Tag: Warren Buffett

The Secrets of Happy Families

Bruce Feiler’s book — The Secrets of Happy Families: Improve Your Mornings, Rethink Family Dinner, Fight Smarter, Go Out and Play, and Much More — explores the hidden secrets of improving your family life.

Despite all of the recent research about individual happiness, a lot of life happiness comes from spending time with people you care about. In fact, it is the number one predictor of life satisfaction.

Simply put, happiness is other people, and the other people we hang around with most are our family. So how do we make sure we’re doing that effectively?

Adapt All the Time

Almost everyone feels completely overwhelmed by the pace and pressures of daily life, and that exhaustion is exacting an enormous toll on family well-being. Survey after survey shows that parents and children both list stress as their number one concern. This includes stress inside as well as outside the home. And if parents feel harried, it trickles down to their children. Studies have shown that parental stress weakens children’s brains, depletes their immune systems, and increases their risk of obesity, mental illness, diabetes, allergies, even tooth decay.

Kids wish their parents were less tired and stressed.

Jeff Sutherland implemented an agile approach at home.

“People think it’s natural to live in a world where everyone is dysfunctional. It’s not. It’s normal for people to be satisfied. All you have to do is remove the barriers that are making you unhappy and you’ll be a lot happier.”

That sounds like inversion and it turns out that acknowledging that things can go wrong and introduce a system to address those things works the same in business and at home. Hello, family meetings.

The centerpiece of the program is a weekly review session built on the principle of “inspect and adapt.”

Three questions get asked:

1. What things went well in our family this week?
2. What things could we improve in our family?
3. What things will you commit to working on this week?

This is a mechanism for communication.

“What works about the family meeting,” he said, “is that it’s a regularly scheduled time to draw attention to specific behaviors. If you don’t have a safe environment to discuss problems, any plan to improve your family will go nowhere.”

“The purpose of the meeting is not to talk about each of you as individuals. It’s to focus on how you’re functioning as a family.”

As well as talking about the things you want to focus on you need to talk about rewards and consequences too. Within limits, you need to let the kids decide.

Secrets-of-happy-families

Empowering children works.

A significant amount of recent brain research backs this up. Scientists at the University of California and elsewhere found that kids who plan their own time, set weekly goals, and evaluate their own work build up their prefrontal cortex and other parts of the brain that help them exert greater cognitive control over their lives. These so-called executive skills aid children with self-discipline, avoiding distractions, and weighing the pros and cons of their choices.

By picking their own punishments, children become more internally driven to avoid them. By choosing their own rewards, children become more intrinsically motivated to achieve them. Let your kids take a greater role in raising themselves.

One takeaway I got from agile is that whenever I see friends with checklists— chores, schedules, allowance— I ask whether the adults or the kids are doing the checking off. Invariably it’s the adults. The science suggests there’s a better way. To achieve maximum benefits, have the children do the scoring. They’ll develop a much finer sense of self-awareness. Even if this approach doesn’t work on every occasion, it’s about teaching your kids an approach to problem solving they can carry with them the rest of their lives.

Dinner Matters.
There is a right way to have family dinner: what you talk about matters as much as what you put in your mouth.

“When you start to look at the research, which is staggering,” Laurie David, the Oscar-winning producer of An Inconvenient Truth and the author of The Family Dinner, says “you realize all the things you worry about as a parent can be improved just by sitting down to regular dinners.”

A recent wave of research shows that children who eat dinner with their families are less likely to drink, smoke, do drugs, get pregnant, commit suicide, and develop eating disorders. Additional research found that children who enjoy family meals have larger vocabularies, better manners, healthier diets, and higher self-esteem. The most comprehensive survey done on this topic, a University of Michigan report that examined how American children spent their time between 1981 and 1997, discovered that the amount of time children spent eating meals at home was the single biggest predictor of better academic achievement and fewer behavioral problems. Mealtime was more influential than time spent in school, studying, attending religious services, or playing sports.

It’s not about the dinner, it’s about the people. Use meals to share family history.

The more children knew about their family’s history, the stronger their sense of control over their lives, the higher their self-esteem, and the more successfully they believed their families functioned. … (Marshall Duke) says that children who have the most balance and self-confidence in their lives do so because of what he and Robyn call a strong “intergenerational self.” They know they belong to something bigger than themselves.

More ideas? Try the 10-50-1 formula.

10. Aim for ten minutes of quality talk per meal. .. 50. Let your kids speak at least half the time. … 1. Teach your kids one new word every meal.

