"The Business Eye"

[anders]

“I think Buffett is a better investor than me because he has a better eye towards what makes a great business. When I find a great business, I am happy to buy it and hold it. [but] most businesses don’t look so great to me.” - Seth Klarman

 

For a number of years I have been developing my business eye. What I do is reading; reports, reports, reports, reports, reports, reports, books, books, reports, reports....

 

But for the first time in my life, im starting to be tired of it.. I dont want to, but that is how it feels... It is much like you practice piano 6 hours every day, or stand at the golf ranch 5 hours per day for years...

 

One question I think about a lot is what factor makes the difference of being really great, or world class pianist..?!? Is klarman simply saying, buffett reads reports on his honeymoon, I dont.. or is there other qualities that make up the difference ?!? I saw an intervju with a world class skier, he said its only 1% skill, gift, talent and the rest 99% is practice.. but is it then a talent to be able to have that dicipline to practice I wonder...

 

Your thoughts in this matter would be much appreciated,

 

Best,

[theasiareport]

One thing which really stood out to me was that in his younger days, Buffett was an entrepreneur himself. He had a lot of experience delivering newspapers, selling golf balls, repairing pinball machines and selling them and so on.

 

Malcom Gladwell talks about the 10,000 hour rule, and I think to get to the top of your game, it really requires an in-ordinate amount of effort. Buffett's edge is that he started so young and enjoyed it so much that he never had to think of it as "work".

 

There's his ability to make friends, and get them to do stuff for him too... (even in his younger days).

 

So... maybe there's more to developing the business eye than just reading.

[Valuebo]

 

One question I think about a lot is what factor makes the difference of being really great, or world class pianist..?!? Is klarman simply saying, buffett reads reports on his honeymoon, I dont.. or is there other qualities that make up the difference ?!? I saw an intervju with a world class skier, he said its only 1% skill, gift, talent and the rest 99% is practice.. but is it then a talent to be able to have that dicipline to practice I wonder...

 

 

Of course, people that are successful will always say things like that. By saying 99% is practice, he is shifting attention to his discipline and hard work. This is much more admirable to others than saying that you had an edge over others because you happen to have more gift and talent (= luck).

 

Anyone who believes that Buffett would have achieved the same if his father was a plumber is naive. Not to mention his far above average IQ, the people he met along the way, ... I hope no one here thinks he got where he is now 99% due to reading a lot more than the next guy.

 

What people also rarely realize is that it is a hell of a lot easier to put in the work if you are a natural talent. 10,000 hours of fun versus 10,000 hours of labor. If you are untalented that 10,000 hours wont bring you half as far as the guy who had chance encounters, a famous father and extremely high IQ. Most people hope it's true because they simply aren't as talented (and thus need it to make a chance) and those that are gladly sell it to others so that they can boast about their dedication.

 

[Valuebo]

Have you seen that TED talk about the evolution of results in sports?

 

At one point the speaker shows the evolution of body types in various sports. For example, over the years, swimmers got disportionally bigger torso's than average as they found out that they are simply better swimmers.

 

He also had a fun fact about tall people: If you know a male American above 7 feet 2 inches (something like that and maybe age was a factor too), there is a 1 on 7 chance that they currently play in the NBA.

 

99% hard work? Bullshit. There are millions of people working there ass of in any field that will never belong to the very best simply because they don't have the luck of owning certain key characteristics that are necessary to get there.

[compounding]

Another thing that people usually don't mention is the variance in studies of the 10k hours sort. The idea of a 10k hours threshold ain't as important if enough people do it in 5/15k hours.

 

The guy in the TED talk, David Epstein, wrote a book called The Sports Gene which I thought was very good and probably the most balanced I've read on the subject.

 

That being said, I think the concept of deliberate practice is a powerful and important idea.

 

 

Most people hope it's true because they simply aren't as talented (and thus need it to make a chance) and those that are gladly sell it to others so that they can boast about their dedication.

 

 

This might very well be true, but can't the same be said for people that buy into the "talent narrative" and underweight the importance of hard work in order to feel better about not giving it their best?

[giofranchi]

I think Klarman is a great businessman, and could be even a better one… if only he enjoyed thinking about business dynamics (and that’s what is absolutely required imo! A true passion... think of Buffett saying he would do what he does even for free!) as much as he enjoys doing what he does (finding statistically cheap stocks).

 

To me that sentence of his has always really sounded much more like a defense and even a sort of justification about what he does, than an admission he cannot truly be business savvy.

