If You Want to Master Investing, Here Is How It Is Done
This morning, at around 5 a.m., I was sitting in bed with a copy of Mastering the Art of French Cooking by Julia Child open in front of me, one hand holding a teal highlighter and the other a black ballpoint pen, frantically scribbling notes as I marked up my commentary on different instructions, techniques, and recipes, when out of nowhere, I had this sudden realization; like hitting a wall at high speed. I stopped writing mid-sentence and looked around me.
I’m doing it again.
Twice, before, in my life I have set my entire energy and efforts on mastering a particular area.
The First Time I Mastered a Discipline
The first began in 3rd and 4th grade with the stock market when I read and re-read every finance book I could get my hands on and began teaching myself the basic of GAAP accounting (things were different in those days – goodwill used to be amortized annually depending on the acquisition method used, and pharmaceutical companies often had understated earnings due to rules governing research and development expenditures). My parents indulged this odd hobby of mine, going so far as to honor my birthday request that year when all I wanted was a briefcase that I could use to hold my notes. (Yeah, I was an unusual kid.)
I became obsessed. I was unable to think about, care about, or focus on anything else.
I would draw diagrams of how fast I could grow my money, projecting out my future net worth. I would estimate how much capital it would take to provide me with a monthly private income sufficient to support the lifestyle I wanted without working. I would study different industries to understand them, and how they were connected to the broader civilization. It took me more than ten years, but one day, I walked into a Barnes & Noble and Aaron looked at me and said, “I see it on your face. There is now nothing you can learn from any of these books. You should be the one writing them.”
Actually, I still remember when it all “clicked”. It was like a lock pin falling into place in a heavy door. I was sitting by myself on Nassau Street in Princeton, New Jersey at the Panera Bread shortly before it was dark outside (twilight – barely any light at all). I had a cup of coffee and was reading a book. Suddenly, I got it. It was a life changing moment. It was like my brain opened up and everything I had been reading for years made sense.
The Second Time I Mastered a Discipline
The second began in my late teenage years, when I poured myself into music, eventually going to university on a classical music performance scholarship that resulted in me spending four years of my life immersed in operas, great composers, music theory, piano practices, harpsichord concertos, and solo concerts of German art songs. I performed on stage in Lincoln Center, toured with choirs throughout the United States, interned at Warner Music Group, studying contracts and pay scales to understand the compensation system, and even developed a significant body of my own work. Even now, hardly a week goes by when you won’t find me sitting behind a piano crafting chords or toying with techniques.
Now, I am On My Third Major Area of Study in My 30 Years of Life
In both cases, it wasn’t until years into the process that I realized that not only had I reached a level of mastery of the subjects that far exceeded what was considered “normal”, but that I did it without really knowing I was doing it. There had been no grand plan, just an insatiable fire that couldn’t be quenched until I felt like I understood every aspect of the subject.
And it’s happening again. It’s been happening for two years. Aaron and I have rearranged our entire lives, spent tens of thousands of dollars on the best cookware imported from throughout the world, and pay no attention to the thousands of dollars a month in wasted food it takes to test recipes. Recently, I ordered a copy of nearly every one of the greatest cookbooks throughout history, including some rare out of print editions that are being shipped in from across the country, and I am spending 15+ hours a day reading through, studying, analyzing, comparing, and contrasting them.
This afternoon, I tested a Soubise by adding sautéed chicken, trying to find ways to turn what would be an excellent side dish into a primary entrée. And I loved every minute of it. It wasn’t work. It was fun.
That’s the great secret. I’m not working. I’m not exerting effort. I’m in love with the work that is on my desk. I’d pay to be able to do it.
It doesn’t matter what anyone says, it doesn’t matter how anyone else feels about it, it is an absolute certainty that, short of some unforeseen event, ten years from now, I will be able to sleepwalk into any kitchen in the world and recite Escoffier as I made one of his dishes. I know myself. That is the end game.
It’s happening, again.