The Warren Buffett Guide to Setting an Allowance

1. Show them the money. (Byron) Trott (Buffett called him “the only banker I trust”) said most parents have an instinctive reluctance to be honest with their kids about money— how it’s made, lost, invested, and spent. He said that 80 percent of college students have never had a conversation with their parents about managing money. Trott advises his clients to fling open the doors to the vault.

“I tell my clients that forcing their kids to have financial literacy is one of the most important things they can do,” he said. He quoted statistics that say the more parents talk to their kids about debt, the less debt they rack up; the more they hear about savings, the more they sock away.

“What happens to a lot of families is they depend too much on osmosis,” he continued. “I sat down with one of the richest women in America recently and told her she had to talk openly with her children. She said she didn’t want to burden them with the truth, but burdening them with ignorance is really much worse.”

2. Take off the training wheels. “One of the biggest problems I see in families,” Trott said, “is a reluctance to let your kids make decisions for themselves.” As an example, he cited the story of Jack Taylor, the founder of Enterprise Rent-A-Car, who with a net worth in excess of $ 9 billion has been ranked as high as the eighteenth richest American. When his son turned thirty-two, Taylor handed him the company and never looked back. “Most parents meddle,” Trott said.

3. Accept their passions, any passions. Buffett is famous for not wanting to spoil his kids. Instead, after his wife gave each of their three kids $ 100 million, and the money didn’t ruin them, Buffett gave each one a $ 1 billion foundation. Trott was privy to that decision, and I asked what he thought of it. Does money inherently spoil children?

“I don’t think so,” he said. “I’ve seen too many really rich kids who are great people. In my experience, great people are great because they find their passion. For some that’s in business, but for others it’s in philanthropy. One of Warren’s sons is a farmer; another is a musician. Most families really don’t let their kids follow their passions. They assume the parents’ passion is the children’s passion, and usually it’s not. You should allow them to be outliers in their dreams.”

4. Put them to work. There’s a lot of vagueness in academic circles about children and money, but the research is clear that part-time jobs are great for kids. The Youth Development Survey in St. Paul, Minnesota, followed a number of children from ninth grade through their midthirties to determine whether childhood should be the sanctuary of play and learning or if work can be a productive part of it. The study found that those who work don’t lose interest in school and don’t cut back on family, extracurricular activities, or volunteering. They even become better at time management.

As the survey’s lead researcher, Jeylan Mortimer, observed: The more “planful” adolescents are about their future, the more successful and satisfied they are likely to be as adults. Trott agreed. “The most successful adults I know were all involved in business at a young age,” he said. “All of them. Warren believes it’s the secret to success. Your kid has to be involved in business. Warren thinks I’m successful because I had a lawn mowing business, a clothing store, all these different businesses as a kid, so I understood money, even though I never studied economics. What he thinks is necessary for someone to be successful in business is early exposure to business. So if you really want your daughters to understand money, have them open a lemonade stand.

Grandmothers Rock

Well, at least mine does.

Countless studies have shown the extraordinary benefits grandmothers have on contemporary families. A meta-analysis of sixty-six studies completed in 1992 found that mothers who have more support from grandmothers have less stress and more well-adjusted children. The more involved the grandmothers are, the more involved dads are, too.

Now you see why Hardly called grandmothers humanity’s “secret benefactors.”

So what are these grandmothers actually doing? They’re teaching children core social skills like how to cooperate, how to be compassionate, how to be considerate. Researchers at Brigham Young University in Utah interviewed 408 adolescents about their relationship with their grandparents. When grandparents are involved, the study found, the children are more social, more involved in school, and more likely to show concern for others. Also, as lead scientist Jeremey Yorgason said, parents take the lead in disciplining negative behavior, leaving grandparents free to encourage positive behaviors.

Use Checklists

family vacation checklist

“Peter Pronovost’s miracle invention was not a drug, a device, or a procedure. It wasn’t revolutionary at all. It’s one of the oldest, most mundane things on earth. It’s a checklist.”

By adding checklists with preposterously basic items such as “wash hands with soap” and empowering anyone in the room to speak up when something was wrong, hospitals saves lives, money, and time.

I was interested in applying his technique to the problems families face when leaving home for a trip. He gave me a number of recommendations.

