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Grahamites
Grahamites
Articles (403) 

Why Should You Start Writing?

December 19, 2014 | About:

Words for a distinguished style are impossible without having produced and shaped the thoughts, and no thought can shine clearly without the enlightening power of words.

- Marcus Tullius Cicero.

Question: What do Warren Buffett (Trades, Portfolio), Ben Graham, Charlie Munger (Trades, Portfolio), Howard Marks (Trades, Portfolio) and Seth Klarman (Trades, Portfolio) have in common, aside from the fact that they are all great investors?

Well, there are many answers such as they are all Caucasians or they are all males. But the answer I want you to pay attention to is one that may very well be hidden in plain sight – they are all great writers. If you think this is a coincidence, Johnson O’Connor’s study may make you think twice. Johnson O’Connor was hired by GE in the 1920s to do a study on the successful traits of GE(NYSE:GE)’s most successful employees. To many people’s surprise, the study showed that a person’s vocabulary level was the best single predictor of success in any area. Said differently, “an understanding of not only general language but the words specific to the activity was the most important factor that separated the unsuccessful from the successful.”

Now let’s think about this from the perspective of investing. If it is not incidental that the aforementioned great investors are also great writers, there must be some link between writing and thinking. In my mind this link can be summarized as the following – the clarity of thinking comes from the clear understanding of concepts, which Warren Buffett (Trades, Portfolio) explains as the following: “if you understand an idea, you can express it so others can understand it. I find that every year when I write the annual report. I hit these blocks. The block isn’t because I’ve run out of words in the dictionary. The block is because I haven’t got it straight in my own mind yet. There is nothing like writing to force you to think and to get your thoughts straight.

I agree wholeheartedly with Mr. Buffett that “there is nothing like writing to force you to think and to get your thoughts straight.” It is much easier not to write and think you understand something. But when you start writing, you realize how much you do not understand or misunderstand even a simple concept. This has certainly been true based on my experiences. Before I started writing on this forum, I was confident that I had very solid understanding of investing related concepts as my college and graduate education involved taking numerous accounting and finance classes. However, once I started writing, I was immediately humbled by my lack of clarity in thinking and lack of understanding of some of the key concepts. For example, I struggled enormously with my article series on pension footnotes, tax footnotes and why Warren Buffett (Trades, Portfolio) uses book value as a proxy for intrinsic value. I almost wanted to give up finishing the article series because at one point I was so damn disappointed with myself. Fortunately, by chunking the concepts into different pieces, I gave myself some breathing room to reorganize my thoughts after all the frustration.

The hardest part for me is to explain the concepts/words in the simplest understandable way. In my opinion. There are three levels of explanation-

  • Introducing the name/term of something, or making a statement
  • Explaining the meaning of something, or explaining the reasons why you made your statement.
  • Using an analogy/example to make sense of it all.

An example that we are all familiar with involves how Warren Buffett (Trades, Portfolio) thinks about gold.

Level 1 – He wouldn’t buy gold.

Level 2 – Gold is not a productive asset. It is better to buy productive assets such as farmland or Exxon Mobil (NYSE:XOM).

Level 3 – The famous gold cube and how you can buy all the farmland and Exxon Mobil instead of owning all the gold that has ever been dug out.

You can see, as you go from level 1 to level 3, your level of understanding gets deeper and deeper because Buffett explained it so well. But at the same time, it is also harder to get to level 3 if you are on the side of explaining. What seemed easy for the Oracle requires an understanding and knowledge of the following:

  • The nature of gold and productive assets.
  • Total ounces of gold ever produced.
  • An estimate of the length, height, and width of the imaginary gold cube.
  • Total acreage of all the farmland in the U.S. and total value of all the farmland in the U.S.
  • Market value of the Exxon Mobil Company

The ability to put all these together in a simple and understandable way is absolutely critical. One of the reasons why Buffett is a prodigy is that he has the ability to reduce the complicated to the simple. Naturally you may wonder whether this ability can be learned. I think the answer is yes. I challenge the readers to do this exercise:

Step 1 – Think of a topic, such as share repurchase.

Step 2 – Write down, in your own words, what share buybacks are, when and why does it make sense for a company to buy back shares.

Step 3 – Use an analogy to make your case.

