An investor introduced me to Peter Bevelin a few years back, recommending Seeking Wisdom: From Darwin to Munger, which I hope to reread during our next trip up the mountain. More recently, I spotted Peter’s name lying on a desk in a new friend’s office. A Few Lessons from Sherlock Holmes is a thoughtful book, which maps out the detective’s methods for decision-making under uncertainty. As investors, we are always making decisions with less-than-perfect information. Bevlin’s lessons, compiled from Sherlock Holmes, are incredibly useful for investors and for improving our thinking more broadly.
Looking forward to reading The Complete Sherlock Holmes. Until then, here are a few tips from A.C. Doyle’s iconic Holmes.
“Breadth of view is one of the essentials of our profession. The interplay of ideas and the oblique uses of knowledge are often of extraordinary interest.”
For investors, this means considering a wide range of ideas to gain perspective. It is a commitment to learning; to long and patient study. It also appears as if Holmes was a student of memory training, by keeping facts in his “brain-attic” in “the most perfect order.”
“Now the skillful workman is very careful indeed as to what he takes into his brain-attic. He will have nothing but the tools which may help him in doing his work, but of these he has a large assortment and all in the most perfect order, it is of the highest importance, therefore, not to have useless facts elbowing out the useful ones.”
“The greatest sign of an ill-regulated mind is to believe things because you wish them to be so.”
This is also the greatest risk for investors who hold onto existing positions long after the initial thesis has changed. Recognize when you have made a mistake. Learn from it. Move on.
”I have steadily endeavored to keep my mind free so as to give up any hypothesis, however much beloved, as soon as facts are shown to be opposed to it.”
“When we meet a fact, which contradicts a prevailing theory, we must accept the fact and abandon the theory, even when the theory is supported by great names and generally accepted.”
Investors today have all the information they need at their fingertips. The challenge is being able to filter it. More information is not always better information.
“The principle difference between a good and a bad diagnostician is usually a matter of thoroughness and method. Brains count, of course, but the man who has not collected his facts has but little chance to use his brains.”
“A wise man sees as much as he ought, not as much as he can.”
“The value of experience is not in seeing much, but in seeing wisely.”
It often helps to work backwards from effects to causes.
“Most people, if you describe a train of events to them, will tell you what the result would be. They can put those events together in their minds and argue from them that something will come to pass. There are few people, however, who, if you told them a result, would be able to evolve from their own inner consciousness what the steps were which led up to that result. This power is what I mean when I talk of reasoning backward or analytically.”
Distance gives perspective. Take time to step back and think things over. I simply don’t understand how investors today can accomplish anything while staring at multiple screens at the same time CNBC reports “breaking news” every few minutes. Personally, I do my best thinking outside of the office and aim to spend at least one or two days a week alone in the mountains or at the library. Maybe I need a pipe?
“It is quite a three-pipe problem and I beg that you won’t speak to me for fifty minutes.”
“Let us walk along the cliffs together and search for flint arrows. We are more likely to find them than clues to this problem. To let the brain work without sufficient material is like racing an engine. It racks itself to pieces. The sea air, sunshine and patience, Watson – all else will come.”
Incentives matter. There is always a reason for individuals and businesses to make the decisions they have made.
“You’ll get results by always putting yourself in the other fellow’s place and thinking about what you would do yourself. It takes some imagination, but it pays.”
And finally . . . know your limits. And work hard to expand your circle of competence at the old university.
“The best part of our knowledge is that which teaches us where knowledge leaves off and ignorance begins. Nothing more clearly separates a vulgar from a superior mind than the confusion in the first between the little that it truly knows, on the one hand, and what it half knows and what it thinks it knows on the other.