Supported by Greenhaven Road Capital, finding value off the beaten path.
Let’s start with a story. When I was ten we moved to a new town. It was a typical move; new house, new friends, new school, new patterns, new memories. Another newness was that the town was bike friendly. I could ride to the city baseball diamonds, friends’ houses, and the public library, and oh what a library it was. It was stacked. There were comics and elven fantasies I didn’t even know existed, much less had read. I was thrilled.
Years later I went off to college which had an even larger library, and, get this, you could request things from other libraries! I’d like to report that I searched out the great tomes and read them cover to cover and back again, but I did not. Instead, I used it to borrow rather than buy textbooks.
I mention this because Bill Gates marveled at the same thing. “It’s an incredible time to be a learner,” he told Charlie Rose, “I remember when I was young and it was very good, but I always felt like ‘I gotta get into this more, I want to understand it better.’ Today, the videos and courses that are online with the very best professors is phenomenal.” Tyler Cowen calls these kinds of people infovores and wrote about this.
Consider the magnitude of this. What do you want to learn? It’s out there, go get it. When we moved, I saw my access grow. When I went to college it grew again. With the internet 2.0, user generated content, YouTube, Coursera, and so on and so on you can learn anything. The question becomes, will you?
Success is going from ‘what to do’ to ‘how to do it’ to ‘did it.’ This is simple, but not easy. What follows are 9 suggestions for ‘what to do’ from Buffett and Gates. The rest is up to you.
- Be curious
- Be optimistic
- Have focus
- Be a multidisciplinary thinker
- Learn things that are knowable (and valuable)
- Match your temperament to your work
- Create situations for big wins but small losses
- Marry well
Start with curiosity. Buffett said that what surprised him about meeting Gates was the curiosity they shared. It wasn’t for the same domains, but it was the same intensity. Curiosity is a superpower.
Brian Grazer is curious, and he writes that it’s been a boon to his career. Grazer explains that curiosity is best when it’s done with an open mind and when you act on it. Listen, understand, and act when possible is Grazer’s model. Yvon Chouinard, for example, was curious. What if we made colored, tough, clothes for climbers like ourselves? Kara Swisher says that curiosity is going where a conversation takes you, not guiding it where you want it to go.
You also need to be an optimist. In a talk, Sanjay Bakshi said that he likes to find entrepreneurs that are optimistic, but not delusional. Successful people climb to the top of the mountain for the view, but don’t jump off thinking they can fly.
When Daymond John started FUBU he said he had this kind of optimism. He believed he could compete with Adidas, but wasn’t delusional that it would be immediate. “I worked at Red Lobster for six years while running FUBU,” John said.
Daniel Kahneman put it this way, “Optimism is the engine of capitalism. When you look at big successes, it’s because someone tried something they shouldn’t have.”
Another attribute is the ability to focus. “Both of us got to where we are because of focus,” said Buffett. That means a deep understanding of the most important things. It’s why Bill Belichick wins Super Bowls. It’s how Milton Hershey created a chocolate empire. It’s how Phil Knight created Nike. In Shoe Dog Knight wrote, “While auditing these companies, digging into their guts, taking them apart and putting them back together, I was also learning how they survived, or didn’t.” Like a watchmaker, Knight saw the gears that made companies tick.
It helps too to be a multidisciplinary thinker. Gates never was until he met Buffett. “One of the first questions he asked me,” said Gates, “was, ‘Microsoft is a small company. IBM is a big company. Why can you do better? Why can’t they beat you at the software game that you’re playing?’”
Multidisciplinary thinking is efficient and fun! Tren Griffin wrote, “looking for models that can reveal and explain mistakes so one can accumulate worldly wisdom is actually lots of fun. It is like a puzzle to be solved.” It also doesn’t take that much work. At the 2017 Daily Journal meeting Charlie Munger suggested spending 10% of your time learning the big ideas from different domains. Robert Hagstrom wrote a book – Investing: The Last Liberal Art – if you want to dip your toe in the pool.
Sanjay Bakshi employs multidisciplinary thinking with the “part-of-the-reason” prompt. When faced with a problem, Bakshi will say, ‘part of the reason is this, and part of the reason is that, and so on.’ Why does this tend to work? Because problems have multiple reasons. Neil deGrasse Tyson noted that “the universe does not divide itself neatly into textbooks.”
When asked about his most valuable skill Christian Rudder effectively said multidisciplinary thinking:
“The skills that have been most important to me in what I’ve done has been a kind of world real experience, a sense of how people work. I haven’t spent my entire life in an academic department. I’ve done a lot of different things. I think that is extremely helpful in analyzing data. Any data analysis in a social setting your goal is to understand human behavior.”
This exposure isn’t normal. We have to seek it out. “Nobody had ever asked me that question,” Gates said.
