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Compounding Knowledge

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Re: Compounding Knowledge

#81

Post by sanderjd »

jboneal wrote: post #74
iambateman wrote: post #30

Buffet’s approach to life is interesting for the same reason an Olympic gymnast is interesting. He has specialized to an extreme and is taking advantage of the rewards of that specialization and natural talent in a unique way. It’s easy for me to feel shame that I don’t read 8 hours per day, as Warren and Charlie do. Buffett is a phenomenal investor but by all accounts, rather odd. He eats like crap, doesn’t exercise…

Controversial take: Buffett is actually not a great investor in the way people think. Via the float in his insurance companies, he receives a 0% infinite maturity loan to plow into the market. That financial leverage gives him the ability to beat the market year after year - not his own stockpicking prowess. If you were to start with $1B, then get an extra $2B that you never had to pay back, you too would do quite we…

I think by "actually not a great investor in the way people think", what you're saying is that he isn't a particularly outstanding stock picker. To the extent that that's the way in which people think he's a great investor, it's because lots of (most?) people think investing is just stock picking. But what makes him a great investor is exactly what you outlined. He found a great strategy - insurance float for leverage - and has executed it well for decades.

It seems weird to me to say, "he's not a great investor, he just found a great investment strategy and executed it really well!" What makes someone a great investor if not that?

Re: Compounding Knowledge

#83

Post by robnagler »

People have been saying Buffet is a lucky outlier for decades. Is his success in the following decades survivorship bias or a valid ex post facto test of success? If you believed in Buffett's investment philosophy in the 1980s based on decades of results, and had a thousand bucks to buy a Berkshire A share, would it have been a lucky pick?

I didn't believe you could beat the market until about 2000, and I'm happy I started investing in Berkshire then. If I had bought Apple instead, it would have been a lucky pick imho. I think of investing in Berkshire to be based on ex post facto results, not survivorship bias.

A decade ago I did an analysis of the top 25 on the Forbes list[1], and the TL;DR is that they 1) inherited their wealth, 2) had bet on a single company, or 3) been a value investor. Nobody in the top 25 is a "trader" or "quant" (e.g. Paulson or Soros). That analysis is still true, btw.

[1] https://www.robnagler.com/2009/06/13/Objectively-Rich.html

Re: Compounding Knowledge

#84

Post by deepGem »

jboneal wrote: post #74
iambateman wrote: post #30

Buffet’s approach to life is interesting for the same reason an Olympic gymnast is interesting. He has specialized to an extreme and is taking advantage of the rewards of that specialization and natural talent in a unique way. It’s easy for me to feel shame that I don’t read 8 hours per day, as Warren and Charlie do. Buffett is a phenomenal investor but by all accounts, rather odd. He eats like crap, doesn’t exercise…

Controversial take: Buffett is actually not a great investor in the way people think. Via the float in his insurance companies, he receives a 0% infinite maturity loan to plow into the market. That financial leverage gives him the ability to beat the market year after year - not his own stockpicking prowess. If you were to start with $1B, then get an extra $2B that you never had to pay back, you too would do quite we…

Spot on. I think a salary is also more or less like float, at least part of it. For that part, you are answerable to no one and can choose to invest it the way Buffett does. As much as people say that you can't pick stocks, you can, if you just stick to a very niche that you really understand, spend hours researching that niche, and invest for a really long term (> 10 years)

Re: Compounding Knowledge

#85

Post by petra »

WhompingWindows wrote: post #46
keiferski wrote: post #10

This concept is essentially the reason why “being able to quickly google the answers to questions” is inferior to “learning, knowing and remembering the answer.” The former treats a piece of information as an independent, context-free item, while the latter allows you to “digest” the information and understand the answer at a deeper level, to the point where it changes the types of questions you ask. Unfortunately ou…

Google is inherently a shallow net, it does not trawl the depths of information. It's made for finding what's easily seen on the surface, what's most interconnected/viewed by others/what Google wants to be on the surface. If you learn to use Google scholar, for instance, you'll quickly find a skilled scholar searcher can find really great, really specific material. The question then is can you integrate and internali…

True. Both for the importance of Google Scholar, but also the question of integration .

One way of course, is using your internal memory. But it's rather limited. Unless you're buffet like.

But what about creating an external memory ? Maybe not as usefull as your brain, but much more usefull than Googling ?

I've tried to do so with evernote. It somewhat work. But surely , it's not the person best that's possible.