The Best Experts Throughout All of History Are There to Hold Your Hand
So many people write me and say, “But how did you know how to start? I don’t understand if no one was there to guide you.”
The greatest minds throughout all of history are there to guide you. They left their orchestrated, carefully documented thoughts on paper for you to follow. Read everything about the subject, and then take action. Test the theories. Book knowledge isn’t enough, you need to actually do it. Experience it. Get the muscle memory of it. Know how it feels. You can read about golf all you want, but it is a different thing entirely to be on the course as the sun comes up, surrounded by the smell of fresh grass perfuming the air, and seeing the glisten of dew gleaming off the fairways.
As a kid, I tracked down Benjamin Graham’s old letters to his investors to understand the compensation system he used. There wasn’t an Internet or Google back then. You had to write letters to people or find them in real life. Everything can be done. It’s simply a matter of if you love the area of study enough or not. Graham had been long dead before I was born, but he was able, in a way, to reach beyond the grave and teach me what I needed to know about one possible incentive structure for asset managers. You pick up enough of this, and tie it all together in your mind, things start making sense.
Julia Child can teach you to cook. Philip Fisher can teach you what to look for to identify the type of excellent business that can make your family rich for generations. Philosophers, historians, artists, and theologians have left bodies of work that you can use at your pleasure. You can accept, reject, adapt, or modify their findings based on your own analysis of the evidence. You don’t have to start from scratch. The work has already been done for you!
Mastery Comes When Book Knowledge Meets Experience
If you are young, you need to find the area you want to study and do the same thing. Nearly everything I learned about investing, finance, and business happened exactly like the cooking process you are watching now. I didn’t know how to start a company. I became obsessed and figured it out until it worked. I didn’t know how to analyze the chord structure of a symphony. I became obsessed and carried around copies of Haydn scores for years until I could do it with my eyes closed.
Do it. If you want to master investing, get your hands on every annual report, the best accounting textbooks, every shareholder letter to mutual fund holders, every historical financial study, and every piece of long-term data you can. Look at the relationships. Study it forwards and backwards until you can break it down into the component parts and it all makes sense; you see how it fits together. You need to see a business and not think of “profitability” but instantly be working through the components of Return on Equity from a DuPont analysis point of view. Smash it into the simplest, most basic, most fundamental parts you can. Then put it all back together. If I give you the leverage and asset turn of a company, you should be able to deduce what the profit margins are without ever seeing the income statement. That’s how fluent you need to be in the relationship dynamics of the variables that comprise the entire system.
Find your area of life and then go for it. There are so many interesting things to learn, I can’t imagine confining myself to a single field. My heroes are men like Voltaire and Benjamin Franklin, who were interested in different areas of study. Start with one, and in five to ten years, you should have it mastered. The upshot is that most disciplines are cumulative – if you learn cooking, painting, music, or gardening, it’s hard to “unlearn” it – whereas if you learn computer programming, the skill set might not hold for a decade. (I prefer cumulative endeavors. That’s my personality. I started with finance because it allowed me to self-fund everything that came later.)
Pick a few areas and master them. It can improve the quality of your time on this planet exponentially. Do you know how awesome it is that if I want to hear a Mozart piece, I just go play it? Or if I want artisan French breads, I just bake it? I couldn’t do those things fifteen years ago. Everybody starts somewhere. Everybody has to learn their craft. You are no different.
This is how it’s done. Combine as much book knowledge with enough deliberate, systematic experience as you can. Improvement is the by-product.
Identify the life you want, and the skills it takes to have that life. Then, go develop them. I’ve said it before but it is true: Life is a video game and skills are just the level ups. Pick a skill tree and master it. Tiny, small gains, day after day, years on end, result in massive end results. It’s the nature of compounding.
Be willing to look foolish. Admit that you know nothing. Ask every intelligent question you can imagine. Forget your pride. Be fearless. The rewards of success are fantastic. If you love the process, it won’t be work.
