Sep 26th 2024

The Wisdom of Warren Buffett

by David W. Galenson

Dr. David W. Galenson is Professor of Economics at the University of Chicago; Academic Director of the Center for Creativity Economics at Universidad del CEMA, Buenos Aires; and a Research Associate of the National Bureau of Economic Research. His publications include Old Masters and Young Geniuses: The Two Life Cycles of Artistic Creativity (Princeton University Press, 2006) and Conceptual Revolutions in Twentieth-Century Art (Cambridge University Press and NBER, 2009). David W. Galenson, picture aboce. Derek Walcott, picture in the text.

 

A number of psychologists have contended that wisdom hinders creativity - that the balanced judgment and stores of experience that are principal elements of wisdom are inimical to the radical leaps into the unknown that comprise creativity.  So for example the psychologist Harvey Lehman observed that "the old usually possess greater wisdom and erudition," which he called "invaluable assets," but "when a situation requires a new way of looking at things, the acquisition of new techniques or even new vocabularies, the old seem stereotyped and rigid.  To learn the new they often have to unlearn the old and that is twice as hard as learning without unlearning."  Dean Simonton agreed, writing that "Creativity and wisdom are frequently viewed as exhibiting contrary relations with aging: where the former is viewed as a privilege of youth, the latter is seen as a prerogative of old age.  Empirical research on longitudinal changes in both assets appears to support this commonplace perception."

But these psychologists are wrong, because of their implicit assumption that all creativity is conceptual.  The bold leaps of fearless young conceptual innovators are an important form of creativity.  But they are not the only form.  For creative thinking can be balanced, measured, and judicious, and important experimental innovators generally benefit from considerable wisdom.  The famous investor Warren Buffett provides an interesting example.

Early in his career, Buffett's idol was the investor Benjamin Graham.  As Graham's student, and then his employee, Buffett followed Graham's systematic approach to investing, buying the stock of companies that had assets greater than their liabilities.  Buffett continued to use this approach after Graham's retirement, when he began to run his own investment firm.  But his career would witness an evolution of his investment philosophy away from Graham's mathematical rules.

This evolution was closely connected to Buffett's friendship with Charlie Munger, whom Buffett met when he was 29.  Munger disagreed with Graham's narrow concentration on statistical bargains, and instead favored investing in "wonderful businesses" - companies that would be profitable because of such qualitative factors as managerial excellence or brand loyalty.  Under Munger's influence, Buffett's philosophy evolved into "a less compulsive approach to superior investment results than when I was younger."  Above all, "we look for first-class businesses accompanied by first-class management."

An example of Buffett's mature philosophy was a large investment in Coca-Cola in the 1980s.  The true value of the company lay not in its modest physical capital, but in the intangible asset that Buffett described as "the accumulated memory of all those ballgames and good experiences as children that Coke was a part of."  A biographer contended that for Buffett, "Valuing companies such as Coca-Cola took wisdom forged by years of experience."  In his annual letter to shareholders in 1983, Buffett wrote facetiously that "It must be noted that your Chairman, always a quick study, required only 20 years to recognize how important it was to buy good businesses."

Early in his career, Warren Buffett enthusiastically embraced Ben Graham's systematic approach to investing, based on mathematical calculation.  Over time, however, he developed a more flexible approach, that added factors not subject to precise measurement: he observed that "the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side."  Buffett's status as the Oracle of Omaha stemmed from his ability to develop the wisdom and judgment that transformed him from a good conceptual investor into an exceptional experimental one.

