14 ms·

Compounding Knowledge

482 points by golyi 8y ago

stakhanov 8y ago
I wonder to what extent Warren Buffet is Warren Buffet because of how he thinks and acts (like all of these non-fiction authors selling books by using his name would have us believe), and to what extent he is the product of media selection bias. -- If you take a large enough group of people who take risky stakes that are large enough (like the world of financial asset management), then one of them is bound to be as successful as Warren Buffet, even if they all behave randomly.
- cm2187 8y ago
  Except that he has been consistently successful over a very long period, unlike, say a Paulson who one could claim got lucky in 2008.
  - stakhanov 8y ago
    A thought experiment: Say I have a database with 1024 e-mail addresses. I split them in two groups. I send an e-mail to 512 of them saying "tomorrow, IBM is going to go up". To the other 512, I send an e-mail saying "tomorrow, IBM is going to go down". The next day, IBM is up, and I discard from my database the 512 people to whom I've just sent an incorrect stock tip. Then I repeat. I send an e-mail to 256 people saying "tomorrow, Microsoft is going to go up", and so forth. ...at the end of the process I have someone who I've just sent 10 correct stock tips to. -- From the point of view of that person, I have been CONSISTENTLY successful. So that doesn't really mean anything. Also: There is a saying: You only have to get rich once. It is much easier, if you come into money at one point in your life, to hold on to it, than it is to repeatedly go from zero to hero, since capital has a tendency to create more capital, and a lack of capital has a tendency to prevent you from accumulating any. I know it goes against the mindset of the American entrepreneurially-minded crowd here. But it's a thought.
    - dwighttk 8y ago
      Except Buffet has been emailing everyone every year since 1962; unless he has a way to pick branching timelines.
      - nicoburns 8y ago
        > unless he has a way to pick branching timelines. Now that would be a skill that would set you up for success!
    - q-base 8y ago
      Fun thought experiment. Made me smile even though the direct relation to Buffet perhaps is a little vague. But your second saying about only getting rich once is probably closer to the truth.
    - sokoloff 8y ago
      You can use the "[private] tournament winner" selection process up to a certain point, but at some point far below Warren Buffett's current level, you come into the public eye. If it were akin to flipping coins, we'd almost surely have seen 16+ proto-Buffetts emerge into public consciousness only to see 15 of them blow up. Sure, there have been hedge fund failures and you could argue that Madoff was a public eye super-investor who turned out to fail, but I don't think there are enough examples of "this guy is a genius based on his track record" turning into "that guy we thought was a genius turned out to just be a lucky idiot" to suggest that all of Buffett's returns are luck.
    - Sholmesy 8y ago
      Derren Brown did exactly this with horse racing: https://www.youtube.com/watch?v=9R5OWh7luL4 https://www.youtube.com/watch?v=9R5OWh7luL4
  - boombust 8y ago
    While you are right, I think the parent's idea if that with a large enough sample, even if every actor is making decisions randomly, you will get actors that will just crush it. I mean Warren Buffet invested in Apple about a year ago based on the idea that they have a sticky brand and went so far as to say that iPhones were underpriced (which is just flat out wrong given how poorly they sold relative to predictions). . .and it turned out to be a terrible investment decision (so far). While I find it hard to believe that WB is all luck I think you can't dismiss that argument entirely based on his track record, no matter how successful.
    - stakhanov 8y ago
      Well, if you take the random-chance/selection-bias as the core of a snowball and add to it the various mechanisms which mean that the game of asset management is rigged in favour of the manager, then I think there is something to this. For example, asset managers get a part of their income from a MANAGEMENT fee which is a percentage of the assets under management, that they collect regardless of whether the fund actually does well. If you get a few bets right, make a name for yourself, more people will be putting money into your funds, and it all turns into a self-fulfilling prophecy.
    - hopler 8y ago
      Buffet also refused to invest in computer/Internet companies for many years because he knew he didn't understand them.
    - smileysteve 8y ago
      On Apple; on a 1 year timeline APPL beats the S&P 500 by 5%. But I don't think Buffett measures his investments on a 1 year timeline; and to be honest to your comment, he made the underpriced comment on Aug 31, 6 months ago. "I do not focus on the sales in the next quarter or the next year," he said. "I focus on the ... hundreds, hundreds, hundreds millions of people who practically live their lives by it [iPhone]." Apple does continue to boost services income, keep cash on hand, pay dividends, and do share buybacks, all with a P/E below major utility stocks -- things Buffett traditionally considers. Disclaimer. Apple Shareholder
- ancorevard 8y ago
  There is such a thing as information, knowledge, wisdom and finally free will. Warren Buffet is Warren Buffet because of the way he consumed the information available to him, interpreted it and finally reacted to it. Certainly, Warren does not control the many factors in the environments he found himself in, factors that was favorable for him to get to where he is today and factors that were obstacles to him. But his chosen actions are his, the paths he took, the burdens, the risks, and the responsibilities. I would perhaps think of him as wise, not a genius or any such worship nonsense.
  - knightofmars 8y ago
    >There is such a thing as information, knowledge, wisdom and finally free will. The prevailing theories of today are that "free will" isn't so real. https://www.psychologytoday.com/us/blog/sapient-nature/201205/free-will-is-illusion-so-what https://www.psychologytoday.com/us/blog/sapient-nature/20120...
- lelima 8y ago
  People like him, are made by many, many random acts, and of course dedication, around 10.000 hours is need it for be an expert in any field, any. What if "grandfather who was a grocer" was a plumber instead? I Strongly recommend this book: Outliers by Malcolm Gladwell. He studies outliers, their family, culture, timing. One of many fun facts is that almost every pro-hockey player in Canada is born in the early's month jan, feb, mar. Why? they compete versus small children when their are kids, and those months of strength give them advantage, which sent them into better teams, with better coaches and so on..
  - kiba 8y ago
    I wouldn't recommend any books by Malcolm Gladwell. He oversimplified things for the sake of telling stories. If you want to learn rigorously, better look toward academic sources.
    - lelima 8y ago
      Which academic sources would you recommend on this topic? I've checked the sources from that book and they seem legit, including papers and articles[1]. Besides, the reviews of that book are very positive [2]. [1]: http://guides.skylinecollege.edu/c.php?g=279172&p=1861295 http://guides.skylinecollege.edu/c.php?g=279172&p=1861295 [2]: https://www.amazon.co.uk/Outliers-Story-Success-Malcolm-Gladwell-ebook/dp/B002RI9PKO https://www.amazon.co.uk/Outliers-Story-Success-Malcolm-Glad...
      - kiba 8y ago
        My recommendation is to read the academic sources, not the guy who simplified materials to an extent that things are lost in the translation leading to misrepresentation and misunderstanding. Also, always read the negative reviews. Sometime, they are bunk, but they sometime can be very informative.
        donaldknuth123 8y ago
        Most of the negative comments are like yours, some version of: "This book is so simple anyone could have written it!" Hardly insightful.
- doktrin 8y ago
  The key to me, it seems, would be to evaluate his decision making process as opposed to merely examining the outcome. If the stated rationale used at the outset is validated (repeatedly), then it stands to reason his success is due to more than simply being lucky. I'm not very familiar with Warren Buffet or the world he operates in, but my understanding is that he does not in fact take particularly risky stakes and explicitly stays away from verticals he's not familiar with. Hence my personal opinion would be that how he "thinks and acts" has directly contributed to his success - but happy to be proven wrong.
- Brigadirk 8y ago
  I can't find the quote, but Buffett himself addresses this somewhere by saying that while you can get very lucky in finance, if the lucky ones all come from a particular city (Omaha) with a particular philosophy, something might be up.
  - melling 8y ago
    He’s talking about value investing. The markets are supposed to be efficient and you can’t beat them.
    - throwawaymath 8y ago
      Indeed, they're supposed to be.
- samsepia 8y ago
  If they all behaved purely randomly WB would be a high sigma event - he's got to be loaded in some way - the issue here is which of WB's properties are behind his financial success - one strategy would be to emulate him as accurately as possible in all his idiosyncrasies or to use a more scientific method (e.g. looking at common traits among agents of his class).
- senthil_rajasek 8y ago
  Buffett shows how investors like him are not random in this lecture, https://en.m.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville https://en.m.wikipedia.org/wiki/The_Superinvestors_of_Graham...
- dwighttk 8y ago
  Not over the time period he has been successful. Or at least the longer he lasts as a successful person doing what he does the less likely he's just acting at random. It's possible to get 1000000 heads in a row flipping a fair coin, but around 20 I'm going to be suspicious. edit: With Buffet, he's not actually getting everything right, so I guess a better metaphor would be like 70% heads over 1000000 flips... more likely under random circumstances, but still pretty suspicious.
