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The above quote from Anthony Pompliano is a good description of a big part of my own investing philosophy, and what I believe to be an important edge (or at least advantage) when it comes to investing and business.
Many of my friends and colleagues were caught off guard when I started Surf Report, since they associate me less with business and finance as they do with books, writing, and creativity. Trading and investing have historically been dry topics to outsiders, conjuring images of selfish Wall Street types and craven executives who think money is everything. Financial matters have a long history of being at odds with artistic ones, and literary circles are a far cry from brokerage firms.
This is a misconception I’m working to dispel, but I’m not the first to point to reading and books and the secret weapons for those looking to make good decisions when it comes to capital allocation and wealth generation:
“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. You’d be amazed at how much Warren [Buffett] reads — and at how much I read.
“I probably read one to two hours a day. That puts me in the top .00001 percent. I think that alone accounts for any material success I’ve had in my life and any intelligence I might have.”
The question I’m interested at the moment is why.
What is it about reading books, not even necessarily books about money or finance , that have such a positive correlation with success in the markets?
I can suggest a few possible reasons:
Reading books demands sustained focus and attention.
Reading has a lot in common with meditation in that the only way to become good at reading, or even to enjoy it at all, is to be in full command of your own attention. This skill is difficult to cultivate quickly and requires self-discipline, which means it’s a relatively rare trait to find in people.
To hold focus on an unfolding narrative without getting distracted by outside chatter and noise is exactly what investors need to do so as not to give in to the pull of “strategy drift” and chase shiny objects off a cliff of losses. Shutting out noise, remaining focused, and persistently remembering the narrative thread you’re pulling on is how mental strength is built. Stronger discipline like this allows you to quiet emotions and prioritize the task at hand.
The discipline of capital allocation and long-term thinking is reading a great book in a world where everyone is insisting you watch a just-okay Netflix show.
Constant curiosity is how to look for and be open to new possibilities.
David Deutsch has written extensively about optimism’s role in the formation of new knowledge (I cannot recommend his book The Beginning of Infinity highly enough), and one of his ideas is that simply being open to new possibilities you can’t possibly know yet is what optimism is really all about. And only by embracing optimism in this sense — that problems are soluble and the solutions to problems by definition cannot be known in advance — can we advance at all.
Reading a book is an act of curiosity, and only the persistently curious will consistently find new things of use or interest.
Reading widely adds new nodes for unique connections to be made.
Topics, subjects, genres, and writing styles are data points in a mental archive that are constantly interacting. An increase in the quantity and variety of data points strengthens the data set and protects it from bias, imbalance, vulnerability, and blind spots (ignorance).
To gather widely is to strengthen, because self-similarity and homogeneity are the traits of weak metals and monocultures. For example, steel is an alloy created from iron and carbon. Alloys tend to be stronger than pure metals for a simple reason: the alloy atoms are of irregular size and chemistry, creating all sorts of physical and electrical disturbances that make it more difficult for dislocations to move.
Reading across a variety of subjects and applying it to a single use is akin to introducing alloy atoms into a crystal structure in order to give it the strength that comes from irregular configurations.
Past patterns seen in one domain create confidence in their validity when seen again elsewhere.
We are all familiar with the principle of precedence, where our confidence in an outcome rises depending on how many prior examples of the same or similar event have occurred before. Confidence doesn’t necessarily mean accuracy, but this principle is behind Bayes’ Theorem in statistics, which revises predictions based on on newly received information. “Updating our priors” is considered sound advice in the world of logical thinking and outcome extrapolation.
Voracious readers have a disproportionately large databank of prior information to deploy for decision-making purposes, which creates a key advantage when it comes to investing: more confidence leads to more decisive action.
Less hesitation = faster decisions.
Long-form ideas that are printed encourage more reflection and less reactivity than short-form ideas in digital.
I was introduced to this idea while reading Kevin Kelly’s book The Inevitable: The Inevitable: Understanding the 12 Technological Forces That Will Shape Our Future. In it he writes:
“Books were good at developing a contemplative mind. Screens encourage more utilitarian thinking. A new idea or unfamiliar fact uncovered while screening will provoke our reflex to do something: to research the term, to query your screen ‘friends’ for their opinions, to find alternative views, to create a bookmark, to interact with or tweet the thing rather than simply contemplate it.”
Contemplation is what leads to synthesis and more permanent encoding — the type of mental installation that is akin to cementing something in place as opposed to simply placing it on a surface. Readers become adept at refining and reflecting as they are in the act of reading, updating and pushing against ideas they have just read, calling to mind similar material or adjacent topics while exploring. Contemplation is a kind of mental metallurgy. It’s how we create new, stronger idea alloys.
Dale Carnegie said “To think rightly is to create.” Well, to read actively is to think, and the ideas that good thinking creates can lead to new opportunities, new solutions, or new products to invest your time, your money, or your attention into. The better the thinking, the better the outcome.