What I've Been Reading

Seeking Wisdom: From Darwin to Munger by Peter Bevelin. WHAT A BOOK !! Stupid me for not reading this book all this time. This is one of the those rare books which we all should read in our life time (and re-read it every few years). This is one of the best books I have ever read in my life. Peter Bevelin's unorthodox writing style makes it even better. He covers everything under the sun - finance to neuroscience, philosophy to genetics, economics to psychology -  this is what wisdom is all about - consilience of knowledge.

Why do we behave like we do? American writer Mark Twain once wrote: "The character of the human race never changes, it is permanent." Why is it so?

What do we want out of life? To be healthy, happy with our families, in our work, etc? What interferes with this? Isn't it often emotions like fear, anger, worry, disappointment, stress, and sadness caused by problems, mistakes, losses, or unreal expectations? Maybe we misjudged people, situations, the time or some investment. We chose the wrong occupation, spouse, investment, or place to live. Why?

This book is about searching for wisdom. It is in the spirit of Charles Munger, Vice Chairman of Berkshire Hathaway, Inc. who says, ''All I want to know is where I'm going to die so I'll never go there." There are roads that lead to unhappiness. An understanding of how and why we can "die" should help us avoid them.

The best way to learn what, how and why things work is to learn from others. Charles Munger says, "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. "

Why spend time studying wisdom? Charles Munger gives a compelling reason: "I think it's a huge mistake not to absorb elementary worldly wisdom if you're capable of doing it because it makes you better able to serve others, it makes you better able to serve yourself and it makes life more fun ...I'm passionate about wisdom. I'm passionate about accuracy and some kinds of curiosity."

American 20th Century writer Henry Louis Mencken said: "Conscience is the inner voice that tells us someone might be looking."

Richard Dawkins said in The Selfish Gene: "Be warned that if you wish, as I do, to build a society in which individuals cooperate generously and unselfishly towards a common good, you can expect little help from biological nature. Let us try to teach generosity and altruism, because we are born selfish."

There must certainly be a vastfond of stupidity in human nature, else men would not be caught as they are, a thousand times over, by the same snare, and while they yet remember their past misfortunes, go on to court and encourage the causes to which they are owing, and which will again produce them.

- Marcus Porcius Cato (Roman statesman and writer, 234-149 BC)

Don't over-learn from your own or others bad or good experience. The same action under other conditions may cause different consequences.

American novelist Upton Sinclair said: "It is difficult to get a man to understand something when his salary depends upon him not understanding it." Since people do what works, be sure to make the incentives right. Tie incentives to performance and to the factors that determine the result you want to achieve. Make people share both the upside and downside. And make them understand the link between their performance, their reward and what you finally want to accomplish.

It is often better to avoid situations where we need to change people. Changing people is hard as Warren Buffett says, "I'd say that the history that Charlie and I have had of persuading decent, intelligent people who we thought were doing unintelligent things to change their course of action has been poor. .. When people want to do something, they want to do something."

Warren Buffett says on how to identify people that may cause problem: ''I'm not saying that you can take 100 people and take a look at 'em and analyze their personalities or anything of the sort. But I think when you see the extreme cases - the ones that are going to cause you nothing but trouble and the ones that are going to bring you nothing but joy - well, I think you can identify those pretty well." Charles Munger adds, ''Actually, I think it's pretty simple: There's integrity, intelligence, experience, and dedication. That's what human enterprises need to run well."

Recognize your limits. How well do you know what you don't know? Don't let your ego determine what you should do. Charles Munger says, "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. There must be some wisdom in the folk saying: "It's the strong swimmers who drown."

Charles Munger tells us about the danger of ideology:

Heavy ideology is one ofthe most extreme distorters ofhuman cognition. Look at these Islamic Fundamentalists who just gunned down a bunch ofGreek tourists shouting, "God's work!"