  - T-hawk 8y ago
    > but around 20 I'm going to be suspicious. There's a multiple-endpoints effect here. If there are 2^20 participants all doing that, one of them is going to flip 20 heads in a row. You only notice the one who did after the fact. Some participant has to be the most outlying result and that's the only one you notice. (Not that that's necessarily the case for Buffett, but that's a general fallacy to be aware of.)
    - dwighttk 8y ago
      Yeah, I'd be less suspicious of 20 in a row out of a group of 1000000 flippers. But if any of them got 70% of 1000000 flips I'd be suspicious.
- bgroat 8y ago
  Funnily enough, Buffett actually calculated this in his essay "The Super Investors of Graham and Doddsville" Basically, advocates of the Free Market Hypotheses believed that it was impossible for anyone to deliberately, repeatedly generate alpha. The market was rational, and success was probabilistically distributed. With a large enough population, you will get Buffett level returns - therefor Buffett is a fluke. However, Buffett calculated that there weren't enough investors for his success to be a factor of random distribution, plus there were 2 dozen others who followed a similar strategy who also consistently generate alpha
  - hyperpape 8y ago
    I think you mean "efficient-market hypothesis".
  - throwawaymath 8y ago
    It's worth noting that Fama has since then walked back on the strong statement of the Efficient Market Hypothesis. I don't know that he ever intended to say beating the market is impossible; rather that beating the market must be impossible, under the rigorously definition of an idealized, "efficient" market. Unfortunately a lot of proponents of the EMH (especially non-academics) have taken this concept and run with it in ways Fama didn't intend. His position would be more accurately stated as the claim that modern markets are eventually informationally efficient, for any given instance of information asymmetry. It's a useful model that approximates markets, not an empirical claim about the world.
    - rbavocadotree 8y ago
      He definitely never said that beating the market is impossible. He said you can beat the market long term by taking on more risk, but not by market timing and stock selection. Everyone leaves out risk when talking about the EMH.
  - westurner 8y ago
    "The Superinvestors of Graham and Doddsville" (1984) https://scholar.google.com/scholar?cluster=17265410477248371217&hl=en&as_sdt=5,43&sciodt=0,43 https://scholar.google.com/scholar?cluster=17265410477248371... From https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-a... : > The speech and article challenged the idea that equity markets are efficient through a study of nine successful investment funds generating long-term returns above the market index.
pan_peter 8y ago
Information arbitrage is also a factor. Here's an interesting case study using the Jan 3rd $75B Celgene acquisition 'Generating Alpha from Information Arbitrage in the Financial Markets with NLP Datasets: 水涨船高' https://hackernoon.com/profiting-from-information-arbitrage-in-the-financial-markets-3abfca9806d8 https://hackernoon.com/profiting-from-information-arbitrage-...
- sireat 8y ago
  Those findings while interesting need more work: The clusters were from back-tested stock data. Ie we knew ahead of the time that there were profits to be made. Was this akin to p-hacking? That is where there more stocks selected with some sort of correlation without the profit potential. The article alludes that there were more stocks without the raise in stock price after Celgene acquisition. So the real 'show me the money', 'skin in the game' for this kind of research would be to make predictions on a real time event(merger, acquisition etc).
RickJWagner 8y ago
One of the greatest things about Warren Buffet is that he wants to share with everybody the techniques for accumulating wealth. YouTube is loaded with videos in which Buffet explains clearly how to get rich slowly but surely. He's even got a cartoon series for kids, the Secret Millionaire's Club. (http://www.smckids.com/ http://www.smckids.com/) Buffet has figured out how to reliably win the game, he wants everybody to have that ability. He's a good guy.
- jonstewart 8y ago
  Marketing himself as a folksy Nebraskan also does wonders for his dealflow, which is one of the secrets of his success. He gets first pass at a lot of privately-owned companies who agree to sell at a low price, because he’s Warren Buffett and won’t ruin their companies.
  - hopler 8y ago
    That's not just "marketing himself". That's a reputation earned over decades of buying companies and making the previous owners and managers into winners.
    - jonstewart 8y ago
      I don't think we disagree. Having run my own company, the biggest lesson learned is that marketing should never have "just" in front of it.
- dennis_jeeves 8y ago
  >YouTube is loaded with videos in which Buffet explains clearly how to get rich slowly but surely. I need to see one good video. Yes there are lot of videos of him but I want to see a video of him that explains to a common Joe, with common means on how to achieve modest financial success.
  - RickJWagner 8y ago
    Hi Dennis, I just saw this note, I'll be glad to suggest. Instead of YouTube, head on over to bogleheads.org. Warren Buffet's investment philosophy largely aligned with Jack Bogle's. Bogle has a large group of enthusiastic followers who record it all, simply and backed up with free advice when sought. If your prospects are even close to average, you should fare very well. Good luck!
keiferski 8y ago
This concept is essentially the reason why “being able to quickly google the answers to questions” is inferior to “learning, knowing and remembering the answer.” The former treats a piece of information as an independent, context-free item, while the latter allows you to “digest” the information and understand the answer at a deeper level, to the point where it changes the types of questions you ask. Unfortunately our society doesn’t seem to recognize this and actively encourages not learning certain facts because they are easily googleable.
- vp8989 8y ago
  There is also, practically, a massive gulf between: 1) Being vaguely aware that something exists and knowing you can Google for it. 2) Having such a deep, intuitive understanding of said thing that you can actually use knowledge of that thing to solve complex problems.
  - collyw 8y ago
    You can google for two, no? Seems like a good deal of my job as a software engineer.
    - personlurking 8y ago
      The new way to "google" something might become the next gig market. "The next gig economy will be on-demand knowledge" (2019) https://qz.com/work/1527544/the-next-gig-economy-will-be-on-demand-knowledge/ https://qz.com/work/1527544/the-next-gig-economy-will-be-on-...
      - noahmoss 8y ago
        This seems to be written by the CEO of a company that provides the exact service the article describes. That doesn't necessarily invalidate it, but I'd read it more as a business pitch than an honest, unbiased opinion.
        8y ago
deepGem 8y ago
why “being able to quickly google the answers to questions” is inferior to “learning, knowing and remembering the answer At least in the world of programming, this is not necessarily true. There is so much flux that you do need to rely on Google for the semantics at least. In some instances or in time crunch, it is a make or break scenario and how fast one can get to a solution trumps everything else. So the ability to quickly Google what you want is indeed not inferior. To quickly quote an anecdote, a couple of my fellow programmers couldn't start a Flask application on AWS to listen on all interfaces. Smart guys but they couldn't figure this out. 'What' to google for is also valuable. Of course, the ability to learn, know and remember is tremendously useful and this is what most of the interviews test for, but the ability to quickly Google and find answers in the nick of time is not inferior at all.
- kiba 8y ago
  Not necessarily. Being able to write, debug, and understand programs is the "deep" skills that you know and remember the answer to. Googling your answers is what you used for less frequently used set of knowledge.
- eswat 8y ago
  Understandable that you’d want to exploit any resource that can give you answers during a time crunch. But if given enough time, going through the pain of debugging and fixing something on your own – with at the most some documentation – is still superior. If one has learned, knows and remembers the first principles of their domain, then knowing what to Google becomes less valuable (not saying your colleagues don’t know their stuff). You can rely on yourself for even the trickier situations you get into.
  - deepGem 8y ago
    Agreed, this is what I strive for but rarely do it in practice. Somehow, you are always in a hurry, you always want the solution now!. I think this has to change, the initial time spent on the understanding the debugging process has immense long term benefits.The time to solution decreases with time, in my kind of approach it remains linear or sometimes even increase.
iambateman 8y ago
Buffet’s approach to life is interesting for the same reason an Olympic gymnast is interesting. He has specialized to an extreme and is taking advantage of the rewards of that specialization and natural talent in a unique way. It’s easy for me to feel shame that I don’t read 8 hours per day, as Warren and Charlie do. Buffett is a phenomenal investor but by all accounts, rather odd. He eats like crap, doesn’t exercise, had a profoundly weird relationship with his wife, and seems addicted to his work at the expense of everything else. My point is this: his practice of reading income statements and business reports 8 hours per day for 60 years doesn’t make him the kind of person I wish to emulate. Don’t get me wrong, I respect his levelheadedness toward money, lack of polish wrt PR, and generous philanthropic efforts. There’s a lot of good. But it’s easy to idolize the guy.
- SquishyPanda23 8y ago