Reader Comments (28)
Comments are presented chronologically, with replies indented beneath the comments to which they respond.
Gilvus
January 20, 2013
Going off of what I said over in the Walmart Union comments, you're one of the dudes who invented the wheel or crafted aqueducts while your peers were drinking themselves into a stupor around a bonfire.
Can I borrow some of your genes? Just a chromosome or two. Pleeeeeeease
Daniel
January 21, 2013
Quite interesting. I appreciate what you're doing here. Your blog has really helped me want to make some changes in my life, including investing and getting a solid IRA. Like you, there's things I'm devoted to, and I would love to be able to do nothing but pour myself into them. I love the martial Arts, and foreign languages. There are three martial arts I want to master and over ten languages I want to learn. While extremely ambitious, none impossible. I can achieve simmilar results, and be able to give myself to them by the time I'm fortyish. (I'm 22 as it stands)
Dillon
January 21, 2013
I noticed a recurring theme with successful people like yourself. They tend to obsess or have the ability to tune everything out. How does one achieve greatness without this type of intensity? I have a general interest with short bursts of extreme interest. But have never been able to naturally maintain at high levels. With this lense, do you beleive mediocrity is innate. If not, what steps or shifts can one make without the obsessive/super focused mind.
Joshua Kennon
January 22, 2013
Replying to Dillon
A few times a year, I'll get a question that really stops me. This is one of those. It deserves my full attention and reflection. Framed the way you have, it has some interesting implications that are worthy of more than a quick response in the middle of the night. Give me some time. I'll think about it and get back to you.
Paarthurnax
April 6, 2014
Replying to Joshua Kennon
Did you ever reply to this in full? I don't see it in comments, and I would love to hear your input on this.
I, myself, indulge tirelessly into things that interest me as well (though I suspect not quite to the same degree as you). It has actually caused minor issues with the spouse on me "obsessing" over things, as I go through book after book, or spend hours reading online, or whatever. It's something I've actually had to "work on" to balance other aspects of my life out, namely family life, which I believe is for the better.
For me, I've noticed a few key issues in myself that I need to correct over time, for starters, I lead a relatively sheltered life. While I remember talking my mom into taking me to the library many times as a kid, and walking out with literally full armloads of books on finance, history, etc. My dad would routinely give me crap about "not being outside" or "wouldn't you rather ride the dirt bike instead of *read*?" My passion/curiosity to learn has always been there, though my environment often got in the way. I went to substandard schools growing up, and it hasn't been until reaching adulthood that I've realized "I don't know, what I don't know" and I have taken up a habit of consciously seeking out new subjects that are foreign to me. But my overall knowledge of the world still has big gaps in it.
Another big issue I've had, is that there seems to be a mental block for me, in terms of recalling what I've read in the past and putting it into practice or conversation. While I can pick up a book that I've read previously - and feel like everything is an obvious review, putting that book down for a few days and trying to apply the knowledge I gained, there seems to be a stumble. I have no idea why, or how to remedy it.
Anyway, I would like to hear further input from you, Joshua, on this subject, if you haven't already got around to making that reply.
Stephen H
August 13, 2015
Replying to Paarthurnax
Wow, same here. I've been crushing this blog like mad, but I have a hard time recalling things. I think a system needs to be developed where I figure out better how I learn (should know that by now) ... Maybe highlighting and jotting notes would help, I should try it.
jen111
January 22, 2013
Replying to Dillon
Mediocrity is only innate if you 'believe' it is innate. What you 'believe' is key, so don't set false limits on yourself. People excel in different areas and diversity is a beautiful thing!
FratMan
January 27, 2013
Replying to jen111
I don't know how Joshua is going to answer this question, but my best guess is that if you lack a certain trait (i.e. all consuming intensity) then you better find some other character trait you possess that you can leverage to compensate for it.
Joshua Kennon
September 3, 2014
Replying to FratMan
Perfectly said (albeit my response is two years late).
