In the first part of this series, I profiled books on life and living that have inspired me the most. In this second part, I cover books on learning, thinking, and decision making (more coming in the third part).
Before I begin, here’s something worth reiterating. You should not read good books for the sake of talking about them. Mentioning them by name may give you the appearance of literacy, but you do not have to read them to outshine someone else at a dinner party. Reading is a means toward living a good human life. It’s a means toward living the life of a free man/woman.
Anyways, what follows below is not an exhaustive list but is made up of books I go back to time and again, and return wiser.
Let’s start right away with my favourite books on learning, thinking, and decision making.
Poor Charlie’s Almanack (2005)
Unlike what many people think, Poor Charlie’s Almanack is not a ready reckoner on how to become a successful investor. In fact, it’s much more than that. It’s a book on how to live a happy, sensible and rich life and in the process become a better thinker and investor.
As you read through the book, some of Munger’s ideas will inspire you, and some will make you uncomfortable. But all will challenge you to think outside the box.
One of my favourites from the book is its third chapter that captures “Mungerisms”, where Munger dispels hundreds of ideas on subjects ranging from life, investing, academia, financial engineering, accounting, money management business, and managements.
Here is a couple of Mungerisms on getting rich –
Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day – if you live long enough – most people get what they deserve.
It’s not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it – who look and sift the world for a mispriced bet – that they can occasionally find one.
Here are a couple on envy –
If you are comfortably rich and someone else is getting richer faster than you by, for example, investing in risky stocks, so what? Someone will always be getting richer faster than you. This is not a tragedy.
Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?
And here’s one on how to find a good spouse –
What’s the best way to get a good spouse? The best single way is to deserve a good spouse because a good spouse is by definition not nuts.
If you haven’t read this book, to twist one of Munger’s sayings, “You are living the life of a one-legged man in an ass-kicking contest.”
A Few Lessons from Sherlock Holmes (2013)
This is a brilliant book from Peter Bevelin. Through this book, he has distilled Arthur Conan Doyle’s Sherlock Holmes into bite-sized principles and key quotes. In fact, this book is much more than a collection of quotes. It is a way to learn the powers of observation, understand the limits of our mind, and counter the narrative fallacy.
Sherlock Holmes is the epitome of rationality, and when it comes to making businesses decision, a rational thinking goes a long way in keeping you out of trouble.
Thinking is mostly an automatic process for everybody but while making critical decisions in life (and in business of investing) one needs to come out of the autopilot mode and learn the art of thinking clearly. Sherlock Holmes give us a framework, a blue print if you will, of thinking.
Bevelin writes in the book –
What distinguishes Holmes from most mortals is that he knows where to look and what questions to ask. He pays attention to the important things and he knows where to find them.
At the start of the book, Bevelin quotes mathematics and science writer Martin Gardner saying this about Sherlock Holmes –
Like the scientist trying to solve a mystery of nature, Holmes first gathered all the evidence he could that was relevant to his problem. At times, he performed experiments to obtain fresh data. He then surveyed the total evidence in the light of his vast knowledge of crime, and/or sciences relevant to crime, to arrive at the most probable hypothesis. Deductions were made from the hypothesis; then the theory was further tested against new evidence, revised if need be, until finally the truth emerged with a probability close to certainty.
There you have it! That’s the entire process of solving a mystery.
I believe the work of an investor or an analyst working diligently through a company’s analysis isn’t any different than that of a detective in search of the ultimate truth in a crime.
A Few Lessons from Sherlock Holmes is a great guide for anyone wanting to learn how to analyze businesses to pick the right kind of stocks for long-term investment.
Fooled by Randomness (2001)
The central idea of Fooled by Randomness from Nassim Taleb is that the world we live in today is more random than we would like to think. A human mind is a meaning-making machine. Through millions of years of evolution, nature has hardwired the human brain to seek patterns and consistencies everywhere. But as civilization has progressed the world around us has become increasingly uncertain and unpredictable.
The main culprit for our inability to acknowledge the randomness is hindsight bias. When we look back at things that have happened we see them as less random than they were. As they say, the hindsight vision is 20/20. Once we know the outcome of an event, we find it hard to imagine the other possible ways in which things could have happened.
Taleb writes in the book –
It is as if there were two planets: the one in which we actually live and the one, considerably more deterministic, on which people are convinced we live. It is as simple as that: Past events will always look less random than they were (it is called the hindsight bias). I would listen to someone’s discussion of his own past realizing that much of what he was saying was just backfit explanations concocted ex post by his deluded mind.
Letting randomness fool us is hazardous especially when it comes to investing and making decisions involving money.
