Bruce Lee and Warren Buffett

Recently, I posted up an article discussing the characteristics of successful people. Well, I wanted to take this Sunday night to give you some lighter reading by welcoming you to a recent obsession of mine, Bruce Lee. Bruce Lee was arguably the greatest martial artist. He took daily notes of everything he did, and it is clear he followed his training with a passion. But I did not make a write-up to talk to you about martial arts. Bruce Lee also loved philosophy, and he read about all the Western and Eastern beliefs. And he wrote a lot about his own philosophy which he had developed throughout his life. Now what is shocking is how much his philosophy coincides with that of Warren Buffett, who is arguably the best investor. And they both do share a lot of the characteristics of successful people. So below are some Bruce Lee quotes along with the Warren Buffett similarities. All the Bruce Lee quotes are from the book Striking Thoughts: Bruce Lee's Wisdom for Daily Living.

1. Bruce Lee says:

1. What does self-willed mean? Does it mean having a will of one's own? The human herd instinct demands adaptation and subordination, but for his highest honor man elects not the meek, the pusillanimous, the supine, but precisely the self-willed man, the heroes.
2. Evaluation by others is not a guide for me. Only the self-sufficient stand alone- most people follow the crowd and imitate.

Warren Buffett has said the problem with most money managers is they seek to do something in traditional fashion and be average. For example, they diversify into hundreds of stocks, they only buy names that people recognize or are fascinating, and they stick to companies that have an allure or have performed well. This way when they are wrong, they have an excuse- everyone else missed it. Buffett however disagrees with this philosophy. He looks where there is the most fear, and he has often said that there can not be group decisions in investing.


2. Bruce Lee says:

We should devote ourselves to being self-sufficient and we must not depend upon the external ratings by others for our happiness. So it is true that the more we value things, the less we value ourself. The more we depend on others for esteem, the less we are self-sufficient.

If there is anyone who fits this bill, I would think it is Warren Buffett. With over 40 billion dollars, he still chooses to live modestly, drive an old Lincoln town car, and he lives in the same house that he bought in 1955.

3. Bruce says:

Intelligence is sometimes defined as the capacity of the individual to adjust himself successfully to his environment, or to adjust his environment to his needs.

Charlie Munger had this to say about their recent investments in railroads:
"Railroads – now that’s an example of changing our minds. Warren and I have hated railroads our entire life. They’re capital-intensive, heavily unionized, with some make-work rules, heavily regulated, and long competed with a comparative disadvantage vs. the trucking industry, which has a very efficient method of propulsion (diesel engines) and uses free public roads. Railroads have long been a terrible business and have been lousy for investors.

We did finally change our minds and invested. We threw out our paradigms, but did it too late. We should have done it two years ago, but we were too stupid to do it at the most ideal time."

4. Bruce Lee says:

The important thing is that I am personally satisfied with my work. If it is a piece of junk, I will only regret it.

And Buffett:
"I get to do what I like to do every single day of the year," he says. "I get to do it with people I like, and I don't have to associate with anybody who causes my stomach to churn. I tap dance to work, and when I get there I think I'm supposed to lie on my back and paint the ceiling. It's tremendous fun."

5. Bruce Lee says:

Oh I know that we all admit that we are intelligent beings; yet, I wonder, how many of us have gone through some sort of self inquiries and/or self-examining of all these ready-made facts or truths that are crammed down our throats ever since we acquired the capacity and the sensibility to learn.

For this I'll turn to what Francis Chou had to say:
"If there is a secret to the Buffett/Munger success story, it is their willingness to be brutally honest and realistic in their analyses and assessments. They are highly introspective, always checking and rechecking their assumptions and premises against reality. Executives who sugarcoat business realities and embellish results, downplay issues and disguise potential problems to investors may well fool even themselves. They start believing in their own world of make-believe. Buffett/Munger’s formidable powers of analysis would be worth nothing if they looked at problems with rose colored glasses."

