Seeking Wisdom by Peter Bevelin

Bevelin tries to condense and convey modern received wisdom, and suffers from not knowing when to stop explaining.

Our basic nature Men's natures are alike; it is their habits that carry them for apart. - Confucius

There must certainly be a vast fond of stupidity in human nature, else men would not be caught as they are, a thousand times over, by the same snare, and while they yet remember their past misfortunes, go on to court and encourage the causes to which they are owing, and which will again produce them. - Marcus Porcius Cato

We try to get greedy when others are fearful. We try to avoid any kind of imitation of other people's behavior. And those are the factors tha t cause smart people to get bad results. I always look at IQ and talent as representing the horsepower of the motor, but then in terms of the output , the efficiency with which the motor works, depends on rationality. Tha t ' s because a lot of people start out wi th 400-horsepower motors and get a hundred horsepower of output . It's way better to have a 200-horsepower motor and get it all into output . So why do smart people do things tha t interfere with getting the output they're entitled to? It gets into the habits, and character and temperament, and it really gets into behaving in a rational manner. Not getting in your own way.

when he looked for a mechanic, he always stayed away from garages on big highways and near "strips." Such mechanics, he said, knew tha t they were never going to see you again and were notorious shysters. Go to a ne ighborhood garage, where word of mouth serves as advertising, and they know you will be a long-term customer

It's ego. It's greed. It's envy. It's fear. It's mindless imi t a t ion of othe r people. I mean, there are a variety of factors tha t cause tha t horsepower of the mind to get dimini shed dramatically before the output turns out . And I would say i f Charlie and I have any advantage it's not because we're so smart, i t is because we're rational and we very seldom let extraneous factors interfere wi th our thoughts. We don't let othe r people's opinion

Man is, and always was, a block-head and dullard, much readier to Jeel and digest than to think and consider. - Thomas Carlyle (Scottish historian, 1795-1881

We only give a couple of instructions to people when they go to work for us: One is to think like an owner. And the second is to tell us bad news immediately - because good news takes care of itself. We can take bad news, but we don't like i t late."

The heart and soul of their system - which creates the integrity of the produc t - is having all their airplanes come to one place in the middle of the night and shift all the packages from plane to plane. I f there are delays, the whole operation can't deliver a produc t full of integrity to Federal Express customers. And it was always screwed up. They could never get it done on time. They tried everything - moral suasion, threats, you name it. And nothing worked. Finally, somebody got the idea to pay all these people not so much an hour, but so much a shi f t - and when it's all done, they can all go home. Well, their problems cleared up overnight

Goals should be (1) tailored to the economics of the specific operating business; (2) simple in character so tha t the degree to whi ch they are being realized can be easily measured; and (3) directly related to the daily activities of plan participants. As a corollary, we shun "lottery ticket" arrangements, such as opt ions on Berkshire shares, whose ultimate value - whi ch could range from zero to huge - is totally out of the control of the person whose behavior we would like to affect. In our view, a system tha t produces quixotic payoffs will not only be wasteful for owners but may actually discourage the focused behavior we value In managers48

when the first De ad Sea scrolls were discovered and the archeologists want ed more fragments of the scrolls to be found, they offered a reward pe r fragment. The result: the fragments were split into smaller pieces before they were turned in. The comedian Groucho Marx once interviewed a U.S. Senator about a miracle cure-all vitamin and mineral toni c tha t the Senator had invented. When Groucho asked him wha t i t was good for, the Senator answered: " I t was good for five and a ha l f million for me last year." Incentives for the decision-maker determine behavior. Thi s means tha t we have to recognize self-interested behavior in others. Are advisors always to be trusted? The r e is an old saying: "Never ask the village barber i f you need a haircut." We are biased by our incentives as are others including lawyers, accountants, doctors, consultants, salesmen, organizations, the media, etc. Wha t is good for them may not be good for us. Advisors are paid salesmen and may trick us into buying what we don't need. For an attorney, litigation is often mor e lucrative than settlement. Lawyer Wi l l i am F. Coyne, Jr. says in The Case for Settlement Counsel there are "significant incentives for lawyers not to embrace early settlement . . . These incentives include the need to market services, the desire not to appear weak, the obligation to represent a client zealously, the thirst for justice, but perhaps not least, the desire to maximize income." Warren Buffett tells us tha t one of Berkshire's compensation arrangements was worked out: "wi thout the "help" of lawyers or compensation consultants. Thi s a r r angement embodies a few very simple ideas - not the kind of terms favored by consultants who c annot easily send a large bill unless they have established tha t you have a large probl em (and one, of course, tha t requires an annua l review)." Charles Munge r tells us about the common tendency of salesmen: 50

