Imagination Is More Important Than Knowledge
The title of this post is taken from the famous quote by Albert Einstein and that principle is one I’ve always tried to live by. I think it ties in with an article by James Altucher published in the Financial Times a few months back about the usefulness (or lack thereof) of college. Now, I do have a college degree (computer science) but I’d have to agree with Altucher in that I didn’t learn a damn thing until after I got out of college (except programming).
The reason I bring all this up is due to an article in today’s Wall Street Journal regarding airlines having trouble with ice in the engines. Now, this article doesn’t really have any direct bearing on my investments, per se, but it’s always been my philosophy that life consists of patterns which can be found in all walks of life. Obviously, certain mathematical ratios are found throughout nature but I’m talking more than that. Kind of the whole Sun Tzu “Art of War” applied to business, management, etc. type of thing but not as cheesy. I believe it is this outlook and tendency to view the world in this manner that gives me a competitive edge in making investment decisions. Hopefully I’m right or my girlfriend and I going to lose some money.
Anyway, here is the relevant line from the article:
“The odds of both of a plane’s engines shutting down at once were supposed to be about one in a billion. Since 2002, however, internal ice has been blamed for at least 14 instances of dual-engine shutdowns, …”
What struck me about that line was that I can’t conceive that the world has seen 14 billion flights since 2002 so the odds were probably wrong. Whichever group of engineers calculated these odds missed some angle. It reminded me of these financial engineers claiming that this or that financial market dislocation was a 100 standard deviation event but for some reason, these “impossible” events seem to happen every 10 years or so. This “lack of imagination” permeates Wall Street (including the people probably managing your retirement funds) and frankly, it permeates all of society.
One of the main points I get from studying Seth Klarman (via his book, Margin of Safety, and his various interviews, lectures, etc.) is the sense of what I generously call rampant paranoia in how he approaches investing in the markets. You figure after decades of outstanding returns that the guy would take it easy but he seems to imagine a wipeout lurking in every corner.
Not convinced? Here is Warren Buffett’s chief qualifications for his investment successor at Berkshire Hathaway:
“Picking the right person will not be an easy task. It’s not hard, of course, to find smart people, among them individuals who have impressive investment records. But there is far more to successful long-term investing than brains and performance that has recently been good. Over time, markets will do extraordinary, even bizarre, things. A single, big mistake could wipe out a long string of successes. We therefore need someone genetically programmed to recognize and avoid serious risks, including those never before encountered.”
Turns out that Einstein was right. Imagination is more important than knowledge.
April 8th, 2008 at 1:07 am
Davy, I’ve just posted about how to become more imaginative. Hopefully my thoughts there add a little to this discussion. I love Einstein’s quote.
I suppose there are situations in which knowledge is more important than imagination – for instance, when you see an old friend and need to remember their name – but I am grateful that Einstein, of all people, chose to say what he did. I think he had the vision right. He knew that you can know a bunch of facts or possess a bunch of skills but still languish. You’ve gotta have a creative purpose for all that know-how.