Originally Published on medium.com on December 12, 2018 By Niklas Göke
Born 5,000 years ago, Warren Buffett would’ve been some animal’s lunch.
“I can’t run very fast, can’t climb trees. I mean I could tell that animal that is chasing me: ‘Wait till you see how I can allocate assets!’ [But] it wouldn’t have made any difference. So here I am. I’m born now. Just very, very lucky.”
When Buffett says ‘lucky,’ he means having a mother who was great with numbers and very ambitious; a father who was a stockbroker, loved people, and valued integrity. Most of all, he means being a natural reader with an interest in money, born into the world’s largest capitalist society right after a major crisis. Born to think. Born…to become the richest man on earth.
Buffett’s scenario played out as an extreme but, one way or another, all successful people get paid to think. They amplify their decisions with leverage, such as labor, capital, and technology. And the more society values the outcomes of these decisions, the more leverage accumulates around these thinkers. In Buffett’s case, people are dying to give him more money to invest.
That must be fun because at 88 years old, he’s still working. Still thinking. 80% of his workday, five or six hours, is spent reading newspapers, financial reports, and then pondering the business world and the opportunities in it.
But it’s not this kind of thinking that set him on his path.
One of Buffett’s most popular ideas is the circle of competence:
“I stay within that circle and I don’t worry about things that are outside that circle. Defining what your game is, where you’re going to have an edge, is enormously important.”
When it comes to stocks, this translates to only investing in industries he understands, businesses he can evaluate, and people he can judge accurately. Looking back on his stellar track record, it’s clear Buffett nailed this process of defining his circle of competence. How did he do it? Why was he able to?
Well, for one thing, he’s been working on it for as long as he’s alive.
The Math Of Knowing Who You Are
Warren started studying math when he was less than seven years old.
“I like numbers. It started before I could remember. It just felt good, working with numbers. I was always playing around with numbers in one way or another. And it was fun to have a bunch of guys over and have them betting on which marble would reach the drain first.”
Math is a thankful subject to start getting to know yourself around because it neatly separates your hypotheses into right and wrong. With the right inputs, you can come up with reasonable guesses for who will win the marble race. Just like you can double-check your compound interest calculations.
Outside feedback on your decisions and behaviors is the first level on which you can develop self-awareness. That’s all your circle of competence is — an understanding of the larger context you live, move, and act in; where your limits are and what reactions certain choices will cause.
The good thing about developing it through trial and error is that the lessons are immediate and the data is guaranteed. Your environment and those around you will inevitably provide you with feedback. Sadly, this also means the “error” part isn’t avoidable. When failure is necessary, learning hurts. It also requires keeping an open mind and that’s something we’re really bad at.
If you make a habit of this state, however, it comes with great upside. Suddenly, each setback becomes an invaluable point of data. A brick in the wall that is the border of your circle.
For Warren, a profitable business could still be a lousy one, a young manager still one with experience, his strange breakfast still one that makes him happy.
And while he struck out with few investments, he learned from those too.
The Value Of Character Snapshots
Today, Warren Buffett is known for investing in high-integrity teams and companies. But that’s not what he learned from his professor and mentor:
“I’ve been taught by Ben Graham to buy things on a quantitative basis. So I went around looking for what I call ‘cigar butts’ of stocks. The cigar-butt approach to buying stocks is that you walk down the street and you’re looking around for cigar butts. And you find this terrible-looking, soggy, ugly-looking cigar. One puff left in it. But you pick it up and you get your one puff. Disgusting. You throw it away. But it’s free. And then you look around for another soggy, one-puff cigarette. Well, that’s what I did for years. It’s a mistake.”
The pinnacle of this approach was buying Berkshire Hathaway in 1965, the company Buffett still runs today. He bought the stock hoping for a tender offer, but when that came in $0.125 short, he angrily grabbed a majority share and kicked out the management team. He later flipped his approach:
“Now, I would rather buy a wonderful business at a fair price, than a fair business at a wonderful price.”
Such change happens at the second level of self-awareness: your beliefs and attitudes. It’s about knowing which traits and patterns define your character and how you can map your behavior and decisions accordingly. Outside feedback might support these transitions but won’t originate them.