Ideology does some strange things and distorts cognition terribly. If you get a lot of heavy ideology young - and, then, you start expressing it - you are really locking your brain into a very unfortunate pattern. And you are going to distort your general cognition.

Buffett: One of the important things in stocks is that the stock does not know that you own it. You have all these feelings about it: You remember what you paid. You remember who told you about it - all these little things. And it doesn't give a damn. It just sits there. If a stock's at $50, somebody's paid $100 and feels terrible; somebody else has paid $10 and feels wonderful- all these feelings. And it has no impact whatsoever...

Set the correct example. In Confucius words: "Example is better than law. For where the laws govern, the people are shameless in evading punishment. But where example governs, the people have a sense of shame and improve."

If 40 million people say a foolish thing, it does not become a wise one. - Somerset Maugham (British novelist, 1874-1965)

In the late economist Peter F. Drucker's The Effective Executive, the former chairman of General Motors, Alfred P. Sloan, Jr., is reported to have said at the closing of a management meeting: "Gentlemen, I take it we are all in complete agreement on the decision here". Everyone around the table nodded assent. "Then," continued Mr. Sloan, "I propose we postpone further discussion of this matter to give ourselves time to develop disagreement and perhaps gain some understanding ofwhat the decision is all about."

The 19th Century American poet Ralph Waldo Emerson said: "It is easy in

the world to live after the world's opinion; it is easy in solitude to live after our own; but the great man is he who in the midst ofthe crowd keeps with perfect sweetness the independence of solitude." What is popular is not always right. If you don't like what other people are doing, don't do it. Warren Buffett says: "We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they don't."

Disregard what others are doing and think for yourself. Ask: Does this make sense? Remember the advice from Benjamin Graham, the dean of financial analysis:

Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it - even though others may hesitate or differ. (You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.)

In Jonathan Swift's words: "You cannot reason a person out of a position he did not reason himself into in the first place."

Michel de Montaigne said: "If falsehood, like truth, had only one face, we would be in better shape. For we would take as certain the opposite ofwhat the liar said. But the reverse of truth has a hundred thousand shapes and a limitless field."

Charles Munger gives us some introductory remarks on the value ofknowing the methods of physics:

One of the things that influenced me greatly was studying physics.. .If! were running the world, people who are qualified to do physics would not be allowed to elect out oftaking it. I think that even people who aren't [expecting to] go near physics and engineering [in their planned profession] learn a thinking system in physics that is not learned so well anywhere else. Physics was a total eye-opener.

The tradition ofalways looking for the answer in the most fundamental way available - that is a great tradition and it saves a lot of time in this world. And, of course, the problems are hardenough that you have to learn to have what some people call assiduity. Well, I've always liked that word - because to me it means that you sit down on your ass until you've done it.

When someone remarked to the French writer Voltaire, "Life is hard," he retorted, "Compared to what?" We tend to ignore alternatives, and therefore we fail to make appropriate comparisons. Often we only consider information or evidence that is presented or available and don't consider that information may be missing.

Berkeley Statistics Professors David Freedman and Philip Stark say in their report What is the chance ofan earthquake that a larger earthquake in the Bay Area is inevitable, and imminent in geologic time: "Probabilities are a distraction. Instead of making forecasts, the USGS [U.S. Geological Survey] could help to improve building codes and to plan the government's response to the next large earthquake. Bay Area residents should take reasonable precautions, including bracing and bolting their homes as well a securing water heaters, bookcases, and other heavy objects. They should keep first aid supplies, water, and food at hand. They should largely ignore the USGS probability forecast."

When Charles Munger was asked what would be the best question he should ask himself, he said:

Ifyou ask not about investment matters, but about your personal lives, I think the best question is,"Is there anything I can do to make my whole life and my whole mental process work better?" And I would say that developing the habit of mastering the multiple models which underlie reality is the best thing you can do .. .It's just so much fun - and it works so well.