1. Create different lists for different times in the process. “Checklists have to be linked in time and space,” Pronovost said. “So I have a checklist for ICU admissions, and another for blood transfusions. You should have a checklist for one week before the trip. Then two days before you’ll likely need another. Then one more for when you’re walking out the door. But you always need time to recover, so if you have one for when you’re at the airport, it’s too late.”

2. Make it specific. “A checklist should take less than a minute to complete,” he said. “Each item should be a very specific behavior. Avoid vague language.”

3. Killer items only. “Target your checklist on things that commonly go wrong,” he told me. “If you put down things you don’t fail at, you’ll drive people crazy. This has been borne out in aviation, where accidents have been caused by checklist fatigue.”

4. The rule of seven. “I have a rule that checklists can be only seven items,” Pronovost said. “It’s the same reason our telephone numbers are seven digits. Otherwise, people will take shortcuts and items will get missed.”

5. Include the kids. “I would sit down with them and say, ‘Hey, girls, I’m trying to improve how we travel, so I made a checklist. Does this make sense to you? What else can you add?’”

The Secrets of Happy Families: Improve Your Mornings, Rethink Family Dinner, Fight Smarter, Go Out and Play, and Much More will remind you about family agility, the power of talking, and how to have fun.

The Timeless Parable of Mr. Market

There is no one better to explain the concept of Mr. Market than Warren Buffett, who has used to to make billions of dollars and remain calm when all around him were losing their heads.

In the 1987 letter to Berkshire Hathaway shareholders, Buffett unfolds the concept for us.

Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

Ben’s Mr. Market allegory may seem out-of-date in today’s investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising “Take two aspirins”?

The value of market esoterica to the consumer of investment advice is a different story. In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind.

Following Ben’s teachings, Charlie and I let our marketable equities tell us by their operating results – not by their daily, or even yearly, price quotations – whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: “In the short run, the market is a voting machine but in the long run it is a weighing machine.” The speed at which a business’s success is recognized, furthermore, is not that important as long as the company’s intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.

Of course, this concept can be applied outside of stock markets as well.

“In the short run, the market is a voting machine but in the long run it is a weighing machine.”

— Ben Graham

Mr. Market is a Farnam Street Mental Model.

Ted Williams: The Science of Hitting and What it can Teach you about Making Better Decisions

ph_williams_index

Ted Williams (1918-2002) was arguably the greatest pure hitter who ever played the game of baseball. He’s the last person to cross the magic .400 barrier, which is an exceptional feat. It means he succeeded in getting a hit 40% of the time. It also means he failed 60% of the time.

How did he do it? And more importantly what can we learn from him that will help us make better decisions?

I’m not a huge baseball fan. But Ted Williams wrote a book, calledThe Science of Hitting.

The book contained a very interesting picture, of himself at bat with the strike zone broke into 77 individual squares.

Ted Williams: The Science of Hitting and What it can Teach you about Making Better Decisions

Williams understood that an important aspect to improving the odds of making good choices is the ability to distinguish between decisions within our circle of competence and those on the outside. If he waited for a pitch that was really in his sweet spot, he would get a hit 40% of the time. But if he was impatient and swung at something on the lower corners he would only get a hit 23-25% of the time.

Williams grasped that the way we make decisions — our decision process — matters.

The first step in baseball to getting a hit is to wait for a good pitch.

A good hitter can hit a pitch that is over the plate three times better than a great hitter with a questionable ball in a tough spot.

Only this isn’t Williams idea. It comes from baseball legend Rogers Hornsby, who told told Williams that the single most important thing for a hitter was to get a good ball to hit.

This is how Williams came to carve the strike zone into 77 spaces, each the size of a baseball. Waiting for a good pitch required knowing which pitches offered him the highest odds of success and the patience and discipline necessary to wait for them. These factors would make the difference between a trip to the minors and the hall of fame.

***

Now we’re not all baseball players but we all have a zone where the odds are tilted in our favour, called our circle of competence. This is an area in which we are capable of understanding with a high degree of probability the relevant variables and likely outcome.

Making decisions within our circle improves the odds we’ll do well. This is our sweet spot and it’s different for all of us.

The problem is everyone wants to have a large circle. We think bigger is better. But the size of the circle is not really what’s most important.

Knowing the boundaries of our circle of competence is more important than its size. As Richard Feynman pointed out, familiarity with something is different than competence.

Charlie Munger says “It’s not a competency if you don’t know the edge of it.”

