Reading Wisdom from Charlie Munger, Warren Buffett and Steven Kotler
Summary: Given our limited time, we should follow what smart superinvestors have already figured out- reading books. It takes 10,000 hours of deliberate practice to acquire expertise and hundreds or even thousands of hours to produce a book. There is no better use of time than reading books. Reading books is the perfect time arbitrage. It’s good to be smart but it’s even better to take advantage of what other smart people have already figured out (not to mention the hundreds of hours they sacrificed to make a book possible).
Is There Value in Reading?
I work in a financial markets dealing room for most of my career. In the trading floor, where the culture is fast paced and the focus is on short-term results, there are very few who actually reads.
I recall one incident when during my earlier years, I asked my manager if he has any good books to recommend. He paused for a few minutes. Expecting that I will get gems of book recommendations, he slowly said: “I don’t read books. I don’t see any value in reading books. The internet is my library.”
When I moved to another dealing room, my boss then would constantly ask me question on why do I read books when everything is accessible in Wikipedia.
As a lifelong learner and reader, I struggled to answer this question. Sure, you will learn a lot from reading books. Sure, I enjoy reading books. But why books? There are so many alternatives — less time consuming and less painful way of acquiring and processing information. These are very valid questions that forced me to be honest with myself — am I exhibiting lack of openness in new mediums of learning? Am I displaying Luddite technologically averse behavior?
It turns out I am not. Reading books is the most effective time arbitrage that we can take advantage of.
The Concept of Arbitrage
Arbitrage refers to temporary mispricing opportunities in the financial markets that one can take advantage of without taking additional risk.
The classic advantage that people often cite in textbooks (which very rarely works in modern times because of technological developments) is when one simultaneously buy low in one market and sell high in another market. This is often represented as a risk-free strategy (it’s not).
Arbitrage is everywhere. In investing, value investors (those who follow the grand tradition of an investing style that was first started by Benjamin Graham and continued by some of the most successful investors of all time including Warren Buffett) practice a different kind of arbitrage — time arbitrage. Buy when there is temporary madness, hold for long term and sell when there is temporary exuberance.
Recognising that markets are feeble and human beings bias for short-termism, value investors follow the discipline of buying stocks at steep discount especially Mr. Market (the stock market) is in a fearful mood that causes investors to panic and sell good companies (sometimes even great ones) to trade at a steep discount to their intrinsic value.
In the long run, Mr. Market is rational. If you hold your investments long enough for Mr. Market to realize this and in the process allow you to make money.
How is this related to reading books?
Books as the Ultimate Time Arbitrage
Books are the ultimate time arbitrage. To understand this, one should look at the writing process including the expertise, the energy and the resources needed to write nonfiction books.
According to a New York Times Article by Kristine Wong:
https://www.nytimes.com/2018/12/10/smarter-living/how-to-finally-write-your-nonfiction-book.html
“I think you should plan for at least one year to write the first draft of a book, and a second year to rewrite it,” Ms. Perhach said. Of course, it can take much longer than this, but most writers can expect at least a couple of years to pen a book.
Having written a book myself, I know that the effort to write a book and to revise a book requires a lot of intellectual energy and not to mention personal sacrifices needed to produce a book.
On average, it takes 5 to 10 hours to read a good book (if you listen to audiobooks, then that would twice the amount of time needed to read a physical book).
So what is the risk/reward ratio?
- 1–2 years needed to write/ revise a book — assuming the author writes for 2 hours a day for 200 days a year — that will roughly mean that the author and the editor spends 400 hours on this single project — 400 hours for the book that you are now holding in your hands.
- Let’s be conservative. Let’s say you spend 10 hours to read a book (or 20 hours for audiobooks) — your risk/reward ratio is around 20–40x just by counting the number of hours people spend to write the book.
ROI of Reading from an Author’s Perspective
I highly recommend New York Times Bestselling Author and award winning journalist Steven Kotler framed this ROI discussion on reading this way in his book The Art of the Impossible:
Start with this assumption:
The average adult reading speed is about 250 words per minute
Blog Post
- Average blog post is about 800 words long — so we spend 3.5 minutes to read.
- The blog post writer typically spends 3 days’ worth of effort in writing the blog (according to Steven Kotler he spends 1.5 days to research and 1.5 days to write the blog post)
- Risk/reward exchange: 3.5 minutes of reading vs. 3 days of work (or 1,440 minutes — assuming 8 hours per day) — roughly 411 minutes worth of work to 1 minute of reading. Not a bad investment of time!
Long Form Magazine Article
- Average long form magazine article is usually about 5,000 words long.
- People typically spend 20 minutes to read these articles.
- The writer typically spend a month worth of research and 6 weeks of reporting and 6 weeks of writing and editing — or around four months of brain power of the writer.