Odai
February 20, 2013
Replying to Dillon
I have the same problem. Here's my tentative solution:
Select areas you deem important (for me, that's finances, programming, and happiness), and force yourself to study/work on them. What's the alternative? Spending your life in mediocrity? I refuse to let that happen, so I'm forcing myself to do better.
Also, study motivation. Some people may be blessed with innate motivation, but for the rest of us it is a learnable skill (at least, it seems to be).
Joshua Kennon
February 22, 2013
Replying to Odai
I think that's a wise approach.
Odai
February 22, 2013
Replying to Joshua Kennon
Thank you 🙂 That means a lot coming from you.
weixiluo
January 21, 2013
Some of the best advice I've ever seen. Thanks, Joshua, for writing this.
Jason
January 21, 2013
Cool article Joshua! As someone who is trying to set up his economic engines and learn about investing, I was wondering if you could do a blog post about the most important investment books. Could be anything from Security Analysis to biographies. I'm very interested in what you think are the most important books to read for someone who wants to become an expert at investing. Thanks!
Robdiesel.com
January 21, 2013
Dillon - that focus falls in the autism spectrum. 🙂 All it takes is the interest, and sometimes the obsessive personality to stick with it, dig deep into it, discussing it, reading about it, throwing numbers around, and one day things just click.
Some people tend to have a predisposition for doing it this way. Others don't. That's the fun part. Some are hunters, some are gatherers, some light fires and some paint the cave walls. Together there's a little society that thrives.
Anon
January 21, 2013
Thank you for sharing your experiences. Just make sure not to pack on all those pounds.
weixiluo
January 21, 2013
It's here ! : http://beginnersinvest.about.com/cs/newinvestors/tp/aatp110101.htm
Jason
January 21, 2013
Replying to weixiluo
Hey thanks!
Joshua Kennon
January 21, 2013
I wrote one many, many years ago but it needs to be updated. I'll try and publish one this week on the site.
Jason
January 21, 2013
Replying to Joshua Kennon
Appreciate it very much Joshua! You're such a big motivator for me, thanks!
Stephen
January 21, 2013
I must admit...I'm really wanting to make your caramelized carrot soup with peanut butter and cinnamon garnish...care to share the recipe?
Joshua Kennon
January 21, 2013
Replying to Stephen
Here is the recipe and video. It comes from the Modernist Cuisine cookbooks.
You can make the recipe half as much work if you follow the suggestions for substituting unsalted butter for the carotene butter. In the video, making that carotene butter is what is so complicated (either requiring a centrifuge or overnight refrigeration for fat separation). In fact, a huge part of that video is all about how to make the butter! So skip it and try with the unsalted butter to see if you'll like the base. Don't be scared away by that optional step.
The center garnish used powdered peanut butter, whipped with a bit of heavy cream in an espresso frother, then sprinkled with Saigon cinnamon.
If you love carrots, it's absolute heaven.
jen111
January 22, 2013
I do this too. I get these moments of obsessive interest/learning when I discover something new or find something so fascinatingly interesting that I can't even sleep for not being able to get my mind off it long enough. I'll be in a walking zombie trance for days until I have reached a certain level of satisfaction with whatever it is I am trying to learn, master, or figure out. It can be a real handicap at times, because unfortunately other things usually suffer badly as a result and practical manners get put on the back-burner, like getting my license renewed for one. I am totally embarrassed about how long I've actually put this off.
Mario
February 9, 2013
Good, motivating article. Anybody becomes good at something if you think, read, do something about it, a lot. It is the only way things will make sense afterwards. Everyone has it own way of learning and mastering any art... no copy paste exists to learn an art.
FratMan
April 23, 2013
As someone who acquires detailed in various fields compared to the average American, I expect that you encounter a fair amount of ignorant comments on a regular basis. I suspect, if you wanted to, you could probably correct someone factually in every conversation if you felt so inclined. Obviously, this comes with the consequence of irrating people who don't like to be proved wrong. At Thanksgiving Dinner, Uncle Bert may not want to hear that the supposed spending acceleration under President Obama is actually a myth. That's a loaded example, but I would guess that in most of your dealings with the average American, you have to shut your mouth to go along with the flow for the sake of social harmony. And plus, no one wants to become unsufferable.
