Thinking Big About Small Companies

The Noblest Pursuit

September 2nd, 2016 | Posted by Torin in General | Investing | Uncategorized

Is what I believe to be true, actually true?

This question underpins all science and analysis. But it is a very hard question to answer. Answering it honestly to ourselves proves especially difficult.

The difficulty arises from a number of causes. The chief among them is that we never fully comprehend the truth; we only get progressively closer. And in order to attain this progress, we are continually required to disregard things that we previously thought were true. We humans struggle greatly to admit error and relinquish our existing beliefs.

Astronomy provides an entertaining historical example. In the beginning, we observed the sun and the stars moving across the sky. But why? Some intelligent person theorized that these lights in the sky were distant celestial bodies spinning around us. That was a good start—progress toward the truth. Ptolemy then constructed elaborate geometric systems to flesh out this theory. And by doing so he furthered our understanding of astronomy. More progress.

But we were just getting started. It turns out that the sun, rather than the earth, is the gravitational center of the universe. One might think this simple change in perspective regarding who is spinning around whom would easily be accepted. But the church was so offended by heliocentrism that some of the people who initially championed it were burned at the stake for heresy.

The intrinsic conflict between religion and science is that religion defines its truths as eternal, whereas science recognizes that its truths are provisional and reflect only our current level of understanding.

In the astronomy example, religion applies to beliefs about creation and morality. But religion can be found in many places, including industry. The elevation of orthodoxy over reason is the death of the truth. It can also be the death of a business. We see again and again that incumbent businesses would rather continue adhering to the old ways—and be wiped out—than embrace new ideas, even as evidence mounts that the new ideas may indeed be correct.

Today’s war is never won in the same manner as yesterday’s war. But the army that won yesterday’s war always fights today’s war as if it were yesterday’s war. And it always loses. With the rise of technology and the internet, we have seen the business orthodoxy fall upon its own pyres at an increasing rate. Bookstores, newspapers, media companies, and film companies have already been reduced to ash. Shopping malls, auto dealers, parking lots, and television manufacturers, to name a few, will be next.

How does a person or company avoid this fate? You can see from what I’ve written already that I worship at the altar of science. But scientists are not infallible. Far from it. Young scientists age, and become old priests. Max Planck famously said “science progresses one funeral at a time”. This quote is commonly understood to explain how the orthodoxy will not renounce its old ideas except in death. But the subject of the quote is not priests or demagogues; it is scientists! If even the scientists, whose occupation is the unobstructed pursuit of the truth, cannot embrace new truths, what hope is there for us professionals?

We are already at a disadvantage, because soon after we enter the professional world, the learning process stops. We acquire one skill, become expert at it, and then apply it over and over. And as we do, the portion of our brain that evaluates incoming ideas becomes badly atrophied. I can feel it happening to me already. We keep applying the same idea over and over, until we retire, die, or our companies are displaced by competitors with new ideas.

Some people espouse continuing education as a solution. But what is continuing education, as commonly practiced in a professional context?

Learning more of what we already know.

We value investors love to brag about how much we read. But what do we read? More books about value investing! Perhaps we gain some incremental knowledge about our craft from these books. But reading texts that confirm what we already believe—rather than having us examine whether those beliefs are correct—is more detrimental to our capability than the incremental knowledge is beneficial.

So I propose a different solution: real continuing education. A liberal continuing education. An education that constantly challenges our minds with new, different, hard ideas, across a multitude of disciplines. Something akin to Benjamin Franklin’s reading groups. In colleges across the country, Liberal Arts today means studying anything. But it is supposed to mean studying everything. In studying anything, we study what we want to, which is usually not what challenges us. In studying everything, we cannot avoid being confronted by uncomfortable new ideas.

These new ideas themselves will sometimes be helpful, but more important is the process of evaluating them and deciding whether to accept them. This process forces us to retain our intellectual flexibility. It does not allow our brains to atrophy. But it is work. It requires a high expenditure of intellectual energy. And it is painful. Most people do not enjoy constantly being shown that their prior beliefs are wrong. Some people dislike it so much, in fact, that they will go on consciously ignoring the elephant in the room even after it has trumpeted in their ears and defecated on their carpets. There is a reason liberals listen to NPR and conservatives listen to Fox. It more comforting to be told you are right than to be told you are wrong.

Which camp are you in? How often are you willing to ask yourself: is what I believe to be true, actually true? Are you willing to accept an uncomfortable answer?

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