Orangutan Capital Markets
This post is about how writing and speaking with others helps to clarify your thoughts. I also include a recent write-up evaluating the melting ice-cube that is eBay!
Every year the finance world pauses as we read theBerkshire Chairman Letter written by the greatest investor of all time: Warren Buffett. As always, the annual letter had fantastic insights and quotes. Some of my favorites are below (emphasis mine):
Charlie [Munger] and I are not stock-pickers; we are business-pickers
Berkshire’s total float has grown from $19 million when we entered the insurance business to $147 billion…So far, this float has cost us less than nothing
Absent our American home, however, Berkshire would never have come close to becoming what it is today. When you see the flag, say thanks.
My favorite snippet from this year was the following (emphasis mine):
Teaching, like writing, has helped me develop and clarify my own thoughts. Charlie calls this phenomenon the orangutan effect : If you sit down with an orangutan and carefully explain to it one of your cherished ideas , you may leave behind a puzzled primate, but will yourself exit thinking more clearly.
The orangutan effect is the reason why I publicly post investment ideas and this newsletter. The problem with orangutans is that they rarely write back - however I have been lucky enough to be contacted by some of you concerning my writings. Thank you!
Charlie Munger is 100% right in how explaining an idea to another helps to clarify thoughts. Recently, I saw a pitch of eBay as an investment opportunity. Although my thoughts were jumbled at the time, I could tell thatI instinctively disagreed with the idea. There were a few clear holes in the idea- but I was not thinking clearly enough at the time to make a convincing argument.
So, Friday I sat down to write a 1-page report on eBay in order to clarify my thoughts. After 6 pages of writing- I realized that although the argument made sense to me, it would never make sense to another person. So, I continued to delete unnecessary words, repetitive paragraphs, and irrelevant ideas in order to make the write-up coherent.
The final product is a streamlined product. Although far from perfect, my thoughts on eBay are clear. Hopefully you agree and don’t look like a puzzled primate as you read it!
Here is a cute orangutan
If you have not already tried it- I suggest writing out some thoughts and trying to explain your thinking to another person in simple terms. It really helps to find holes in your thought process- and it helps you find the “core” of your idea! My only caveat would be- don’t pitch a stock to an orangutan. You will get a weird look from the other patrons at the zoo. Talking to an actual person and receiving feedback is the way to go!