The Black Swan (2007)
Black swan is a Latin expression, which was commonly used as a metaphor to describe something impossible or something non-existent. It came from the old-world belief that all swans are white since no one had seen a black swan before. Every time someone spotted a white swan, it was confirmation of their belief i.e., “all swans are white.” But this long held notion was invalidated the day first black swan was spotted.
A black swan event has following three attributes, writes Taleb in his book –
First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact (unlike the bird). Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.
The 9/11 terrorist attack was a black swan event. The 2008 financial crisis was one too. No one saw them coming. Both events had a huge impact on the economy and a large segment of population and pundits had a convincing explanation (with the benefit of hindsight) to claim that those events were inevitable. For that matter, black swan events are very subjective too. For a tribal community living in a remote corner of east Africa, both these events were of no significance. But for a guy trapped on the top floor of the burning World Trade Center, it was a black swan. For AIG, which sold billions of dollars of credit default swaps on subprime mortgage bonds, 2008 crash was a black swan.
The idea is that one can never predict a black swan event. What you can, however, do is to arrange your affairs in such a manner that you aren’t exposed to such events. Having leverage exposes you. So does indulgence in dangerous activities like doing drugs and racing trains, says Charlie Munger.
Apart from the central theme of black swan, Taleb’s book is choc-full of mind stretching ideas. I’ll leave you with the very last passage from The Black Swan which I found remarkably comforting. Taleb writes –
I am sometimes taken aback by how people can have a miserable day or get angry because they feel cheated by a bad meal, cold coffee, a social rebuff or a rude reception…We are quick to forget that just being alive is an extraordinary piece of good luck, a remote event, a chance occurrence of monstrous proportions.
Imagine a speck of dust next to a planet a billion times the size of the earth. The speck of dust represents the odds in favour of your being born; the huge planet would be the odds against it. So stop sweating the small stuff. Don’t be like the ingrate who got a castle as a present and worried about the mildew in the bathroom. Stop looking the gift horse in the mouth – remember that you are a Black Swan.
The Art of Learning (2007)
This is one of the best books on the art of learning I’ve read. Its author Josh Waitzkin is a champion in two distinct sports – chess and martial arts. He is an eight-time US national chess champion, thirteen-time Tai Chi Chuan push hands national champion, and two-time Tai Chi Chuan push hands world champion.
In The Art of Learning, Josh recounts his experiences and shares his insights and approaches on how you can learn and excel in your own life’s passion, using examples from his personal life. Through stories of martial arts wars and tense chess face-offs, Josh reveals the inner workings of his everyday methods, cultivating the most powerful techniques in any field, and mastering the psychology of peak performance.
One of my favourite chapters from Josh’s book is titled – Making Smaller Circles – which stresses on the fact that it’s rarely a mysterious technique that drives us to the top, but rather a profound mastery of what may well be a basic skillset.
Josh starts this chapter with the story of the protagonist in Robert Pirsig’s book Zen and the Art of Motorcycle Maintenance (another wonderful book). This man is Phaedrus, a teacher, who in this particular scene is reaching out to his student who is all jammed up when given the assignment to write a five-hundred-word story about her town, Bozeman.
Here is that scene straight from Pirsig’s book –
…a girl with strong-lensed glasses, wanted to write a five-hundred-word essay about the United States. He … suggested without disparagement that she narrow it down to just Bozeman.
When the paper came due she didn’t have it and was quite upset. She had tried and tried but she just couldn’t think of anything to say. He had already discussed her with her previous instructors and they’d confirmed his impressions of her. She was very serious, disciplined and hardworking, but extremely dull. Not a spark of creativity in her anywhere. Her eyes, behind the thick-lensed glasses, were the eyes of a drudge. She wasn’t bluffing him, she really couldn’t think of anything to say, and was upset by her inability to do as she was told.
It just stumped him. Now he couldn’t think of anything to say. A silence occurred, and then a peculiar answer: “Narrow it down to the main street of Bozeman.” It was a stroke of insight.
She nodded dutifully and went out. But just before her next class she came back in real distress, tears this time, distress that had obviously been there for a long time. She still couldn’t think of anything to say, and couldn’t understand why, if she couldn’t think of anything about all of Bozeman, she should be able to think of something about just one street.
He was furious. “You’re not looking!” he said. A memory came back of his own dismissal from the University for having too much to say. For every fact there is an infinity of hypotheses. The more you look the more you see. She really wasn’t looking and yet somehow didn’t understand this.
He told her angrily, “Narrow it down to the front of one building on the main street of Bozeman. The Opera House. Start with the upper left-hand brick.”