All commissioned salesmen have a tendency to serve the transaction instead of the t ruth

People who are rewarded for doing stupid things continue to do them

They were paid a percentage of the gross volume tha t went through. And paying everybody a percentage of the gross, when what you're really interested in is the net, is a system - given the natural bias of human beings toward doing what's in their own interest even though i t has terrible consequences for othe r people - tha t really did Lloyd's

have no use whatsoever for projections or forecasts. They create an illusion of apparent precision. The more meticulous they are, the more concerned you should be. We never look at projections, but we care very much about, and look very deeply at, track records. I f a company has a lousy track record, but a very bright future, we will miss the opportuniry

the history tha t Charlie and I have had of persuading decent, intelligent people who we thought were doing unintelligent things to change their course of action has been poor

Experts love to extrapolate their ideas from one field to all othe r fields. They define problems in ways tha t fit their tools rather than ways tha t agree wi th the underlying problem. Give someone a tool and they'll want to use it, and even overuse it, whether it's warranted or not. Why is man-with-a-hammer syndrome always present? Charles Munge r answers: "Well i f you stop to think about it, it's incentive-caused bias. His professional reputation is all tied up wi th wha t he knows. He likes hims e l f and he likes his own ideas, and he's expressed them to othe r people - consistency and commi tment tendency

integrity, intelligence, experience, and dedication. That's what human enterprises need to run well.

What the human being is best at doing is interpreting all new information so tha t their pr ior conclusions remain intact

There is nothing wrong with changing a plan when the situation has changed

Sometimes things don't go the way we believe they will. The solution is to face it and act. Charles Munger says: "We've done a lot of that - scrambled out of wrong decisions. I would argue that that's a big part of having a reasonable record in life. You can't avoid wrong decisions. But i f you recognize them prompt ly and do something about them, you can frequently turn the lemon into lemonade

Charlie and I believe that when you find information tha t contradicts your existing beliefs, you've got a special obligation to look at it - and quickly

When you are pa int ing you should take a flat mi r ror and often look a t your work wi thin it, and i t will then be seen in reserve, and will appe a r to be by the hand of some othe r master, and you will be be t t e r able to judge of its faults than in any othe r way

Buffett: A very impor t ant principle in investing is tha t you don't have to make i t back the way you lost it. In fact, it's usually a mistake to t ry to make i t back the way you lost it

And in scurvy, your living gums putrefY in your mouth - after which the disease gets unpleasant and kills you. And being on a primitive sailing ship with a bunch of dying sailors is a very awkward business. So everybody was terribly interested in scurvy, but they didn't know about Vi t amin C.Well, Capt a in Cook, being a smart man with a multiple-model kind of approach, noticed tha t Dut ch ships had less scurvy than English ships on long voyages. So he said, "Wha t are the Dut ch doing that's different?" And he noticed they had all these barrels of sauerkraut. So he thought: ''I'm going on these long voyages. And it's very dangerous. Sauerkraut may help. " So he laid in all this sauerkraut which, incidentally, happens to contain a trace of vitamin C. But English sailors were a tough, cranky and dangerous bunch in that day. They hated "krauts". And they were used to their standard food and booze. So how do you get such English sailors to eat sauerkraut