 

Cheers,

 

Gio

 

PS

This is not to say that he would become as successful as Buffett in judging the dynamics of businesses… What I simply mean is you will never know how good you might become at anything, if you don’t sincerely enjoy it very much. Because you won’t devote the necessary effort, if it doesn’t come naturally.

Instead, if it does come naturally, and you really get to exploit your full potential, chances are you will end up being better than 99.5% of the population… it obviously won’t be enough to beat Buffett… but it will be enough to live a meaningful an fulfilled professional life! ;)

 

 

[oddballstocks]

Natural talent is clearly required to be a top performer in any field.  There are few thing where someone can come along, just work hard and be the best.  Those with talent who don't work hard don't perform at a top level either.

 

How do you become better at business?  Instead of just reading about businesses I'd encourage you to start one.  That's where the rubber meets the road.  You can read about playing guitar until you're blue in the face, read sheet music to understand what players play.  But until you sit down and pick up a guitar and play it you won't fully understand.  I believe investing is like that.

 

Investors can read and pontificate about business like a bunch of thought-leaders having a pow-wow around a campfire.  But until you run or start a business there is something missing.  Buffett ran a few small companies, then his investment partnership (which is an asset management company) and finally he runs an enormous business now.  We think of him as an investor, but he's the CEO of a massive conglomerate.  And while he claims he never deals with company type stuff I know he does.  Saw an article recently that said he would receive sales figures daily for a division at the holidays.  When you get memos with daily sales figures that's a business manager role, not an investor.  Daily figures don't matter to an investor, they are essential to a manager.

[peter1234]

Saw an article recently that said he would receive sales figures daily for a division at the holidays.  When you get memos with daily sales figures that's a business manager role, not an investor.  Daily figures don't matter to an investor, they are essential to a manager.

+1

Good point. See's CEO mentioned it at a Stanford talk. And this is from See's, one of the smaller businesses he controls. I have heard many of his CEOs say the same thing. The send him the monthly/quarterly numbers and he remembers them all. In the See's example, he asked about what happened to a specific store!

;)

[mcliu]

I think you should try structuring your readings in a way that's enjoyable to you.

 

Maybe try having discussions with people about what you've read. Talk with management. Attend annual meetings. Start a business and apply what you've learned.

 

Or just take a break and come back to it after a while?

 

I think deliberate practice can help you become above average, but by no means would it propel you to genius levels if you had no talent or inherent advantage. I mean even Buffett himself said something like nobody thinks they can do what Bill Gates does, but everyone thinks they can do what he (WB) does.

[Uccmal]

Well, As mentioned Buffett has actual business experience and likes running businesses. 

 

I think the 10000 hours rule is BS.  Its a good example of choosing statistics to support your thesis. 

 

i.e. Not one of the world's best runners in any distance have spent 10000 hours running.  Its simply not possible. 

 

Jimi Hendrix comes to mind in music.  He had a perfect ear and natural talent.  Same with Paul McCartney - perfect pitch. 

 

What about Cher or Lady Gaga?

 

Did Harrison Ford spend 10000 hours acting before Star Wars? 

 

A friend of mine in law school was lamenting to me that he worked incredibly hard in law school.  He had fellow students who hardly worked at all and were better than everyone else in the class.  Mot fair, eh?  They had a natural ability to memorize the law and understand legalese. 

 

I expect that natural talent plays a bigger role becoming the best in every endeavour rather than infinite practice. 

 

I think the logic tree starts with realizing a talent and then following it. 

 

As to anders:  Is all that reading making you a better investor than the index, or are you just spinning your wheels? 

[giofranchi]

I expect that natural talent plays a bigger role becoming the best in every endeavour rather than infinite practice. 

 

I think the logic tree starts with realizing a talent and then following it. 

 

I agree. But the next question then becomes: what exactly is natural talent?

 

The answer I tried to provide above could be read this way: 99.5% a true passion for doing something and for getting better and better at it, the remaining 0.5% something else that could hardly be defined and which characterizes the genius or the champion.

 

Don’t think that genes don’t matter in the first 99.5%! It clearly is not so! I don’t know why someone gets the burning desire to do something, while the majority of other people never feel the same level of passion for anything… But genes evidently matter!

 

Gio

[Uccmal]

I expect that natural talent plays a bigger role becoming the best in every endeavour rather than infinite practice. 

 

I think the logic tree starts with realizing a talent and then following it. 

 

I agree. But the next question then becomes: what exactly is natural talent?

 

The answer I tried to provide above could be read this way: 99.5% a true passion for doing something and for getting better and better at it, the remaining 0.5% something else that could hardly be defined and which characterizes the genius or the champion.

