"It's not supposed to be easy. Anyone who finds it easy is stupid." Charlie Munger (Trades, Portfolio)
You may have heard of John Waitzkin, a young chess prodigy who later went on to become a world-class martial artist. He has written "The Art of Learning," a very interesting book that provides several insights on his experiences on learning in chess, martial arts and life in general. There are many lessons that we can take away from the book. One that I really liked was the importance of learning the fundamentals, and not relying on memory or formulas to obtain results.
"Let’s return to the scholastic chess world, and focus on the ingredients to my early success. I mentioned that Bruce and I studied the endgame while other young players focused on the opening. In light of the entity/incremental discussion, I’d like to plunge a little more deeply into the approach that Bruce and I adopted.
Rewind to those days when I was a six-year-old prankster. Once he had won my confidence, Bruce began our study with a barren chessboard. We took on positions of reduced complexity and clear principles. Our first focus was king and pawn against king— just three pieces on the table. Over time, I gained an excellent intuitive feel for the power of the king and the subtlety of the pawn. I learned the principle of opposition, the hidden potency of empty space, the idea of zugzwang(putting your opponent in a position where any move he makes will destroy his position). Layer by layer we built up my knowledge and my understanding of how to transform axioms into fuel for creative insight. Then we turned to rook endings, bishop endings, knight endings, spending hundreds of hours as I turned seven and eight years old, exploring the operating principles behind positions that I might never see again. This method of study gave me a feeling for the beautiful subtleties of each chess piece, because in relatively clear-cut positions I could focus on what was essential. I was also gradually internalizing a marvelous methodology of learning—the play between knowledge, intuition, and creativity. From both educational and technical perspectives, I learned from the foundation up.
Most of my rivals, on the other hand, began by studying opening variations. There is a vast body of theory that begins from the starting position of all chess games, and it is very tempting to teach children openings right off the bat, because built into this theoretical part of the game there are many imbedded traps, land mines that allow a player to win quickly and easily—in effect, to win without having to struggle to win. At first thought, it seems logical for a novice to study positions that he or she will see all the time at the outset of games. Why not begin from the beginning, especially if it leads to instant success? The answer is quicksand. Once you start with openings, there is no way out. Lifetimes can be spent memorizing and keeping up with the evolving Encyclopedia of Chess Openings (ECO). They are an addiction, with perilous psychological effects.
It is a little like developing the habit of stealing the test from your teacher’s desk instead of learning how to do the math. You may pass the test, but you learn absolutely nothing—and most critically, you don’t gain an appreciation for the value or beauty of learning itself."
This has a lot of resemblence to the investing process. When we start learning about investing, we hear about magic formulas, screeners that work themselves magically to obtain great returns. We hear about mean reversion and how by quickly analyzing a graph we can reap quick profits daily. As it turns out, investing is serious business, where only the investors who understand both the internal and external factors affecting a specific business can expect to profit consistently. This is why some great investors, such as Ray Dalio (Trades, Portfolio), focus their speeches on first understanding how the economic machine works.
Seth Klarman (Trades, Portfolio) has mentioned: “Many investors greedily persist in the investment world’s version of a search for the Holy Grail: The attempt to find a successful investment formula. It is human nature to seek simple solutions to problems, however complex. Given the complexities of the investment process, it is perhaps natural for people to feel that only a formula could lead to investment success."
As investors, it is our duty to understand not only the language of business, which is accounting, but also to gather a wide array of knowledge because as Warren Buffett mentions, it works just like compound interest. By understanding pricing power, consumer behavior (which includes psychology) and many other mental models, our fundamental thinking structure will be more prepared to understand and act with decision when opportunities arrive.
What do you think?