- Risk/reward exchange: 20 minutes of reading vs. 4 months worth of work ( 8 hours per day x 20 days per month x 4 months x 60 minutes = 38,400 minutes) : roughly 1,920 minutes of work to 1 minute of reading. More than 4x better use of time than reading blog.
As a side note, I have always wondered why Warren Buffett and Charlie Munger constantly recommends reading newspapers and magazines. Given the amount of time journalists and researchers spend in coming up with good quality magazine articles, now it’s clear why.
Charlie Munger said:
“By regularly reading business newspaper and magazines I am exposed to enormous amount of material at the micro level. I find that what I see going on there pretty much informs me about what’s happening at the macro level”.
Books
- Average words in a book is around 75,000 words
- It took Steven Kotler around 15 years to write the book The Rise of Superman (another highly recommended book on peak performance). Assuming he spent 2,400 hours per year x 15 = 36,000 hours).
- A reader on average spends 5- 10 hours to read this book.
- So what’s the ratio now? If you read the book for 5 hours, the ratio is 7200: 1 or 3600: 1 if you read it for 10 hours.
Charlie Munger, Warren Buffett and Other Superinvestors on Reading
It comes as no surprise that some of the smartest and greatest investors of our time recommends reading. There is simply no better use of time than reading.
Charlie Munger said:
“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero”.
Alice Schroeder, biographer of Warren Buffett, was astounded at how closely the Buffett we see (public Buffett) resembles to the Buffett we don’t see (private Buffett) — he spends most of his time reading and thinking.
In the HBO documentary, Becoming Buffett, Warren Buffett said:
“I still probably spend five or six hours a day reading. I like to sit and think. I spend a lot of time doing that and sometimes it is pretty unproductive, but I find it enjoyable to think about business or investment problems.”
Buffett reads six (6) newspapers each day (https://www.cnbc.com/2007/10/29/buffetts-daily-reading-list.html) : Wall Street Journal, Financial Times, New York Times, USA Today, Omaha World-Herald and the American Banker.
Charlie Munger reads Wall Street Journal, New York Times, Financial Times, Los Angeles Times and a weekly reader of the Economist.
Li Lu recounted Charlie Munger’s reading habits (https://www.cnbc.com/2018/05/15/berkshire-hathaways-charlie-munger-uses-this-productivity-tip.html):
Charlie likes to meet people for breakfast, usually starting at 7:30 a.m. I arrived on time and found Charlie sitting there, finished with the day’s newspapers. It was only a few short minutes before 7:30, but I felt bad letting an older man I respected wait for me.”
So, the next time Lu and Munger arranged to meet, Lu got there 15 minutes earlier.
″[I] still found Charlie sitting there, reading the newspaper. For our third meeting, I arrived 30 minutes earlier and Charlie was still reading the newspaper, as if he had been waiting there all year round and had never left the seat.
“I came to understand that Charlie always arrives early for meetings. However, he does not waste time either, because he reads the newspapers he brought along.”
CONCLUSION — Reading as the Ultimate Use of Time
One good example on why reading books is the ultimate arbitrage is how Robert Caro — Pulitzer prize winning writer on some of the best and deepest books on power (The Power Broker — on the life of Robert Moses and the so far four volume books on Lyndon Johnson).
Think about it — Robert Caro spent almost 50 years of his life writing about power particularly about Lyndon Johnson. His research is so exhaustive that he has to relocate to Texas and gather even seemingly trivial data like the average rainfall in Texas to better understand his subject. He looks at every document about his subject. He writes 3 to 4 drafts in longhand.
In other words, he spent his life researching and writing about Lyndon Johnson.
Not only that — his wife who is his only research associate and is a talented academic and writer herself spent most of her life helping Robert Caro produce his magisterial works on power.
The 5-volume book on the life of Lyndon Johnson can be read in 250 hours (less than an hour a day of reading for 1 year) . When you count the almost 200,000 hours that Robert Caro spent in writing this book plus all the direct and indirect costs involved in researching, writing and interviewing for the book — you can see why reading is the wisest use of time.
Charlie Munger said:
“The more hard lessons you can learn vicariously rather than through your own hard experience, the better.”
Reading is the ultimate vicarious learning experience.
Reading is the only way for us to transcend the boundaries of time and physical laws.
We all have finite time with almost endless priorities. For the not so genetically gifted human beings, reading is our only way to level the playing field.
When we read, we get to live life not only once but multiple lifetimes.
When we read, we get to learn not just from our teachers, parents, peers, mentors and friends but from the great, the good, the notorious and the ordinary.
When we read, we get to travel to multiple places using many thousands of pairs of eyes.
Reading is the ultimate time arbitrage.
Read. Now!
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