiction, and at his death in 1988 they were all still in print. Most still are today. (His prolific nature resembles another great American author, Isaac Asimov.)
Two things drove L’Amour: Adventure and a deep need for self-education. In his memoir, The Education of a Wandering Man, he makes it clear that the two went hand in hand. His travels were his way of learning by direct experience, but he augmented that with a tremendous and voracious appetite for the vicarious learning that comes through reading.
Writing in in the late 1980’s, L’Amour describes his love of the written word, a pursuit he undertook at all cost:
Today you can buy the Dialogues of Plato for less than you would spend on a fifth of whisky, or Gibbon’s Decline and Fall of the Roman Empire for the price of a cheap shirt. You can buy a fair beginning of an education in any bookstore with a good stock of paperback books for less than you would spend on a week’s supply of gasoline.
Often I hear people say they do not have the time to read. That’s absolute nonsense. In one year during which I kept that kind of record, I read twenty-five books while waiting for people. In offices, applying for jobs, waiting to see a dentist, waiting in a restaurant for friends, many such places. I read on buses, trains and planes. If one really wants to learn, one has to decide what is important. Spending an evening on the town? Attending a ball game? Or learning something that can be with you your life long?
Byron’s Don Juan I read on an Arab dhow sailing north from Aden up the Red Sea to Port Tewfik on the Suez Canal. Boswell’s Life of Samuel Johnson I read while broke and on the beach in San Pedro. In Singapore, I came upon a copy of The Annals and Antiquities of Rajahstan by James Tod.
Many of us think we don’t have the time or the inclination to keep learning, but to L’Amour this was a ridiculous idea. If he didn’t educate himself, who else would do the job? In this sense, all education is self-education.
No man or woman has a greater appreciation for schools than I, although few have spent less time in them. No matter how much I admire our schools, I know that no university exists that can provide an education; what a university can provide is an outline, to give the learner a direction and guidance. The rest one has to do for oneself.
What is the point of an education? Steven Pinker would define it more precisely years later, but to L’Amour it was pretty simple, and closely aligned with our ethos at Farnam Street: To enable one to live a better life.
Education should provide the tools for a widening and deepening of life, for increased appreciation of all one sees or experiences. It should equip a person to live life well, to understand what is happening about him, for to live life well one must live with awareness.
L’Amour was clearly a proponent of direct life experience, and he had more than most. As his memoir details, his young life saw him take on the role of a traveling hobo, sailor, amateur boxer, miner, and ranch hand, jobs that took him all around the world in search of work and adventure.
But throughout, L’Amour knew that his destiny was to become a storyteller, and he also knew that to avoid a lot of misery in life would require a massive amount of experience he couldn’t obtain directly.
So he did it through books.
It is often said that one has but one life to live, but that is nonsense. For one who reads, there is no limit to the number of lives that may be lived, for fiction, biography, and history offer an inexhaustible number of lives in many parts of the world, in all periods of time.
So it was with me. I saved myself much hardship by learning from the experiences of others, learning what to expect and what to avoid. I have no doubt that my vicarious experience saved me from mistakes I might otherwise have made—not to say I did not make many along the way.
Although he didn’t set out to learn for this reason, L’Amour also discovered an important lesson in associative pattern-matching and creativity: The brain needs to be stocked full to make interesting and useful connections.
A love of learning for its own sake creates a massive ancillary benefit. What L’Amour says about writers goes for all of us, in any profession:
I have never had to strive to graduate, never to earn a degree. The only degrees I have are honorary, and I am proud to have them. I studied purely for the love of learning, wanting to know and understand. For a writer, of course, everything is grist for the mill, and a writer cannot know too much. Sooner or later everything he does know will find its uses.
A writer’s brain is like a magician’s hat. If you’re going to get anything out of it, you have to put something in first.
I have studied a thousand things I never expected to find use in a story, yet every once in a while these things will find a place.
People who read a lot, people like L’Amour, are often asked about what should be read. Is there some program or direction to take?
The answer we give at Farnam Street and the answer L’Amour gave are about the same: You must follow your passions, follow your curiosities. Why does this work? Nassim Taleb once hit it on the head by saying that “Curiosity is antifragile, like an addiction it is magnified by attempts to satisfy it.”
Down the line, as those curiosities are pursued, the course tends to become quite clear. Trying to pursue some difficult course of study is not the way to get your engines going.
For those who have not been readers, my advice is to read what entertains you. Reading is fun. Reading is adventure. It is not important what you read at first, only that you read.
Many would advise the great books first, but often readers are not prepared for them. If you want to study the country from which you came, there are atlases with maps and there are good books on all countries, books of history, of travel, of current affairs.
Our libraries are not cloisters for an elite. They are for the people, and if they are not used, the fault belongs to those who do not take advantage of their wealth. If one does not move on from what merely amuses to what interests, the fault lies in the reader, for everything is there.
