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Warren Buffett's Encyclopedic Knowledge Is Key to His Success

Perhaps one of the least-known character traits about Warren Buffett (Trades, Portfolio) that is responsible for his unparalleled 50 years of investment success is that he has been a voracious reader since childhood.


Alice Schroeder, who wrote the guru's authorized biography, made this observation about how the Oracle of Omaha processes and utilizes information that shapes his value investing philosophy. Despite the personal computer revolution for storing, accessing and retrieving data, Buffett still stores information in his head and has the capability of recalling it when needed:


"He's created this immense, vertical filing cabinet in his brain of layers and layers and layers of files with informationthat he can draw back on from more than 70 years of data. He's like a human computer. He's wonderful at math."



How good is Buffett at recalling random information, which can range from the inane to the complex? Schroeder noted:


"He can recall phone numbers from his childhood, and populations of cities from his childhood. He can do square roots in his head. He does present values and compound interest in his head... The biggest thing he's done is to learn and create this cumulative base of knowledge in his head. So, one reason he doesn't use a computer is because, in a sense, he is one."



Charlie Munger (Trades, Portfolio) calls his partner, a "learning machine." Buffett is a voracious reader, not just of financial information, but of history, politics, economics and countless other subject areas, many of which have no direct bearing on the investment business. In short, Buffett reads anything he can get his hands on. Schroeder explained:


"Starting at the age of no later than six, he's read everything that he could find about business; the subject that interests him. He's read newspapers, biographies, trade press. He went over to his grandfather's who was a grocer and read the Progressive Grocer magazine and he read articles on how to stock a meat department. He's gone to visit every company that he could find that was even slightly interesting to him. He went down to visit a barrel maker and spent hours talking about how to make barrels."



As he entered adulthood and began his investment career, Buffett continued with his love of reading about all subjects, especially about the operation of particular companies' businesses. This insatiable desire for information included reading everything about a company he was interested in purchasing for Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B). Schroeder recalls from her many talks with Buffett that"


"He went to American Express and he spent hours talking about that business. He went to Geico and talked about the insurance business. He has stacks of reports on his desk from the companies he owns - stalls, jewelry, boat winches - everything you can imagine. He reads hundreds of annual reports every year from companies that he doesn't own yet because he just wants to understand their business and when the opportunity arises then he's ready and he can make a decision."



Outside of the love of pursuing knowledge for its own sake, what purpose does Buffett's encyclopedic knowledge and storing decades of information serve? Buffett finds that the more he reads about disparate topics or historical events and circumstances that seem to have no connection, the more he can discern pattern recognition. Because of his immense knowledge acquired from a lifetime of reading, Buffet can retrieve useful information from the database in his head, selectively accessing data from years ago, which may be relevant and pertinent to a particular investment problem at hand.

During a 2010 interview with Buffett, Schroeder observed:


"His knowledge of business history, politics, and macroeconomics is both encyclopedic and detailed, which informs everything he does. If candy sales are up in a particular zip code in California, he knows what it means because he knows the demographics of that zip code and what's going on in the California economy. When cotton prices fluctuate, he knows how that affects all sorts of businesses. And so on."



Buffett then synthesizes information that he has stored, not on his iPad, but in his head, and makes inductive inferences that can help him glean essential facts that will ultimately help inform his particular investment decisions. An example of how the guru's pattern recognition helped avoid potential investment disasters, which proved ruinous for so many others, was his ability to select data points from the dotcom bubble based on other historical anomalies or unique technological periods. Schroeder learned how Buffett applied these abilities. She wrote:


"If you look at the dotcom stocks, the meta-message of that era was world-changing innovation. He went back and looked for more patterns of history when there was a similar meta-message, great bursts of technological innovation in canals, airplanes, steamboats, automobiles, television, and radio. Then he looked for sub-patterns and asked what the outcome was in terms of financial results."



During the dotcom craze, investors were looking to see what made internet stocks different compared to other industries. Schroeder described how Buffett viewed the internet craze from the prism of history:


"Warren is always thinking what's the same between this specific situation and every other situation. That is the nature of pattern recognition, asking: 'What can I infer about this situation based on similarities to what I already know and trust that I understand?' Pattern recognition is his default way of thinking. It creates an impulse always to connect new knowledge to old and to primarily be interested in new knowledge that genuinely builds on the old..."



Buffett still begins his days by reading and quiet reflection. Unsurprisingly, the lifelong love of reading and learning is a trait shared by Munger as well. As Munger noted during a 2018 interview with Jason Zweig of The Wall Street Journal, "Warren doesn't go to meetings."

As an indication of how both men's desire for time to read, think and reflect permeates the Berkshire culture, Munger stresses again that, "There's practically no meetings in the whole Berkshire culture. There are a few telephone calls and no meetings."

Disclosure: I have no positions in any of the securities referenced in this article.

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This article first appeared on GuruFocus.