Friday, January 26, 2007

Wisdoms from Charlie and Warren

A question often posed to Warren Buffett and Charlie Munger is “How do you learned to be a great investor? Warren says to the extent that “no one can get smart without reading a lot.” Charlie says “you have to understand your own nature” and “I don’t know any wise man who doesn’t read a lot.”

What Warren says can be easily grasped. Knowledge more often than not comes from book. Great investors are not born with all the necessary information and ideas with them. They may be born with certain characteristics that enable them to pick up things faster than others but it boils down to finding the right knowledge to apply them. Between me and you, we certainly do not have a high likelihood of learning a great deal from each other. The only way to speed up the process of learning which in turn helps the process of becoming smarter is read a lot. However, the world consists of endless books giving you endless ideas and options. So it is important to pick out the best and right ideas from the vast sea of knowledge are just as important. It is similar to investing where you have to pick out the winners from the rest.

As to Charlie’s idea, he said “Each person has to play the game, given his own set of utility considerations and in a way that takes into account his own psychology. If losses are going to make you miserable – and some losses are inevitable – you might be wise to utilize a very conservative pattern of investment and saving all your life. So you have to adapt a strategy to you own nature and your own talents. I don’t think there’s a one-size-fits-all investment strategy that I can give you.”

Then Charlie also says you have to gather information. “I think both Warren and I learn more from the great business magazine than we do anywhere else. It’s such an easy, and shorthand way of getting a vast variety of business experience to rifle through issue after issue covering a great variety of businesses.

He went on to say “And if you get into the mental habit of relating what you’re reading to the basic structure of the underlying ideas being demonstrated, you gradually accumulate some wisdom about investing. I don’t think you can get to be a really broad-range investor without doing a massive amount of reading. I don’t think any one book can do it for you.”

Charlie also believes that reading should not be random. You must know what books or ideas that you want by zooming in on a particular book that provides the underlying idea that you are trying to acquire. He says “You’ve to have some idea of why you’re looking for the information.” He too says, “Don’t read annual reports the way Francis Bacon said you do science – which, by the way, is not the way to do science – where you just collect endless data and then only later do you try to make sense out of it. You’ve to start with some ideas about reality. And then you have to look to see whether what you’re seeing fits in with proven basic concepts.”

“Frequently, you’ll look at a business having fabulous results. And the question is, ‘How long can this continue?’ Well, there’s only one way I know to answer that. And that’s to think about why the results are occurring now – and then to figure out what could cause those results to stop occurring.”

Charlie maintains that the ability to answers such questions explains why some people are more successful and others are not. On the other hands, he says “If it isn’t a little difficult, everybody would be rich.” By the way rich is relative because if everyone is a millionaire, then what is rich? To me, knowledge is being rich and wealthy and the ability to sustain the success or goal that you have in mind.


fishman said...

Hey pal, notice you've stop posting for some time. what's up?

I've been too busy lately to be blogging. But really enjoy reading your blog for your investment insights. Just a bit chim and too deep in content at times.

Whatever it is, do keep posting!

Happy Lunar New Year! Huat Ah!


Nice take on buffett