Blog Archives

Learning and Productivity Compound Over Time

Mathematician and computer scientist Richard Hamming on how learning and productivity compound over time

How are some people more industrious and prolific than others? Are they merely smarter or do they just toil a bit harder than everyone else?

In 1986, mathematician and computer scientist Richard Hamming gave a talk at Bell Communications Research about how people can do great work, “Nobel-Prize type of work.” One of the characteristics he talked about was possessing great drive:

Now for the matter of drive. You observe that most great scientists have tremendous drive. I worked for ten years with John Tukey at Bell Labs. He had tremendous drive. One day about three or four years after I joined, I discovered that John Tukey was slightly younger than I was. John was a genius and I clearly was not. Well I went storming into Bode’s office and said, “How can anybody my age know as much as John Tukey does?” He leaned back in his chair, put his hands behind his head, grinned slightly, and said, “You would be surprised Hamming, how much you would know if you worked as hard as he did that many years.” I simply slunk out of the office!

What Bode was saying was this: “Knowledge and productivity are like compound interest.” Given two people of approximately the same ability and one person who works ten percent more than the other, the latter will more than twice outproduce the former. The more you know, the more you learn; the more you learn, the more you can do; the more you can do, the more the opportunity—it is very much like compound interest. I don’t want to give you a rate, but it is a very high rate. Given two people with exactly the same ability, the one person who manages day in and day out to get in one more hour of thinking will be tremendously more productive over a lifetime.

Thinking of investing your time and energy in terms of this compounding effect can be a very useful way to go about life. Early and rigorous investment in anything you are interested in cultivating—friendships, relationships, wealth, understanding, spirituality, know-how, etc.—often generates exponentially superior results over time than even marginally less effort.

Success begets success, and that counts for small investments, too.

Try to have “more experience” than someone else, but it’s not by itself enough. It’s about how well you can draw the appropriate lessons from the experiences. It’s about how well you can distinguish specific experiences as generalizable versus anomalies.

Knowledge Compounds

Someone once asked Warren Buffett how to become a better investor. He pointed to a pile of company annual reports. “Read 500 pages like this every day … That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”

Posted in Education and Career

Warren Buffett on Time Management: “All You Need Is … Time”

Warren Buffett on Time Management: Warren Buffett once said on time management, “The rich invest in time; the poor invest in money.”

Buffett is currently the fourth richest men in the world. He can buy practically anything he wants to, and more than nearly everyone else could ever dream of.

Nevertheless there’s one thing that even Warren Buffett cannot buy, and that is time.

Here’s a brief transcript from a Charlie Rose interview:

Warren Buffett: I mean I can buy anything I want basically, but I can’t buy time.

Charlie Rose: And so to have time is the most precious thing you can have?

Warren Buffett: Yes, I better be careful with it. There is no way I will be able to buy more time.

Warren Buffett's Interview with Charlie Rose (Time Management) Charlie Rose: And living in Omaha makes that easy?

Warren Buffett: That makes it a lot easier. I, for 50 whatever, well for 54 years I spent five minutes going each way now. Just imagine that was a half an hour each way. You know. I know the words to a lot more songs and that’s about it.

Charlie Rose: It adds up. Doesn’t it?

Warren Buffett: It really adds up. Now if you’re doing an hour a day difference coming and going that’s two and a half percent of the person’s work week. That means 40 years you’re talking about a year.

An undisciplined mind will find every reason to do what should not be done and every excuse not to do what should be done. Warren Buffett once said, “The difference between successful people and very successful people is that very successful people say ‘no’ to almost everything.”

Ira Glass Time Management Technique

This American Life‘s Ira Glass talks with Lifehacker about how he works. When asked what his best time-saving shortcut or life hack was, he responded:

I’ve got nothing. Reading other people’s answers to this question on your website today made me realize I live my life like an ape. I eat the same breakfast and lunch everyday, both at my desk. I employ no time-saving tricks at all.

Though come to think of it, I guess my biggest life hack—and this is the very first time I’ve attempted to use the phrase “life hack” in a sentence—is that my wife and I decided to live just a few blocks from where I work. We did this because of our dog. Since I spend at least an hour every night walking the dog, I didn’t want to spend another 60 or 90 minutes a day commuting. I don’t have the time. Like lots of people, I work long hours.

Posted in Business and Strategy Philosophy and Wisdom

Philanthropy and The Passion of Bill Gates

Forbes 400 Summit on Philanthropy In June 2015, about 200 billionaires, outstanding philanthropists and social entrepreneur-game changers convened in New York for the annual Forbes 400 Summit on Philanthropy. The high spot of the event was the presentation of lifetime accomplishment awards to Bill and Melinda Gates, and Paul Farmer, cofounder of Partners in Health. The invention or development should be of great significance scientifically, should be agenda setting, and undeniably must have had a chief influence, both in terms of the development of the field and its applications to advance mankind. The rule is that that the accomplishment should not have been marked by another major prize. This means that the reward should not come too long after the invention, discovery or development. This is why our winners occasionally receive the Nobel Prize and not the other way around.

