Table of Contents
Peter Bevelin divides Seeking Wisdom into two parts. The first describes our natural human tendencies and how they often fail us, while the second part describes principles that we should think about and apply, to improve our decision making. Most of the advice and stories are given by Buffet and Charlie Munger, with some references to prominent scientists and philosophers of the past. It’s a book filled with ideas worth thinking about, particularly if you are interested in investing.
Don’t Learn from your Mistakes
Learn from others, don’t learn from your own mistakes.
Charles Munger said, “1 believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself Nobody’s that smart.”
This requires some humility and realism.
Be Careful What You Don’t Wish For
Negative expectations can harm our bodies. If you think you are sick and are constantly worried about your health, then you probably will be sick. It is the Placebo Effect inverted.
A study found that women who thought they were inclined to a heart attack were four times more likely to die as women with similar risk factors who did not think they were going to have a heart attack. Another study found that patients who were told that aspirin would cause gastrointestinal side effects were three times more likely to experience them than those who were not told this fact.
A Tendency for Fear
Our fears are always more numerous than our dangers. – Lucius Annaeus Seneca (Roman philosopher, c.4 BC-G5 AD)
Fear is fundamental because life is fundamental. If we die, everything else is irrelevant. But we tend to fear too much. We fear the loss of our health, security, friends, money, social status, or job. We fear the unknown and the uncontrollable. You can imagine why we are hardwired to be fearful creatures.
Our ancestors who experienced fear were more likely to survive. But at some point, fear becomes debilitating. When there is no real threat, the constant feeling of fear is not only detrimental to our experience of life, but to our health.
Pattern Addicts
We can’t help but look for patterns everywhere.
Darwin wrote, ”As soon as the important faculties of the imagination, wonder, and curiosity, together with some power of reasoning, had become partially developed, man would naturally have craved to understand what was passing around him.”
We hate ambiguity. We need clarity and structure, that is why we categorize ideas, tools, and people. By simplifying life, we become less threatened by it. If we feel we know the causes and effects of things, we gain a sense of control over our destiny. The brain is not just attracted to facts and events, but novel information.
What is new is potentially useful, and that is why we seek what is hidden. It is better to explore many options than to over train old patterns. Bees that are trained to find many nectar sites are better at finding their way home than bees that are trained to find only one nectar site. If you want to learn better, mix new information with what you know.
Bad Decisions
We are susceptible to many biases that lead us to make terrible decisions. We tend to trust people we like, and we are good at knowing if someone is trustworthy or not. But we are bad at spotting the difference between a good and a bad actor. Appearances can be deceiving. The best con artists always acted as if they were not acting in their best interest.
In The Prince, Machiavelli said, “Princes who have achieved great things have been those who have given their word lightly, who have known how to trick men with their cunning, and who, in the end, have overcome those abiding by honest principles.”
Why Smart People Fail
According to Warren Buffet, many smart people fail because they mindlessly imitate others, or because they are fearful, greedy, or egotistical. There are many things that destroy the mind’s horsepower. What separates Buffet from others isn’t intelligence, it’s rationality. He doesn’t let irrelevant factors affect his thoughts. He doesn’t let the opinions of others dictate his decisions. That is why it is wise to be greedy when others are fearful, and vice versa.
Smart people often get in their own way, usually because of habits, temperament, or character. Some people start off with a 400-horsepower motor and get a hundred horsepower of output. It’s better to get 200-horsepower output from a 200-horsepower engine.
Remain Skeptical
If you failed at something, learn from it, and move on, but don’t become overly pessimistic and risk-averse. Likewise, if you succeed at something, it doesn’t mean you made the right decision, it may mean that you were lucky, so don’t be overconfident.
Mark Twain warned us of this temptation. “We should be careful to get out of an experience only the wisdom in it, and stop there, lest we be like the cat that sits down on a hot stove-lid. She will not sit down on a hot stove-lid again – but also she will never sit down on a cold one anymore.”
Advice is Never Free
Remember this old saying: “Never ask the village barber if you need a haircut.” Everyone is biased, including lawyers, doctors, accountants, and salesmen. What is good for them may harm us. Advisors are salesman that make money by convincing you to buy something that you don’t need. Litigation is more lucrative than settlement for a lawyer.
In investing and investment banking, things are even worse. Brokers want you to trade, because higher volume earns them more commission. And investment bankers push for overpriced acquisitions to generate fees. and to get initial public offerings deals complete (regardless of the company). Analysts make money from selling the IPO.