Her eyes, behind the thick-lensed glasses, opened wide.
She came in the next class with a puzzled look and handed him a five-thousand-word essay on the front of the Opera House on the main street of Bozeman, Montana.
“I sat in the hamburger stand across the street,” she said, “and started writing about the first brick, and the second brick, and then by the third brick it all started to come and I couldn’t stop. They thought I was crazy, and they kept kidding me, but here it all is. I don’t understand it.
The key lesson from this scene, as Josh writes in his book, is that depth scores over breadth when it comes to learning anything. As he writes –
The learning principle is to plunge into the detailed mystery of the micro in order to understand what makes the macro tick. Our obstacle is that we live in an attention-deficit culture. We are bombarded with more and more information on television, radio, cell phones, video games, the Internet. The constant supply of stimulus has the potential to turn us into addicts, always hungering for something new and prefabricated to keep us entertained. When nothing exciting is going on, we might get bored, distracted, separated from the moment. So we look for new entertainment, surf channels, flip through magazines.
If caught in these rhythms, we are like tiny current-bound surface fish, floating along a two-dimensional world without any sense for the gorgeous abyss below.
When these societally induced tendencies translate into the learning process, they have devastating effect.
Josh’s idea of making smaller circles is a great way to decide how to live, what to read, and how to invest sensibly.
The gentleman who taught us history course in school had a strong baritone voice which was in stark contrast to his fragile-looking structure. The only reason I remember him even today is because his voice still echoes in my head. The endless lectures where he would dictate the historical events and we would ferociously note down every single word. I am sure he knew his subject well but never really bothered to convince us why studying history was important.
It wasn’t until 2015 that I learned the importance of history. And the credit goes to Yuval Noah Harari, who not only made a dry subject very interesting with his unique style of humour and penetrating observation but also because he presents convincing arguments about why one should study history. In his book Sapiens, he writes –
Unlike physics or economics, history is not a means for making predictions. We study history not to know the future but to widen our horizons, to understand that our present situation is neither natural nor inevitable, and that we consequently have many more possibilities before us than we imagine. For example, studying how Europeans came to dominate Africans enables us to realise that there is nothing natural or inevitable about the racial hierarchy, and that the world might well be arranged differently.
Sapiens was the best book that I read in 2015. And I am not alone in declaring it as the most important book that every knowledge seeker should read. Mark Zuckerberg, Barack Obama, and Bill Gates have openly and strongly recommended Yuval’s book.
I guarantee that once you read the book, your worldview about the past, present and future will change dramatically. It’s such a rich book that I had to literally stop at every page and marvel at Harari’s jaw-dropping insights.
Your Money and Your Brain (2007)
Jason Zweig is an investment journalist and a long time investing columnist for Wall Street Journal. He is best known for editing and adding commentary to the revised edition of Benjamin Graham’s investment classic The Intelligent Investor. Graham’s book, considered as investing bible by many, was first published in 1949 and stays on top of every value investor’s reading list. In his commentary, Zweig has made Graham’s principles easier to understand and implement.
Your Money and Your Brain is Zweig’s attempt to demystify the subject of behavioural economics. The hypothesis that our emotions interfere with our rational thinking isn’t a hypothesis anymore. Zweig writes –
… over the past few years, scientists have made stunning discoveries about the ways the human brain evaluates rewards, sizes up risks, and calculates probabilities. With the wonders of imaging technology, we can now observe the precise neural circuitry that switches on and off in your brain when you invest.
Advancement in technology has added another dimension of neuroscience to the field of behavioural economics. Neuroeconomics is thus the hybrid of neuroscience, economics and psychology. The electrical activity inside our brains gives very important clues. Zweig writes –
The 100 billion neurons that are packed into that three-pound clump of tissue between your ears can generate an emotional tornado when you think about money. Your investing brain does not just add and multiply and estimate and evaluate. When you win, lose, or risk money, you stir up some of the most profound emotions a human being can ever feel…the neural activity of someone whose investments are making money is indistinguishable from that of someone who is high on cocaine or morphine.
The most unexpected section in Zweig’s book is on the topic of happiness. Although Daniel Kahneman spends quite a bit of time on the same topic in his book Thinking Fast and Slow, I really enjoyed reading Jason’s take on the subject of happiness. He concludes this chapter thus –
The best “value investment” of all is channeling money into goals that will make your life more valuable: drawing out your innate gifts to make yourself matter to other people and to make the world around you a better place. Given the way the brain works, your happiness ultimately depends not on finding out how much you can buy but on learning how much you can be.
If you could read just one chapter in Zweig’s book, Chapter 10 should be it.
To be continued…
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