Paul Farmer, Partners in Health Recalling Bill Gates’s passion for philanthropy and his ability to focus on the task at hand, Paul Farmer reminisced,

I was traveling with Bill once in Africa and we decided to go up to the top of this mountain to see the gorillas up close. We’re sitting there, and there’s this beautiful silver-backed gorilla not 5 feet from Bill Gates. And he turns around to me and goes, “Now, where were we in talking about this tuberculosis vaccine?”

Warren Buffett and Bill Gates Philanthropy In a planet with many celebrities but few heroes, Bill Gates has reached superhuman status by pledging much of his massive fortune to the improvement of global equity. He and his wife have directed the causes of health disparities between rich and poor, and their foundation has become a mainspring in international aid and in research on AIDS and other diseases. In June, the Bill and Melinda Gates Foundation’s likely influence on global health was augmented when Warren Buffett, the world’s second-richest man, broadcast plans to give most of his fortune to the foundation established by the richest one. At the same event, Warren Buffett noted the following on Bill and Melinda Gates:

When I was deciding how to give away my money nine years ago, I reached out to Bill and Melinda Gates and struck the kind of deal I usually make: they do all of the work and I sit back and watch. I’ve studied this country’s great philanthropists: Rockefeller, Carnegie. Henry Ford, you name them. None of them ever poured remotely the amount of personal time, effort, and brainpower into their foundations that Bill and Melinda have.

When the Buffett gift was announced, some observers expressed concern that aid from other sources would decline because the Gates Foundation would be perceived as rich enough to solve the developing world’s health problems.

Philanthropy and The Passion of Bill Gates Venture philanthropy has thrived general philanthropy as a controlling principle in concept and in language. The conversion further blurs the line between the private and the public. Foundations have moved away from setting general humanitarian goals and making grants to outside groups for research and for achievement programs in keeping with the foundation’s general purposes. Foundations today set more specific policy goals and then either create or seek out establishments that will carry out projects for which the significances are set by the foundation. Some of the foundations no longer consent unsolicited applications. Instead of a listing of grants, they are now titled a collection of “investments” directed toward achieving a policy goal. The foundations reinforce research that “aligns with our investment strategy.” The Gates Foundation speaks about its “program-related investments” when speaking of its payments in chase of its aims. Accepting the award, Bill Gates noted:

I have had a lot of fun jobs, but none of them has been as fun as partnering with Melinda and seeing real results. My favorite graph is the one that shows childhood death has been cut in half in 25 years, and my favorite prediction is that we’ll cut it in half again.

I see philanthropy as the venture capital tor government functions. There are certain things the private sector will never fund like fighting malaria or fixing primary health systems, because there is no profit model there. Governments want to fund those things, but it’s difficult for them to work on really long-term issues and to attract the right scientists to solve those problems. Philanthropy can take the risks, do the research and development, and fund the pilot programs to tackle some of the most critical issues in the world.

The late 19th century brought the Gilded Age, with riches created by inventions and opportunities. In the 20th century, capitalism was directed by the managerial revolution that fashioned huge corporations and personal fortunes but also repressed innovation, limited new opportunities, and widened the gap in the distribution of wealth. Executive capitalism is now being replaced by the entrepreneurial capitalism stage, a second Gilded Age, which Acs identifies as the New American Capitalism. Entrepreneurial capitalism necessitates a philanthropy (as represented by Warren Buffett and Andrew Carnegie) that ploughs fortunes into society to offer opportunities for entrepreneurs and capital for entrepreneurial activities such as business incubators. Corporate capitalism reinvigorated traditionally manly rhetoric and actions, from paternalism and self-control to the Great Father and the warrior ethos. Abstracted loyalties to gender and race intensified, and gestures of masculinization saturated American culture. Nor have they slackened much in or own post-millennial atmosphere of white male pathos and bathos. Yet it’s not enough to say that manhood developed new forms of contestation and patriarchal performativity as men’s work alienated their gender codes from their gendered bodies. The rise of large-scale organizations threatened manhood’s usefulness.

Posted in Philosophy and Wisdom

You Can’t Prove Anything About the Future

'Security Analysis' by Graham and Dodd (ISBN 0071592539) Venture investing plays an important role in entrepreneurship not only because financial resources are important to new ventures, but also because early investors help shape the ventures’ managerial and strategic destiny. Value investing is conceivably the most prevalent and durable style of investing.