Browse articles by author

More Essays

Female Nazi concentration camp guards: the true horror lies in their similarities to ourselves
by Angharad Hampshire
Oct 11th 2024
EXTRACTS: "Between 1939 and 1945, around 10% of concentration camp guards were women, yet these Aufseherinnen (overseers) as they were known, barely feature in Holocaust history or literature." ------ "One little Aufseherin, twenty years old, who had so little knowledge that she said 'excuse me' when walking in front of a prisoner, and who was visibly frightened by the first round of brutality she saw, needed exactly four days to adjust her tone and procedures, although it was totally new to her." ----- " 'The most frightening news brought about by the Holocaust and by what we learned of its perpetrators was not the likelihood that ‘this’ could be done to us, but the idea that we could do it.' ---- The true horror of genocide is found in the similarity between us and the perpetrators, not in the difference."
Walt Disney's Conceptual Creativity
by David W. Galenson
Oct 9th 2024
EXTRACT: "In 1928, Walt Disney's fledgling animation studio lost most of its staff to a rival company, his two latest cartoons had not found a buyer, and he had had to sell his car to meet payroll.  Disney's innovative response changed his industry, and American popular culture."
Jimmy Carter's Century
by Jeffrey Frankel
Sep 26th 2024
EXTRACT: "When it comes to economic policy, Carter is sometimes blamed for excessive regulation, government spending, and runaway inflation. His successor, Ronald Reagan, is often credited with ending the era of “big government.” But the conventional narrative fails to acknowledge that it was Carter who launched the deregulatory push that bore fruit during the Reagan years."
The Wisdom of Warren Buffett
by David W. Galenson
Sep 26th 2024
EXTRACT: "Buffett's status as the Oracle of Omaha stemmed from his ability to develop the wisdom and judgment that transformed him from a good conceptual investor into an exceptional experimental one."
Why Rome Still Matters
by Shlomo Ben Ami
Sep 26th 2024
EXTRACT: "Last year, a social-media trend featured women asking men how often they thought about the Roman Empire. The answer, it seemed, was “very”: many men claimed that the ancient empire crossed their minds weekly or even daily. That did not surprise Mike Duncan, the host of the popular 'History of Rome' podcast, and probably not Tom Holland, who has written multiple bestselling books on the topic. Mary Beard certainly understands the popular fascination, too. Her study of ancient Rome – together with her unpretentious style and brash charisma – has made her what one observer called 'a national treasure, and easily the world’s most famous classicist.' ” ----- "Beard challenges this mythology of whiteness, arguing in her 2016 book SPQR: A History of Ancient Rome that the story of the Roman Empire, which was necessarily ethnically diverse, is 'the history of people of color'. In fact, the book concludes with Emperor Caracalla’s grant of citizenship to all the empire’s subjects. The old Roman aristocracy lost its privileges, because it had not shared them."
The New Threat to Free Speech
by Chris Patten
Sep 22nd 2024
EXTRACTS: "Since the golden age of Athenian democracy, freedom of speech has been viewed as a defining feature of open societies, even as it remains under constant attack. The Athenians believed that the proper functioning of government depended on free and honest exchange of ideas, no matter how controversial or unpopular. In ancient Rome, by contrast, only senators enjoyed anything resembling free speech – and even then, as the statesman Marcus Tullius Cicero learned the hard way, speaking out could have deadly consequences." ----- "In our hyper-connected world, where mobile phones outnumber people and most of the global population has internet access, the decline of traditional news outlets has deepened our dependence on social media. As opaque algorithms shape the news we consume and our perception of reality, the corporations and oligarchs controlling these platforms pose a growing threat to free speech. Although they claim to be its ultimate defenders, their business model, by amplifying disinformation and identity-based grievances for profit, renounces the responsibility that sustains it."
Elon Musk says he’s a ‘cultural Christian’ – why some leading thinkers are embracing Christianity
by Simon McCarthy-Jones
Jul 27th 2024
EXTRACT: "Some conservative intellectuals think the west has already adopted Christianity-lite. Many point to the book Dominion: The Making of the Western Mind (2019), by historian Tom Holland. Holland argues that despite declining religious belief, Christian ideas remain central to western civilisation. He views liberalism – our dominant political philosophy – as secularised Christianity. For him, core western ideas, like universal human rights, equality and dignity, stem from Christianity."