Well, Cook didn't want to tell 'em that he was doing it in the hope it would prevent scurvy - because they might mutiny and take over the ship i f they thought tha t he was taking them on a voyage so long that scurvy was likely. So here's what he did: Officers ate one place where the men could observe them. And for a long time, he served sauerkraut to the officers, but not to the men. And then, finally, Captain Cook said, "Well, the men can have i t one day a week." In due course, he had the whole crew eating sauerkraut. I regard tha t as a very constructive use of elementary psychology. I t may have saved God knows how many lives and caused God knows how much achievement

Perhaps the mos t valuable result of all education is the ability to make yourself do the thing you have to do when it ought to be done whe the r you like it or not

There is no duty more indispensable than that of returning a kindness. All men distrust one forgetfol of a benefit. - Ma r cus Tullius Ci c e ro

When people are free to do as they please, they usually imitate each other

Alfred P. Sloan, Jr., is reported to have said at the closing of a management meeting: "Gentlemen, I take it we are all in complete agreement on the decision here". Everyone around the table nodded assent. "Then, " continued Mr. Sloan, "I propose we postpone further discussion of this matter to give ourselves time to develop disagreement and perhaps gain some understanding of what the decision is all about

Around here I would say tha t i f our predictions have been a little be t t e r than othe r people's, it's because we've tried to make fewer of them

The Roman satirist Petronius Arbiter said in the 1st Century: "We trained hard, but it seemed tha t every time we were beginning to form into teams we would be reorganized. I was to learn later in life tha t we t end to meet any new situation by reorganizing, and what a wonderful me thod it can be for creating the illusion of progress while producing confusion, inefficiency, and demoralization

I've gotten so tha t I now use a kind of two-track analysis. First, wha t are the factors tha t really govern the interests involved, rationally considered? And second, what are the subconscious influences where the brain at a subconscious level is automatically doing these things - whi ch by and large are useful, but which often misfunction. One approach is rationality - the way you'd work out a bridge problem: by evaluating the real interests, the real probabilities and so forth. And the othe r is to evaluate the psychological factors tha t cause subconscious conclusions - many of which are wrong

But there's no way tha t you can live an adequate life wi thout [making] many mistakes. In fact, one trick in life is to get so you can handle mistakes. Failure to handl e psychological denial is a common way for people to go broke

Part of what you must learn is how to handle mistakes and new facts that change the odds

Nobody can forecast interest or currency rates, the GDP, turning points in the economy, the stock market, etc. Massive amount s of information, advanced computers or fancy mathematical formulas don't help. Warren Buffett says tha t we t end to put too much comfort in comput e r models and the precision they project: "We believe the precision they project is a chimera. In fact, such models can lull decision-makers into a false sense of security and thereby increase their chances of making a really huge mistake

build proactive or reactive systems ma. the more uncertainty the more we build reactive systems

Professor and startup coach John Nesheim, who has been involved in some 300 plus startups, tells us in High Tech Startup, tha t only six out of one million hightech ideas turn into a public company. This base rate frequency tells us there is a low prior probability of turning into a public company

The water system of California was designed looking at a fairly shor t period of weather history. I f they'd been willing to take less perfect records and look an extra hundr ed years back, they'd have seen tha t they weren't designing it right to handle drought conditions which were entirely likely. You see that again and again - tha t people have some information they can count well and they have other information much harder to count. So they make the decision based only on what they can count well. And they ignore much more impor t ant information because its quality in terms of numeracy is less - even though it's very impor t ant in terms of reaching the right cognitive result

the difference between a good business and a bad one is tha t a good business throws up one easy decision after another, whereas a bad one gives you horrible choices - decisions tha t are extremely ha rd to make

All members of the family: (1) apply themselves wi th an enthusiasm and energy tha t would make Ben Franklin and Horatio Alger look like dropouts; (2) define wi th extraordinary realism their area of special competence and act decisively on all matters wi thin it; (3) ignore even the most enticing propositions falling outside of tha t area of special competence; and (4) unfailingly behave in a high-grade manner wi th everyone they deal with. (Mrs. B boils i t down to "sell cheap and tell the truth

This problem has three things I've learned to fear - an architect, a contractor and a hill