However, despite its reputation, the theoretical foundations of value investing have developed little since the ground-breaking work of Benjamin Graham and David Dodd espoused in their classic Security Analysis (1934). They advise value investors to focus their attention on securities “which are selling below the levels apparently justified by careful analysis of the relevant facts.” They further encourage value investors to concern themselves with “the intrinsic value of the security and more particularly with the discovery of discrepancies between the intrinsic value and the market price.” In providing wide-ranging guidance for the estimation of intrinsic value, they write down that:

In general terms it is understood to be the value which is justified by the facts, e.g. the assets, earnings, dividends, definite prospects, as distinct, let us say, from market quotations established by artificial manipulation or distorted by psychological excesses. But it is a great mistake to imagine that intrinsic value is as definite and as determinable as is the market price. Some time ago intrinsic value (in the case of common stock) was thought to be about the same thing as “book value,” i.e. it was equal to the net assets of the business fairly priced. This view of intrinsic value was quite definite, but it proved almost worthless as a practical matter because neither the average earnings nor the average market price evinced any tendency to be governed by the book value. Hence this idea was superseded by a newer view, viz., that the intrinsic value of a business was determined by its earnings power. But the phrase “earnings power” must imply a fairly confident expectation of certain future results. It is not sufficient to know what the past earnings have averaged, or even that they disclose a separate line of growth or decline. There must be plausible grounds for believing that this average or this trend is a dependable guide to the future.

Variation in long-horizon security returns is governed by fundamentals. Reckoning the prospective yield by aggregating expected earnings over more than a few future years dominates existing approaches to measuring value. This analysis highlights significant opportunities for improvement in the relative-value metrics used by academics and practitioners. To determine the source of variation in future stock returns to various investment strategies. The book-to-market ratio is a comparatively poor measure of value and that much of its prognostic ability with respect to future stock returns appears to arise from other sources.

Investor Howard Marks Renowned investor Howard Marks (b. 1946) of Citibank, TCW Group, and Oaktree Capital Management at “Investor Series” interview with Oaktree founder and American investor Bruce Karsh at Wharton School, University of Pennsylvania:

There’s no such thing as analysis of what’s coming. We don’t know anything about the future, and you can’t prove anything about the future.

But if you’ve been in business and you’ve seen some cycles, and you’ve gained some experience and you’ve gone through those cycles with your eyes open saying “What are the implications of cycles for our behavior?”, then I think you can reach a point where you say, “You know what, it just feels like the power is in the hands of the issuers, not the buyers. It feels like there aren’t many sellers, just a lot of buyers. And the market is not acting in a disciplined way.”

We want to buy when the market in panicked, not when the market is sanguine. [Warren] Buffett says that “The less prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own affairs.”

When other people are optimistic, we should be worried. When other people are panicked, we should turn aggressive.

Comports with Sir John Templeton‘s famous dictums “If you want to have a better performance than the crowd, you must do things differently from the crowd” and “Invest at the point of maximum pessimism.”

Posted in Investing and Finance

Warren Buffett on Taking a Few Big Swings

Warren Buffett on taking a big swing from a 1998 Q & A (video here) that he and Bill Gates did with students at the University of Washington (via

A few things have worked out very well [for me]. And the nice thing about the investment business is that you don’t need very many. You’ll see plenty of times when you get chances to do things that just shout at you. And the thing you have to do is, when that happens, you have to take a big swing. That is no time to be reading a book on the theory of diversification …. When you find something where you know the business is within your circle of competence, you understand it, the price is right, the people are right—then you take your thumb out of your mouth and you barrel in.

Posted in Investing and Finance

Charlie Munger’s 10 Rules for Investment Success

Charlie Munger's 10 Rules for Investment Success When Charlie Munger talks, people listen— particularly if they want to know how to invest their money.

Munger, who is the vice-chairman of Berkshire Hathaway, has delivered instrumental guidance to Berkshire’s renowned founder, Warren Buffett, and many others. By means of what Munger identifies as “elementary world wisdom,” Munger’s technique weighs risk and reward, make the most of fact-based data and abating emotion.

Keeping it simple, Munger declares, “I observe what works and what doesn’t and why.” Like Buffett, Munger pulls much of his motivation from post-Great Depression era investor Benjamin Graham, a “value investor.” Graham sought “mispriced assets” with values greater than people think.

Charlie Munger has some advice for investors.

