The Buffett Formula — How To Get Smarter

by Shane Parrish

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

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

— Charlie Munger

Most people go though 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 bed time rolls around. But that’s not really 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, it’s a mind-numbing sedative.

But 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.

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. No, in fact 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 day. 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.

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 requiredto hold an opinion.

In Working tougher: 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.

Read the rest here.