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The Power of Words - Part I

July 24, 2015

If all my possessions and powers were taken from me with one exception, I would choose to keep the power of words, because by them I would recover the rest.

-Daniel Webster

In December last year, I wrote an article about the benefit of writing (link to the article). In it, I made the observation that Ben Graham, Warren Buffett (Trades, Portfolio) and Seth Klarman (Trades, Portfolio) are all great writers, in addition to being great investors. It is tempting yet presumptuous to draw the conclusion that there’s a causation relationship between the ability to write and the ability to invest. But at least we can agree that the level of correlation may be sufficient enough to warrant further pondering.

Today I will share with the readers some intriguing messages I found from a great book called “The Power of Words” by Sean Clouden. In Chapter 3 of the book, Mr. Clouden tells the following story:

“There once was a man named Johnson O’Connor. O’Connor was a Harvard graduate who spent his early years researching astronomical mathematics under the famous astronomer Percival Lowell. In the 1920, General Electric hired O’Connor to study and test its successful employees and discover which traits they had in common that made them good at their jobs. The company wanted to be able to test new employees and, based on the results, assign them to jobs that best fit their personalities and skills. This research and experimentation was the beginning of O’Connor’s lifelong journey: the study of human talents and learnings.

To expand his research efforts, in 1930, he founded the Human Engineering Laboratory at the Stevens Institute of Technology. O’Connor gathered data on skills specific to various professions, but he also gathered general data regarding abilities and learning. He launched a research project to determine whether certain talents were more important than others in becoming successful and advancing in one’s career. It was during his testing that he made an unexpected discovery.

He found a person’s vocabulary level was the best single predictor of success in any area. In other words, an understanding of not only general language but of the words specific to the activity was the most important factor that separated the unsuccessful from the successful.

This discovery began O’Connor’s fascination with language and its connection with ability and success. In another study, O’Connor found a person’s vocabulary directly correlated with how far that person rose in an organization. Presidents of companies scored among the highest in vocabulary of those people he tested.

In his later writings, O’Connor concluded the understanding of words was a major key to unlocking human potential. Why is that so? According to O’Connor, the answer seems to be that words are the tools with which we think and with which we grasp other’s thoughts.”

How does the above message apply to Buffett and Munger? Let’s take a look at a few examples:

"Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble."

“Like an oversexed guy in a harem.”

“I have never seen a management consultant’s report in my long life that didn’t end with the following paragraph: “What this situation really needs is more management consulting.” Never once. I always turn to the last page. Of course Berkshire doesn’t hire them, so I only do this on sort of a voyeuristic basis.”

I can guarantee that there is no way on earth I can come up with words like harem or voyeuristic in my writing based on my current vocabulary level. I had to look them up when I was first introduced to the aforementioned quotes and when I found out the meanings of those bold words, I was amazed by the sheer brilliance and simplicity conveyed by Buffett and Munger.

It is not simply knowing these words but to have a deep understanding of what they mean. In another previous article, I wrote the difference between knowing the name of something and knowing something (link to the article). This difference certainly applies to words. Try to define and explain the following concepts related to investing on your own:

  1. Equity
  2. Goodwill
  3. Capital
  4. Liability
  5. Accrual

Compare what you find with the financial definition from some reputable webistes. For instance, this is what I found on the definition of liability from Wikipedia:

“In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.”

Fascinating, isn’t it? In my next article, we will continue this discussion.

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: 4.7/5 (7 votes)



Snowballbuilder - 4 years ago    Report SPAM

A bit boring

Grahamites - 4 years ago    Report SPAM

Snow - I appreciate the honesty:)

DrKrullebol premium member - 4 years ago

Knowing words, does not equate with knowing how to write. Keep reading but forget the writing for now . . . .

Beltrancaceres - 4 years ago    Report SPAM

"When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact" the wit, the play on word here is very very interesting, especially for first time readers of Buffett. the 1st time i read it, i was like -- "Say that again...?"

Snowballbuilder - 4 years ago    Report SPAM

Grahamites i really think you are a great writer but this time i ve found the article a bit woolly.

With respect, best snow

Grahamites - 4 years ago    Report SPAM

DrKrullebol - Agree wholeheartedly.

Beltrancaceres: I've had that "say that again" moments many times when I first reading about Buffett and Munger.

Grahamites - 4 years ago    Report SPAM

Snow - I appreciate the nice words and fully acknowledge that some of the articles I wrote are of inferior quality to the others. I'm glad and flattered that you think I'm a decent writer. It means a lot to me. Will work on improving the qualities of my thinking and writing over time. Thanks for the encouragement and candidness.

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