Warren Buffett gave a talk to Columbia business school students in late 2001 or early 2002, the last question that was asked to Buffett was, “What was he’s secret?” And Buffett replied, picking up a big pile of papers, ”I read 500 pages a week, and anyone can do it. It’s like compound knowledge, so if you start today, it will build up over time.”
Watch Todd Combs, Buffett’s hand picked portfolio manager retell the story here.
For some reason others have mistakenly heard 500 pages per day, and have written about it, which I too believed them but they are making a mistake. That is why it is important to read it direct from the original source. When reading a blog, make sure the author correctly references the original author or material and provides a link to it. If not, it’s best to avoid them.
If you tried to read 500 pages per day, I guarantee your quality of reading will deteriorate. Remember: quality over quantity! Plus you will be taking notes as you read.
The purpose is to cultivate quality reading. Reading to gain knowledge — not collect information or gather data — and the process will involve slowing down the number of words you read per minute. Of course the two overlap, but by first understanding that differences exist, allows us to acknowledge our own ignorance and develop new skills.
Reading an annual report is different from reading a newspaper. You should be able to comprehend without much effort reading a newspaper, online article or magazine, you become more informed, but to be informed means simply that something s the case.
Whereas reading an annual report is to read to understand, which requires an enlightenment; What does it mean? What’s it all about? Why is it the case? what connections are with tot other facts, in what respect it is the same and different, and so forth.
The process of reading to understand is a slow deliberate process!
Take an CEO’s letter to shareholders for instance.
“The art of reading, in short, includes all the same skills that are involved in the art of discovery: Keenness of observation, readily available memory, range of imagination, and, of course, a reason trained analysis and reflection.” Mortimer
Mortimer advises that you start by selecting the important words and paragraph’s, and then trying to understand them, question them and try and make some connections.
For example read these two simple statements made by two different CEOs:
- For more than 12 years as a public company, our strategy has been consistent. We have remained fully committed both to driving diversified growth and to partnering with our clients. During this time we have built our businesses systematically.
- Our stock price is a measure of the progress we have made over the years. This progress is a function of continually making important investments, in good times and not so good times, to build our capabilities — people, systems and products. These investments drive the future prospects of our company and position it to grow and prosper for decades.
Did you spot the subtle differences?
The use of vague language is present in No. 1. The use of these buzz words “systematically” and “diversified growth” are meaningless.
In the case of No. 2, there is a big difference in the language used, and there is a lot of information contained in that one paragraph.
For instance, the first sentence clearly states and anchors in tangible terms that their actions now and over the years will have real consequences for their share price and shareholders.
He then explains to the reader how their decisions — the capital allocation and human allocation decisions — made today will determine future profitability.
The first paragraph was written by Richard Fuld, chairman and CEO of the now defunct Lehman Brothers, and the second was written by Jamie Dimon, chairman and CEO of JPMorgan Chase (no wonder Buffett recommends you read Dimon’s letters).
If you are reading 500 pages a day, that will not impress me. But if you read only 75 pages a day, focused on training your mind to gain knowledge, that’s way more impressive.
We all think that when our big moment arrives, perhaps in a large market crash like 2008, we will then perform at our best.
But what happens is we lose our marbles because we haven’t trained our minds on a daily basis to spot the great opportunities that occur right in front of us. Instead we let our uncontrolled emotions get us dragged along with the crowd.
This is why I prefer to be a coach and not a teacher. Knowledge is not power; potential knowledge is power. A teacher can give you knowledge, but if you don’t use it, it is useless.
And my job is to coach you to train daily with quality in mind, so when those big moments arrive, you will be one of the few elite investors who can turn it on and perform on the day, just as LeBron James can turn it on when the Cleveland Cavaliers needed him to perform. Leave the method of speed reading as one the last things to learn.
What you can do to read 500 pages per week?
First: Set an objective.
Your objective in this case is to read 500 pages per week within 12 months’ time of today’s date.
Secondly: Set a baseline.
