Source: Securities Times
Author: Qu Hongyan
Investment is an essential skill in life, and finding the right direction is crucial.
Buffett took over in 1965 $Berkshire Hathaway-B (BRK.B.US)$ , and the market value of the company has astonishingly surged from 10 million US dollars to the current 1.1 trillion US dollars. Several investment giants whose performance rivals Buffett have stated that nearly all questions regarding investment can be answered by referencing Buffett’s statements.
Where does investment wisdom come from? For Buffett, reading good books and extensive reading are the sources of his investment acumen. The former provides correct concepts, while the latter creates a compounding effect of knowledge akin to a 'snowball.' The compounding of knowledge is as important as the compounding of money, forming an exceptional mindset that allows investors to accurately identify excellent opportunities when they arise and respond appropriately when risks emerge.
The compounding of knowledge
The book that has had the most profound influence on Buffett is 'The Intelligent Investor.' First published in 1949, it is still hailed as the 'Bible of Investing' to this day. The Lindy Effect refers to the idea that the expected lifespan of items such as technology or ideas, which do not naturally perish, is proportional to their current age. Therefore, each additional period of survival indicates a longer remaining lifespan.
Similarly, if a book has withstood the test of time and remains widely read after fifty, one hundred, or even five hundred years, it is because it contains timeless wisdom, and there is hope that it will continue to be passed down for the next fifty, one hundred, or five hundred years.
Graham, the author of 'The Intelligent Investor,' experienced the Great Crash of 1929, during which his net worth fell by more than 70%. His original intention in proposing sound investment principles was to ensure they could withstand various challenging environments.
The importance of a good book is vastly underestimated. A book with 300 pages may seem ordinary, but it often represents the accumulation of thousands of hours and decades of work. How else can one gain insight into someone's lifetime achievements in just a few hours? A valuable perspective can generate profits worth millions or tens of millions of dollars.
There is nothing new under the sun. The history of capital markets exceeds 200 years, and the questions we ponder have already been considered by intelligent investors. Thus, the rational choice is not to exchange one’s own money for experience but to learn from others’ successes and failures through reading, preparing mentally in advance for future scenarios.
By the time Buffett finished high school, he had read more than a hundred books, exceeding the school's requirements. He said, 'By the age of ten, I had read every investment book in the Omaha Public Library, some of them twice. You need to fill your mind with competing ideas and decide which ones make sense.'
Once, when asked about the key to his success, Buffett held up a stack of documents and said, 'Read 500 pages like this every day. This is how knowledge works—it accumulates like compound interest. All of you can do this. But I guarantee that few will stick with it.'
Renowned investor Jim Rogers said, 'Early in my career, I realized that if you read annual reports, you could outperform 90% of people on Wall Street, and if you look at the footnotes in financial statements, you could outperform 95% of them.'
The late investment master Charlie Munger once said, 'Every smart person I've met in my life, regardless of industry, reads—and reads a lot. There are no exceptions. The amount Warren reads might surprise you. My kids joke that I’m a book with legs.'
Munger also said, 'I often see people who stand out in life. They aren’t necessarily the smartest or even the hardest working, but they are like perpetual learning machines. They keep learning, and every night they go to bed just a bit smarter than when they woke up. That’s incredibly useful.'
Prepare for good investment opportunities.
As Gautam Baid wrote in *The Power of Compounding*: The more you read, the more you expand your mental reservoir. 'More importantly, the knowledge you accumulate grows over time as it combines with all the new information you acquire. This process is essentially compounding at work, where knowledge compounds much like interest does.'
Knowledge exhibits a 'Matthew Effect,' where individuals with richer experience possess a stronger knowledge base. A more robust knowledge repository allows one to acquire specialized expertise at a faster rate. Thus, compared to most of his contemporaries, Buffett derives significantly more insight from the same reading materials, and ultimately, Buffett becomes even smarter.
Reading extensively, thinking deeply, and acting sparingly are the keys to successful investing. As Buffett said, 'The best investment you can make is in yourself.' Only through continuous reading and proper thinking can you recognize good projects when they appear, because great opportunities don’t arise often—chance favors the prepared mind. By reading more and thinking deeply, exceptional investors prepare meticulously in advance to seize significant opportunities.
One of Munger’s favorite authors, Herbert Simon, wrote in *Models of My Life*: Experienced decision-makers have a checklist of considerations before making an investment decision… If one could metaphorically open up their skull and peer inside the mind of an experienced decision-maker, you would find they store possible actions in their mental repository; they have a list of considerations before acting; and they have mechanisms to recall these items and pay attention to them when decisions are required.
Truly excellent investment opportunities do not arise frequently, nor do they last long. Therefore, you must be mentally prepared to act and ready to seize them at any time. 'If you remove our 15 best decisions, our track record would be quite mediocre. What you need is not a lot of activity but immense patience. You must adhere to your principles, wait for the right opportunity, and then seize it with full force.' As Munger put it.
When Buffett was teaching a business school class, he said, 'I could improve your ultimate financial well-being with a single punch card that has 20 slots, representing the total number of investments you can make in your lifetime. Once you've punched all the holes, you can no longer invest. Under such rules, you will truly think carefully about what you are doing, and you will have to allocate substantial funds to projects you genuinely wish to invest in.'
Buffett and Munger are lifelong learning partners. Munger stated, 'I believe no other pair of friends has done better in terms of continuous learning. If we had not kept learning, our past performance would not have been as good. We take this extremely seriously, spending most of our time reading so we can learn more, which is not a common approach in business.'
Futubull[Opportunity Page]The tracking feature for celebrity portfolio opportunities has been officially launched! Explore a variety of portfolios held by renowned investors, follow their strategies with a single click, precisely target high-quality assets, and invest with greater confidence!
Editor /rice