Learning Machines

Interest and curiosity lead to learning. And learning gives rise to ideas — thoughts of any kind that can spark an innovation or simply a better product or process. There has to be a passion for learning. Without it, there is no flow of ideas.

When we speak of learning, we are not thinking primarily of formal education — what's taught in a classroom or at an executive training session.

The most useful picture of learning is not a school desk or a PowerPoint presentation. More evocative is the image of a hunter or seeker. Some of the most forward-looking managers today are those who attach a value to learning that borders on intel ectual or even religious devotion. One such seeker is Tim O'Reil y, a Silicon Val ey entrepreneur and founder and CEO of O'Reil y Media, who has stayed ahead of the technological curve for decades. He created, for example, the first commercial web site back in 1992, and he invested in e-books long before others even thought of making money in that domain.

O'Reily devotes most of his time to the search for ideas — scanning the Internet, checking blogs, discussing trends with other entrepreneurs. He says one goal of his company is to demonstrate that being a business person can “represent a means of exploring the world, one that is just as profound as religious inquiry or Greek philosophy or New Age introspection,” as reporter Max Chafkin related in Inc. magazine. For entrepreneurs like O'Reil y, exploration is not optional; it's the raw material of innovation.

This kind of learning is not episodic. It is constant. It's what Warren Buffett does. He is acclaimed as the richest super-investor in the world, but is perhaps less known as someone dedicated to the proposition that ideas matter. There's a simple reason why he seeks out knowledge every day: he knows of no other strategy for remarkable success. “If Warren had stopped learning early on, his record would be a shadow of what it's been,”

explains his friend Charlie Munger.

Apart from his association with the “Oracle of Omaha,” Munger is one of the preeminent investors of our time, and one of the wisest. Speaking at the University of Southern California's law school commencement in May 2007, he told the graduates, “Without lifetime learning, you people are not going to do very wel . You are not going to get very far in life based on what you already know.” He noted that Buffett's investment skil s had increased markedly in the twelve years since he turned sixty-five, because of continued learning.

“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent,” Munger said at USC. “But they are learning machines. They go to bed every night a little wiser than they were when they got up. And boy, does that help, particularly when you have a long run ahead of you.” With Munger and Buffett, as for everyone else, it al starts with being interested. “I could force myself to be fairly good in a lot of things but I couldn't be real y good at anything where I didn't have an intense interest.”

The intensity of Buffett's interest is revealed in his whole way of investing. He came up at a time when most investors practiced a version of voodoo economics, playing the market much as they would a Ouija board or a slot machine. (Some might say that for many investors today, old habits have been difficult to break, in this respect.) Learning from his mentor, Benjamin Graham of Columbia University, Buffett fixed his attention not just on the waxing and waning of a company's stock, but primarily on its deeper value, as indicated by such measures as earnings and assets.

Searching for the “intrinsic value” of a company, Buffett would conduct research of a kind few others did on their own, often heading down in person to Moody's or Standard & Poor's during his early days in New York. Buffett later recal ed, “I was the only one who ever showed up at those places. They never asked if I was a customer. I would get these files that dated back forty or fifty years. They didn't have copy machines, so I'd sit there and scribble al these little notes, this figure and that figure.”

He also looked for ideas and market clues in conventional ways, like reading annual reports and the Wall Street Journal, but often with a splash of difference. In the 1980s, in Omaha, he went so far as to strike a special deal with the local distributor of the Journal, as Alice Schroeder relates in her riveting biography The Snowball: Warren Buffett and the Business of Life. “When batches of the Journal arrived in Omaha every night, a copy was pul ed out and placed in his driveway before midnight. He sat up waiting to read tomorrow's news before everybody else got to see it,”

she writes.

This extreme devotion aside, the value he placed on reading his favorite newspaper is ilustrative partly because it is so ordinary and easy to emulate. Journalist Mattathias Schwartz said it wel in Harper's magazine: “The story of Warren Buffett has long been a siren song to mil ions of other desk sitters who believe that, through regular reading of the Wall Street Journal, an average intel igence can beat the Dow.”

Al the while, Buffett has been a consummate borrower of ideas. It was a practice he referred to as “riding coattails,” linking up with mentors like Graham and others who had useable ideas, even smal ones aimed at netting relatively modest amounts of money.

There's much more that can be said about Warren Buffett as an Idea Hunter, and more wil be said in these pages. But from these observations we can start drawing a picture of how one extraordinary learning machine operates:

• Buffett has devoted at least as much time to thinking and learning as he does to doing. With just a little exaggeration, Munger notes that Buffett spends about half his time sitting and reading and the other half talking to people he trusts.

• He has a thoroughgoing approach to getting ideas. He talks to smart people and conducts his research — quantitative, qualitative, and the rummaging-through-dusty-shelves variety — in areas where no one else thinks to look. He has organized his life around gathering information leading to ideas he could use.

• His idea search is highly purposeful. He didn't just browse the Journal. He wangled a copy of each edition before anyone else did, which means he was able to get ideas earlier than other investors. More to the point, he focused his search on ideas that would not only make money but also cohere with the whole thrust of value investing. (Typical y he would look for information that would signal whether a company was undervalued by the market.)

• Like other effective Idea Hunters, he has been happy to use other people's ideas. He might very wel agree with Pablo Picasso, who is said to have remarked, “Good artists copy. Great artists steal.”

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