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Experiencing the Wonder of Compound Knowledge

March 18, 2014 | About:

“Read 500 pages like this every day. That's how knowledge works. It builds up, like compound interest.”

- Warren Buffett (Trades, Portfolio)

Since I read the above quote from "Omaha Harold" last year, I have vowed to work my way towards getting close to 500 pages a day as possible. Through speed reading training and the natural process of knowledge accumulation, I have been able to read consistently between 100 pages and 500 pages (when I’m really on a roll) a day. Although still much slower than Buffett and Todd Combs, even at 200 pages a day, I can still strongly feel the power of compounding knowledge. In this article, I’d like to share with the readers an experiment I had, which solidified my belief in Buffett’s teaching.

For a while, I have been very interested in the oil and gas sector but never set aside a specific period of time to focus only on industries and companies within the sector. So as an experiment, I set up a goal to accumulate as much as knowledge as possible about the oil and gas sector within five days.

For this experiment, I collected the following “raw materials:”

1. UBS Oil and Gas Primer (about 130 pages)

2. S&P Capital IQ industry surveys (E&P, and NG Distribution, 50 pages each)

3. Offshore Book by Offshore Center Denmark (117 pages)

4. Review of Emerging Resources: U.S Shale Gas and Shale Oil Plays (80 pages)

5. Modern Shale Gas Primer by U.S DOE (100 pages)

6. Exco Resources 2012 Annual Report (150 pages)

7. BP plc 2013 Strategic Report and Form 20-F (300 pages)

8. Shell 2013 Annual Report (about 200 pages)

9. Diamond Offshore 2012 Annual Report and Form 10K (about 100 pages)

10. Ensco Plc 2012 Annual Report (about 200 pages)

On day one, I started by briefly going through all the annual reports. It was frustrating as I found myself lost in the terms used in the annual reports. Putting my frustration asided, I started reading the UBS Oil and Gas Primer, which has terrific information on the overall oil and gas industry from the formation of oil and gas to exploration, refining and marketing. As most of the information is relatively new to me, I had to forget about speed reading and go really slow so that I can understand the materials and retain as much information as possible. I also had to look up terms that I didn’t understand from time to time and print out supplementary materials as needed. At the end of the day, I barely finished this primer, spending about five hours.

For day two, I first read S&P Capital IQ industry surveys. I immediately noted some overlapping information between the industry surveys and the UBS Primer I read on day one. Nonetheless, I read the whole reports including the overlapping information to reinforce my understanding. After finishing up with the industry surveys, I went on reading the Modern Shale Gas Primer by the Department of Energy. Again, as I was facing new information, I had to decelerate and progress a little slowly. As the day came to an end, I gobbled up about 200 pages of knowledge.

Day three started off great as the compounding effect of knowledge really began to kick in. Having learned so much already about the fundamentals of oil and gas as well as some basic knowledge about the U.S. shale gas play, I breezed through the U.S Shale Gas and Shale Oil Play report. Then I moved on to the annual report of BP Plc and Shell. Amazingly, I was able to understand and make sense of so much of the information presented in the annual reports of two of the largest integrated oil and gas companies in the world. For the purpose of this experiment, I scanned through the financial statements and notes to financial statements. By the end of the day, I went through more than 500 pages of materials! And I felt it was easier than day one.

Moving on to day four, I spent the first hour going through Exco Resources’ 2012 annual report. Once again, thanks to the knowledge compounded over previous three days, it was relatively easy to understand the report. However, as I move on to the Offshore Introduction report, I once again found most of the materials very new. And once again I had to google explanations to terms I didn’t fully understand such as the differences between jackup rigs and semi-submersibles. I also had to watch a few illustration videos on youtube to get a feel of how rigs work in real life. At the end of the day, I only went through about 200 pages of reading materials but the knowledge accumulated during day four has prepared me well for the annual reports I was about to read for day five.

On the last day, my task was to read the annual report of two offshore drillers. It was unbelievable to find out what I read on day four has repeatedly shown up on those annual reports. Better yet, Diamond Offshore’s annual report discloses a good amount of same information as that of Ensco Plc, such as risk factors, industry information, etc. Three hundred pages of annual reports went by fast!

This experiment is probably one of the best learning experiences I ever had in my investment career up until now. I want to show sincere appreciation to Mr. Buffett for the wise words and to Mr. Combs for bringing those words to the investing public’s attention.

Of course, reading 500 pages every day is impractical for most non-professional investors, but every additional page counts. If you can’t read 500 pages, read 100 pages. Knowledge will still compound, albeit at a lower rate. The most important thing is to do it consistently.

All of us can do it, but not many of us will do it.

About the author:

A global value investor constantly seeking to acquire worldly wisdom. My investment philosophy has been inspired by Warren Buffett, Charlie Munger, Howard Marks, Chuck Akre, Li Lu, Zhang Lei and Peter Lynch.

Rating: 4.9/5 (18 votes)



One Fine Turtle
One Fine Turtle - 6 years ago    Report SPAM

Thanks for the article.

Grahamites premium member - 6 years ago

Thanks for the nice comments.

Malwan80 - 6 years ago    Report SPAM

in a recent interview with Tod he says read 500 pages like this every week not every day.am i missing something here

Malwan80 - 6 years ago    Report SPAM

in a recent interview with Tod he says read 500 pages like this every week not every day.am i missing something here

Grahamites premium member - 6 years ago

He did say 500 pages every week and Omaha Herald reported 500 pages everyday. I don't know which one is accurate but either way, you'll have to read as much as possible.

Augustabound - 6 years ago    Report SPAM
I think he just misspoke. Most of us can do 500 a week easily.

These guys have also been doing this most of their life and I'm sure can skim the less important parts of K's and Q's.

Someone posted the article on Lou Simpson (Trades, Portfolio) from '87 ish. Can remember where I saw it for the life of me.....

One part of the article mentioned a day (maybe a holiday or simply a day the market was closed but he was in his office at GEICO), where he commented he read 15 annual reports, "and it was a good day". :)

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