And Warren Buffett, elaborating on the same topic, wrote:

If we have a strength, it is in recognizing when we are well within our cycle of competence and when we are approaching the perimeter. Predicting the long term economics of companies that operate in fast-changing industries is simply far beyond our perimeter. If others claim predictive skills in those industries—and seem to have claims validated by the behaviour of the stock market we neither envy not emulate them. Instead, we just stick with what we understand. If we stray, we will have done so inadvertently, not because we got restless and substituted hope for rationality.

Unlike Williams, Buffett can’t be called out on strikes if he resists pitches that are barely in the strike zone. He can, quite literally, wait for the perfect pitch—looking at thousands of different investments before finding one that is just right. That explains why he bats pretty close to 1.0 while Williams had to settle for less.

In some decisions, such as investing, we can choose to do the same thing. We can sit around, read, and wait for the right opportunity. Most decisions, however, are not of that nature.

We simply don’t have the option to wait for the perfect pitch. We have to make decisions in an uncertain world with imperfect information.

Knowing the boundary of our aptitude, where we bat above average and where we don’t, can help guide those decisions and how we make them.

Making decisions outside of our circle of competence (i.e., we don’t know what we’re doing) is riskier than making decisions inside our circle (i.e., where we do know what we’re doing.)

Williams batting average dropped off when he swung outside his core, and so to will ours.

If we have to decide something and we know we’re not in our sweet spot, we can take steps to improve the odds of making the a better decision. Or, at the very least, acknowledge that the decision we’re making is risky; We know we’re the patsy.

Whatever decision you’re making, know where it falls in your strike zone. To the extent possible you should attempt to deal with things that you are capable of understanding.

Warren Buffett — The Best Book On Investing And What It Can Teach You

When legendary investor Warren Buffett was asked what the best money advice he ever received, he replied referencing “by far the best book on investing ever written,” The Intelligent Investor, written in 1949 by Benjamin Graham.

Buffett was a student of Graham’s at Columbia and subsequently worked for him before breaking off on his own.

“Chapters 8 and 20 have been the bedrock of my investing activities for more than 60 years,” he says. “I suggest that all investors read those chapters and reread them every time the market has been especially strong or weak.”

So what’s the core of these two chapters?

The Investor and Market Fluctuations

Buffett explains in his 1987 letter to shareholders:

Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market’s quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another endearing characteristic: He doesn’t mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.

… [A]n investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace. In my own efforts to stay insulated, I have found it highly useful to keep Ben’s Mr. Market concept firmly in mind.

Margin of Safety as the Central Concept of Investment

The core of this idea to know what a business is worth and pay less.

Again Buffett explains in his own words. At the 1997 annual meeting, Buffett explains this concept (quoted from Andrew Kilpatrick’s, Of Permanent Value: The Story of Warren Buffett)

If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you’d need. If you’re driving a truck across a bridge that says it holds 10,000 pounds and you’ve got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay, but if it’s over the Grand Canyon, you may feel you want a little larger margin of safety.

When Mr. Market is happy he can materially erode the “margin of safety” that is the cornerstone of Buffett and Graham’s approach to investing.

Still curious? If you want to learn more about investing, there is no better education than the legendary investor himself. Read his shareholder letters online for free, in Kindle eBook, or book.

The Buffett Formula: Going to Bed Smarter Than When You Woke Up

The Buffett Formula

Most people go through life not really getting any smarter. Why? They simply won’t do the work required.

It’s easy to come home, sit on the couch, watch TV, and zone out until bedtime rolls around. But that’s not going to help you get smarter.

Sure, you can go into the office the next day and discuss the details of last night’s episode of Mad Men or Game of Thrones. And yes, you know what happened on Survivor. But that’s not knowledge accumulation; that’s a mind-numbing sedative.

You can acquire knowledge if you want it. In fact, there is a simple formula, which if followed is almost certain to make you smarter over time. Simple but not easy.

It involves a lot of hard work.

“The best thing a human being can do is to help another human being know more.”

— Charlie Munger

We’ll call it the Buffett formula, named after Warren Buffett and his longtime business partner at Berkshire Hathaway, Charlie Munger. These two are an extraordinary combination of minds. They are also learning machines.

“I can see, he can hear. We make a great combination.”
—Warren Buffett, speaking of his partner and friend, Charlie Munger.

We can learn a lot from them. They didn’t get smart because they are both billionaires. They became billionaires, in part, because they are smart. More importantly, they keep getting smarter. And it turns out that they have a lot to say on the subject.

How to Get Smarter

Read. A lot.

Warren Buffett says, “I just sit in my office and read all day.”

