"The Business Eye"

[Liberty]

Anders, maybe all you need to do is take a breather and figure out what you really want.

 

I mean, maybe you figured what you wanted at age 20 and then worked for X years in that direction without really stopping to think "is this still what I want? is it turning out to be what I expected?". Maybe you don't really want to be the next Buffett (or even a quarter of a Buffett).

 

If the summum bonum of your existence is spending time with your family and having financial independence so you are master of your own schedule and don't have to worry about paying the bills, you don't need to be a billionaire to do that. Some people can probably pull that off with a frugal lifestyle and a lot less than 1 million...

 

[matjone]

Obviously that type of dedication to a field will have costs and is not right for most people.  If you are an Einstein or Bach then maybe it's worth it to devote everything to one thing and to hell with the rest.  The rest of us could devote everything to one thing and probably be in the 95th percentile.  In other words an also-ran.  Not worth it.

 

Also, there are many other examples of people doing better than Buffett %wise with smaller money and less effort.  I saw somewhere that someone had calculated the returns from Buffett's stock portfolio at berkshire and it was about 14%.  From what I can tell Walter Schloss probably substantially outperformed Buffett percentage wise after Buffett got really big, and he only was in the office about 35 hrs a week.  Of course he was running less money but you probably are too. 

[Mephistopheles]

It certainly takes both intense passion, intense hard work, a laser like focus, and persistence to get to the very top. Garry Kasparov, arguably the greatest chess player in history, is known to spent 12 hours a day on chess throughout most of his career. I heard that an average player knows about 10 different openings from memory, whereas a Grandmaster knows 1,000. Kasparov supposedly has a memory bank of 10,000+ openings.

 

Of course talent is necessary as well. It's genetic, but as others have mentioned, having the intense passion and obsession like work ethic is also genetic.

 

Nate brought up the musicians of Rush who barely even touch their instruments now. I think it's a little different in the world of art. You can spend countless hours on guitar and singing lessons, but you also need to have that natural ability to write music and lyrics which obviously not everyone does and can't be taught. Just look at U2. They're the biggest band on the planet and have been for many years. When they started out, the members barely knew how to play instruments. The bass player didn't take lessons until 15 years into the band's career. Their music is not that hard or complicated for your average guitarist or drummer to reproduce. But it just so happens that they have that talent to write what people enjoy hearing. And hard work is certainly not the major factor in that.

[merkhet]

There has long been a debate between talent and hard work. I feel like if we debate it a little bit more on the Internet, we should have this question wrapped up in just a few more posts.

 

The lack of a control group makes the question difficult to answer with any real confidence.

[AzCactus]

There's a good quote that goes something like "the harder I work the luckier I get."  With that hard work is a large part of having a business eye.  Buffett has said he's a better investor because he's a businessman and he's a better businessman because he's an investor.  The two are connected to an extent.  The other thing we need to realize is opportunity cost of the one thing that we can't get back, time.  When Buffett was spending all that time reading 10K's, traveling to New York etc. he was losing time with his kids and family.  Effectively, those things took a back seat to his investing and his results were awesome.  The key is to find out what's most important and put your focus on those things. 

[cobafdek]

The lack of a control group makes the question difficult to answer with any real confidence.

 

And if such a definitive study is ever done, life might be boring without speculative meandering threads such as this one.  I'll contribute this more or less interesting/worthless anecdote:

 

As a kid, I saw a Dan Rather report called "The IQ Myth."  The program opened with shots of faces with Rather's voiceover:

 

"This man has an IQ of 190."  After the commercial break, the man is shown riding a motorcycle in a uniform:  he's a motorcycle traffic cop.

 

"This man has an IQ of 120."  Cut to a clip of James D. Watson accepting the Nobel Prize in Medicine for the structure of DNA.

 

 

[Liberty]

There has long been a debate between talent and hard work. I feel like if we debate it a little bit more on the Internet, we should have this question wrapped up in just a few more posts.

 

The lack of a control group makes the question difficult to answer with any real confidence.

 

Why discuss anything? Are we about to crack investing?

 

Making judgements under uncertainty* is one of the most important skills in life. If every time we can't know something for sure we just give up, we'll do worse, not better.

 

Personally, I feel like I've made progress by discussing these things with others and learning about their hard-earned lessons. If you feel you haven't, maybe you should still avoid being snarky.