6. Bruce, what about emotions?:

1. In a time when everything is goes well, my mind is pampered with enjoyment, possessiveness, etc. Only in times of adversity, privation, or mishap, does my mind function and think properly of my state. This close examination of self strengthens my mind and leads me to understand and be understood.
2. There is intelligence when you are not afraid.

Buffett had this to say:
"Two diseases that are always present in the market are fear and greed. Benjamin Graham called this phenomenon "Mr. Market" and portrayed this character as a manic-depressive, constantly swinging from fear to greed and back to fear. However, you can contain Mr. Market with the right investment philosophy. Most of all, you need the right temperament..."

7. Bruce:

Concentration is a narrowing down of the mind- but we are concerned with the total process...

Warren Buffett has said a big factor in his success is because he is not bogged down in a particular industry. This allows him to look everywhere and find where the best investment returns are available.

8. Bruce says:

1."the height of cultivation runs to simplicity. Halfway cultivation runs to ornamentation."
2."The mark of genius is the capacity to see and to express what is simple, simply!"

Warren gets an A+ on that report card. He has an uncanny ability to say things in terms that even the least investment-literate person could understand.

9. Bruce, what do you like to do with your free time?:

But most of all, I like books. I read all types of books- fiction and non-fiction.

This is what Charlie Munger had to say about that:
"Half of all the time he [Warren Buffett] spends is just sitting on his ass and reading. And a big chunk of the rest of the time is spent talking one-on-one, either on the telephone or personally, with highly gifted people people whom he trusts and who trust him."


10. And finally, perhaps Bruce Lee's most important message to his students:

1.By an error repeated throughout the ages, truth, becoming a law or a faith, places obstacles in the way of knowledge. Method, which is in its very substance ignorance, encloses it within a vicious circle. We should break such circles not by seeking knowledge, but by discovering the cause of ignorance.
2. All fixed patterns are incapable of adaptability or pliability. The truth is outside of all fixed patterns.
3. I am no longer interested in systems of organization. Organized institutes tend to produce patternized prisoners of a systematized concept, and the instructors are often fixed in a routine. Of course what is worse is that by imposing the members to fit a lifeless pre-formation, their natural growth is blocked.

This is what first attracted me to Bruce Lee. Basically, he believed every moment and every instance should be treated as its own, and we should think instead of being bound by a pattern of doing things. I saw in this belief the counter to the idea brought up in The Black Swan, which stressed that systems cause us to get caught in a certain way of thinking and eventually leads to people getting blindsided. It is only through thinking and understanding that we grow. And when we make prejudices about something or accept a statement without understanding it, we are denying ourselves the truth.

Mental Models From Guns, Germs, And Steel

I was flipping through Guns, Germs, and Steel by Jared Diamond today. As luck would have it, the first page I flipped to reminded me of not one, but two mental models from other subjects. Maybe these just happened to stand out because I have been reading so much on Charlie Munger lately. Regardless, I kept reading and kept making more and more connections from a variety of disciplines. Here was what I came up with it.

1.

All other things being equal, people seek to maximize their return of calories, protein, or other specific food categories by foraging in a way that yields the most return with the greatest certainty in the least time for the least effort. Simultaneously, they seek to minimize their risk of starving: moderate but reliable returns are preferable to a fluctuating lifestyle with a high time-averaged rate of return but a substantial likelihood of starving to death. One suggested function of the first gardens nearly 11,000 years ago was to provide a reliable reserve larder as insurance in case wild food supplies failed.

The first part of this involves the opportunity cost concept from economics. Here, it is being used in a narrowed sense to describe the satisfaction of hunger. Even more interesting is the idea that people prefer "moderate but reliable returns" of food compared to higher risk and higher returns. You often hear Warren Buffett and Prem Watsa take the opposite statement on investing- that they prefer lumpy but out-sized returns over reliability. On closer analysis, this difference makes sense. In investing, we have a much longer time horizon and so a short-term slump can be handled without severe consequences. But with food, the consequence of a slump is starvation and death- a much less manageable risk.

