A Buffett of Knowledge

Warren Buffett made $36,918,604 a day last year; $1,000,000,000 more than Bank of America’s net income over the past three years combined. His holding company, Berkshire Hathaway, wholly owns GEICO, Fruit of the Loom, Dairy Queen, and NetJets to name a few. As a CEO he has been described as transparent, uncanny, down-to-earth, and folksy; interesting descriptions for a man whose book value has appreciated over 700,000% for since 1965.

How is this possible? How can one even begin to embark on the quest of becoming as intelligent and successful as Warren Buffett?

When faced with questions about how he does it, Buffett replied, “I just sit in my office and read all day” And similar to Buffet, I believe that reading is one of the best ways to procure knowledge; it just takes time and effort.

Buffett describes knowledge as something that acts similarly to interest; as it gathers it compounds, day after day, year after year. Applying the same logic to investments (the sooner the genesis the longer the opportunity for interest to compound) there is no better time to start then right now.

We must be conscious of how we read. We must do the necessary work to form an opinion, not simply reiterate content that we have read, but absorb and comprehended it. Rolf Dobelli describes the former as Chauffeur Knowledge in his book The Art of Thinking Clearly:

After receiving the Nobel Prize in Physics in 1918, Max Planck went on tour across Germany. Wherever he was invited, he delivered the same lecture on new quantum mechanics.

Over time, his chauffeur grew to know it by heart: “It has to be boring giving the same speech each time, Professor Planck. How about I do it for you in Munich? You can sit in the front row and wear my chauffeur’s cap. That’d give us both a bit of variety.”

Planck liked the idea, so that evening the driver held a long lecture on quantum mechanics in front of a distinguished audience, with Max Planck sitting in the front row pretending to be his chauffeur.

Later, a physics professor stood up with a question. The driver recoiled: “Never would I have thought that someone from such an advanced city as Munich would ask such a simple question! That question is so simple; my chauffeur will answer it ..!”

Read with a purpose, learn with a purpose.

How does one find time? First, as my co-author described in his last post, we need to understand that not all hours are created equal. I believe that we make time for things that are important to us. I recently compiled a list of what, on average, my day consisted of. I came to the conclusion that if I was going to invest, gradually, in my future wisdom via reading, there were several sacrifices I could make quite easily.

An hour in the morning - I have begun to dedicate an hour every morning to simply reading, thinking and developing a skillset that will aid me for the rest of my life: reading for understanding and not for information. To complete this process, to ensure I have learned something and not just acquired chauffeur knowledge, I will find someone to explain myself to. Just like teaching someone how to do something helps you learn more about it yourself, I have started to write down and discuss my thoughts about the topic I learned in a manner that welcomes ongoing dialog; we need to be challenged on what we have learned.

The person who says he knows what he thinks but cannot express it usually does not know what he thinks.

                        -Mortimer Adler

This aforementioned “expressing” can be accomplished in many different ways; one method is the Feynman Technique. Essentially, this technique does just what the above quote points out; it allows us to express what we know and think in a way that points out gaps in our knowledge and areas that need attention.

The first step of the Feynman Technique is to choose the concept you wish to master and write it at the top of the page.

The second step is to imagine you are explaining the concept to someone else; as mentioned above we learn much better when we explain things to others. Explaining a concept to another person prevents us from hiding behind our own uncertainty, we are forced to fully develop our thoughts and ideas in a clear and concise way. Write it down.

The third step is to go back to the book; while expanding your thoughts and ideas on the concept be sure to go back to the source when your unfamiliarity with certain sections are made aware.

The fourth and final step is to simplify your language. Personally, while taking notes or journaling I tend to write and describe concepts in the way that they in my head at that given time. That is not enough; we read and interpret things differently over time, we forget things. Standardizing our thoughts is important so the message will be clear every time; that is why eliminating jargon, or at least explaining it is important.

The above techniques and practices will require sacrifice. The procurement of knowledge is not a short path, or something that happens quickly; it requires self-control.

I find these sacrifices quite similar to the sacrifices we make when we begin to invest in monetary terms; after a while we don’t quite remember what it was like not to invest, and that is certainly not an environment we wish to return to.

-Luke

Another great article on Buffett can be found here.