  The way you describe it, he kind of sounds like a person with Aspergers with business as his special interest. Not saying that's what's going on. I don't know much about Buffet, but it sounds like some people with Aspergers I know that have other interests (mainly science). Personally, reading about the same thing 8 hours a day sounds like a dream job to me.
  - chosenbreed37 8y ago
    Warren Buffet is an outlier among outliers. Clearly there are things anyone can pick up from his approach. I think I'd struggle to keep everything in my memory :-) but I think there is a lot to say about the kind of knowledge that one should seek to acquire. On reading I read also on Farnham Street that Charlie Munger reads quite broadly I wonder if it is the same with Mr Buffet
    - kharak 8y ago
      Same here, my memory is one of my worst attributes. If you ask me about tasks I've done last week, I might have trouble remembering them (or any details) without looking up Jiras. I get the argument of compounding knowledge, though. It should still apply to someone with bad memory. For instance, if I know that I'll be switching my career in about 3-5 years, won't I throw away a great deal of my knowledge and skills? Why do something like this in the first place? This goes in the same direction as focusing yourself on one thing and one thing only (in your career).
pasta 8y ago
I strongly believe that compunding knowledge is also helping to create good software. And I think software companies should give a team the opportunity to invest time to know more about the subject. For example when you write WMS software you should go to a warehouse and see what is going on, talk to the people who work there and understand why things are the way they are. Because there is a huge difference between knowing that 1+1=2 and knowing why 1+1=2.
- JoeSmithson 8y ago
  You're right but I think it actually needs so much more than that. I've worked on both sides of enterprise software, firstly building and deploying Incredible Feats of Engineering in the face of Ludicrous Requests from the Idiot Clients, and then secondly as an actual front line worker, doing Work That Actually Matters in the face of ill-designed Utterly Broken Tools produced by Arrogant Engineers. It's convinced me that "requirements gathering" in all it's forms just doesn't work, or at least is a currently unsolved problem. If I ever set up a company it will be a kind of Gonzo software consultancy where my engineers take on long contracts, the first year at least of which is just working entry level in the client company, actually carrying their actual workload, actually reporting up their chain of command. The only way anything is ever solved properly is when someone who genuinely understands and needs to solve the problem, also has the skills to do it. The current system of promoting talent away from real problems splits these two things up.
  - yourapostasy 8y ago
    Human psychology, common social hierarchies, and management culture works against your ideal: ultra-rare is the manager who will humbly claim they do not know what their direct reports are doing in sufficient detail to adequetly convey requirements to an engineer. I suspect a swing back towards in-house software development might become more attractive to decision makers, as big companies' boards of directors cotton onto the "Software Eats the World" trend, then panic-build before they're eaten by a competitor who got there first. AWS is just the beginning of what I suspect will turn out to be a marathon we're entering that even our great-grandchildren will run.
- 8y ago
thesausageking 8y ago
If his knowledge were compounding, we'd expect his performance to getting over time, not worse. But that's the opposite of what happened. He's underperformed the S&P 500 over the last 10 years. And it's been decades since he's been able to match the great returns he had very early in his career which he built his reputation on.
- NLips 8y ago
  I don't believe that's true. Looking at historic performance of BRK-A, it's out-performed the S&P 500 betwen pretty much any starting point and right now. The only exceptions I can see are midway through the '08-'09 financial crisis, where at times the S&P had sunken faster than BRK-A, leading to having a slightly larger recovery since.
- nabla9 8y ago
  You make solid observations but there are good explanations for this. 1) Investment opportunities are inversely related to the size. Buffet has constantly warned shareholders that as the size of the company grows, it becomes harder and harder to find good investments. Assuming he can analyze only fixed number of companies, we should expect that there is less potential companies to buy. Buffet has changed his investment strategies several times to reflect changes in his opportunities. 2) Timing. BRK is a company with incredible patience. If you compare SP500TR and BRK over decades, you notice that BRK makes permanent break from SP500 during stock market crashes and long recessions. During stock market booms BRK starts to lose to to the inflated market prices. We are currently riding on the top of 10 year stock market boom. BRK is patiently buying companies with long term steady profits. For example, Buffet is buying energy companies and electricity transmission businesses all over the the west. These companies are geographically linked and there will be benefits from smart grid investments in the future, especially if the future is solar.
- billmalarky 8y ago
  >And it's been decades since he's been able to match the great returns he had very early in his career which he built his reputation on. Keep in mind it is much easier to get great returns when you are smaller. Put another way, there are _significantly_ more opportunities to turn $1 million into $10 million than there are to turn $1 billion into $10 billion. At buffet's scale the opportunities are few and far between for hockey stick growth. As for his performance relative to the S&P 500, fair point. UPDATE: Just saw that my comment is basically a clone of a reply you had already received... Oh well ¯\_(ツ)_/¯
csomar 8y ago
This article is full of bul. Here is another article where WB suggests that you don't need such a big a brain: https://www.cnbc.com/2017/10/12/heres-the-iq-score-warren-buffett-says-is-all-you-need-to-succeed.html https://www.cnbc.com/2017/10/12/heres-the-iq-score-warren-bu... There are many things going on here: 1. WB came at a time where little IQ could get you a lot ahead. People were not skilled. There was a time where some knowledge of writing, reading and basic math could make a factory director. Now the same knowledge might not get you at the door of that same factory. 2. WB came at a time where it was easy to acquire and build. These were times when land was cheap. Competition was easy. And lots of sectors were not developed yet. Not the same circumstances now. Or, it is. I mean if I tell you there is some cheap land somewhere: let's go and build and invest. In 20 years it'll be worth a lot. Would you go for the deal? 3. WB age is 88. I'd rather have a couple million USD in my thirties than having a billion by the time I'm 80. 4. WB probably made extreme lifestyle sacrifices to have more digits in his bank account and more troubles/reports to read everyday. TL;DR: WB suggests that you should be wise and reasonable. That's good. People suggests that you should follow WB. That's bad (unless reading financial statements is your hobby).
- chosenbreed37 8y ago
  > 4. WB probably made extreme lifestyle sacrifices to have more digits in his bank account and more troubles/reports to read everyday. Possibly...I think those are just personal preferences. Apparently he rather likes his old house in the middle of nowhere. Apparently he prefers burgers and coca-cola to Michelin star restaurants with rare vintages. He seems to actually enjoy reading and buying up companies. He seems to be one of those few people who happened to get into a trade/profession that they had and aptitude for and enjoy.
- flexie 8y ago
  Warran Buffet did indeed have a couple million USD when he was in his 30s, back 55 years ago when a couple of million were worth around 20 million in today's money. Measured in today's money he probably had 2 million at some point in his mid/late 20s. He became a billionaire at 50-something. https://www.statista.com/statistics/378439/net-worth-of-warren-buffett-by-age/ https://www.statista.com/statistics/378439/net-worth-of-warr... https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=2400000&year1=196301&year2=201812 https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=2400000&year1=...
Bucephalus355 8y ago
“Hard to become an expert. Easy to be an expert.” I spent many years learning how to do cloud architecture. Now I can briefly look at AWS documentation for new services out of the corner of my eye and know all I need to for the next 6 months. Yet the other day I opened a book on Java, which I haven’t studied since college, and literally had no idea what in the world I was reading.
- chosenbreed37 8y ago
  I guess that the side effect of focus
- Cthulhu_ 8y ago
  Back in the day (I'm not THAT old but still) I had the same with Javadoc, two chapters of the Java text book and the rest I could quickly google.
- p33p 8y ago
  Do you have any specific online resources you could point to in order to learn cloud architecture?
- sosodev 8y ago
  What are the benefits of knowing cloud architecture that deeply?
- saberience 8y ago
  I’m curious as to how/why you could have spent years learning cloud architecture, it’s not that complicated surely. My company is recently transitioning to GCP and I’m architecting big data solutions. I started doing this in November or so and well, it’s not rocket science, in fact, it’s considerably easier than building systems ten years ago was. I’d hazard a guess that you’re not learning particularly efficiently if it took you years to learn this. In my opinion, any smart engineer could learn cloud architecture in a month or two if they’re studying two/three hours per day in their own time.
  - albertgoeswoof 8y ago
dna_polymerase 8y ago
(Slightly Off-Topic) Question to those who subscribe to Farnam Street: Would you recommend it? Does it add value to your life?
