Original post: http://www.farnamstreetblog.com/2013/05/the-buffett-formula-how-to-get-smarter/

The Buffett Formula — How To Get Smarter

by Shane Parrish on May 15, 2013

“The best thing a human being can do is to help another human being know more.”
— Charlie Munger
“Go to bed smarter than when you woke up.”
— Charlie Munger
Most people go though life not really getting any smarter. Why? They simply won’t do the work required.
It’s easy to come home, sit on the couch, watch TV and zone out until bed time rolls around. But that’s not really going to help you get smarter.
Sure you can go into the office the next day and discuss the details of last night’s episode of Mad Men or Game of Thrones. And, yes, you know what happened on Survivor. But that’s not knowledge accumulation, it’s a mind-numbing sedative.
But you can acquire knowledge if you want it.
In fact there is a simple formula, which if followed is almost certain to make you smarter over time. Simple but not easy.
It involves a lot of hard work.
We’ll call it the Buffett formula, named after Warren Buffett and his longtime business partner at Berkshire Hathaway, Charlie Munger. These two are an extraordinary combination of minds. They are also learning machines.
“I can see, he can hear. We make a great combination.” —
Warren Buffett, speaking of his partner and friend, Charlie Munger.
We can learn a lot from them. They didn’t get smart because they are both billionaires. No, in fact they became billionaires, in part, because they are smart. More importantly, they keep getting smarter. And it turns out that they have a lot to say on the subject.
How to get smarter
Read. A lot.
Warren Buffett says, “I just sit in my office and read all day.”
What does that mean? He estimates that he spends 80% of his working day reading and thinking.
“You could hardly find a partnership in which two people settle on reading more hours of the day than in ours,” Charlie Munger commented.
When asked how to get smarter, Buffett once held up stacks of paper and said “read 500 pages like this every day. That’s how knowledge builds up, like compound interest.”
All of us can build our knowledge but most of us won’t put in the effort.
One person who took Buffett’s advice, Todd Combs, now works for the legendary investor. After hearing Buffett talk he started keeping track of what he read and how many pages he was reading.
The Omaha World-Herald writes:

Eventually finding and reading productive material became second nature, a habit. As he began his investing career, he would read even more, hitting 600, 750, even 1,000 pages a day.
Combs discovered that Buffett’s formula worked, giving him more knowledge that helped him with what became his primary job — seeking the truth about potential investments.

But how you read matters too.
You need to be critical and always thinking. You need to do the mental work required to hold an opinion.
In Working tougher: Why Great Partnerships Succeed Buffett comments to author Michael Eisner:

Look, my job is essentially just corralling more and more and more facts and information, and occasionally seeing whether that leads to some action. And Charlie—his children call him a book with legs.

Continuous learning
Eisner continues:

Maybe that’s why both men agree it’s better that they never lived in the same city, or worked in the same office. They would have wanted to talk all the time, leaving no time for the reading, which Munger describes as part of an essential continuing education program for the men who run one of the largest conglomerates in the world.
“I don’t think any other twosome in business was better at continuous learning than we were,” he says, talking in the past tense but not really meaning it. “And if we hadn’t been continuous learners, the record wouldn’t have been as good. And we were so extreme about it that we both spent the better part of our days reading, so we could learn more, which is not a common pattern in business.”

It doesn’t work how you think it works.
If you’re thinking they sit in front of a computer all day obsessing over numbers and figures? You’d be dead wrong.

““No,” says Warren. “We don’t read other people’s opinions. We want to get the facts, and then think.” And when it gets to the thinking part, for Buffett and Munger, there’s no one better to think with than their partners. “Charlie can’t encounter a problem without thinking of an answer,” posits Warren. “He has the best thirty-second mind I’ve ever seen. I’ll call him up, and within thirty seconds, he’ll grasp it. He just sees things immediately.”

Munger sees his knowledge accumulation as an acquired, rather than natural, genius. And he’d give all the credit to the studying he does.
“Neither Warren nor I is smart enough to make the decisions with no time to think,” Munger once told a reporter. “We make actual decisions very rapidly, but that’s because we’ve spent so much time preparing ourselves by quietly sitting and reading and thinking.”
How can you find time to read?
Finding the time to read is easier than you think. One way to help make that happen is to carve an hour out of your day just for yourself.
In an interview he gave for his authorized biography The Snowball, Buffett told the story:

Charlie, as a very young lawyer, was probably getting $20 an hour. He thought to himself, ‘Who’s my most valuable client?’ And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning, working on these construction projects and real estate deals. Everybody should do this, be the client, and then work for other people, too, and sell yourself an hour a day.

It’s important to think about the opportunity cost of this hour. On one hand you can check twitter, read some online news, and reply to a few emails while pretending to finish the memo that is supposed to be the focus of your attention. On the other hand, you can dedicate the time to improving yourself. In the short term, you’re better off with the dopamine laced rush of email and twitter while multitasking. In the long term, the investment in learning something new and improving yourself goes further.
“I have always wanted to improve what I do,“ Munger comments “even if it reduces my income in any given year. And I always set aside time so I can play my own self-amusement and improvement game.”
Reading is only part of the equation.
But reading isn’t enough. Charlie Munger offers:

We read a lot. I don’t know anyone who’s wise who doesn’t read a lot. But that’s not enough: You have to have a temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them

Commenting on what it means to have knowledge, in How To Read A Book, Mortimer Adler writes: “The person who says he knows what he thinks but cannot express it usually does not know what he thinks.”
Can you explain what you know to someone else? Try it. Pick an idea you think you have a grasp of and write it out on a sheet of paper as if you were explaining it to someone else. (see The Feynman Technique and here, if you want to improve retention.)
Nature or Nurture?
Another way to get smarter, outside of reading, is to surround yourself with people who are not afraid to challenge your ideas.

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“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.” — Charlie Munger