 

Here's a couple good books on that:

 

http://www.amazon.com/Judgment-Under-Uncertainty-Heuristics-Biases/dp/0521284147/

 

http://www.amazon.com/Rational-Choice-Uncertain-World-Psychology/dp/1412959039/

[oddballstocks]

"History merely repeats itself. It has all been done before. Nothing under the sun is truly new." - Ecc 1:9

 

It's as if when people realize this they freak out.  There is a quote from ancient greece about how kids, could be read today.  Nothing is new, history/life/everything repeats.  That's how it works.

 

I'm happy to have these conversations, happy to repeat myself over and over if people benefit.

[Guest ajc]

 

There has long been a debate between talent and hard work. I feel like if we debate it a little bit more on the Internet, we should have this question wrapped up in just a few more posts.

 

The lack of a control group makes the question difficult to answer with any real confidence.

 

Personally, I feel like I've made progress by discussing these things with others and learning about their hard-earned lessons. If you feel you haven't, maybe you should still avoid being snarky.

 

 

 

Yeah, and don't make no jokes about North Korea neither. Shit will get you hacked, son.

 

 

 

[Liberty]

Yeah, and don't make no jokes about North Korea neither. Shit will get you hacked, son.

 

I think you missed my point.

 

But fuck North Korea.

[Guest ajc]

 

Yeah, and don't make no jokes about North Korea neither. Shit will get you hacked, son.

 

I think you missed my point.

 

But fuck North Korea.

 

 

Nah, I'm pretty sure I got it. Unfortunately, I've got a rule that in the week leading up to Christmas I don't give a shit about Tony Robbins and all that self-improvement crap (even if the motherfucker does have a book out).

The only thing I care about is getting some drink in me and having people not kill each other over turkey drumsticks during the festive season. If you must kill each other, I always suggest that everyone waits until January 1st and then do it on the drive so that it's easier to hose down the blood.

 

Anyway, I'm kinda impressed by the Hermit Kingdom. I didn't know they had it in them, so my estimation of them just went up a notch from ditch-diggers in a total craphole to ditch-diggers in a total craphole that can actually do some stuff on a bunch of high-powered computers.

There's a joke in there about the grinch who stole Christmas but I just can't be bothered to come up with it.

 

PS. I like a bit of snark. Oddball, Kraven, Merkhet, Eric, all of these folks can be like that. They do it well. Shit is funny. It's not like it's all they do, so what do I care if they're sometimes like that. That's just me though. People can agree to disagree.

Peace out and Merry Christmas. Oh yeah, and fuck Canada (

).

 

Oops, I'm sorry. Did I just...

 

 

 

[merkhet]

There has long been a debate between talent and hard work. I feel like if we debate it a little bit more on the Internet, we should have this question wrapped up in just a few more posts.

 

The lack of a control group makes the question difficult to answer with any real confidence.

 

Why discuss anything? Are we about to crack investing?

 

Making judgements under uncertainty* is one of the most important skills in life. If every time we can't know something for sure we just give up, we'll do worse, not better.

 

Personally, I feel like I've made progress by discussing these things with others and learning about their hard-earned lessons. If you feel you haven't, maybe you should still avoid being snarky.

 

Here's a couple good books on that:

 

http://www.amazon.com/Judgment-Under-Uncertainty-Heuristics-Biases/dp/0521284147/

 

http://www.amazon.com/Rational-Choice-Uncertain-World-Psychology/dp/1412959039/

 

Dude. Calm down.

 

Also, weren't you the one who posted something a few days ago about avoiding discussing the "controversial science" for studying established science? No parallels here?*

 

*I sometimes confuse you for LC. Must be the way my brain stores information.

 

Anyhow, I wasn't aware that cracking jokes was no longer allowed on this forum. Have people stopped having a sense of humor because there were a lot of people invested in oil? Jeez. Lighten up.

[Liberty]

I like snark, I just dislike when the implied message to people here is "you guys are stupid, your discussion is pointless".

 

But my main point wasn't that, it was that I thought he was wrong to say that we should not discuss things that we can't conclusively prove. Most knowledge isn't binary. If you can move your priors from being 50% certain about something to being 75% certain about it, based on whatever experience and data you can gather from others, it might be enough to totally change how you act and how the rest of your life turns out, yet you might still not be able prove anything.

[Liberty]

Dude. Calm down.

