Some Things are TOO HARD

Warren Buffett office

Warren Buffett has been using this same office for over 50 years, and it probably looks much the same as when he first moved in. Buffett has an old-fashioned newspaper on his desk — I think that’s where he gets his stock quotes every morning. Maybe he still quotes his share prices in fractions.

He has a tray on his desk labeled “TOO HARD”. Charlie Munger has one too. If Warren Buffett owned a computer, it would sit in that tray.

Just kidding.

The “TOO HARD” tray always bothered me because I thought it meant that Buffett had given up on learning. This is not the case.

Buffett avoids technology stocks, but not because he doesn’t understand technology. He avoids investing in tech companies because he is a long-term investor, and he acknowledges that he cannot understand the predictability of the tech landscape in the long term.

Here’s how they explain it:
Charlie Munger says, “It’s not a competency if you don’t know the edge of it.”
Buffett says, “When ‘dumb’ money acknowledges its limitations, it ceases to be dumb.”

Being aware of what you don’t know is more valuable than being aware of what you do know.

It’s not that they gave up on learning, it’s that they recognize there is so much left to learn. Many things in life are TOO HARD right now. Identifying what those things are is the first step to making them NOT-TOO-HARD in the future.

See Also:
Hagstrom, R. The Essential Buffett: Timeless Principles for the New Economy. Wiley & Sons, 2001.

You Are Not Your Mistakes

Warren Buffett spinning a basketball

At Berkshire Hathaway Inc’s annual meeting this past weekend, Warren Buffett invited short-seller Doug Kass* of SeaBreeze Partners to join his panel in a Q&A session. Kass is rooting for Berkshire to go under, and Buffett wanted Kass to query the company in front of all its shareholders.

What kind of CEO does that?? That’s like Obama inviting Rand Paul to give a response at the State of the Union address.

Jason Zweig calls it inviting doubt [1], but Buffett does not doubt himself. Buffett knows his process inside and out. It’s his investment decisions that he wants to doubt.

It is important to separate yourself from your decisions.

While it is possible to fully know yourself and your process, it is impossible to know everything about an investment, as that would require knowing the future. Even if you have a perfect system, errors will still happen due to the fact that the system is operating on incomplete information. Minimize the incompleteness of the information by encouraging criticism.

This encompasses Ray Dalio’s Fundamental Principle of Truth: An accurate understanding of reality is the essential foundation for producing good outcomes [2].

It also leads to another key Principle – Do not feel bad about your mistakes. Mistakes happen as a result of incomplete information. You are not your mistakes. Feeling bad about mistakes prevents you from learning from them.

Even Doug Kass knows this – he worships Buffett (It’s actually Berkshire’s investors that he doubts [3]).

*Interesting fact: Long-Term Capital Management was also short Berkshire. Kass is in good company.

1. A Lesson From Buffett: Doubt Yourself –

2. Principles, by Ray Dalio — written as a management handbook, but the lessons apply to everything in life.

3. Kass Katch: 11 Reasons to Short Berkshire –TheStreet, from 2008, but not much has changed.