2.

As we already noted, the first farmers on each continent could not have chosen farming consciously, because there were no other nearby farmers for them to observe. However, once food production had arisen in one part of a continent, neighboring hunter-gatherers could see the result and make conscious decisions. In some cases the hunter-gatherers adpoted the neighboring system of food production virtually as a complete package; in others they chose only certain elements of it; and in still others they rejected food production entirely and remained hunter-gatherers.

This reminded me of my philosophy class on Descartes. He argued that all of our ideas came from a combination of other ideas we have experienced in the past, and no idea could exist in us unless it had some truth in the outside world. The same concept is being used here regarding agriculture. Its mass implementation occurred only after someone stumbled upon farming's great benefits and other people witnessed it.

3.

A fourth factor was the two-way link between the rise in human population density and the rise in food production. In all parts of the world where adequate evidence is available, archaeologists find evidence of rising densities associated with the appearance of food production. Which was the cause and which the result? This is a long-debated chicken-or-egg problem: did a rise in human population density force people to turn to food production, or did food production permit a rise in human population density?

The old Chicken-or-egg dilemma. Just because you have found a correlation between two variables doesn't mean you've also answered which one has caused the other. These are usually two different problems.

4.

That is, the adoption of food production exemplifies what is termed an autocatalytic process- one that catalyzes itself in a positive feedback cycle, going faster and faster once it has started.

We saw another example of an autocatalytic process with the housing bubble. As lenders began to loosen their standards, less people defaulted because they had more access to refinancing. This made the lender's business look great, and caused them to loosen their standards even more.


5.

Instead of being enclosed in a poppable pod, wild wheat and barley seeds grow at the top of a stalk that spontaneously shatters, dropping the seeds to the ground where they can germinate. A single-gene mutation prevents the stalks from shattering. In the wild that mutation would be lethal to the plant, since the seeds would remain suspended in the air, unable to germinate and take root. But those mutant seeds would have been the ones waiting conveniently on the stalk to be harvested and brought home by humans. When humans then planted those harvested mutant seeds, any mutant seeds among the progeny again became available to the farmers to harvest and sow, while normal seeds among the progeny fell to the ground and became unavailable. Thus, human farmers reversed the direction of natural selection by 180 degrees: the formerly successful gene suddenly became lethal, and the lethal mutant became successful.

This is just to remind us of the inherent randomness of the world. Sometimes, you can have every conceivable thing in your favor, and then one black-swan type event comes in and completely changes everything. Long Term Capital Management thought they had a sure thing, and then one "six sigma event" came along and completely wiped them out, endangering the entire financial system in the process.


6.

The second type of change was even less visible to ancient hikers. For annual plants growing in an area with a very unpredictable climate, it could be lethal if all the seeds sprouted quickly and simultaneously. Were that to happen, the seedlings might all be killed by a single drought or frost, leaving no seeds to propagate the species. Hence, many annual plants have evolved to hedge their bets by means of germination inhibitors, which make seeds initially dormant and spread out their germination over several years. In that way, even if most seedlings are killed by a bout of bad weather, some seeds will be left to germinate later.

Instead of seedlings being all killed by a single frost, think of an entire investment portfolio getting wiped out by the loss of a single holding. So what do you do? You hedge your bets. The plants spread out their germination over several years so some seeds will still be left. Similarly, people diversify their portfolio so no single event can wipe them completely out.

I came across all of this within 13 pages, and I've learned two things. One, these big concepts can be applied in a lot of instances if you really look for it. Two, Jared Diamond has a brilliant multi-disciplined mind and I need to really finish his book.

P.S. Many of you might also find this post comparing Bruce Lee's philosophy with Warren Buffett interesting.