The great investors never stop learning. Warren Buffett, Charlie Munger and John Templeton all continued to learn well past the age of most people’s retirement, and despite decades of investment success, they all had the humility to recognise there was so much more to learn. More recently, the eminently successful practitioners, Howard Marks and Dan Loeb have each acknowledged their continued evolution as investors.
Investing Lessons From The Most Unlikely Of Places
And the information they absorb can come from a multitude of sources. At MastersInvest we have looked at what can be learned from a variety of areas, many of which upon first reflection you would consider to be only tenuously related to investing at best. Interestingly though, often the better learning is to be found in the most unlikely of places.
Value Partners Asia ex-Japan Equity Fund has delivered a 60.7% return since its inception three years ago. In comparison, the MSCI All Counties Asia (ex-Japan) index has returned just 34% over the same period. The fund, which targets what it calls the best-in-class companies in "growth-like" areas of the market, such as information technology and Read More
“Camel's nostrils are miracles of heat exchange and water recovery engineering. We are currently looking at cuttlebone and bird skulls to help design more efficient concrete structures for office buildings. The combustion chamber in the abdomen of a bombardier beetle mixes two high explosives from fuel tanks with valves that open and close 200 times a second—it is being studied in order to develop needle-free medical injections, more efficient fuel injection systems and more effective fire extinguishers.” Michael Pawlyn
This field is called biomimicry; a discipline that looks at nature's best ideas to inspire solutions to human problems. When it comes to continuous innovation and devising strategies for success, nature has a three billion year head start on us humans. While we’ve barely scratched the surface when it comes to understanding the world we live in, it’s no reason to be despondent. The world is just far too complex and ever changing. There’s much to learn and everyday those learnings can help in all facets of life.
Honey Bees Have Senses As Good As Dogs
A recent article in The Economist titled, ‘The nose knows - Flies, worms and bees could help detect illness’ provides an enlightening example. While everybody knows dogs have a much better sense of smell than us, few would realise they can smell things at concentrations of one part in a trillion. That’s equivalent to a single drop in a pond the size of 20 Olympic swimming pools! While trials have shown that dogs can detect human disease - cancer, diabetes, tuberculosis, and malaria - recent research shows bees have senses just as good. Imagine such an expendable resource providing an economical, easy and non-invasive way of detecting cancer.
“The imagination of nature is far, far greater than the imagination of man. No one who did not have some inkling of this through observations could ever have imagined such a marvel as nature is.” Richard Feynman
Many great investors have found lessons in life within nature itself. The learnings that she can offer us are many and varied, and so upon recommendation by both Michael Mauboussin and James Anderson, I recently delved into an interesting book called, ‘Honeybee Democracy.’
In this fascinating treatise, the world-renowned animal behaviourist Thomas Seeley delves into the life of a honey bee swarm. These tiny creatures face a life-or-death problem when choosing a new home, effectively ‘staking everything on a process that includes collective fact-finding, vigorous debate, and consensus building.’
The Honey Bee Colony
It all starts with the honey bee colony’s reproduction process. In the late spring and early summer, as a bee colony becomes overcrowded, a third of the hive stays behind and rears a new queen, while a swarm of thousands departs with the old queen to produce a daughter colony. As part of this process, a small percentage [c2%] of the hive’s worker bees, referred to as scouts, will independently search for a new nest site.
Experimental studies have found these scout bees to have an innate sense of what comprises the ideal location; a small entrance, plentiful volume for honey storage to survive winter, a suitable height above the ground, etc. Each scout bee’s job is to independently search for new locations and report them back to the hive. This communication process is achieved through a form of ‘ritual dance’ which signals both the location of the sites and the scout bee’s relative keenness on it.
Upon witnessing the dances, other scout bees will then visit the advertised sites and make their own independent assessment of the location’s merits and once again communicate this to the colony. Over time, each scout gradually reduces their marketing efforts regardless of how suitable the site is. The most keenly marketed sites attract more scouts who then inspect and, if appropriate advertise the site, creating a positive feedback loop. In contrast, lower quality sites are abandoned. When a quorum of bees is reached at the optimum site, the swarm will depart and take up residence in its new home.
An intelligent decision making process emerges from a group of less sophisticated beings; the wisdom of the hive is greater than that of any individual bee. This decision making process, honed over millions of years, almost always leads to the optimal site selection. There is no central decision maker; the queen bee plays no role in the process.
There are lessons in this decision making process that can help improve group decision making. Thomas Seeley recommended four things:
1) make sure the group is sufficiently large for the challenges it faces
2) make sure the group consists of people with diverse backgrounds and perspective
3) foster independent exploratory work by the group’s members
4) create a social environment in which the group’s members feel comfortable about proposing solutions
Every bee in the hive starts with a common purpose. The individuals and the hive’s interests are aligned - to the point where it is a life or death decision. When it comes to human decision making, ensuring a group understands the entities goals, have alignment and are incentivised appropriately, is fundamental.
The scout bees possessed an innate sense of what constitutes an optimal nest site. Extrapolating this to an investment group requires agreement on the attributes of a ‘good investment.’ Defining qualities such as a businesses’ purpose, a good culture, enduring competitive advantages, high returns on capital, management alignment and capability are perhaps, pre-requisites to consider. Filtering out unsuitable opportunities is an important part of the process.
Just as each bee doesn’t compare and contrast every site, but investigates a diverse range of sites, investment analysts should search widely for potential opportunities. Each analyst however, must be discerning in their selection process before reporting back to the group. Other analysts can then independently investigate those companies and a debate can be held about the merits of each.
While it might sound like common sense, collective groups of people have a tendency to make poor decisions. It’s uncanny the extent to which Thomas Seeley’s findings and recommendations parallel with those that the renowned Yale psychologist, Irving Janus described in his famous book, ‘Groupthink.’
One recurring trait of the great investors is their dedication to continuous learning. And its astounding from how many diverse fields they can draw life’s lessons from. At Mastersinvest we’ve drawn on teachings from great Investors, Businesses, CEO’s, Navy Captains, Psychologists, Physicists, Artists - and now - Honey Bees!
As humans, we understand just a fraction of what there is to know, which should make one optimistic about the amazing things we will achieve in the future. I’ll leave you with one of my all time favourite quotes from Ray Dalio, it connects the concept of nature and humility far better than I ever could.
“While I spend the most time studying how the realities that affect me most work—i.e., those that drive the markets and the people I deal with — I also love to study nature to try to figure out how it works because, to me, nature is both beautiful and practical. Its perfection and brilliance staggers me. When I think about all the flying machines, swimming machines, and billions of other systems that nature created, from the microscopic level to the cosmic level, and how they interact with one another to make a workable whole that evolves through time and through multi-dimensions, my breath is taken away. It seems to me that, in relation to nature, man has the intelligence of a mould growing on an apple—man can’t even make a mosquito, let alone scratch the surface of understanding the universe.” Ray Dalio, Principles 2011.
Source: ‘Honeybee Democracy,' Thomas Seeley, 2010, Princeton University Press.
Further Reading: ‘Avoiding Groupthink,’ Investment Masters Class, 2016.
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