We want to be able track your progress. So by knowing where you are now, you’ll be able to watch your progress increase over time.
If you know how many pages per day you read, write it down in your journal or online somewhere.
If not, set aside an hour and just read with the intention to critically analyze the written piece and question what the writer is saying. What does it mean? Is it logical?
Use a timer so you don’t need to constantly check the time, and remove all other distractions. Choose a physical book or Amazon Kindle over sitting at your laptop reading online. Your mind will find it hard to focus, as the laptop is also used for work purposes.
Remember, no one else will see it, so be honest with yourself. The number you wrote down is not bad or good. It’s just a number.
We will over the next 12 months use that baseline to track your reading progress.
Third: Create a habit of reading daily.
Create a daily automatic habit of sitting down to read. Charlies Duhigg’s book, “The Power of Habit,” is here to help us.
“The process that occurs within our brains is a three-step loop. First, there is a cue, a trigger that tells your brain to go into automatic mode and which habit to use. Then there is the routine, which can be physical or mental or emotional. Finally, there is a reward, which helps your brain figure out if this particular loop is worth remembering for the future,” Duhigg said.
Make a choice between reading in the morning and reading at lunch time — or both. By choosing one you are creating the cue. You may need to set a reminder on your phone to remind you for the first week. Then it will become automatic.
Don’t read just before bed, unless it’s a non-fiction book, as the reading material we will be reading is cognitively demanding and it will cause your brain to go into overdrive thinking about the topic you’ve just read.
I found getting up early in the morning, between 5 a.m. and 7 a.m., is the most productive time to read and think for me, as there are no distractions and my mind is fresh and full of energy.
Okay, now the routine: Chunk it down
“The process — in which the brain converts a sequence of actions into an automatic routine —is known as ‘chunking,’ and it’s at the root of how habits are formed.”
You may feel overwhelmed by the goal to read 500 pages per week, especially if you are not a regular reader, as I was when starting out.
But by “chunking,” which simply means breaking down our goal into small pieces. Like eating a meal, we don’t try to eat it all at once. We eat it all by eating a lot of small pieces over time.
Our goal is to read 500 pages per week. There are seven days per week. So if we divide 500 by seven, we get 72 pages per day.
Now it starts to sound achievable. Seventy-two pages per day sounds doable.
Now compare it to your baseline
What is the gap? The gap is the number of pages you read now minus 72 pages.
Your gap is your target over the next 12 months.
Creating the automatic habit of reading requires us to practice constantly. And the second key aspect of developing the habit as explained by Duhigg is the reward.
The reward provides us with a dopamine hit, the same feeling we get when people like our Facebook post.
Below is a suggested reward/accountability idea.
Don’t break the chain!
Jerry Seinfeld said that one of the keys to his success was marking an X on his calendar at the end of the day after sitting down and writing new jokes.
When Seinfeld saw his calendar in the morning with a chain of red X’s, he felt the need to work so he didn’t break the chain.
“He told me to get a big wall calendar that has a whole year on one page and hang it on a prominent wall. The next step was to get a big red magic marker. He said for each day that I do my task of writing, I get to put a big red X over that day.
After a few days you’ll have a chain. Just keep at it and the chain will grow longer every day. You’ll like seeing that chain, especially when you get a few weeks under your belt. Your only job is to not break the chain.”
That was Brad Isaac, a fellow comedian, who said this was the advice Jerry Seinfeld gave him if he wanted to create better comic material, which was by writing every day.
This is a simple exercise you can do today.
Cultivate quality when reading.
You know Buffett stresses the importance of understanding the fundamentals of a company, which is the business model you are investing in. And he means real understanding, not mere data gathering or just collecting information.
“Thoughtfully choosing investments requires the same mental skills as thoughtfully reading a book.”
— Robert Hagstrom
With a flood of information available to you on the internet, it is important to develop a cognitive tool to filter out the noise and seek out the first sources.
And one such device is the ability to read analytically and think critically.
