Friday, November 16, 2018

Rosetta Stones

Discovered in 1799, "the Rosetta Stone proved to be the key to deciphering Egyptian hieroglyphs, thereby opening a window into ancient Egyptian history."

A simple thing, a stone inscribed with three texts, led to a complete revelation in being able to understand the great civilization that was ancient Egypt. 

I bring this up because of a comment Warren Buffett made in 2002 that I've been thinking a lot about lately: 
I read Ben [Graham]’s book in 1949 when I was at University of Nebraska, and that actually just changed my whole view of investing. And it really did, basically, told me to think about a stock as a part of a business. 
Now, that seems so obvious. You can say, you know, that why should you regard that as the Rosetta Stone? But it is a Rosetta Stone, in a sense. 
Once you crank into your mental apparatus that you’re not looking at things that wiggle up and down on charts, or that people send you little missives on, you know, saying buy this because it’s going up next week, or it’s going to split, or the dividend’s going to get increased, or whatever, but instead you’re buying a business. 
You’ve now set a foundation for going on and thinking rationally about investing.
In another description of this investing Rosetta Stone, Allan Mecham, portfolio manager and partner at Arlington Value Capital, put in this way in a 2016 interview with The Manual of Ideas that I think sums it up well:
I approach investing like I’m buying the business outright and retaining management. This mindset ties valuation to understanding and forces me to think through qualitative factors and potential threats to long-term earnings power. It also effectively winnows the field of potential investments, as I’m incapable of gaining confidence in most businesses. 
For those investors that invest like the above, viewing stocks as businesses not only serves as a Rosetta Stone for thinking rationally about the relationship between price and value, but it also serves as a guide to one's preparation and to the type of professional network one may want to build, among other things.

In an answer to the same question in 2002, Charlie Munger gave a more generalized answer, which also serves as a Rosetta Stone for going through both investing and life: 
If you have a passionate interest in knowing why things are happening, you always are trying to figure out the world in terms of why is this happening or why is this not happening, that cast of mind, kept over long periods, gradually improves your ability to cope with reality. 
And if you don’t have that cast of mind, I think you’re destined, probably, for failure, even if you’ve got a pretty high IQ. 
And the more I think about it, there are probably all kinds of Rosetta Stones in life—simple things that, if discovered, can completely change one's understanding of something, and potentially change the work being done and the path on which it is being done.

For me, the wisdom of the Stoics to only focus on the things under one's control is a Rosetta Stone, as is Buffett's emphasis on having an inner scorecard:
You always want to consider your inner scorecard – how you feel about your own performance and success. You should worry more about how well you perform rather than how well the rest of the world perceives your performance. 
What are your Rosetta Stones as it relates to investing, business, life, relationships, etc.? For those that also think this through and would like to share, feel free to pass along your thoughts.