What does that mean? He estimates that he spends 80% of his working day reading and thinking.

“You could hardly find a partnership in which two people settle on reading more hours of the day than in ours,” Charlie Munger commented.

When asked how to get smarter, Buffett once held up stacks of paper and said, “Read 500 pages like this every week. That’s how knowledge builds up, like compound interest.”

All of us can build our knowledge, but most of us won’t put in the effort.

“Go to bed smarter than when you woke up.”

— Charlie Munger

One person who took Buffett’s advice, Todd Combs, now works for the legendary investor. After hearing Buffett talk, he started keeping track of what he read and how many pages he was reading.

The Omaha World-Herald writes:

Eventually finding and reading productive material became second nature, a habit. As he began his investing career, he would read even more, hitting 600, 750, even 1,000 pages a day.

Combs discovered that Buffett’s formula worked, giving him more knowledge that helped him with what became his primary job—seeking the truth about potential investments.

But how you read matters, too.

You need to be critical and always thinking. You need to do the mental work required to hold an opinion.

In Working Together: Why Great Partnerships Succeed, Buffett comments to author Michael Eisner:

Look, my job is essentially just corralling more and more and more facts and information, and occasionally seeing whether that leads to some action. And Charlie—his children call him a book with legs.

Continuous Learning

Eisner continues:

Maybe that’s why both men agree it’s better that they never lived in the same city, or worked in the same office. They would have wanted to talk all the time, leaving no time for the reading, which Munger describes as part of an essential continuing education program for the men who run one of the largest conglomerates in the world.

“I don’t think any other twosome in business was better at continuous learning than we were,” he says, talking in the past tense but not really meaning it. “And if we hadn’t been continuous learners, the record wouldn’t have been as good. And we were so extreme about it that we both spent the better part of our days reading, so we could learn more, which is not a common pattern in business.”

It Doesn’t Work How You Think It Works

If you’re thinking that they sit in front of a computer all day obsessing over numbers and figures, you’d be dead wrong.

“No,” says Warren. “We don’t read other people’s opinions. We want to get the facts, and then think.” And when it gets to the thinking part, for Buffett and Munger, there’s no one better to think with than their partners. “Charlie can’t encounter a problem without thinking of an answer,” posits Warren. “He has the best thirty-second mind I’ve ever seen. I’ll call him up, and within thirty seconds, he’ll grasp it. He just sees things immediately.”

Munger sees his knowledge accumulation as an acquired, rather than natural, genius. And he’d give all the credit to the studying he does.

“Neither Warren nor I is smart enough to make the decisions with no time to think,” Munger once told a reporter. “We make actual decisions very rapidly, but that’s because we’ve spent so much time preparing ourselves by quietly sitting and reading and thinking.”

How Can You Find Time to Read?

Finding the time to read is easier than you think. One way to help make that happen is to carve an hour out of your day just for yourself.

In an interview he gave for his authorized biography The Snowball, Buffett told this story:

Charlie, as a very young lawyer, was probably getting $20 an hour. He thought to himself, “Who’s my most valuable client?” And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning, working on these construction projects and real estate deals. Everybody should do this, be the client, and then work for other people, too, and sell yourself an hour a day.

It’s important to think about the opportunity cost of this hour. On one hand, you can check Twitter, read some online news, and reply to a few emails while pretending to finish the memo that is supposed to be the focus of your attention. On the other hand, you can dedicate the time to improving yourself. In the short term, you’re better off with the dopamine-laced rush of email and Twitter while multitasking. In the long term, the investment in learning something new and improving yourself goes further.

“I have always wanted to improve what I do,” Munger comments, “even if it reduces my income in any given year. And I always set aside time so I can play my own self-amusement and improvement game.”

Reading Is Only Part of the Equation

But reading isn’t enough. Charlie Munger offers:

We read a lot. I don’t know anyone who’s wise who doesn’t read a lot. But that’s not enough: You have to have a temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them.

Commenting on what it means to have knowledge, in How to Read a Book, Mortimer Adler writes: “The person who says he knows what he thinks but cannot express it usually does not know what he thinks.”

Can you explain what you know to someone else? Try it. Pick an idea you think you have a grasp of and write it out on a sheet of paper as if you were explaining it to someone else. (See The Feynman Technique and here if you want to improve retention.)

Nature or Nurture?

Another way to get smarter, outside of reading, is to surround yourself with people who are not afraid to challenge your ideas.

“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.”

— Charlie Munger