Robert Hagstrom, the author of “Value Investing: The Last Liberal Art,” described in chapter 7, titled “Literature,” the main concepts of how to read to gain knowledge rather than just collect information, from the book “How to Read a Book” by Mortimer J. Adler. This skill is not generally taught in school. I certainty wasn’t taught it.
Hagstrom describes the simple test to determine if you are collecting information or gaining an understanding:
Anytime you read something and find you can easily “get it,” chances are you are just cataloguing information. But when you come across a work that makes you stop, think and reread for clarification, chances are this process is increasing your understanding.
Reading to gain understanding requires real concentration and mental effort, and it’s not simply reading one book, setting it aside and reaching for the next book.
One reward part of the habit loop not mentioned earlier is an intrinsic reward you probably already have experienced while you were in deep concentration, reading or working, which is flow.
In 1915, T age 36, Albert Einstein was living in war-torn Berlin, while his estranged wife, Mileva, and their two sons, Hans Albert Einstein and Eduard “Tete” Einstein, lived in comparatively safe Vienna. On Nov. 4 of that year, having just completed the two-page masterpiece that would catapult him into international celebrity and historical glory, his theory of general relativity, Einstein sent 11-year-old Hans Albert the following letter:
My dear Albert,
Yesterday I received your dear letter and was very happy with it. I was already afraid you wouldn’t write to me at all any more. You told me when I was in Zurich, that it is awkward for you when I come to Zurich. Therefore I think it is better if we get together in a different place, where nobody will interfere with our comfort. I will in any case urge that each year we spend a whole month together, so that you see that you have a father who is fond of you and who loves you. You can also learn many good and beautiful things from me, something another cannot as easily offer you. What I have achieved through such a lot of strenuous work shall not only be there for strangers but especially for my own boys. These days I have completed one of the most beautiful works of my life, when you are bigger, I will tell you about it.
I am very pleased that you find joy with the piano. This and carpentry are in my opinion for your age the best pursuits, better even than school. Because those are things which fit a young person such as you very well. Mainly play the things on the piano which please you, even if the teacher does not assign those. That is the way to learn the most, that when you are doing something with such enjoyment that you don’t notice that the time passes. I am sometimes so wrapped up in my work that I forget about the noon meal. . . .
Be with Tete kissed by your
Regards to Mama.
(Source; emphasis mine.)
“Flow” is what Albert Einstein describes to his son: “That is the way to learn the most, that when you are doing something with such enjoyment that you don’t notice that the time passes. I am sometimes so wrapped up in my work that I forget about the noon meal. . . “
Flow is achieved, according to psychologist Mihaly Csikszentmihalyi, who coined the term, when these conditions are present:
- The vertical axis represents the size of the challenges we are facing.
- The horizontal axis represents the power of our skills in relation to those challenges.
- When our challenges exceed our skills (upper left part of the diagram), we feel anxiety.
- When our skills exceed our challenge (lower right part of the diagram), we feel boredom.
- When our skills and challenges are closely matched (the diagonal zone from lower left to upper right), we are in a flow state, where we feel neither too much anxiety nor too much boredom.
Flow is the zone between anxiety and boredom, and Csikszentmihalyi calls this diagonal channel the “flow channel.”
“The best moments in our lives are not the passive, receptive, relaxing times — although such experiences can also be enjoyable, if we had worked hard to attain them. The best moments usually occur if a person’s body or mind is stretched to its limits in a voluntary effort to accomplish something difficult and worthwhile. Optimal experience is thus something we make happen.”
— Mihaly Csikszentmihalyi
Remember that it is okay to fail. You won’t, as I have, get it right the first time. Give yourself permission to make mistakes. The key is to focus on progress, not perfection!
Once a month, keep a record of the number of words you read. As Peter Ducker once said, “What gets measured gets managed.” And compare it with your baseline. Focus on the progress you’ve made, not the mistakes you’ve made.
You’re Coach in investing,
Adam C. Parris
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