- bgroat 8y ago
  I loved it for about 18 months than I figured that I'd learned everything I needed from it. The quality remained stellar, I just didn't need it anymore
  - Jimpulse 8y ago
    What are your big take aways?
  - diego898 8y ago
    @bgroat - I'm also very curious about the fs community. Is it anything like LW? What are the main things that make it worth the yearly fee? Thanks!
abhi1311 8y ago
fsfsefse
- nickelcitymario 8y ago
  Mr. President, is that you?
dugluak 8y ago
In today's world things like "2 week sprints" or "move fast and break things" are considered cool. Not many people get the luxury of spending too much time on a topic unless of course you are Warren Buffet. The world around you pushes you or steals yours attention all the time.
- quickthrower2 8y ago
  It doesn't have to be like that for anyone though. Maybe in the short term, but you can get out of those situations if you need. Also 2 week sprints doesn't mean not focusing on one thing. It can mean breaking it down into chunks. Whatever Warren Buffet does, it comes down to stuff he does in 2 weeks every 2 weeks anyway.
thegabez 8y ago
Sound like Buffets approach to investing is ripe for machine learning. Has anyone tried building a ML model based off 10ks?
- bluGill 8y ago
  It is more than 10ks. It is also understanding what people are doing and going to do. Coke isn't a great/bad investment because of the 10k numbers - it is great/bad because of people who will continue to buy Coke over the long term. If people change their coke buying habits that won't show up in the 10k until it is too late, but by watching other sources you can figure out people are not buying coke.
- hodder 8y ago
  Nope. No one has ever attempted to use computers to make money off of stocks.
- tim333 8y ago
  Yup "On building predictive models with company annual reports" https://ir.uiowa.edu/cgi/viewcontent.cgi?article=1352&context=etd https://ir.uiowa.edu/cgi/viewcontent.cgi?article=1352&contex...
robnagler 8y ago
People have been saying Buffet is a lucky outlier for decades. Is his success in the following decades survivorship bias or a valid ex post facto test of success? If you believed in Buffett's investment philosophy in the 1980s based on decades of results, and had a thousand bucks to buy a Berkshire A share, would it have been a lucky pick? I didn't believe you could beat the market until about 2000, and I'm happy I started investing in Berkshire then. If I had bought Apple instead, it would have been a lucky pick imho. I think of investing in Berkshire to be based on ex post facto results, not survivorship bias. A decade ago I did an analysis of the top 25 on the Forbes list[1], and the TL;DR is that they 1) inherited their wealth, 2) had bet on a single company, or 3) been a value investor. Nobody in the top 25 is a "trader" or "quant" (e.g. Paulson or Soros). That analysis is still true, btw. [1] https://www.robnagler.com/2009/06/13/Objectively-Rich.html https://www.robnagler.com/2009/06/13/Objectively-Rich.html
- tim333 8y ago
  Few people who analyse Buffett think he's just been lucky. He's more like a chess master who is just better at his game than most he competes with.
misiti3780 8y ago
Buffet is a smart investor and obviously he is successful, but I always wonder why articles like this don't realize there is a large component of survivorship-bias involved also. I always like to think about this paragraph From "Fooled By Randomness" when I read this read articles on TechCrunch etc about how great and talented someone is (but it obviously easily maps to people like Buffet) >Let’s push the argument further to make it more interesting. We create a cohort that is composed exclusively of incompetent managers. We will define an incompetent manager as someone who has a negative expected return, the equivalent of the odds being stacked against him. We instruct the Monte Carlo generator now to draw from an urn. The urn has 100 balls, 45 black and 55 red. By drawing with replacement, the ratio of red to black balls will remain the same. If we draw a black ball, the manager will earn $10,000. If we draw a red ball, he will lose $10,000. The manager is thus expected to earn $10,000 with 45% probability, and lose $10,000 with 55%. On average, the manager will lose $1,000 each round—but only on average. At the end of the first year, we still expect to have 4,500 managers turning a profit (45% of them), the second, 45% of that number, 2,025. The third, 911; the fourth, 410; the fifth, 184. Let us give the surviving managers names and dress them in business suits. True, they represent less than 2% of the original cohort. But they will get attention. Nobody will mention the other 98%.What can we conclude? The first counterintuitive point is that a population entirely composed of bad managers will produce a small amount of great track records. As a matter of fact, assuming the manager shows up unsolicited at your door, it will be practically impossible to figure out whether he is good or bad. The results would not markedly change even if the population were composed entirely of managers who are expected in the long run to lose money. Why? Because owing to volatility, some of them will make money. We can see here that volatility actually helps bad investment decisions. The second counterintuitive point is that the expectation of the maximum of track records, with which we are concerned, depends more on the size of the initial sample than on the individual odds per manager. In other words, the number of managers with great track records in a given market depends far more on the number of people who started in the investment business (in place of going to dental school), rather than on their ability to produce profits. It also depends on the volatility. Why do I use the notion of expectation of the maximum? Because I am not concerned at all with the average track record. I will get to see only the best of the managers, not all of the managers.
yingw787 8y ago
This reminded me of what Jeff Bezos told the founders of Basecamp: "Focus on the things that don't change". In software, the global implementation-specific knowledge changes quickly, but the global first principles knowledge expands much more slowly. Implementation-specific knowledge is "crumbly"; it can't compound effectively over time because the foundational premises for its usage disappear. Investing in knowing first principles may pay off more in this regards because first principles actively build upon each other (compilers --> just-in-time compilation, distributed memory models | distributed systems, etc.)
mswen 8y ago
Central points: > focus time and effort on knowledge and skills that endure > read more seriously > think for yourself don't just take the opinions of others > focus in a particular domain so that pattern recognition develops > persist over time so that real knowledge has opportunity to compound What kinds of knowledge actually compound? Are there specific kinds of knowledge that deliver value now, make it easier to acquire knowledge later, make new knowledge more valuable because of rich context, or give us new models and paradigms for thinking?
miguelmota 8y ago
Warren Buffet is a pattern recognizing machine that can forecast trend growth by analyzing a boat load of data and has learned how to be a master of negotiation. With that said, Warren Buffet is not someone who invents things and or is very creative such as Bill Gates, Jeff Bezos, Steve Jobs, etc.. But someone like Buffet can amplify adoption of products and ideas by investing early and seeing potential of the companies.
- tim333 8y ago
  He's been quite creative with the company he's built. It's hard to think of much like it apart from Fairfax Financial which was modeled on Berkshire.
westurner 8y ago
> This is why it’s commonly telling you what happened, not why it happened or under what conditions it might happen again.
stcredzero 8y ago
A lot of us are on the treadmill of consuming expiring information. Not Buffett. He filled his mental filing cabinet with information that had a long half-life. I remember being in grad school, encountering fellow students who would say, "I want to learn X-Windows, so I can get a job doing that." Not such a huge market for that now. This is why you want to have a working knowledge about the whole stack. You won't necessarily build a compiler or write a low level library in your job, but if you actually needed something like that, you'd know enough to shop around for the right one or hire someone to build it for you. I all you're learning is how to jockey around one opinionated framework, or just barely learning how to glue libraries together, you're not learning information with a long shelf life.
code_scrapping 8y ago
Anyone else has the feeling that Shane Parrish is just a classier version of Tim Ferriss? Can't shake the "let me sell you tricks" approach.
hi41 8y ago
>>Buffett focused on knowledge and companies that change very, very slowly or not at all Can someone please tell me what exactly non-changing knowledge is?
- sobani 8y ago
  Basic human psychology like cognitive biases seems like a good candidate.
westurner 8y ago
This book probably doesn't mention that he's given away over 71% to charity since Y2K. Or that it's really cold and windy and snowy in Omaha; which makes for lots of reading time. "Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage" (2008) [1], "Buffetology" (1999) [2], and "The Intelligent Investor" (1949, 2009) [3] are more investment-strategy-focused texts. [1] https://smile.amazon.com/Warren-Buffett-Interpretation-Financial-Statements/dp/1849833192/ https://smile.amazon.com/Warren-Buffett-Interpretation-Finan... [2] https://smile.amazon.com/Buffettology-Previously-Unexplained-Techniques-Buffett/dp/068484821X/ https://smile.amazon.com/Buffettology-Previously-Unexplained... [3] https://smile.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/ https://smile.amazon.com/Intelligent-Investor-Definitive-Inv... Value Investing: https://en.wikipedia.org/wiki/Value_investing https://en.wikipedia.org/wiki/Value_investing https://www.investopedia.com/terms/v/valueinvesting.asp https://www.investopedia.com/terms/v/valueinvesting.asp