 

Also, weren't you the one who posted something a few days ago about avoiding discussing the "controversial science" for studying established science? No parallels here?*

 

*I sometimes confuse you for LC. Must be the way my brain stores information.

 

Anyhow, I wasn't aware that cracking jokes was no longer allowed on this forum. Have people stopped having a sense of humor because there were a lot of people invested in oil? Jeez. Lighten up.

 

I'm super calm. I just have something against condescension. Maybe that's not how you meant it, but "I feel like if we debate it a little bit more on the Internet, we should have this question wrapped up in just a few more posts" read basically as a big eye-rolling "you guys are stupid, this is pointless". I just wanted to point out that I didn't think it was pointless, and that even if you thought so, there was no reason to be rude about it. Maybe I misread what you wrote, which is always a possibility with the text format (the exact same line can be read in 10 ways and with 10 different tones and that can change a lot).

 

And I'm the one who posted about settled science, but I didn't mean it as anything that applies here.

[merkhet]

I believe that you're bringing some transference from west's response on the other thread to this one.

 

My response was a joke. Get over it.

 

And if you think you're gaining knowledge on something as complicated as the difference between nurture vs. nature from a few opinion posts based on what largely seems to be anecdotal information... well, more power to you.

[Liberty]

I believe that you're bringing some transference from west's response on the other thread to this one.

 

My response was a joke. Get over it.

 

And if you think you're gaining knowledge on something as complicated as the difference between nurture vs. nature from a few opinion posts based on what largely seems to be anecdotal information... well, more power to you.

 

Now you're the one projecting. I said I was calm, I just wrote what I thought about your comment and that's it, there's nothing to get over.

 

Most of what I know about nature vs nurture comes from evolutionary psychology (The Blank Slate by Steven Pinker and The Moral Animal by Robert Wright are good books that summarize some of the big findings of the field), but it doesn't mean I'm not learning and gathering food for thought from other people's experiences, from Ben Franklin to the people here. So yes, I'll keep doing that.

[merkhet]

Well, good. Glad that's settled then.

[Liberty]

For the record: Merkhet's a true gentleman. We had a nice private discussion.

 

Sorry everybody for derailing this off-topic.

[Tim Eriksen]

Back to the original post.  I would agree Buffett has a better eye than Klarman and nearly everyone.  Is it solely due to hours? No.  That helps.  What comes to mind to me is:

1. I think Buffett is more optimistic than Klarman and over time that generated a huge tailwind.  Buffett expects the economy and businesses to grow.  Many value investors expect businesses to die, or face significant hurdles due to competition.  They see problems he sees future success. He generally expects a business to continue to perform like it has and others frequently do not.

2. Buffett is disproportionately focused on business, in comparison to other areas of life. 

 

So the key is not more reading, it is re-orienting your basic philosophy or approach.  Easier said than done.

 

When I read Snowball, I was struck at how Buffett's father was much like my own father in economic outlook.  Seeing that pessimistic view always be wrong built in an optimism in Buffett regarding the ability of the US economy.  It makes me it much easier to act (be greedy) when others are fearful when you view the fear as irrational.   

[sys]

1. I think Buffett is more optimistic than Klarman and over time that generated a huge tailwind.

 

i think optimism is a huge advantage.  i also wonder a bit about some somewhat similar traits i've observed in myself that i think help prevent me from investing in (or at least wanting to invest in) really good businesses.

 

1)  frugality/cheapness.  when i see a business selling a product for far more than it costs to produce, or one that has (and is using) "pricing power", my instinct is "i would never pay that price, and inevitably, everyone else will stop doing so as soon as they figure out that this business is overpricing their product".  i have this reaction not just with retail products, but with almost everything (real estate, etc.).

 

2)  faith in mean reversion (maybe just an expression of pessimism).  when i see a business outclassing it's competitors, i think it's just a matter of time before the competition will catch up.

[yadayada]

I wonder what the long term business cycle has to do with buffett's success. If you look at debt world wide, it went from being low in the 50's, to going at all time high's right now. Is it possible that maybe there is such a thing as a long term debt cycle? And we might enter a bad period in the next 10-20 years? You might think, well 50 years is a long time! But it might not be long enough. And so buffett should not be so optimistic, as 50 years is still a bad sample size in the global economy?