It can take you half an hour, 4 hours or a day. The important thing is to go through the exercise. Francis Bacon once said that “natural abilities are like natural plants – they need pruning by study.” What I’ve suggested above may help you sow the seeds of ability and then grow and prune them into a plant full of competence and intelligence that will make you a better thinker and investor. As Confucius would say, “The will to win, the desire to succeed, the urge to reach your full potential are the keys that will unlock the door to personal excellence.”

Don’t wait. Start writing now.

About the author:

Grahamites
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: 5.0/5 (13 votes)

Voters:

Comments

trdoyle
Trdoyle - 6 years ago    Report SPAM

Great article. Although somewhat different in concept, it does bring to mind the "The Two-Minute Drill" from Chapter 11 of Peter Lynch's "One Up on Wall Street", as related in an article of the same name here on Gurufocus by "Science" a couple of years ago.

batbeer2
Batbeer2 premium member - 6 years ago

Thanks for another nice article.

You say:

I challenge the readers to do this exercise:

Step 1

snowballbuilder
Snowballbuilder - 6 years ago    Report SPAM

I start writing mainly cause i thoughts the valuation and the market are quite high so i write more to help me spend the day and act less .... Make fewer decision make better decision.

Merry christmas Grahamites, Batbeer and all.

Thomas Macpherson
Thomas Macpherson premium member - 6 years ago

Excellent piece! I started writing when my Board asked for an annual report and after they read said they couldn't understand it. So now I right with my Dad in mind - very smart, learned, but no finance whiz. I find that helps a lot. Thanks again.

Grahamites
Grahamites premium member - 6 years ago

Trdoyle - Thanks for your nice words and thanks for the cross-reference. Peter Lynch certainly has a point, which reminds me of Buffett's drill as well. The point is you should be able to communicate the most important things in a short paragraph and that is a good habit to cultivate.

Grahamites
Grahamites premium member - 6 years ago

Batbeer - Thanks for your comments. I guess I was being too aggressive with the timeline. I remember it took me more than a week to write the tax footnote articles:) But you are absolute right that the potential extensive period of time required to go through the exercise is not a reason not to go throught it!

Grahamites
Grahamites premium member - 6 years ago

Tmacpherson- I certainly understand that part where you wrote something and people told you they had no clue what you were saying. My early articles made me realize that point pretty fast. Writing is a humbling process and even today, I am frequently humbled by my ignorance and lack of clarity of thinking in my writing. The good thing is, those humbling experiences are the best ways to improve and by shouting out loud in public, you sure learn a lot faster:)

R-Vriesde
R-Vriesde - 6 years ago    Report SPAM

What a great article and so true. I advise all my friends to start simple with a diary. This helps them gradually grasp the concepts in their daily lives. Like everything else, writing has a learning curve.

Let's try your 3-step template:

Step 1 – Think of a topic, such as buying lottery tickets.

Step 2 – Write down, in your own words, what lottery tickets are, when and why they make sense. Lottery tickets are agreements between an organisation and participants whereby the former collects participants' money into a pool that will later randomly be divided over a significantly smaller number of participants. In aggregate, participants receive back less money than they contributed to the pool, the difference being profit for the central organisation. On average, lotteries return USD 20,- for every USD 25,- put in. Therefore, lottery tickets only make sense if you receive them as a gift. To attract participants, lottery organizers highlight big amounts paid out to a hand full of participants, thereby tapping into the something-for-nothing drive in human nature.

Step 3 – Use an analogy to make your case. Friends once asked my participation in an end-of-year mega splash lottery with a USD 130 million jackpot. I agreed, under condition that all participants would take out mortgages on their homes, so we could buy all tickets, guaranteeing us that 130 million jackpot. They immediately said that such a route would cost more than USD 130 million.

-----------------------------

This is not an easy exercise, thinking about the message, sentence structuring, word flow, but very satisfying.

JenniferB
JenniferB - 5 years ago    Report SPAM

Writing helps to leave a part of you in the archives of history. I've started to write my first writing service review as I faced with a huge problem during my studying at NYU. A lot of my fellow students cheated each semester and this didn't bother them also. I'm deaply sure that examples around us can change the way we live. If you write, than your friends should write. It's simple.

yatihi4844
Yatihi4844 - 1 year ago    Report SPAM

Writing skills are very important now because you have to share information using the Internet. Good writing skills are an integral part of the culture of communication on the Internet. My colleague ordered a paper somehow and asked is papersowl legit at student forums, but he did not get good answers. He had to independently seek reviews on the Internet, where professionals talked about the papersowl service and its advantages.

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