482 points by golyi 8y ago

I wonder to what extent Warren Buffet is Warren Buffet because of how he thinks and acts (like all of these non-fiction authors selling books by using his name would have us believe), and to what extent he is the product of media selection bias. -- If you take a large enough group of people who take risky stakes that are large enough (like the world of financial asset management), then one of them is bound to be as successful as Warren Buffet, even if they all behave randomly.

cm2187 8y ago
Except that he has been consistently successful over a very long period, unlike, say a Paulson who one could claim got lucky in 2008.
- stakhanov 8y ago
  A thought experiment: Say I have a database with 1024 e-mail addresses. I split them in two groups. I send an e-mail to 512 of them saying "tomorrow, IBM is going to go up". To the other 512, I send an e-mail saying "tomorrow, IBM is going to go down". The next day, IBM is up, and I discard from my database the 512 people to whom I've just sent an incorrect stock tip. Then I repeat. I send an e-mail to 256 people saying "tomorrow, Microsoft is going to go up", and so forth. ...at the end of the process I have someone who I've just sent 10 correct stock tips to. -- From the point of view of that person, I have been CONSISTENTLY successful. So that doesn't really mean anything. Also: There is a saying: You only have to get rich once. It is much easier, if you come into money at one point in your life, to hold on to it, than it is to repeatedly go from zero to hero, since capital has a tendency to create more capital, and a lack of capital has a tendency to prevent you from accumulating any. I know it goes against the mindset of the American entrepreneurially-minded crowd here. But it's a thought.
  - dwighttk 8y ago
    Except Buffet has been emailing everyone every year since 1962; unless he has a way to pick branching timelines.
    - nicoburns 8y ago
      > unless he has a way to pick branching timelines. Now that would be a skill that would set you up for success!
  - q-base 8y ago
    Fun thought experiment. Made me smile even though the direct relation to Buffet perhaps is a little vague. But your second saying about only getting rich once is probably closer to the truth.
  - sokoloff 8y ago
    You can use the "[private] tournament winner" selection process up to a certain point, but at some point far below Warren Buffett's current level, you come into the public eye. If it were akin to flipping coins, we'd almost surely have seen 16+ proto-Buffetts emerge into public consciousness only to see 15 of them blow up. Sure, there have been hedge fund failures and you could argue that Madoff was a public eye super-investor who turned out to fail, but I don't think there are enough examples of "this guy is a genius based on his track record" turning into "that guy we thought was a genius turned out to just be a lucky idiot" to suggest that all of Buffett's returns are luck.
  - Sholmesy 8y ago
    Derren Brown did exactly this with horse racing: https://www.youtube.com/watch?v=9R5OWh7luL4 https://www.youtube.com/watch?v=9R5OWh7luL4
- boombust 8y ago
  While you are right, I think the parent's idea if that with a large enough sample, even if every actor is making decisions randomly, you will get actors that will just crush it. I mean Warren Buffet invested in Apple about a year ago based on the idea that they have a sticky brand and went so far as to say that iPhones were underpriced (which is just flat out wrong given how poorly they sold relative to predictions). . .and it turned out to be a terrible investment decision (so far). While I find it hard to believe that WB is all luck I think you can't dismiss that argument entirely based on his track record, no matter how successful.
  - stakhanov 8y ago
    Well, if you take the random-chance/selection-bias as the core of a snowball and add to it the various mechanisms which mean that the game of asset management is rigged in favour of the manager, then I think there is something to this. For example, asset managers get a part of their income from a MANAGEMENT fee which is a percentage of the assets under management, that they collect regardless of whether the fund actually does well. If you get a few bets right, make a name for yourself, more people will be putting money into your funds, and it all turns into a self-fulfilling prophecy.
  - hopler 8y ago
    Buffet also refused to invest in computer/Internet companies for many years because he knew he didn't understand them.
  - smileysteve 8y ago
    On Apple; on a 1 year timeline APPL beats the S&P 500 by 5%. But I don't think Buffett measures his investments on a 1 year timeline; and to be honest to your comment, he made the underpriced comment on Aug 31, 6 months ago. "I do not focus on the sales in the next quarter or the next year," he said. "I focus on the ... hundreds, hundreds, hundreds millions of people who practically live their lives by it [iPhone]." Apple does continue to boost services income, keep cash on hand, pay dividends, and do share buybacks, all with a P/E below major utility stocks -- things Buffett traditionally considers. Disclaimer. Apple Shareholder
ancorevard 8y ago
There is such a thing as information, knowledge, wisdom and finally free will. Warren Buffet is Warren Buffet because of the way he consumed the information available to him, interpreted it and finally reacted to it. Certainly, Warren does not control the many factors in the environments he found himself in, factors that was favorable for him to get to where he is today and factors that were obstacles to him. But his chosen actions are his, the paths he took, the burdens, the risks, and the responsibilities. I would perhaps think of him as wise, not a genius or any such worship nonsense.
- knightofmars 8y ago
  >There is such a thing as information, knowledge, wisdom and finally free will. The prevailing theories of today are that "free will" isn't so real. https://www.psychologytoday.com/us/blog/sapient-nature/201205/free-will-is-illusion-so-what https://www.psychologytoday.com/us/blog/sapient-nature/20120...
lelima 8y ago
People like him, are made by many, many random acts, and of course dedication, around 10.000 hours is need it for be an expert in any field, any. What if "grandfather who was a grocer" was a plumber instead? I Strongly recommend this book: Outliers by Malcolm Gladwell. He studies outliers, their family, culture, timing. One of many fun facts is that almost every pro-hockey player in Canada is born in the early's month jan, feb, mar. Why? they compete versus small children when their are kids, and those months of strength give them advantage, which sent them into better teams, with better coaches and so on..
- kiba 8y ago
  I wouldn't recommend any books by Malcolm Gladwell. He oversimplified things for the sake of telling stories. If you want to learn rigorously, better look toward academic sources.
  - lelima 8y ago
    Which academic sources would you recommend on this topic? I've checked the sources from that book and they seem legit, including papers and articles[1]. Besides, the reviews of that book are very positive [2]. [1]: http://guides.skylinecollege.edu/c.php?g=279172&p=1861295 http://guides.skylinecollege.edu/c.php?g=279172&p=1861295 [2]: https://www.amazon.co.uk/Outliers-Story-Success-Malcolm-Gladwell-ebook/dp/B002RI9PKO https://www.amazon.co.uk/Outliers-Story-Success-Malcolm-Glad...
    - kiba 8y ago
      My recommendation is to read the academic sources, not the guy who simplified materials to an extent that things are lost in the translation leading to misrepresentation and misunderstanding. Also, always read the negative reviews. Sometime, they are bunk, but they sometime can be very informative.
      - donaldknuth123 8y ago
        Most of the negative comments are like yours, some version of: "This book is so simple anyone could have written it!" Hardly insightful.
doktrin 8y ago
The key to me, it seems, would be to evaluate his decision making process as opposed to merely examining the outcome. If the stated rationale used at the outset is validated (repeatedly), then it stands to reason his success is due to more than simply being lucky. I'm not very familiar with Warren Buffet or the world he operates in, but my understanding is that he does not in fact take particularly risky stakes and explicitly stays away from verticals he's not familiar with. Hence my personal opinion would be that how he "thinks and acts" has directly contributed to his success - but happy to be proven wrong.
Brigadirk 8y ago
I can't find the quote, but Buffett himself addresses this somewhere by saying that while you can get very lucky in finance, if the lucky ones all come from a particular city (Omaha) with a particular philosophy, something might be up.
- melling 8y ago
  He’s talking about value investing. The markets are supposed to be efficient and you can’t beat them.
  - throwawaymath 8y ago
    Indeed, they're supposed to be.
samsepia 8y ago
If they all behaved purely randomly WB would be a high sigma event - he's got to be loaded in some way - the issue here is which of WB's properties are behind his financial success - one strategy would be to emulate him as accurately as possible in all his idiosyncrasies or to use a more scientific method (e.g. looking at common traits among agents of his class).
senthil_rajasek 8y ago
Buffett shows how investors like him are not random in this lecture, https://en.m.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville https://en.m.wikipedia.org/wiki/The_Superinvestors_of_Graham...
dwighttk 8y ago
Not over the time period he has been successful. Or at least the longer he lasts as a successful person doing what he does the less likely he's just acting at random. It's possible to get 1000000 heads in a row flipping a fair coin, but around 20 I'm going to be suspicious. edit: With Buffet, he's not actually getting everything right, so I guess a better metaphor would be like 70% heads over 1000000 flips... more likely under random circumstances, but still pretty suspicious.
- T-hawk 8y ago
  > but around 20 I'm going to be suspicious. There's a multiple-endpoints effect here. If there are 2^20 participants all doing that, one of them is going to flip 20 heads in a row. You only notice the one who did after the fact. Some participant has to be the most outlying result and that's the only one you notice. (Not that that's necessarily the case for Buffett, but that's a general fallacy to be aware of.)
  - dwighttk 8y ago
    Yeah, I'd be less suspicious of 20 in a row out of a group of 1000000 flippers. But if any of them got 70% of 1000000 flips I'd be suspicious.
bgroat 8y ago
Funnily enough, Buffett actually calculated this in his essay "The Super Investors of Graham and Doddsville" Basically, advocates of the Free Market Hypotheses believed that it was impossible for anyone to deliberately, repeatedly generate alpha. The market was rational, and success was probabilistically distributed. With a large enough population, you will get Buffett level returns - therefor Buffett is a fluke. However, Buffett calculated that there weren't enough investors for his success to be a factor of random distribution, plus there were 2 dozen others who followed a similar strategy who also consistently generate alpha
- hyperpape 8y ago
  I think you mean "efficient-market hypothesis".
- throwawaymath 8y ago
  It's worth noting that Fama has since then walked back on the strong statement of the Efficient Market Hypothesis. I don't know that he ever intended to say beating the market is impossible; rather that beating the market must be impossible, under the rigorously definition of an idealized, "efficient" market. Unfortunately a lot of proponents of the EMH (especially non-academics) have taken this concept and run with it in ways Fama didn't intend. His position would be more accurately stated as the claim that modern markets are eventually informationally efficient, for any given instance of information asymmetry. It's a useful model that approximates markets, not an empirical claim about the world.
  - rbavocadotree 8y ago
    He definitely never said that beating the market is impossible. He said you can beat the market long term by taking on more risk, but not by market timing and stock selection. Everyone leaves out risk when talking about the EMH.
- westurner 8y ago
  "The Superinvestors of Graham and Doddsville" (1984) https://scholar.google.com/scholar?cluster=17265410477248371217&hl=en&as_sdt=5,43&sciodt=0,43 https://scholar.google.com/scholar?cluster=17265410477248371... From https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-and-Doddsville https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-a... : > The speech and article challenged the idea that equity markets are efficient through a study of nine successful investment funds generating long-term returns above the market index.