The best way to enable them, I believe, is to track your character over time. Whether you take these snapshots daily, weekly, monthly, quarterly, or annually, only you can decide. But a journaling practice helps. Reflected writing based on prompts makes your inner workings explicit.
Buffett does this with his annual shareholder letters. Each year, he must justify his decisions. He has to keep track of his reasoning, the thinking that came up with it, and make sure that thinking rests on values he feels comfortable living each day. If the values change, so will everything else.
Turning An Inch Into A Mile
When he was a teenager, Buffett ran away from home. After just a few miles, the police returned him and his two friends to their respective families.
“My dad never really gave me hell about doing this, but he finally said, ‘You know,’ he said, ‘you can do better than this.’ And, just saying that, I mean, I…I felt like I was letting him down, basically.”
Sometimes, a single incident shapes us forever. His father being his biggest hero, hearing the disappointment in his voice must’ve felt awful for young Warren. But instead of pushing those feelings aside, he tuned into them. The shift he initiated back then would go on to affect how he built his firm:
“We look for three things when we hire people. We look for intelligence, we look for initiative, and we look for integrity. And if they don’t have the latter, the first two will kill you. So it’s that third quality, but everything about that quality is your choice.”
Choices like that take place on the innermost level of self-awareness: observing your thoughts and feelings in real-time. It’s the most powerful because it’s the earliest in the chain of elements that determine how your life unfolds. Adjusting here will ripple indefinitely into the future; the values and beliefs you form over time and the actions you choose as a result of those.
It’s also the most taxing, the hardest to cultivate. But if you learn to seamlessly tap in and out of your endless stream of thoughts and feelings, you can pull out any one of them, hold on to it, face it, and cause massive, long-term change. Not because you’ll act big, but because you’ll act immediately.
There is no one way to achieve this mental presence, but the underlying habit is making time to observe. Hence, many approaches rest on paying attention to physical sensations for minutes at a time. You can start with your breath, skin, posture, or body language, then expand this to other activities, like walking, reading, or sports. Eventually, you’ll layer emotional perception on top of everything you do, making it your default mode of consciousness.
Buffett discovered all this early, but, just like his financial decisions, it needed time. That’s his big secret. Not compound interest. Compound self-awareness.
A Single-Thread Revolution
When we ask how to live a good, happy life, economic success is only one part of a much larger answer. It always requires luck and timing, but our modern society of networks disproportionately rewards thinkers armed with leverage.
To get there, we first have to figure out how, when, and where we think best. Why we think. And what shapes that why. That’s a job for self-awareness.
We’re all given lots of chances to develop this capacity in the form of real-world feedback. When reality and our expectations clash, we find out if we’re right or wrong, but learning requires lots of wrongs — and being willing to.
Deeper change happens when we monitor the fundamental aspects of our character over time. Regularly assessing our beliefs and attitudes reveals which ones we’ve merely adopted as opposed to those which serve us best.
Our strongest reinventions, however, begin at the primal level of thoughts and feelings. Those who learn to dive into their own psyche during transformative experiences will form the power to change every single thread of the self. These slight tweaks compound into revolutions of character down the line.
All of these begin as habits of action, but what we’re ultimately looking to improve — the habits we want to compound — are our habits of thought.
“It’s the habits that you generate now on those qualities. Or those negative qualities. In the end, those are habit patterns. And the time to form the right habits is when you’re [young]. Someone once said: ‘The chains of habit are too light to be felt until they’re too heavy to be broken.’ I see people with habit patterns that are self-destructive when they’re 50 or 60 and they really can’t change it. They’re imprisoned by that. But you’re not imprisoned by anything.”
This may be the one aspect on which he and I disagree. I’d stick with that last point: You’re not imprisoned by anything. It might not get you wealth or fame or beauty, but compounding your thought patterns will make you a better person. In a world where animals don’t eat humans, that’s always worth it.
It’s never too late to stop being your own brain’s lunch.
Niklas Göke
I write for dreamers, doers, and unbroken optimists. I’m also working on a book to help you live a balanced life: https://emptyyourcup.substack.com