Re: Compounding Knowledge

#86

Post by mattferderer »

jboneal wrote: post #74
iambateman wrote: post #30

Buffet’s approach to life is interesting for the same reason an Olympic gymnast is interesting. He has specialized to an extreme and is taking advantage of the rewards of that specialization and natural talent in a unique way. It’s easy for me to feel shame that I don’t read 8 hours per day, as Warren and Charlie do. Buffett is a phenomenal investor but by all accounts, rather odd. He eats like crap, doesn’t exercise…

Controversial take: Buffett is actually not a great investor in the way people think. Via the float in his insurance companies, he receives a 0% infinite maturity loan to plow into the market. That financial leverage gives him the ability to beat the market year after year - not his own stockpicking prowess. If you were to start with $1B, then get an extra $2B that you never had to pay back, you too would do quite we…

I was unaware of this additional advantage he has.

Reading up on floats it seems they are the money his insurance companies receive from premiums that has yet to get paid out in claims. Essentially a reserve that can be invested. Since they have a large scale of customers, this float ends up being rather high.

I'm wondering how much trouble an insurance company of smaller scale would get into if they used their float in such a manner but then ended up needing that money due to some natural disaster. Is this type of risk betting money you technically don't own similar to the 2008 housing crisis or the often talked about 1930's issue with everyone wanting to take their money out of the market?

Re: Compounding Knowledge

#87

Post by deepGem »

eswat wrote: post #77
deepGem wrote: post #24

why “being able to quickly google the answers to questions” is inferior to “learning, knowing and remembering the answer At least in the world of programming, this is not necessarily true. There is so much flux that you do need to rely on Google for the semantics at least. In some instances or in time crunch, it is a make or break scenario and how fast one can get to a solution trumps everything else. So the ability…

Understandable that you’d want to exploit any resource that can give you answers during a time crunch. But if given enough time, going through the pain of debugging and fixing something on your own – with at the most some documentation – is still superior. If one has learned, knows and remembers the first principles of their domain, then knowing what to Google becomes less valuable (not saying your colleagues don’t k…

Agreed, this is what I strive for but rarely do it in practice. Somehow, you are always in a hurry, you always want the solution now!. I think this has to change, the initial time spent on the understanding the debugging process has immense long term benefits.The time to solution decreases with time, in my kind of approach it remains linear or sometimes even increase.

Re: Compounding Knowledge

#88

Post by aarondf »

pasta wrote: post #34

I strongly believe that compunding knowledge is also helping to create good software. And I think software companies should give a team the opportunity to invest time to know more about the subject. For example when you write WMS software you should go to a warehouse and see what is going on, talk to the people who work there and understand why things are the way they are. Because there is a huge difference between k…

You've sent me down a real philosophical rabbit hole here... Do I know why 1+1=2?

Re: Compounding Knowledge

#89

Post by tryptophan »

jboneal wrote: post #74
iambateman wrote: post #30

Buffet’s approach to life is interesting for the same reason an Olympic gymnast is interesting. He has specialized to an extreme and is taking advantage of the rewards of that specialization and natural talent in a unique way. It’s easy for me to feel shame that I don’t read 8 hours per day, as Warren and Charlie do. Buffett is a phenomenal investor but by all accounts, rather odd. He eats like crap, doesn’t exercise…

Controversial take: Buffett is actually not a great investor in the way people think. Via the float in his insurance companies, he receives a 0% infinite maturity loan to plow into the market. That financial leverage gives him the ability to beat the market year after year - not his own stockpicking prowess. If you were to start with $1B, then get an extra $2B that you never had to pay back, you too would do quite we…

Ill take it even farther: Buffet isn't statistically different than average. He just found a strategy that happened to work, was stubborn enough to stick to it through bad times, and used copious amounts of leverage to juice returns.

A really interesting paper called "Buffet's Alpha" talks about this, and was able to replicate his performance by following a few simple rules. They found that he produced very little actual alpha. To his credit, he seems to have been observant enough to stumble into factors(value, quality, and low beta) before anyone else knew they existed, which is his real strength and contribution.

Re: Compounding Knowledge

#90

Post by billmalarky »

thesausageking wrote: post #39

If his knowledge were compounding, we'd expect his performance to getting over time, not worse. But that's the opposite of what happened. He's underperformed the S&P 500 over the last 10 years. And it's been decades since he's been able to match the great returns he had very early in his career which he built his reputation on.

>And it's been decades since he's been able to match the great returns he had very early in his career which he built his reputation on.

Keep in mind it is much easier to get great returns when you are smaller.

Put another way, there are _significantly_ more opportunities to turn $1 million into $10 million than there are to turn $1 billion into $10 billion.

At buffet's scale the opportunities are few and far between for hockey stick growth.

As for his performance relative to the S&P 500, fair point.

UPDATE: Just saw that my comment is basically a clone of a reply you had already received... Oh well ¯\_(ツ)_/¯

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