One mistake made by would-be learners it to think that they need guidance or permission to do so. That they must take a class on Shakespeare to enjoy Shakespeare or take a guided tour of the classics in order to enjoy those.
The great works of the world are there to be enjoyed by all. (Of course, we have some recommendations for how to read books in general.) But as L’Amour guides, you must learn and read what you like, unless there is an important extenuating circumstance. Boredom creates a shut-off valve in the brain. And if you’re always reading something of even moderate depth, you simply can’t avoid learning. A continually curious mind ends up at the classics one way or another anyways.
In the end, in a thought later echoed by the technology great Andrew Ng, L'Amour believed the human mind was capable of incredible creativity, perhaps beyond what we currently believe:
Personally, I do not believe the human mind has any limits but those we impose ourselves. I believe that creativity and inventiveness are there for anybody willing to apply himself. I do not believe that man has even begun to realize who he is or what he can become. So far he has been playing it by ear, following paths of least resistance, getting by — because most others were just getting by too. I believe that man has been living in a Neanderthal state of mind. Mentally, we are still flaking rocks for scraping stones or chipping them for arrowheads. […]
We simply must free the mind from its fetters and permit it to function without restraint. Many of us have learned to supply ourselves with the raw materials and then allow the subconscious to take over. This is what creativity is. One must condition oneself for the process and then let it proceed.
If you liked this post, you might like these too:
Schopenhauer on Reading and Books – One of the most timeless and beautiful meditations on reading comes from the 19th-century German philosopher Arthur Schopenhauer.
Reading a Book is a Conversation Between You and the Author – Full ownership of a book only comes when you have made it a part of yourself, and the best way to make yourself a part of it— which comes to the same thing— is by writing in it.
Andrew Ng has quite the modern resume.
He founded Coursera, a wonderful website that gives anyone with Internet access the ability to take high level university courses on almost any topic. He founded the Google Brain project at Google, their deep learning research project intended to help bring about better artificial intelligence. Now he's the Chief Scientist at Baidu Research.
Ng is, unsurprisingly, devoted to reading and learning. As he puts it,
In my own life, I found that whenever I wasn't sure what to do next, I would go and learn a lot, read a lot, talk to experts. I don't know how the human brain works but it's almost magical: when you read enough or talk to enough experts, when you have enough inputs, new ideas start appearing. This seems to happen for a lot of people that I know.
When you become sufficiently expert in the state of the art, you stop picking ideas at random. You are thoughtful in how to select ideas, and how to combine ideas. You are thoughtful about when you should be generating many ideas versus pruning down ideas.
I read a lot and I also spend time talking to people a fair amount. I think two of the most efficient ways to learn, to get information, are reading and talking to experts. So I spend quite a bit of time doing both of them. I think I have just shy of a thousand books on my Kindle. And I've probably read about two-thirds of them.
Ng thinks innovation and creativity can be learned — that they are pattern-recognition and combinatorial creativity exercises which can be performed by an intelligent and devoted practitioner with the right approach.
He also encourages the creation of new things; new businesses, new technologies. And on that topic, Ng has a few book recommendations. Given his list of accomplishments, the quality of his mind, and his admitted devotion to reading the printed word, it seems worth our time to check out the list.
The first is “Zero to One” by Peter Thiel, a very good book that gives an overview of entrepreneurship and innovation.
We often break down entrepreneurship into B2B (“business to business,” i.e., businesses whose customers are other businesses) and B2C (“business to consumer”).
For B2B, I recommend “Crossing the Chasm.” For B2C, one of my favorite books is “The Lean Startup,” which takes a narrower view but it gives one specific tactic for innovating quickly. It's a little narrow but it's very good in the area that it covers.
Then to break B2C down even further, two of my favorites are “Talking to Humans,” which is a very short book that teaches you how to develop empathy for users you want to serve by talking to them.
Also, “Rocket Surgery Made Easy.” If you want to build products that are important, that users care about, this teaches you different tactics for learning about users, either through user studies or by interviews.
Then finally there is “The Hard Thing about Hard Things.” It's a bit dark but it does cover a lot of useful territory on what building an organization is like.
For people who are trying to figure out career decisions, there's a very interesting one: “So Good They Can't Ignore You.” That gives a valuable perspective on how to select a path for one's career.
On this episode, I’m happy to have Morgan Housel (@morganhousel)
Morgan works at Collaborative Fund. He’s a former columnist at the Motley Fool, and a former columnist of the Wall Street Journal. His work has also been published in Time, USA Today, World Affairs, and Business Insider.
You name it, he’s been there. Simply put, he’s one of the shining lights of the business press.
More than that, though, he’s one of the few people that I read all the time. As I’ve gotten to know him over the years, I can also tell you he’s an exceptional person. I hope you enjoy this conversation as much as I did.
A complete transcript is available for members.
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!