As investors, we are in the knowledge business. The value of our product directly depends on the quality of our body of knowledge. The better and more extensive our body of knowledge, the better our investment decisions, the more valuable our product. Good investment analysts constantly hone and refine their body of knowledge.
Richard Feynman once said that we need large chunks of uninterrupted time to solve complicated problems. If we get interrupted in the middle of thinking about a complicated problem, we forget stuff. When we forget stuff, we have to start over. When we have to start over, sometimes we never get back to where we left off. Sometimes interruptions delay the solution of complicated problems indefinitely.
One way to help build our body of knowledge, then, is to organize our lives in a way that gives us enough uninterrupted time to think about and solve the complicated investment problems of the day. Having uninterrupted time to solve complicated investment problems is amazingly rare, even among elite asset managers, but if arranged properly can lead to substantial competitive advantages over time.
The key to turning big blocks of uninterrupted time into a bona fide competitive advantage is to fill the big blocks of uninterrupted time solving investment problems that both make a difference and whose solutions have long shelf lives.
The shelf life of a piece of knowledge is the duration of its applicability. A piece of knowledge that has a long shelf life is applicable, once learned, to a lifetime of investment decisions. A piece of knowledge that has a short shelf life is one that quickly becomes obsolete.
Think of a body of knowledge like a rain barrel with a hole in the bottom. Knowledge collects like rain at the top. Knowledge that becomes obsolete drains out of the hole in the bottom. The size of the hole in the bottom of the barrel is inversely proportional to the shelf life of the knowledge being collected at the top. The shorter the shelf life, the bigger the hole. Our body of knowledge at any moment in time depends not only on how much we collect at the top, but also on the size of the hole at the bottom.
If we fill our big chunks of “figuring stuff out time” solving problems whose solutions have shelf lives measured in days, we put ourselves on the treadmill of constantly replacing knowledge leaking out the bottom. The growth in our body of knowledge is slow or even shrinks as we feverishly create new knowledge to replace the obsolete knowledge gushing out of the bottom.
Alternatively, if we fill our big chunks of figuring stuff out time solving problems whose solutions have shelf lives measured in years or even decades, the leakage at the bottom shrinks and most of the knowledge gained at the top incrementally expands our body of knowledge held in the barrel. If we gather knowledge with an infinite shelf life, 100% of the knowledge we gain incrementally adds to our total body of knowledge.
The longer the shelf life of the knowledge we pick up, the more our body of knowledge grows and compounds over time.
Shelf life is the great forgotten determinant of the size of our body of knowledge. In knowledge-based businesses like ours, the duration of applicability of the knowledge we gain is a key driver of the quality of our product. The longer the shelf life of the knowledge we gain, the better investment decisions we make, the better the returns we generate.
I think we’re gonna need a bigger barrel.