pan_peter 8y ago

Information arbitrage is also a factor. Here's an interesting case study using the Jan 3rd $75B Celgene acquisition 'Generating Alpha from Information Arbitrage in the Financial Markets with NLP Datasets: 水涨船高' https://hackernoon.com/profiting-from-information-arbitrage-in-the-financial-markets-3abfca9806d8 https://hackernoon.com/profiting-from-information-arbitrage-...

sireat 8y ago
Those findings while interesting need more work: The clusters were from back-tested stock data. Ie we knew ahead of the time that there were profits to be made. Was this akin to p-hacking? That is where there more stocks selected with some sort of correlation without the profit potential. The article alludes that there were more stocks without the raise in stock price after Celgene acquisition. So the real 'show me the money', 'skin in the game' for this kind of research would be to make predictions on a real time event(merger, acquisition etc).

RickJWagner 8y ago

One of the greatest things about Warren Buffet is that he wants to share with everybody the techniques for accumulating wealth. YouTube is loaded with videos in which Buffet explains clearly how to get rich slowly but surely. He's even got a cartoon series for kids, the Secret Millionaire's Club. (http://www.smckids.com/ http://www.smckids.com/) Buffet has figured out how to reliably win the game, he wants everybody to have that ability. He's a good guy.

jonstewart 8y ago
Marketing himself as a folksy Nebraskan also does wonders for his dealflow, which is one of the secrets of his success. He gets first pass at a lot of privately-owned companies who agree to sell at a low price, because he’s Warren Buffett and won’t ruin their companies.
- hopler 8y ago
  That's not just "marketing himself". That's a reputation earned over decades of buying companies and making the previous owners and managers into winners.
  - jonstewart 8y ago
    I don't think we disagree. Having run my own company, the biggest lesson learned is that marketing should never have "just" in front of it.
dennis_jeeves 8y ago
>YouTube is loaded with videos in which Buffet explains clearly how to get rich slowly but surely. I need to see one good video. Yes there are lot of videos of him but I want to see a video of him that explains to a common Joe, with common means on how to achieve modest financial success.
- RickJWagner 8y ago
  Hi Dennis, I just saw this note, I'll be glad to suggest. Instead of YouTube, head on over to bogleheads.org. Warren Buffet's investment philosophy largely aligned with Jack Bogle's. Bogle has a large group of enthusiastic followers who record it all, simply and backed up with free advice when sought. If your prospects are even close to average, you should fare very well. Good luck!

keiferski 8y ago

This concept is essentially the reason why “being able to quickly google the answers to questions” is inferior to “learning, knowing and remembering the answer.” The former treats a piece of information as an independent, context-free item, while the latter allows you to “digest” the information and understand the answer at a deeper level, to the point where it changes the types of questions you ask. Unfortunately our society doesn’t seem to recognize this and actively encourages not learning certain facts because they are easily googleable.

vp8989 8y ago
There is also, practically, a massive gulf between: 1) Being vaguely aware that something exists and knowing you can Google for it. 2) Having such a deep, intuitive understanding of said thing that you can actually use knowledge of that thing to solve complex problems.
- collyw 8y ago
  You can google for two, no? Seems like a good deal of my job as a software engineer.
  - personlurking 8y ago
    The new way to "google" something might become the next gig market. "The next gig economy will be on-demand knowledge" (2019) https://qz.com/work/1527544/the-next-gig-economy-will-be-on-demand-knowledge/ https://qz.com/work/1527544/the-next-gig-economy-will-be-on-...
    - noahmoss 8y ago
      This seems to be written by the CEO of a company that provides the exact service the article describes. That doesn't necessarily invalidate it, but I'd read it more as a business pitch than an honest, unbiased opinion.
      - 8y ago

deepGem 8y ago

why “being able to quickly google the answers to questions” is inferior to “learning, knowing and remembering the answer At least in the world of programming, this is not necessarily true. There is so much flux that you do need to rely on Google for the semantics at least. In some instances or in time crunch, it is a make or break scenario and how fast one can get to a solution trumps everything else. So the ability to quickly Google what you want is indeed not inferior. To quickly quote an anecdote, a couple of my fellow programmers couldn't start a Flask application on AWS to listen on all interfaces. Smart guys but they couldn't figure this out. 'What' to google for is also valuable. Of course, the ability to learn, know and remember is tremendously useful and this is what most of the interviews test for, but the ability to quickly Google and find answers in the nick of time is not inferior at all.

kiba 8y ago
Not necessarily. Being able to write, debug, and understand programs is the "deep" skills that you know and remember the answer to. Googling your answers is what you used for less frequently used set of knowledge.
eswat 8y ago
Understandable that you’d want to exploit any resource that can give you answers during a time crunch. But if given enough time, going through the pain of debugging and fixing something on your own – with at the most some documentation – is still superior. If one has learned, knows and remembers the first principles of their domain, then knowing what to Google becomes less valuable (not saying your colleagues don’t know their stuff). You can rely on yourself for even the trickier situations you get into.
- deepGem 8y ago
  Agreed, this is what I strive for but rarely do it in practice. Somehow, you are always in a hurry, you always want the solution now!. I think this has to change, the initial time spent on the understanding the debugging process has immense long term benefits.The time to solution decreases with time, in my kind of approach it remains linear or sometimes even increase.

iambateman 8y ago

Buffet’s approach to life is interesting for the same reason an Olympic gymnast is interesting. He has specialized to an extreme and is taking advantage of the rewards of that specialization and natural talent in a unique way. It’s easy for me to feel shame that I don’t read 8 hours per day, as Warren and Charlie do. Buffett is a phenomenal investor but by all accounts, rather odd. He eats like crap, doesn’t exercise, had a profoundly weird relationship with his wife, and seems addicted to his work at the expense of everything else. My point is this: his practice of reading income statements and business reports 8 hours per day for 60 years doesn’t make him the kind of person I wish to emulate. Don’t get me wrong, I respect his levelheadedness toward money, lack of polish wrt PR, and generous philanthropic efforts. There’s a lot of good. But it’s easy to idolize the guy.