Groucho Marx “I made a killing on Wall Street a few years ago.. .1 shot my broker.”
Psychologists make money by making sure their patients schedule another visit, and they rarely admit their own ignorance.
An American actor Walther Matthau said, “My doctor gave me six months to live. When I told him I could not pay the bill, he gave me six more months.”
Self-Deception
Freud told us that illusions saved us from feeling pain and gave us pleasure instead. We believe things that make us feel better, but to think is the opposite of belief.
As Bertrand Russell remarked, “What is wanted is not the will to believe, but the will to find out, which is the exact opposite.”
Don’t Just Do Something, Stand There
Pascal warned that the sole cause of man’s unhappiness is his inability to sit quietly in his room. We act because we don’t know how to deal with boredom. We are impatient and threatened, so we feel compelled to act. Henry David Thoreau said, “”It is not enough to be busy; so are the ants. The question is: What are we busy about?”
Activity should not be conflated with results. Think about what you want to accomplish. There is no point sprinting, if you are on the wrong road.
Relativity
Bertrand Russell said, “Obviousness is always the enemy to correctness.” When someone told Voltaire that life was hard, the French writer replied, “compared to what?” We aren’t good at imagining alternatives, so we aren’t very good judges. We focus too much on what we know and ignore what we don’t know.
You may hear people say that focus is the hallmark of business success. But many focused people fail at business. Perhaps there are missing factors that we don’t know about.
To know what these are, we need to compare successful business with failed business, but it is difficult to get data for businesses that disappeared. And what complicates things more is that what may work in one situation may not work in another.
Simplify
Make complicated problems easier to solve by breaking them down into simpler ones. Eliminate everything but what is essential. Look at the smaller problems holistically. Represent them with a picture. Write down the key factors and their relationship. Do the easy decisions first.
Don’t focus on the method, focus on the problem. Use whatever works.
Make fewer decisions, and you will make better decisions. The more decisions you make, the less likely that you will make many good decisions. Charlie Munger and Warren Buffet didn’t try to make hundreds of smart decisions. They used a strategy that required them to make smart decisions only a few times.
Don’t waste your time on dumb ideas. If someone calls you, because they want to tell you about their dumb idea, just say no. Don’t tell them you’ll think about it. When you focus on what’s important, you get better results. This is in line with the Pareto Rule (minority of actions produce majority of results).
More information doesn’t mean more knowledge or better decisions. It is possible to have misinformation, especially today. Be more deliberate with the information you gather. Ask yourself, why am I doing this? What truly matter? What is important for what I want to achieve? Will more information help? Don’t collect data randomly.
Avoid What You Don’t Know
Reduce mistakes by learning who and what to avoid. This is more effective than looking for more ways of succeeding. It is much simpler to prevent something than to solve it.
Those who attain to any excellence commonly spend life in some single pursuit, for excellence is not often gained upon easier terms.
Samuel Johnson
If you try to do too much, you will be overwhelmed, and you will waste a lot of time. If you have one thing to do, you will tend to do it well and build knowledge. Publilius Syrus said: “To do two things at once is to do neither.”
Know Your Aim
Our plans miscarry because they have no aim. When a man does not know what harbor he is headingfor, no wind is the right wind.
Lucius Annaeus Seneca
Goals should be clearly defined. Be concrete about what you want. The more precise, the better. They must be focused on results, realistic, logical, measurable, and subject to change. You also need to set due dates and control stations to measure the extent to which your goal is being achieved.
Backward Thinking
A lot of success in lift and success in business comes from knowing what you really want to avoid-like early death and a bad marriage.
Charles Munger
Avoid what causes the opposite of what you want to achieve. Think about how you can destroy the maximum possible value in the shortest time possible.
Another way of thinking backwards is to start with what you are seeking and assume you have found it. Then ask, what is the purpose? Was this what you wanted? And if so, from which earlier position did you get there? What is needed to achieve this? Then work backwards to the start. By doing this, you can more easily see how something could work.
In medicine, this is done with retrospective disease studies. Researchers study the disease then work backward to see what prior conditions are associated with it.
Three Timeless Ideas for Investing
Benjamin Graham’s great ideas or investing were not complicated and did not need any special mathematical abilities.
- Look at stocks as part ownership of a business
- Look at market fluctuations as profit opportunities
- Margin of Safety. Build a 15,000 bridge if you’re going to drive a 10,000 pound trick across it.
If you’re an entrepreneur and you want a quick guide to know what to think about before launching you business, check out The Myth of Entrepreneurship.