Warren Buffett's Letter & the Indian media

"Indian successor at Berkshire?" screamed the headlines of almost all Indian newspapers (at least English). Now what is the problem with us Indians and the Indian media that we need to find an Indian angle to every story and once we find it, expand the same and make it an issue for India. The annual letter is a watershed event where investors across the world eagerly wait to see what Warren Buffett has to comment. And this letter was no different. There was a hell lot of things to follow, learn and understand.

Instead of reporting all this in detail, even the financial dailies succumbed to the above headline. Much as this is like herd mentality, at least it would been okay of there was actually some reference to the fact in the letter. Warren Buffett has been praising Ajit Jain for quite some time now in all his letters. Insurance is the biggest operation at Berkshire and Ajit Jain is considered to be one of the smartest guys in Insurance. There was nothing new this time as well. There was absolutely no hint of anointing him as a successor (Believe me, I went through the letter thrice and that is three times more than most media people seem to have done) and it is highly unlikely that Warren Buffett would have deliberately hinted anything.

This shows that none of the journalists who reported the story knows anything about Warren Buffett or Berkshire and for sure, they haven' read the previous letters. Not necessarily expected from them but shouldn't we stop doing this India thingy in the media. Or is it just to attract eyeballs and advertisements.

Outliers by Malcolm Gladwell

Well, Malcolm Gladwell, after his "Tipping point" and "Blink" has reached a certain stage from where one can't ignore his books. And so definitely one picks up "Outliers" to see what is new this time.

His subject is that of "successful people" and how a host of environmental factors have had a great role to play in the success and not individualism per se. In other words "right time and right place" are almost as crucial as talent in separating the successful from the not so successful.

Outliers starts with the Canadian hockey team and shows how the date of birth affects selection and consequent chances of being picked for the highest versions of the game. Then for sheer talent, he supports the "10,000 hour" rule which is quite popular these days in telling that 10,000 hours of practise of any skill makes you talented in it. What the book says is that because of the environmental factors (family, Geo-political conditions, Technological changes) successful people got to practise these 10,000 hours in their skill while the others where not so lucky.

To support this, he goes to on to explain the early lives of Bill Gates, Steve Jobs, Bill Joy and the Beatles were subject to this 10,000 hour rule. And he continues with the detailed analysis of the life of Joe Flom, a successful lawyer.

After this, the book takes a slight detour to example how conditions affected the life of immigrants in early US and how despite the early struggles, the period really set in a base for the fortune of the coming generations. From the US immigrants, the book proceeds to the rice fields of China to explain how rice cultivation helps Chinese in mathematics. Good stuff, especially the rice cultivation stuff. Towards the end is the explanation of the success of a popular "Jamaican" author !!

All in all, the book surely makes you think about how important are the external factors in shaping a person. Sure enough the book states that people had innate talent and skills; but it is the environment that enabled the talent to shine. The example of Chris Langan vs. Einstein tries to show that after a point IQ stops mattering and it is circumstances and choices that determine the outcome. Of course, many things in the books may sound controversial to people who believe in the self-made person theory. Nevertheless, the book is a good starting point even for those people to think in broader terms. As for the writing, of course the book is a breezy quick read and never gets boring.

To just bring in the connection to investing, doesn't this book explain what the great Warren Buffett has been talking about these days. He says he was lucky to be born to a good family, started reading early, practising his stuff, rejecting what he did not work for him, was taught investing by Benjamin Graham and so on. No one doubts his "internal wiring" for investing but after that wasn't it the environment that played a great role ? Warren himself thinks so and accepts that (so does Bill Gates in this book).

Of course questions remain? Why did all the people born in the same era as Bill Gates not succeed? What explains the sheer talent of so many people who did not have formal training in subjects (The great mathematician S. Ramanujan, for example). Anyways, Go ahead and pick this one. It is a good starting point of thinking about success from a a broader point of view.

My grouse with Warren Buffett

I have a serious issue with what Warren Buffett seems to teach people about investing and what people understand. You see Warren Buffett is everybody's famous investment idol. And people want to emulate him in his successful way of investing. So far so good.

Now the issue I am talking about is how simple he makes out investing to be. He has laid down his four characteristics of a good investment and people seem to think that's all there to his success.

I have read all the Berkshire letters, the earlier Buffett partnership letters and finished 'Snowball' in the first week of its release. I am not trying to show off my reading list. All I want to convey is that I am reasonably better informed than people who just look upto WB from the popular media or general books on him. Well all I can say is that he is a genius; a freak even; somebody like Newton or Einstein who comes once in a generation and one needs to keep that in mind.

So why do people think WB is an easy act to follow? Because of the way WB tells them; his letters are full of sensible humour and he conveniently guides the reader to omit certain sections which are slightly difficult to understand. Now compare this to say, Michael Phelps. Supposing if one were to ask him his secrets of success and he replied: " Oh, work hard, work out regularly, concentrate and practice a lot". Will anyone just take this for an answer. Our minds will probably tell us 'Working hard means more than 6 hours a day plus he started practicing long ago plus he has a unique physique suited for swimming' and other factors. Added to the fact is that, not everyone wants to be a champion swimmer.

But when it comes to investing, almost everyone wants to be a champion investor. My sincere suggestion to anybody who even remotely thinks he can be the next WB is to try and follow the same reasoning as above for Michael Phelps. WB has a unique set of brain wired for investing plus he started really young, reads and knows stuff like mad and he selects a few good business not only by their positive characteristics but also by rejecting a whole lot of bad businesses which also he knows in and out.

Of course, I don't mean to convey that listening to WB is useless. Far from it. Just listening to WB will, I am sure for many, improve our results (I recall a study done about six months back which said that if people bought stocks upto 45 days after WB announced, they still trounced the markets 2 to 1). We must do what he says, improve our results while at the same time not think that WB's long record will be easy to emulate. Doing so will only increase our own sense of despair and frustration.

We must keep in mind the following quote from WB's guru, Ben Graham: "To achieve satisfactory investment results is easier than most people realize ; to achieve superior results is harder than it looks" and use WB's guidance in ensuring our satisfactory results.

Introductory

Well, I finally decided to be a blogger. To just introduce myself, all I can say I am a keen follower of value investing. Started with Warren Buffett and Charlie Munger and went through the whole realm of other investors and other schools of investing. And in the process of trying to understand investing (especially through the Indian market boom of 2007 and bust of 2008) I figured that investing is a way of life and one's way of life dictates one's investment philosphy and not the other way around. During all this, Charlie Munger's mental models kept appealing and I have tried to dwelve deeper into understanding how things work. It is an interesting journey of collecting knowledge and wisdom and maybe trying to apply to everyday life (tough!!).

Added to this is that fact that I am a voracious reader and like to read articles and books on a daily basis. After almost 2 years of reading and understanding stuff, I thought that this is the time to start recording my thoughts somewhere. Though I like pen to paper very much, in the end blogging was my solution.

So here it goes. In this blog, I will attempt to record my thoughts about various stuff and also write my book reviews. Maybe a couple of years later when I read this blog again, I will laugh at my foolishness. After all, the blog title was inspired by Isaac Newton's quote in the header. If he could think like that, then..