My question is this: When you get as smart as you are, you have to choose your battles. What are your guidelines in this regard? Proverbially speaking, when McDonalds hands you room temperature fries, how do you decide whether it's worth asking for hot ones or just going with it?
Joshua Kennon
April 23, 2013
Replying to FratMan
Most of the time, I'm political enough now that if we were engaged in a conversation, I could casually flow the discussion in a way that would correct their thinking, or at least allow them to go research it on their own, without specifically calling them out on it so there were no defense mechanisms activated. Sometimes, they wouldn't even know I did it.
In all cases, I'm not interested in them realizing they are incorrect and that I am more knowledgable, I want them to improve their cognition so that they can live a better life. I consider it most successful if I prod, and guide, them there and they reach the conclusion on their own after thinking it through rationally. I don't want people walking way thinking, "Man, Joshua Kennon is so smart." I want them walking way thinking, "How did this not occur to me before? It is so obvious now."
In other words, I don't want to lecture, I want to guide. Otherwise, I follow a few rules:
1. What is the upside? What is the downside? If the latter significantly outweighs the former, ignore it.
2. Is the encounter fleeting? If we are standing in the line at McDonald's, I am likely not going to correct someone around me in a conversation that doesn't involve me.
3. Is the person bound by a lot of irrational ideology? If they do not understand, nor communicate in, the language of logic, they are a lost cause due to past brainwashing.
4. Personally, I try to never respond in the first 20 minutes after waking up or if I am distracted with something that is taxing my entire focus. The "Joshua Kennon" voice you see is almost entirely how I think but it is veneered a little bit to be accessible to beginners. The actual dialogue in my head is far more direct, far more efficient, and far more brutal. It cuts to the core quickly, like a machine. I've had to learn to manage that. It almost never happens in conversation, but if I am editing papers, writing responses, or engaging in the written word, the inner prosecutor comes out. If you could see some of the responses from before I implemented that rule ...
Rico M.
July 12, 2013
Thanks, Joshua!
Connelly Barnes
October 10, 2015
Computer science and software engineering are a bit of a strange knowledge domain. At the low end --- e.g. general programming jobs --- everything is always changing, with a never-ending parade of arbitrary buzzwords and marketing-driven paradigms of the day that programmers are constantly adjusting to. At the high end, the fundamentals do not change at all, but the innovation is done by specialists frequently with Masters or Ph.D.s, whose knowledge bases form significant barriers to entry.
For example, the Turing machine formalism is unchanged from when it was invented 80 years ago by Turing, and the only major refinements was made by Von Neumann about 70 years ago. The math behind essentially all graphics rendering problems was formalized by Jim Kajiya about 30 years ago in the rendering equation, and has hardly changed since then, although people have come up with more clever algorithms and hardware to solve the equation. The fundamentals of images, video, shapes, and so forth go back to Fourier (key work: 1822) and Nyquist-Shannon sampling theory (key work: 1930-1950), with minor refinements by psychologists to account for human perception (I think in the 1980s).
The ideal computer scientist is able to break algorithms down into their fundamentals, and rebuild new algorithms, for academic research or customers. It is very similar to how an ideal businessperson or investor could break a business down into all its constituent parts and reassemble a better one. However, paradoxically, in both domains, such people are rare indeed. This may be because most people prefer the challenging work of understanding things down to the component level, and grappling with all the philosophical paradoxes, logical challenges, and bookkeeping of details that this requires. (And this is indeed required if one wants to end up with a masterpiece, such as a beautiful stained-glass window, instead of an unorganized mess of broken glass. Entropy would definitely favor producing the latter after breaking everything down into its component parts).