  1. Measure risk: All investment evaluations should begin by measuring risk, especially reputational.
  2. Be independent: Only in fairy tales are emperors told they’re naked.
  3. Prepare ahead: The only way to win is to work, work, work, and hope to have a few insights.
  4. Have intellectual humility: Acknowledging what you don’t know is the dawning of wisdom.
  5. Analyze rigorously: Use effective checklists to minimize errors and omissions.
  6. Allocate assets wisely: Proper allocation of capital is an investor’s No. 1 job.
  7. Have patience: Resist the natural human bias to act.
  8. Be decisive: When proper circumstances present themselves, act with decisiveness and conviction.
  9. Be ready for change: Accept unremovable complexity.
  10. Stay focused: Keep it simple and remember what you set out to do.

Munger has argued that if “you’re investing for 40 years in some pension fund, what difference does it make if the path from start to finish is a little more bumpy or a little different than everybody else’s so long as it’s all going to work out well in the end? So what if there’s a little extra volatility.”

Posted in Investing and Finance

Warren Buffett’s Tips for Long-Term Investing

Warren Buffett's Tips for Long-Term Investing WSJ extracts four tips for long-term investing from Warren Buffett’s 2014 annual letter to Berkshire Hathaway’s shareholders. Here are excerpts.

  1. Own low-cost S&P 500 index funds: “Don’t try to pick winning stocks. Instead “own a cross section of businesses that in aggregate are bound to do well.” A low-cost S&P 500 index fund helps any investor do this well.”
  2. Ignore your or anyone else’s predictions about long or short-term price changes. “Focus instead on productivity of assets.”
  3. Ignore the macro environment and political environment: “Buffett notes that when he and his partner Charlie Munger buy stocks, they think of them as “small portion of businesses” and try to see the earnings power of these businesses over the next five years or more. “In the 54 years we have worked together, we have never forgone an attractive purchase because of the macro or political environment.””
  4. Make as few investments as possible: “Investors these days are pushed to be active and to buy low, sell high. Frequent buying and selling only cuts into long-term returns. Mr. Buffett continues: “Ignore the chatter, keep your costs minimal, and invest in stocks as you would a farm.””
Posted in Investing and Finance

Ben Graham and Warren Buffett on Temperament in Investing

  • “We have seen much more money made and kept by “ordinary people” who were temperamentally well suited for the investment process than by those who lacked this quality, even though they had an extensive knowledge of finance, accounting, and stock-market lore.”
    Ben Graham, Father of Value Investing and mentor of Warren Buffett
  • “Success in investing doesn’t correlate with I.Q… Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
    Warren Buffett
Posted in Investing and Finance

To Allocate Capital, You Need a Good Search Strategy

'Keeping America Great' at Columbia with Warren Buffett and Bill Gates

At the 2009 CNBC Town Hall Event called “Keeping America Great” at Columbia University with Warren Buffett and Bill Gates (video here), Buffett said that to allocate capital, you need a good search strategy. Developing this strategy requires a lot of hard work, “turning pages” as Buffett calls it:

If you are going to spend a lot of time on investment, you know I just advise looking at as many things as possible and you will find some bargains. And when you find them, you have to act. … And you have to find them yourself. The world isn’t going to tell you about great deals. You have to find them yourself. And that takes a fair amount of time. So if you are not going to do that, if you are just going to be a passive investor, then I just advise an index fund more consistently over a long period of time. … Good businesses are going to become worth more over time. And you don’t want to pay too much for them so you have to have some discipline about what you pay. But the thing to do is find a good business and stick with it.

It is not possible to pick the bottom. Learn how to value companies, practice until you get good, and buy when you find a good business that you understand, with good management, available at an attractive price.

Posted in Investing and Finance

Charlie Munger’s Sit-on-Your-Ass Investing Concept

Charlie Munger presented the model of “Sit on your ass investing” at the 2000 Berkshire Hathaway Annual meeting. Description courtesy of Losch Management Company, an Orlando, Florida-based investment advisor.

'Charlie Munger: The Complete Investor' by Tren Griffin (ISBN 023117098X) You have value investing, and growth investing, but now we also have “sit on your ass investing”, which is better.

The problem with value investing is it requires too much work.

First you have to find an undervalued stock and buy it cheap. Then you have to sell it when it the price reaches or exceeds your calculated figure for its intrinsic value.

Because this requires many decisions over a long period of time, Charlie Munger prefers his own method in which all you have to do is pick a really great company when it is attractively priced, and then just sit on your ass. The great advantage being that it only requires one decision.

Charlie said: “If you buy a business just because it’s undervalued then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies then you can sit on your ass … that’s a good thing.”

The whole idea of not having to do something extraordinary is one all investors should heed, yet it is easy to forget, particularly in stressful situations.

Recommended Reading: ‘Charlie Munger: The Complete Investor’ by Tren Griffin

Posted in Investing and Finance