SquishyPanda23 8y ago
The way you describe it, he kind of sounds like a person with Aspergers with business as his special interest. Not saying that's what's going on. I don't know much about Buffet, but it sounds like some people with Aspergers I know that have other interests (mainly science). Personally, reading about the same thing 8 hours a day sounds like a dream job to me.
- chosenbreed37 8y ago
  Warren Buffet is an outlier among outliers. Clearly there are things anyone can pick up from his approach. I think I'd struggle to keep everything in my memory :-) but I think there is a lot to say about the kind of knowledge that one should seek to acquire. On reading I read also on Farnham Street that Charlie Munger reads quite broadly I wonder if it is the same with Mr Buffet
  - kharak 8y ago
    Same here, my memory is one of my worst attributes. If you ask me about tasks I've done last week, I might have trouble remembering them (or any details) without looking up Jiras. I get the argument of compounding knowledge, though. It should still apply to someone with bad memory. For instance, if I know that I'll be switching my career in about 3-5 years, won't I throw away a great deal of my knowledge and skills? Why do something like this in the first place? This goes in the same direction as focusing yourself on one thing and one thing only (in your career).

pasta 8y ago

I strongly believe that compunding knowledge is also helping to create good software. And I think software companies should give a team the opportunity to invest time to know more about the subject. For example when you write WMS software you should go to a warehouse and see what is going on, talk to the people who work there and understand why things are the way they are. Because there is a huge difference between knowing that 1+1=2 and knowing why 1+1=2.

JoeSmithson 8y ago
You're right but I think it actually needs so much more than that. I've worked on both sides of enterprise software, firstly building and deploying Incredible Feats of Engineering in the face of Ludicrous Requests from the Idiot Clients, and then secondly as an actual front line worker, doing Work That Actually Matters in the face of ill-designed Utterly Broken Tools produced by Arrogant Engineers. It's convinced me that "requirements gathering" in all it's forms just doesn't work, or at least is a currently unsolved problem. If I ever set up a company it will be a kind of Gonzo software consultancy where my engineers take on long contracts, the first year at least of which is just working entry level in the client company, actually carrying their actual workload, actually reporting up their chain of command. The only way anything is ever solved properly is when someone who genuinely understands and needs to solve the problem, also has the skills to do it. The current system of promoting talent away from real problems splits these two things up.
- yourapostasy 8y ago
  Human psychology, common social hierarchies, and management culture works against your ideal: ultra-rare is the manager who will humbly claim they do not know what their direct reports are doing in sufficient detail to adequetly convey requirements to an engineer. I suspect a swing back towards in-house software development might become more attractive to decision makers, as big companies' boards of directors cotton onto the "Software Eats the World" trend, then panic-build before they're eaten by a competitor who got there first. AWS is just the beginning of what I suspect will turn out to be a marathon we're entering that even our great-grandchildren will run.
8y ago

thesausageking 8y ago

If his knowledge were compounding, we'd expect his performance to getting over time, not worse. But that's the opposite of what happened. He's underperformed the S&P 500 over the last 10 years. And it's been decades since he's been able to match the great returns he had very early in his career which he built his reputation on.

NLips 8y ago
I don't believe that's true. Looking at historic performance of BRK-A, it's out-performed the S&P 500 betwen pretty much any starting point and right now. The only exceptions I can see are midway through the '08-'09 financial crisis, where at times the S&P had sunken faster than BRK-A, leading to having a slightly larger recovery since.
nabla9 8y ago
You make solid observations but there are good explanations for this. 1) Investment opportunities are inversely related to the size. Buffet has constantly warned shareholders that as the size of the company grows, it becomes harder and harder to find good investments. Assuming he can analyze only fixed number of companies, we should expect that there is less potential companies to buy. Buffet has changed his investment strategies several times to reflect changes in his opportunities. 2) Timing. BRK is a company with incredible patience. If you compare SP500TR and BRK over decades, you notice that BRK makes permanent break from SP500 during stock market crashes and long recessions. During stock market booms BRK starts to lose to to the inflated market prices. We are currently riding on the top of 10 year stock market boom. BRK is patiently buying companies with long term steady profits. For example, Buffet is buying energy companies and electricity transmission businesses all over the the west. These companies are geographically linked and there will be benefits from smart grid investments in the future, especially if the future is solar.
billmalarky 8y ago
>And it's been decades since he's been able to match the great returns he had very early in his career which he built his reputation on. Keep in mind it is much easier to get great returns when you are smaller. Put another way, there are _significantly_ more opportunities to turn $1 million into $10 million than there are to turn $1 billion into $10 billion. At buffet's scale the opportunities are few and far between for hockey stick growth. As for his performance relative to the S&P 500, fair point. UPDATE: Just saw that my comment is basically a clone of a reply you had already received... Oh well ¯\_(ツ)_/¯

csomar 8y ago

This article is full of bul. Here is another article where WB suggests that you don't need such a big a brain: https://www.cnbc.com/2017/10/12/heres-the-iq-score-warren-buffett-says-is-all-you-need-to-succeed.html https://www.cnbc.com/2017/10/12/heres-the-iq-score-warren-bu... There are many things going on here: 1. WB came at a time where little IQ could get you a lot ahead. People were not skilled. There was a time where some knowledge of writing, reading and basic math could make a factory director. Now the same knowledge might not get you at the door of that same factory. 2. WB came at a time where it was easy to acquire and build. These were times when land was cheap. Competition was easy. And lots of sectors were not developed yet. Not the same circumstances now. Or, it is. I mean if I tell you there is some cheap land somewhere: let's go and build and invest. In 20 years it'll be worth a lot. Would you go for the deal? 3. WB age is 88. I'd rather have a couple million USD in my thirties than having a billion by the time I'm 80. 4. WB probably made extreme lifestyle sacrifices to have more digits in his bank account and more troubles/reports to read everyday. TL;DR: WB suggests that you should be wise and reasonable. That's good. People suggests that you should follow WB. That's bad (unless reading financial statements is your hobby).

chosenbreed37 8y ago
> 4. WB probably made extreme lifestyle sacrifices to have more digits in his bank account and more troubles/reports to read everyday. Possibly...I think those are just personal preferences. Apparently he rather likes his old house in the middle of nowhere. Apparently he prefers burgers and coca-cola to Michelin star restaurants with rare vintages. He seems to actually enjoy reading and buying up companies. He seems to be one of those few people who happened to get into a trade/profession that they had and aptitude for and enjoy.
flexie 8y ago
Warran Buffet did indeed have a couple million USD when he was in his 30s, back 55 years ago when a couple of million were worth around 20 million in today's money. Measured in today's money he probably had 2 million at some point in his mid/late 20s. He became a billionaire at 50-something. https://www.statista.com/statistics/378439/net-worth-of-warren-buffett-by-age/ https://www.statista.com/statistics/378439/net-worth-of-warr... https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=2400000&year1=196301&year2=201812 https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=2400000&year1=...

Bucephalus355 8y ago

“Hard to become an expert. Easy to be an expert.” I spent many years learning how to do cloud architecture. Now I can briefly look at AWS documentation for new services out of the corner of my eye and know all I need to for the next 6 months. Yet the other day I opened a book on Java, which I haven’t studied since college, and literally had no idea what in the world I was reading.

chosenbreed37 8y ago
I guess that the side effect of focus
Cthulhu_ 8y ago
Back in the day (I'm not THAT old but still) I had the same with Javadoc, two chapters of the Java text book and the rest I could quickly google.
p33p 8y ago
Do you have any specific online resources you could point to in order to learn cloud architecture?
sosodev 8y ago
What are the benefits of knowing cloud architecture that deeply?
saberience 8y ago
I’m curious as to how/why you could have spent years learning cloud architecture, it’s not that complicated surely. My company is recently transitioning to GCP and I’m architecting big data solutions. I started doing this in November or so and well, it’s not rocket science, in fact, it’s considerably easier than building systems ten years ago was. I’d hazard a guess that you’re not learning particularly efficiently if it took you years to learn this. In my opinion, any smart engineer could learn cloud architecture in a month or two if they’re studying two/three hours per day in their own time.
- albertgoeswoof 8y ago

dna_polymerase 8y ago

(Slightly Off-Topic) Question to those who subscribe to Farnam Street: Would you recommend it? Does it add value to your life?