While we think about thinking, we also should learn things that are knowable. In his Expert Opinion memo, Howard Marks encouraged us to pursue information that is important and knowable. There are some things that are not. Take macroeconomics, says Gates. “Things like macroeconomics involve emotional sentiment, (and) we’re a long way from (predicting) that.” Peter Lynch didn’t even think you should try. Fourteen minutes spent on considering politics, global events, or macroeconomic forces, said Lynch, was twelve minutes too long. Shane Parrish suggests finding things that change slowly.
As you do these things you also have to persist. “Guys like Bill don’t quit,” said Buffett, “He moves onto something like polio. He mentions fifty cases in the world. There were more than fifty in the ward where I want when I was a teenager.”
This was an amazing moment of the talk. Worldwide Polio in 2017 has similar numbers to Omaha Nebraska in 1940. Wow. That’s thanks to persistence.
Gates said that in the early days of Microsoft he never left. There was no such thing as a weekend or vacation. Gates even says that his mother had to negotiate with him for nights when he would come over for dinner.
This work isn’t always easy either. Brent Beshore compared it to a knife fight. Pete Carroll said there’s no rest:
“When you’re a competitor you don’t rest. You’re either competing or you’re not. We’re in a relentless pursuit of finding the competitive edge in everything we’re doing, and that’s a mentality. You’re either competing or you’re not. You’re either working at doing better or you’re going in the wrong direction. You’ve got to be on. You can’t be too comfortable, you have to keep pushing.”
One supervisor reported about John Boyd:
“His production comes from about 10% inspiration and 90% a grueling pace that his cohorts find difficult if not impossible to keep up with. He is extremely intolerant of inefficiency and those who attempt to impede his program.”
What do Boyd, Carroll, Beshore, Gates and Munger have in common? They work hard and they love hard work.
It’s easier to work like this when you have the right temperament. Moderator Charlie Rose asked Gates and Buffett what they would do if they had to start over again. Both said they would do the same thing. Buffett – of course – put it in a memorable way:
“I wasn’t going to be a pro football player. It was a question of zeroing out all the other incomes. I was actually wired in a way where this was something I was going to be good at.”
He continued and said that for investing, “temperament is more important than IQ.”
Find a job where you tap dance to work, says Buffett. Or:
“Look for the job that you would take if you didn’t need a job. Don’t sleepwalk through life and don’t say it’s all going to be great, ‘I’ll do this and I’ll do that. I’m just marking time till I’m older.’ That’s like saving up sex for your old age. That’s not a good idea.”
If you can work this way then the next step is to arrange asymmetrical returns. Gates said, “I didn’t view (working with computers) as risky. I viewed it as this kind of fun hobby…My passion and hobby was in an area I could start a company right at the beginning of a revolution. It coincided in a nice way.”
It was a win a lot or lose very little situation. If everything worked out (and it did) Gates was the founder of Microsoft. If everything didn’t, Gates could get another job working with computers and even the time he sunk into a company was just a “fun hobby.”
Part of the way to arrange this situation is to keep a low overhead. Gates said, “if Microsoft had failed, I didn’t have kids and I could go back to school and finish my degree and go get a job somewhere.” Once he started to hire people he continued to keep expenses down:
“I always made sure we had enough money in the bank to pay everybody for at least a year if nobody paid us at all. I was hiring people who had kids and families and here I was at 19 or 20 years old telling people I would be paying their salaries. I was very conservative on a financial point of view.”
Burton Malkiel told this story about when frugalistas Jack Bogle and Warren Buffett met:
“When Jack Bogle first met Warren Buffett they were at a hotel together and Jack recognized Warren, went up and introduced himself, and he said to Warren, ‘you know the thing I really like about you is you have rumpled suits just the same as I do’ and Jack and Warren have become very good friends.”
Why? In Buffett’s own words, “I have every possession I want. I have friends with a lot more possessions but in some cases I think the possessions possess them rather than the other way around.”
A low overhead provides more runway. More runway means more time for a big payout. On a smaller scale, many podcasters do this. Podcasts may not have moats but they don’t need to. May podcasters do it as a hobby, just like Gates. If it brings professional, educational, or financial rewards then great. If not, it was still a good time.
As you do these things there will be people in your life, so try to marry well.
Gates did. “Melinda is an amazing partner,” he said, “She thinks about the people issues better than I do. She knows when I get over excited about the science we can make sure we’re being realistic about it. And it makes it fun.” Tom Brokaw, Brian Koppelman, and Charley Ellis mention the value of a good marriage.
It’s not only marital ones, there are legal ones too. Buffett has benefited from partnering with Charlie Munger. “Charlie Munger changed my views. He defined them in a huge way, in terms of looking for the quality companies. Looking for the ability to make an investment that would work out well for 5 or 10 or 20 years.” Buffett continued:
“You will move in the direction of the people you associate with and it’s important to associate with people that are better than yourself…you want to associate with people who are the kind of person you’d like to be….The friends you have will form you as you go through life.”
Of course there’s one more thing. You need to be a learner “I read at one-fifth the pace Bill does but I still spend five to six hours a day reading,” said Buffett, “You can learn so much. I particularly love biographies.”
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