 

Don’t think that genes don’t matter in the first 99.5%! It clearly is not so! I don’t know why someone gets the burning desire to do something, while the majority of other people never feel the same level of passion for anything… But genes evidently matter!

 

Gio

 

Persistence and Stubbornness definitely are part of the equation, as is an ability to overcome setback.  But these are traits, not the result of practice.  Early success probably doesn't hurt, hence the Tall NBA players. 

 

To loosely quote Slash "Often I didn't want to practice but I forced myself to".  He is/was noted for often practicing guitar 12 hours a day. 

[giofranchi]

To loosely quote Slash "Often I didn't want to practice but I forced myself to". 

 

Of course!... But I guess Slash loves playing guitar nonetheless… at least most of the times! And probably loves it much more than me and you could ever come close to understand… That’s why I agree: such a passion definitely is a trait!

Then also Slash is just a human being… and like any human being he is sometimes subject to boredom and laziness! ;)

 

Gio

 

[Uccmal]

To loosely quote Slash "Often I didn't want to practice but I forced myself to". 

 

Of course!... But I guess Slash loves playing guitar nonetheless… at least most of the times! And probably loves it much more than me and you could ever come close to understand… That’s why I agree: such a passion definitely is a trait!

Then also Slash is just a human being… and like any human being he is sometimes subject to boredom and laziness! ;)

 

Gio

 

 

Another aspect of where Anders is coming from is appreciation.  Buffett is a master of recognizing this.  He understands it so well because it is what he craves.  The same would apply to most any musician, actor, manager, entrepreneur, or worker, after immediate living needs are met.  Why else would a multimillionaire like Rick George (su, pwe) take on the COB at Pennwest.  It sure isn't for the money, only.  The guy ponied up 10 million of his own money to invest in PWE after he became board Chair. 

 

To invert: I recently left my day job.  In this job I had the greatest freedom one could have and still get paid.  But no one cared.  The employer would persistently nickel and dime our expenses to death, berate everyone, install incompetent, non-thinking, acting managers.  At the required reviews we were reviewed on our numbers only (non-financial), not on the skills we bought to the table.  The "clientele" mostly hated us.  Totally demoralizing.  I am still recovering after 6 months away.  I dont feel sorry for myself, as I planned the exit before I ever took the most recent job.  Friends ask me why I am leaving behind a DB pension etc.  They dont get it. 

 

Now, in addition to investing I am looking to do something where appreciation, and socializing are more integral to the job. 

[oddballstocks]

To loosely quote Slash "Often I didn't want to practice but I forced myself to". 

 

Of course!... But I guess Slash loves playing guitar nonetheless… at least most of the times! And probably loves it much more than me and you could ever come close to understand… That’s why I agree: such a passion definitely is a trait!

Then also Slash is just a human being… and like any human being he is sometimes subject to boredom and laziness! ;)

 

Gio

 

Maybe? Saw a documentary on Rush recently.  They said they hit a point where they hated playing their instruments.  At one point one of the guys said he didn't touch it more than two times in a year, just couldn't handle it anymore.  Loved music, but hated the instrument.

 

Speaking of music.  My brother and I both have a natural talent for music in that we can hear something and play it note for note almost right away.  We can compose things in our head they come out in our fingers etc.  I never went anywhere with it, I'll play guitar or bass for fun.  Recorded a bunch on the computer, but nothing much.  On the other hand my brother practiced all the time, did drills, challenged himself, really pushed.  He made it into a career, played on the Tonight Show a few years back, has recorded albums, toured the world etc.  He has a natural talent and has pushed himself as well.  He loves music, but doesn't always love playing.  But he knows to keep up he has to continue to practice.

 

Talent is essential, but hard work is the key to success.  Talk to any professional sports player and they'll tell you the same thing.  There were others who they played with in high school or college who were more talented, but they didn't do anything with it.  You need that base talent level, but the work takes it from there.

 

Not everyone loves what they're doing, but all who are successful have realized that there are non-lovable things they must continue to do to perform like they do.

[DanielGMask]

I think talent is a trait that's necessary to perform at an above average performance. With that said, without lots of practice and lots of hard effort, you may not shine even with all your talent. Success in any venture is a combination of those two factors, the first luck/genes, and the second your will power and desire to achieve (which some people say is also part of the gene pool).

 

I'm good at investing (above average) but I'm not Buffett and I won't ever be like Buffett, it doesn't matter how hard I try, I can't achieve 20+% returns for any consistent period of time. I'm a business man, I've been a hotel owner and operator, a real estate developer, investor and entrepreneur for more than 15 years and I certainly have more than 10,000 hours of practice at most of those, and last but not least, I enjoy what I do, I really enjoy it.