When it comes to integrity, Warren Buffett says it best:

One friend of mine said that in hiring they look for three things: intelligence, energy, and character. If they don't have the last one, the first two will kill you because, it's true, ifyou are going to hire somebody that doesn't have character, you had really better hope they are dumb and lazy, because, ifthey are smart and energetic, they'll get you in all kinds of trouble.

We basically have the attitude that you can't make a good deal with a bad person. We don't try to protect ourselves by contracts or all kinds ofdue diligence - we just forget about it. We can do fine over time dealing with people we like and admire and trust.

And the bad actor will try to tantalize you in one way or another. But you won't win. It pays to just avoid him. We started out with that attitude. However, one or two experiences have convinced us even more so that that's the way to play the game.

They avoid business involving moral risk: No matter what the rate, trying to write good contracts with bad people doesn't work. While most policy holders and clients are honorable and ethical, doing business with theftw exceptions is usually expensive, sometimes extraordinarily so.

I have known the details ofalmost every policy that Ajit [Ajit Jain] has written...and never on even a single occasion have I seen him break any of our three underwriting rules. His extraordinary discipline, ofcourse, does not eliminate losses; it does, however, prevent foolish losses. And that's the key: Just as in the case ofinvesting, insurers produce outstanding long- term results primarily by avoiding dumb decisions, rather than by making brilliant ones.

Let's take an example where we combine rules and filters. Reality often shows that one cause of problems is getting involved with wrong people. A rule could therefore be: "Avoid low quality people." As a consequence a filter may be: "Good track record and character traits." Then we look for clues and ask questions designed to answer the question: "High or low grade individual?"

The key thing in economics, whenever someone makes an assertion to you, is to always ask, "And then what?" Actually, it's not such a bad idea to ask it about everything. But you should always ask, "And then what?" - Warren Buffett

The next tool forces us to be objective. Charles Munger says on backward thinking:

The mental habit of thinking backward forces objectivity - because one of the ways you think a thing through backward is you take your initial assumption and say, "Let's try and disprove it."

That is not what most people do with their initial assumption. They try and confirm it. It's an automatic tendency in psychology - often called "first-conclusion bias". But it's only a tendency. You can train yourselfaway from the tendency to a substantial degree. You just constantly take your own assumptions and try and disprove them.

In writer Janet Lowe's wonderful biography of Charles Munger, Damn Right!, we can learn some of Charles Munger's views on values and behavior from his stepson, Hal Borthwick:

Charlie drummed in the notion that a person should always "Do the best that you can do. Never tell a lie. If you say you're going to do it, get it done. Nobody gives a shit about an excuse. Leave for the meeting early. Don't be late, but if you are late, don't bother giving people excuses. Just apologize...Return your calls quickly. The other thing is the five- second no. You've got to make your mind up. You don't leave people hanging."

Follow the advice of Charles Darwin - avoid controversies:

I rejoice that I have avoided controversies, and this lowe to Lyell, who many years ago, in reference to my geological works, strongly advised me never to get entangled in a controversy, as it rarely did any good and caused a miserable loss of time and temper. ..

All that I think is that you [letter to E. Haeckel) will excite anger, and that anger so completely blinds everyone that your arguments would have no chance of influencing those who are already opposed to our views.

Expect adversity. We encounter adversity in whatever we choose to do in life. Charles Munger gives his iron prescription for life:

Whenever you think that some situation or some person is ruining your life, it is actually you who are ruining your life...Feeling like a victim is a perfectly disastrous way to go through life. Ifyou just take the attitude that however bad it is in any way, it's always your fault and you just fix it as best you can - the so-called "iron prescription" - I think that really works.

Thomas Henry Huxley said: "Sit down before facts like a child, and be prepared to give up every preconceived Notion, follow humbly wherever and to whatever abysses Nature leads, or you shall learn nothing." A child is curious and asks "why?" As grown-ups we seem to forget the "whys" and accept what others say. We should all be children again and see the world as if through the eyes of a curious child without preconceptions.