The human virome: why viruses could be as important for good health as gut bacteria
by Samuel J. White and Philippe B. Wilson
Jul 26th 2024
EXTRACTS: "We often hear about the importance of the human microbiome – the vast collection of bacteria and fungi that live on and inside us – when it comes to our health. But there’s another, equally important part of this microbial community that remains far less known: the virome." ----- "Viruses are the most abundant biological entities on Earth, with an estimated 10³¹ viral particles globally and about 10¹³ in each human being." ----- "Understanding the virome could revolutionise medicine and public health."
How being shot might affect Donald Trump’s mental health – and that of millions of others
by Simon McCarthy-Jones
Jul 16th 2024
EXTRACTS: "Trump joins tens of thousands of Americans treated for non-fatal gunshot wounds each year. Such experiences can shatter people’s assumptions that they are living in a safe, understandable and controllable world, leaving them feeling unworthy, unsafe and unsure. As a result, survivors of non-fatal gun violence face increased risks of depression, anxiety, substance use and post-traumatic stress disorder (PTSD). PTSD can feel overwhelming." ---- ".... some trauma survivors experience post-traumatic growth. They may develop greater empathy, stronger relationships, deeper spirituality and find new meaning in life. After being shot in 1981, the then president Ronald Reagan’s trauma seemed to deepen his sense of empathy and humility. He felt God had spared him for a reason, spurring him to reduce nuclear tensions with the Soviet Union."
Some artificial sweeteners are forever chemicals that could be harming aquatic life
by Matthew Derry and Alan Goddard
Jul 15th 2024
EXTRACTS: "Artificial sweeteners such as sucralose are not metabolised by the human body so they are excreted – this is what makes them low-calorie sugar alternatives. And that’s where the environmental problem begins. Current wastewater treatment plants are unable to remove these sugar mimics, meaning they end up in our environment – in our water, rivers and soil." --- "Forever chemicals are increasingly present in our streams, rivers and oceans – most notably per- and polyfluoroalkyl substances (PFAS) that don’t degrade. PFAS are synthetic chemicals found in many consumer products, including skincare products, cosmetics and waterproof clothing. PFAS can remain in the human body for many years, and some present significant risks to our health – potentially causing liver damage, thyroid disease, obesity, infertility and cancer."
The loneliness myth: what our shared stories of feeling alone reveal about why you can’t ‘fix’ this very human experience
by Sam Carr
Jul 3rd 2024
EXTRACTS: "Psychologist, James Hillman had concerns about what I like to call the 'loneliness-as-pathology' "---- "....Hillman went on to argue...: 'If loneliness is an archetypal sense built into us all from the very beginning, then, to be alive is also to be lonely. Loneliness, therefore, will come and go as it chooses in the course of a lifetime, quite apart from our efforts to deny or avoid this reality.' "
How Humanity Lost Control
by J. Bradford DeLong
Jul 3rd 2024
EXTRACT: "How can we be at least 15 times richer than our pre-industrial Agrarian Age predecessors, and yet so unhappy? One explanation is that we are not wired for it: nothing in our heritage or evolutionary past prepared us to deal with a society of more than 150 people. To operate our increasingly complex technologies and advance our prosperity, we somehow must coordinate among more than eight billion people."
Kim-Putin deal: why this is a coded message aimed at China and how it worries Beijing
by Chee Meng and Chi Zhang
Jun 25th 2024
EXTRACTS: "What’s interesting about the entire Russia-North Korea showy display of camaraderie is China’s response: silence. China has misgivings about how things are unfolding, which reports suggest prompted Chinese president Xi Jinping’s call to Putin to call off the latter’s visit to Pyongyang. Obviously, Putin didn’t heed Xi’s request." ----- "The Sino-Korean animosity dates back centuries and took shape when Korea was a vassal state of imperial China. Unfortunately, this animosity extended to modern times when Mao Zedong decided to station Chinese troops in North Korea even after the conclusion of the Korean war, and when Beijing did not aid Pyongyang in its nuclear ambitions. It didn’t help either that the founding leader of North Korea, Kim Il-sung, was suspected of espionage and was nearly executed by the Chinese Communist party in the 1930s."
Ultra-processed foods: here’s how they may affect the way the immune system functions