 

My conclusion is that 1) you should invest your effort and will power in things you enjoy, in things you recognize you have a talent for, and 2) do it with lots of passion and with a harder effort than anyone else. I'm confident that then you'll achieve a satisfactory result (just pick something that can help you sustain a decent way of living!).

[berkshire101]

How do you become better at business?  Instead of just reading about businesses I'd encourage you to start one.  That's where the rubber meets the road. 

 

+1, I agree!  I started one - even though it failed - but it gave me a new perspective on the dynamics of business, industries, people, and marketing that you just can't get from reading. 

 

I think Buffett is more hands-on than he lets people to believe.  Running Berkshire and having access to almost every aspect of business and industry does give him much more insight than someone who just read books and annual reports. 

[Liberty]

Speaking of music.  My brother and I both have a natural talent for music in that we can hear something and play it note for note almost right away.  We can compose things in our head they come out in our fingers etc.  I never went anywhere with it, I'll play guitar or bass for fun.  Recorded a bunch on the computer, but nothing much.

 

This is getting off-topic, but I so envy people like you.

 

I love music. I probably own over 2,000 albums of all genres, love discovering new things and immersing myself in the world of all kinds of artists.

 

But I can't sing and I can't play. I tried electric guitar for years, and I had good technique but no ear for it. I have synesthesia so sometimes I think that I enjoy music differently than other people, and that this hurts my playing because I don't see the notes the way most people do in my mind's eye...

 

Anyway. Enjoy your good musical genes for me ;)

[ERICOPOLY]

You can't copy Tiger woods.  Try as you might, you can't just copy his swing and get the same score as him.

 

Investing is different.  You can cheat over Buffett's shoulder or just buy stock in his holding company and earn the same returns as him.

[oddballstocks]

Speaking of music.  My brother and I both have a natural talent for music in that we can hear something and play it note for note almost right away.  We can compose things in our head they come out in our fingers etc.  I never went anywhere with it, I'll play guitar or bass for fun.  Recorded a bunch on the computer, but nothing much.

 

This is getting off-topic, but I so envy people like you.

 

I love music. I probably own over 2,000 albums of all genres, love discovering new things and immersing myself in the world of all kinds of artists.

 

But I can't sing and I can't play. I tried electric guitar for years, and I had good technique but no ear for it. I have synesthesia so sometimes I think that I enjoy music differently than other people, and that this hurts my playing because I don't see the notes the way most people do in my mind's eye...

 

Anyway. Enjoy your good musical genes for me ;)

 

Will do, just picked up the guitar next to the desk for a few minutes. 

 

The problem with talents is that it's not easy to recognize what we're good at.  The things we're good at are usually areas where we are hyper-conscious and aware of others who are better.  Instead of comparing ourselves to others who are worse the natural inclination is to compare oneself to someone who's better. 

 

I know this is something I've always struggled with.  There was/is always someone faster/stronger/smarter/funnier/better looking than me.  Instead of recognizing that 98% of the gym class was behind me while running the mile at school I was focused on the two people in front of me. 

 

Contentment is under-appreciated.  I think it's a key to life.  Knowing our own limitations is really important.  When we know what we're not good at we can rely on others.

[yadayada]

there are also a lot of stories how for example michael jordan used to be a fk up. He practiced himself to death, and then became the greatest. I think it goes both ways.

 

And ofcourse MJ was a large black dude, so you still need that. But among large black guys, he was not at all an obvious early talent.

 

But I think obsession to become good is also at least partially genetic. You still need that drive. And often it seems to come from some insecurity. Successfull people can be very insecure.

[Liberty]

Will do, just picked up the guitar next to the desk for a few minutes. 

 

The problem with talents is that it's not easy to recognize what we're good at.  The things we're good at are usually areas where we are hyper-conscious and aware of others who are better.  Instead of comparing ourselves to others who are worse the natural inclination is to compare oneself to someone who's better. 

 

I know this is something I've always struggled with.  There was/is always someone faster/stronger/smarter/funnier/better looking than me.  Instead of recognizing that 98% of the gym class was behind me while running the mile at school I was focused on the two people in front of me. 

 

Contentment is under-appreciated.  I think it's a key to life.  Knowing our own limitations is really important.  When we know what we're not good at we can rely on others.

 

That's very wise, and definitely something I recognize, in myself and others. My wife is a rather perfectionist person, and she'll always focus on the 1 thing she got wrong even if she nailed the 99 others. This leads her to be very hard on herself, which leads to exactly the opposite reaction that most people who succeed at something have (instead of being happy at the accomplishment, she's sad that she didn't get 100%). I suffer from some of the same, but not quite to the same extent.