bgroat 8y ago
I loved it for about 18 months than I figured that I'd learned everything I needed from it. The quality remained stellar, I just didn't need it anymore
- Jimpulse 8y ago
  What are your big take aways?
- diego898 8y ago
  @bgroat - I'm also very curious about the fs community. Is it anything like LW? What are the main things that make it worth the yearly fee? Thanks!

abhi1311 8y ago

fsfsefse

nickelcitymario 8y ago
Mr. President, is that you?

dugluak 8y ago

In today's world things like "2 week sprints" or "move fast and break things" are considered cool. Not many people get the luxury of spending too much time on a topic unless of course you are Warren Buffet. The world around you pushes you or steals yours attention all the time.

quickthrower2 8y ago
It doesn't have to be like that for anyone though. Maybe in the short term, but you can get out of those situations if you need. Also 2 week sprints doesn't mean not focusing on one thing. It can mean breaking it down into chunks. Whatever Warren Buffet does, it comes down to stuff he does in 2 weeks every 2 weeks anyway.

thegabez 8y ago

Sound like Buffets approach to investing is ripe for machine learning. Has anyone tried building a ML model based off 10ks?

bluGill 8y ago
It is more than 10ks. It is also understanding what people are doing and going to do. Coke isn't a great/bad investment because of the 10k numbers - it is great/bad because of people who will continue to buy Coke over the long term. If people change their coke buying habits that won't show up in the 10k until it is too late, but by watching other sources you can figure out people are not buying coke.
hodder 8y ago
Nope. No one has ever attempted to use computers to make money off of stocks.
tim333 8y ago
Yup "On building predictive models with company annual reports" https://ir.uiowa.edu/cgi/viewcontent.cgi?article=1352&context=etd https://ir.uiowa.edu/cgi/viewcontent.cgi?article=1352&contex...

robnagler 8y ago

People have been saying Buffet is a lucky outlier for decades. Is his success in the following decades survivorship bias or a valid ex post facto test of success? If you believed in Buffett's investment philosophy in the 1980s based on decades of results, and had a thousand bucks to buy a Berkshire A share, would it have been a lucky pick? I didn't believe you could beat the market until about 2000, and I'm happy I started investing in Berkshire then. If I had bought Apple instead, it would have been a lucky pick imho. I think of investing in Berkshire to be based on ex post facto results, not survivorship bias. A decade ago I did an analysis of the top 25 on the Forbes list[1], and the TL;DR is that they 1) inherited their wealth, 2) had bet on a single company, or 3) been a value investor. Nobody in the top 25 is a "trader" or "quant" (e.g. Paulson or Soros). That analysis is still true, btw. [1] https://www.robnagler.com/2009/06/13/Objectively-Rich.html https://www.robnagler.com/2009/06/13/Objectively-Rich.html

tim333 8y ago
Few people who analyse Buffett think he's just been lucky. He's more like a chess master who is just better at his game than most he competes with.

misiti3780 8y ago

Buffet is a smart investor and obviously he is successful, but I always wonder why articles like this don't realize there is a large component of survivorship-bias involved also. I always like to think about this paragraph From "Fooled By Randomness" when I read this read articles on TechCrunch etc about how great and talented someone is (but it obviously easily maps to people like Buffet) >Let’s push the argument further to make it more interesting. We create a cohort that is composed exclusively of incompetent managers. We will define an incompetent manager as someone who has a negative expected return, the equivalent of the odds being stacked against him. We instruct the Monte Carlo generator now to draw from an urn. The urn has 100 balls, 45 black and 55 red. By drawing with replacement, the ratio of red to black balls will remain the same. If we draw a black ball, the manager will earn $10,000. If we draw a red ball, he will lose $10,000. The manager is thus expected to earn $10,000 with 45% probability, and lose $10,000 with 55%. On average, the manager will lose $1,000 each round—but only on average. At the end of the first year, we still expect to have 4,500 managers turning a profit (45% of them), the second, 45% of that number, 2,025. The third, 911; the fourth, 410; the fifth, 184. Let us give the surviving managers names and dress them in business suits. True, they represent less than 2% of the original cohort. But they will get attention. Nobody will mention the other 98%.What can we conclude? The first counterintuitive point is that a population entirely composed of bad managers will produce a small amount of great track records. As a matter of fact, assuming the manager shows up unsolicited at your door, it will be practically impossible to figure out whether he is good or bad. The results would not markedly change even if the population were composed entirely of managers who are expected in the long run to lose money. Why? Because owing to volatility, some of them will make money. We can see here that volatility actually helps bad investment decisions. The second counterintuitive point is that the expectation of the maximum of track records, with which we are concerned, depends more on the size of the initial sample than on the individual odds per manager. In other words, the number of managers with great track records in a given market depends far more on the number of people who started in the investment business (in place of going to dental school), rather than on their ability to produce profits. It also depends on the volatility. Why do I use the notion of expectation of the maximum? Because I am not concerned at all with the average track record. I will get to see only the best of the managers, not all of the managers.

yingw787 8y ago

This reminded me of what Jeff Bezos told the founders of Basecamp: "Focus on the things that don't change". In software, the global implementation-specific knowledge changes quickly, but the global first principles knowledge expands much more slowly. Implementation-specific knowledge is "crumbly"; it can't compound effectively over time because the foundational premises for its usage disappear. Investing in knowing first principles may pay off more in this regards because first principles actively build upon each other (compilers --> just-in-time compilation, distributed memory models | distributed systems, etc.)

mswen 8y ago

Central points: > focus time and effort on knowledge and skills that endure > read more seriously > think for yourself don't just take the opinions of others > focus in a particular domain so that pattern recognition develops > persist over time so that real knowledge has opportunity to compound What kinds of knowledge actually compound? Are there specific kinds of knowledge that deliver value now, make it easier to acquire knowledge later, make new knowledge more valuable because of rich context, or give us new models and paradigms for thinking?

miguelmota 8y ago

Warren Buffet is a pattern recognizing machine that can forecast trend growth by analyzing a boat load of data and has learned how to be a master of negotiation. With that said, Warren Buffet is not someone who invents things and or is very creative such as Bill Gates, Jeff Bezos, Steve Jobs, etc.. But someone like Buffet can amplify adoption of products and ideas by investing early and seeing potential of the companies.

tim333 8y ago
He's been quite creative with the company he's built. It's hard to think of much like it apart from Fairfax Financial which was modeled on Berkshire.

westurner 8y ago

> This is why it’s commonly telling you what happened, not why it happened or under what conditions it might happen again.

stcredzero 8y ago

A lot of us are on the treadmill of consuming expiring information. Not Buffett. He filled his mental filing cabinet with information that had a long half-life. I remember being in grad school, encountering fellow students who would say, "I want to learn X-Windows, so I can get a job doing that." Not such a huge market for that now. This is why you want to have a working knowledge about the whole stack. You won't necessarily build a compiler or write a low level library in your job, but if you actually needed something like that, you'd know enough to shop around for the right one or hire someone to build it for you. I all you're learning is how to jockey around one opinionated framework, or just barely learning how to glue libraries together, you're not learning information with a long shelf life.

code_scrapping 8y ago

Anyone else has the feeling that Shane Parrish is just a classier version of Tim Ferriss? Can't shake the "let me sell you tricks" approach.

hi41 8y ago

>>Buffett focused on knowledge and companies that change very, very slowly or not at all Can someone please tell me what exactly non-changing knowledge is?

sobani 8y ago
Basic human psychology like cognitive biases seems like a good candidate.

westurner 8y ago

This book probably doesn't mention that he's given away over 71% to charity since Y2K. Or that it's really cold and windy and snowy in Omaha; which makes for lots of reading time. "Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage" (2008) [1], "Buffetology" (1999) [2], and "The Intelligent Investor" (1949, 2009) [3] are more investment-strategy-focused texts. [1] https://smile.amazon.com/Warren-Buffett-Interpretation-Financial-Statements/dp/1849833192/ https://smile.amazon.com/Warren-Buffett-Interpretation-Finan... [2] https://smile.amazon.com/Buffettology-Previously-Unexplained-Techniques-Buffett/dp/068484821X/ https://smile.amazon.com/Buffettology-Previously-Unexplained... [3] https://smile.amazon.com/Intelligent-Investor-Definitive-Investing-Essentials/dp/0060555661/ https://smile.amazon.com/Intelligent-Investor-Definitive-Inv... Value Investing: https://en.wikipedia.org/wiki/Value_investing https://en.wikipedia.org/wiki/Value_investing https://www.investopedia.com/terms/v/valueinvesting.asp https://www.investopedia.com/terms/v/valueinvesting.asp