Warren Buffett (Trades, Portfolio) has proven an invaluable source of knowledge for investors. Not only does he discuss advanced ideas when asked to, but he also encourages young and novice investors to invest in a very practical way. During the 2007 Berkshire annual meeting, Buffett was asked to provide some advice to new investors. This is what he answered:
What advice would you give to new investors?
“I think you should read everything you can. In my case, by the age of 10, I’d read every book in the Omaha public library about investing, some twice. You need to fill your mind with various competing thoughts and decide which make sense. Then you have to jump in the water – take a small amount of money and do it yourself. Investing on paper is like reading a romance novel versus doing something else. You’ll soon find out whether you like it. The earlier you start, the better.
At age 19, I read a book [The Intelligent Investor] and what I’m doing today, at age 76, is running things through the same thought process I learned from the book I read at 19.
I remain big on reading everything in sight. And when you get the opportunity to meet someone like Lorimer Davidson, as I did, jump at it. I probably learned more in that four hours than in almost any course in college or business school.
Charlie and I have made money in a lot of different ways, some of which we didn’t anticipate 30 to 40 years ago. You can’t have a defined roadmap, but you can have a reservoir of thinking, looking at markets in different places, different securities, etc. The key is that we knew what we didn’t know. We just kept looking. We knew during the Long Term Capital Management crisis that there would be a lot of opportunities, so we just had to read and think eight to ten hours a day. We needed a reservoir of experience. We won’t spot every one, though – we’ve missed all kinds of things.
But you need something in the way you’re programmed so you don’t lose a lot of money. Our best ideas haven’t done better than others’ best ideas, but we’ve lost less.”
I think we can complement Buffett’s comments with the intense curiosity that we must have as investors, since this is the fuel that will make us read about economies, industries, sectors and companies. Obviously, time proves beneficial since the pool of knowledge has more time to expand and pick up ideas on a general basis. Given the form in which information is stored in our brains, we tend to connect different ideas to help us understand the world. This comes into hand with what Munger calls the latticework of mental models. The more models that we learn by our own curiosity, the bigger our toolbox becomes to understand the world and take advantage of opportunities when they arrive.