 

Those of you who recognize themselves in that might want to check this out:

 

http://www.amazon.com/When-Perfect-Isnt-Good-Enough/dp/157224559X/

 

It's a book I ordered for her. Haven't read it yet, so not sure how good it is, but it sounded like it could help.

 

So now we're off-topic from even the off-topic music discussion... How did we get here? Oh well, that's what discussions do :)

 

"Contentment is under-appreciated."

 

Words to live by.

[anders]

Thx guys!

 

Well, im already running an investment business and, no doubt the passion is still there,.. Started with passive investing and now moved into passive/venture, taking a more active role.. I guess it is where the

appreciation, and socializing are more integral to the job

comes into the picture..

 

But I dont have the passion in reading 50'000 pages over the weekend as Buffett does, I dont have the passion in reading 10k on my honeymoon and therefore was hoping that it doesnt only come down to passion in reading... Frankly, Im getting tired even if exponential knowledge works like ecstasy for the brain.. maybe its just a xmas break that is needed without books and reports..

 

From birth I have been told that talent comes from working hard, "rise early, work hard, strike oil" kind of mentality... skip fancy words and jargon and dig in the ground until your hands bleed, then continue until you dont feel it...  I love what I do, but having dinner with my family, realising that I havnt heard a word my kids said because I was

thinking about business dynamics

which strikes me as going in the totally wrong direction..

 

Im being a bit abstract, but I guess you guys understand what I mean.. it maybe just comes down to this

"Contentment is under-appreciated."

[giofranchi]

Not everyone loves what they're doing, but all who are successful have realized that there are non-lovable things they must continue to do to perform like they do.

 

I am only saying that, if you have a deep passion for what you do, the right path to fulfill your true potential in any endeavor will come much more easily! And if something comes easily, the chances to get at the end of that road are much higher! ;)

 

I think this is only logical and doesn’t mean that you won’t have to practice a lot and work hard… It only means that a lot of practice and hard work won’t be so hard on you as on most other people… And that simple fact might help you get nearer to your true potential, while others give up much sooner!

 

Gio

 

[oddballstocks]

Thx guys!

 

Well, im already running an investment business and, no doubt the passion is still there,.. Started with passive investing and now moved into passive/venture, taking a more active role.. I guess it is where the

appreciation, and socializing are more integral to the job

comes into the picture..

 

But I dont have the passion in reading 50'000 pages over the weekend as Buffett does, I dont have the passion in reading 10k on my honeymoon and therefore was hoping that it doesnt only come down to passion in reading... Frankly, Im getting tired even if exponential knowledge works like ecstasy for the brain.. maybe its just a xmas break that is needed without books and reports..

 

From birth I have been told that talent comes from working hard, "rise early, work hard, strike oil" kind of mentality... skip fancy words and jargon and dig in the ground until your hands bleed, then continue until you dont feel it...  I love what I do, but having dinner with my family, realising that I havnt heard a word my kids said because I was

thinking about business dynamics

which strikes me as going in the totally wrong direction..

 

Im being a bit abstract, but I guess you guys understand what I mean.. it maybe just comes down to this

"Contentment is under-appreciated."

 

Take a break from reading, I'm guessing it isn't adding much at this point especially if you're burnt out.  You need to decide what you want in life.  Do you want to be some incredible investor who strangers love?  Or do you want to know your kids/wife?  My two cents on this, your family will love you back.  Strangers you're impressing with never love you.

 

There are many afternoons where one of my kids comes into the office and says "Daddy are you done working yet?" some days I'm deep in the flow and say "not yet" and continue on.  Other days I'm just doing small tasks that can wait, I'll quit and go play with them.  Maybe I'll never be 'the best' from this.  I'm sure I'll miss out on opportunities, but life is richer for it.  Reading endless 10-k's might put money in the bank, but money doesn't love you or appreciate you.  To Uccmal's point, it's the appreciation that counts.

 

Here's another thing, you run an investment management business.  You need to do just well enough for your clients.  If you meet their needs and they are satisfied you will get more bang for your buck finding new clients verses more performance.  Sure, it's the dirty little secret of money management.  Your time would probably be better spent selling rather than reading.  A few sales calls will provide more lifetime value than another 10-K.

 

Oh and don't read 10-K's on a honeymoon...seriously.  Maybe this goes into the regret thread. "I regret sitting in the hotel reading 10-K's on my honeymoon instead of.....doing honeymoon things."