[Jurgis]

Very good discussion about Buffett's optimism. :)

 

I think that another thing related to the topic that is not mentioned often enough is Buffett's managerial abilities. He discounts this in his interviews, but "Snowball" offers an insight into the kitchen. He was directly involved in replacing 2 (3?) of KO's CEOs. Despite not liking it, he had to do similar cleanups in GenRe, NetJets, etc. In couple cases at least he had to replace the management more than once until he hit the right person who made the business flourish. So part of his success is that he manages to get outstanding people into the place either immediately when buying the business or after cockroaches are found.

[Jurgis]

@yadayada - It is possible that we will enter a crappy multidecade period. However, 2000s were not that great for US either. And high inflation in 1970s was not great either. So perhaps you are making a mistake of being too pessimistic? ;)

 

Buffett's optimism is interesting because he is negative about things: he has been concerned about dollar debasing, national debt and possible inflation for decades now. This has never stopped him from investing though. If he had followed his negativity, he would have been wrong so far and much poorer.

 

I am not saying that everyone should be permabull. It's just that so far bears have been right occasionally, but wrong ultimately. You might be right that this time it's different. But are you really certain to bet on it?

[cobafdek]

Back to the original post.  I would agree Buffett has a better eye than Klarman and nearly everyone.  Is it solely due to hours? No.  That helps.  What comes to mind to me is:

1. I think Buffett is more optimistic than Klarman and over time that generated a huge tailwind.  Buffett expects the economy and businesses to grow.  Many value investors expect businesses to die, or face significant hurdles due to competition.  They see problems he sees future success. He generally expects a business to continue to perform like it has and others frequently do not.

2. Buffett is disproportionately focused on business, in comparison to other areas of life. 

 

So the key is not more reading, it is re-orienting your basic philosophy or approach.  Easier said than done.

 

When I read Snowball, I was struck at how Buffett's father was much like my own father in economic outlook.  Seeing that pessimistic view always be wrong built in an optimism in Buffett regarding the ability of the US economy.  It makes me it much easier to act (be greedy) when others are fearful when you view the fear as irrational. 

 

Fascinating perspective, and I had never considered the importance of the optimism factor.  It might be an unstated, underlying premise behind Buffett's on-going bet in favor of the S&P 500 index vs. the hedge fund index.

 

Nevertheless, the mystery remains.  He must have an appropriate amount of optimism, since over-optimism surely is dangerous?  And you have to be optimistic about the right businesses, and at the right price.  How does he do it?  Munger strikes me as generally pessimistic, a sort of bad cop to Buffett's good cop routine, yet he certainly has a great eye for great businesses.

 

Could examining Buffett's mistakes be helpful here?  I don't know.  He bought USAir.  He didn't sell Coca-cola when it was selling 50-60 times earnings.  He bought those shoe companies, not to mention Berkshire Hathaway.  Then there are their self-confessed errors of omission.  Not purchasing a lot of Fannie Mae back in the 1990s when they went heavily into Freddie Mac.  Not holding on to McDonald's in 1996 for more than a year.  Is it just a matter of making fewer of such mistakes?

 

In the 1970s, I read an article about intelligence by Isaac Asimov in The Magazine of Fantasy and Science Fiction.  Asimov concluded that trying to explain intelligence is like trying to explain jazz, and he quoted Louis Armstrong:  "If you have to ask what jazz is, you ain't never gonna know."  (I hope I quoted that right.)  You can add Buffett's business eye to that list.

[merkhet]

For the record: Merkhet's a true gentleman. We had a nice private discussion.

 

Sorry everybody for derailing this off-topic.

 

Liberty's being overly generous. :)

 

My own guess on the talent vs. persistence issue is that talent is probably like putting you a bit ahead of the starting line of everyone else. It's a good advantage, but it's probably something that can be overcome by persistence. I'd be careful to draw a line between mental talents and physical talents. Sure, not everyone can be built like Michael Phelps, but I doubt that transfers to the mental realm. Let's not forget that even Feynman specifically points out that he has a pretty low IQ but he worked pretty hard at it -- and I doubt he was just being modest -- modesty wasn't exactly in his repertoire.

 

As to the Buffett eye thing, I think it has to do with what you focus on, as Tim Eriksen stated. If you gear yourself towards looking at quantitative issues, then you see quantitative success. If you gear yourself towards looking at qualitative issues, then you see qualitative success -- not everyone focuses on putting together multiple frameworks, but if you work hard at it, you can figure out what a lollapalooza looks like.