by Samuel J. White and Philippe B. Wilson
Jun 19th 2024
EXTRACT: "Ultra-processed foods (such as packaged snacks, sugary drinks, instant noodles and ready-to-eat meals) often contain emulsifiers, microparticles (such as titanium dioxide), thickeners, stabilisers, flavours and colourants. While research on humans is limited, studies on mice have shown that these ingredients alter the gut microbiome (the community of microorganisms living in the intestines) in several ways. These many microbiome changes can in turn affect the way the immune system functions."
Can Alzheimer’s really be reversed, as a new documentary claims?
by Rahul Sidhu
Jun 9th 2024
EXTRACT: "Alzheimer’s disease can be split in two subgroups, familial and sporadic. Only 5% of patients with Alzheimer’s are familial, inherited, and 95% of Alzheimer’s patients are sporadic, due to environmental, lifestyle and genetic risk factors. Consequently, the most effective tactic for tackling Alzheimer’s is preventative and living a healthy lifestyle. This has led researchers to study risk factors associated with Alzheimer’s."
Could many dementia cases actually be liver disease?
by Ashwin Dhanda
Mar 8th 2024
EXTRACT: "This study suggests that around 10% of people diagnosed with dementia may instead have underlying silent liver disease with HE causing or contributing to the symptoms – an important diagnosis to make as HE is treatable."
We Already Have Effective Socialized Medicine: Now Universalize It
by Sam Ben-Meir
Jan 28th 2024
EXTRACT: "Health disparity is a powerful weapon in the savage class warfare otherwise known as neoliberalism. (In 2020, the RAND Corporation did a study of the transfer of wealth over the last several decades from the working-class and the middle-class to the top one percent. Their estimate is a staggering $47 trillion – that is how much the “upward redistribution of income” cost American workers between 1975 and 2018.) Neoliberalism is a brutal form of labor suppression, which uses health as a means of maintaining and reproducing a condition in which wealth is constantly being redistributed upwards, and the middle-class is kept in a constant state of fear of sinking into the ranks of the poor. Medical expenses are the leading cause of bankruptcies in America – and that’s according to the American Bankruptcy Institute. The ballooning costs of healthcare serve to maintain a system marked by morally unacceptable health inequity and injustice."
People in the world’s ‘blue zones’ live longer – their diet could hold the key to why
by Justin Roberts. Joseph Lillis and Mark Cortnage
Jan 28th 2024
EXTRACT. "But living longer has also come at a price. We’re now seeing higher rates of chronic and degenerative diseases – with heart disease consistently topping the list. So while we’re fascinated by what may help us live longer, maybe we should be more interested in being healthier for longer. Improving our “healthy life expectancy” remains a global challenge. Interestingly, certain locations around the world have been discovered where there are a high proportion of centenarians who display remarkable physical and mental health. The AKEA study of Sardinia, Italy, as example, identified a “blue zone” (named because it was marked with blue pen),....."
Treasures in Black and White
by David Galenson
Jan 4th 2024
EXTRACT: ""Tresors en Noir et Blanc" presents 180 prints from the collection of the Musee des Beaux-Arts de la Ville de Paris, also known as the Petit Palais.  The basis of the museum's print collection is 20,000 engravings amassed by a 19th-century collector, Eugene Dutuit, " ----- "This wonderful exhibition, the tip of a great iceberg, serves to emphasize how unfortunate it is that the tens of thousands of prints owned by the Petit Palais are almost never seen by more than a handful of scholars who visit them by appointment.  Nor is the Petit Palais the only offender in this regard,....."
Painting and Revolution: Manet and Degas at the Metropolitan Museum of New York
by Sam Ben-Meir
Jan 4th 2024
EXTRACTS: "And that is the clue to Manet’s work. He paints painting, regardless of his subject: he paints the medium itself, it as if he is constantly reminding us that this is a painting," ..........."This is a new conception of painterly truth at play here, a new fidelity to truth. Manet is the Kant of painting because he initiates a similar kind of “Copernican revolution” – we do not see the world as it is but as we are. " -------- " Among the most remarkable but unfamiliar of Manet’s work on display are those depicting the bloody aftermath of the Paris Commune of 1871.There is no question regarding Manet’s condemnation of the Versailles government’s actions following the defeat of the Commune, when some 25,000 Parisians were gunned down, including women and children."