We all want to be smarter, but it takes dedication and hard work to get there. Warren Buffett, the great investor and business magnate, suggests a simple formula for becoming smarter each day: “Read 500 pages every day. That’s how knowledge works. It builds up, like compound interest.”
Warren Buffett, one of the most successful investors of all time, is known for his long-term approach, billionaire net worth, and philanthropic efforts.
But what most people might not know is that the Oracle of Omaha has a simple formula for staying successful that anyone can follow. It involves reading, learning, and thinking every day.
This approach has been coined the “Buffett Formula,” and it’s a practice that can benefit not only investors but anyone looking to improve their knowledge and stay ahead in their career.
I can see, he can hear. We make a great combination.”
— Warren Buffett, speaking of his partner and friend, Charlie Munger.
They didn’t get smart because they are both billionaires. They became billionaires because they are smart, and that’s what reading can do. More importantly, they keep getting smarter.
How to Get Smarter
Read a lot.
Buffett is known for his voracious reading habits, often spending up to six hours a day reading books, newspapers, and financial statements. He estimates that he spends 80% of his working day reading and thinking.
You might not have six hours a day to devote to reading, but even setting aside 30 minutes to an hour a day can make a significant impact on your knowledge and understanding in a particular field or area of interest.
Buffet’s reading material is not limited to business-related topics; he also reads history, biographies, and other non-fiction genres.
“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 week. 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.
“Go to bed smarter than when you woke up.”
— Charlie Munger
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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.
TheOmaha World-Heraldwrites:
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 well you read makes all the difference. Your effectiveness in absorbing the ideas and then rewriting them in your own words matters, too.
To retain and apply what you’ve learned, Buffett suggests taking notes on what you’ve read. This can be in the form of writing summaries, highlighting key points, or creating a mind map.
By doing so, you are actively engaging with the material, which reinforces your memory and helps you understand it better. It also provides a reference point for future learning and review.
You need to be critical and always thinking. You need to do the mental work required to form an opinion.
InWorking Together: 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’s not How You Think It Works
If you’re thinking that 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 are smart enough to make 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, 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 this 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.
“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-amusem*nt 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, inHow 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.
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.
“Develop into a lifelong self-learner through voracious reading; cultivate curiosity and strive to become a little wiser every day.”
— Charlie Munger
Reading has helped me tremendously over the years to develop my mindset and change my outlook on life. It’s like the more I read, the better I’m able to think and write.
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