Everyone who aspires to be good at business and investing should study history.
(And not just the history of your industry.)
But don’t take it from me.
Take it from Warren Buffett:
“Try to learn about who’s got good businesses and why they’re good businesses. And learn about the businesses that went out of business and why they went out of business.
–That’s a lot of “business(es)”, but it’s important business!
And take it from these other smart people too:
- Carlos Slim
- Francis Bacon
- Felix Dennis
- Charlie Munger
- Paul Graham
- Ray Dalio
- Robert Rodriguez
- David Rockefeller
Or from tire-making billionaire Harvey Firestone, who said that:
I notice that when all a man’s information is confined to the field in which he is working, the work is never as good as it ought to be. A man has to get perspective, and he can get it from books or from people–preferably from both.
So, you need to know what has (not) worked in the past, and you need to widen your perspective. . .
One of my personal lessons from studying (business) history comes from the similarity and transferability between the dynamics of the early oil industry and the cable industry:
- Both were risky industries operating under a type of rowdy, free-for-all dynamic–like a revolving door–for many years, until a few conglomerates formed.
- Both were fraught with corruption (e.g: bribing officials for licensing).
- Both created their own industry associations for sake of lobbying and camaraderie (in what was otherwise a cutthroat competition).
- Both followed a winner-takes-all-and-grows-bigger dynamic.
- The winning companies (Standard Oil and TCI) employed a strategy characterized by: (1) Massive acquisitions fueled by debt or using their own stock as currency and (2) creating synergies with acquired companies and strategic alliances (aligning financial incentives) with those they could not buy, but needed to cooperate with.
Key questions to ask when studying history:
These questions are general, but they’re particularly useful when studying history for business and investing:
- Why did X happen? (and why not Y?)
- What can be learned from this?
- How much can be attributed to the element of timing?
- Can I draw any general conclusions?
- Can I draw any specific conclusions?
- What led to this success?
- What led to this mistake?
- What are some of the recurring patterns of [whatever the history pertains to]?
- Am I seeing “recurring patterns” where there really are none?
- What are some common characteristics of successful people in this era/industry/activity?
- Is it possible for me to replicate what they’re doing?
- If I cannot replicate them, can I avoid their mistakes?
5+ Billionaire Investors and Businessmen Explain Why it’s Important That You Study History:
1) Carlos Slim Bought Businesses for Practically Nothing
Thanks to his comprehensive study of history (and other fields) Carlos Slim saw an opportunity to purchase a diverse range of Mexican businesses (some acquired for just 3-5% of their book value), when others–who had no sense of history–were afraid to make a move.
Carlos Slim, is it important to study history?
Very important. I think so, in two ways. First, if you’re in business you need to understand the environment. You need to have a vision of the future, and for that you need to know the past. That is very important. But also, on the personal side. A businessman cannot be only business. You need to have more interests. Life offers a lot of interests, many things to know, to learn, to feel, to live.
…. You read a lot of books — how they do, what they do bad, what they do good, the conglomerates of the ’60s, the way they managed. The biographies of some people and what they do, and you can take the good things from them. Not everything, no. And the experience — you can, I think, have experience from the failures of others and your failures, no?
…. I think it was a very important experience, what my father had done. I know the history of Mexico, how we had problems in the past, from the 19th century, and the experience of the economies and the markets when you get a depression, a recession. You know, I believe we don’t need to have economic cycles.
2) George Soros Looks at Financial Markets as a Branch of History
(In contrast to many modern speculators, who limit themselves to the numbers they can see on their screens.)
Soros says, “My conceptual framework applies to the political economy, not to the market economy as an abstract theory.” He then asks himself:
- Which are the current main rules in the economies of different countries?
- That govern trade?
- That set restraints?
- And how did they come to be?
- In what time?
- What was the original intended purposes?
- How well did it work?
- What do we have today, and is it outdated?
3) The Source of Ray Dalio’s Macro Mastery Explained
Ray Dalio, founder of Bridgewater, is one of the best macro investors in the world. He attributes much of his success to having spent years and years studying history–both in general and with respect to financial markets. What is his top recommendation?
That you read: Will Durant’s 15 volumes of history (The Story of Civilization).
4) Charlie Munger Was Not Surprised. . .
. . . when David Sokol left Berkshire:
Reporter: “How did the situation make you feel, were you shocked?
Munger: “Well, of course I’m sad. . . If you take the whole of human literature, some of the greatest plots are all the same: Great hero with great qualities, has flaw, world brings huge pain to hero from flaw.
This is the oldest story.
This is the great tragedies, the Shakespeares, this is just the way the world works. And so, I’m not surprised that this story pops up in Berkshire Hathaway. It pops up everwhere in the world. It’s an old story.
4b) How Robert Rodriguez Learned the Tools of the Trade
Robert Rodriguez was in graduate school, where he was taking a portfolio-management investment course.
One day he attended a guest lecture by Charlie Munger on the topic of value investing.
When the lecture was over, he walked up to Munger and asked him:
“What is the one thing that I could do that would make me a better investment professional?”
Munger responded in his characteristic, succinct, manner: “Read history, read history, read history.”
And Rodriguez did.
Today, Robert Rodriguez is the CEO, of FPA, a hedge fund that manages more than $33 billion. (mostly through contrarian investment strategies).1
5) Paul Graham does not recommend history to entrepreneurs but says it has been immensely helpful to him.
Studying history makes it easy for you to falsify it when others are huddling together, saying “this time it’s different!”
Well, if you study history, then you know what has stuck around and what has changed. And so, you see people assuming that something is going to last forever. And you know times in the past, people were assuming something that was going to last forever, it was going to disappear five years into the future. So you think ‘Well, probably not, actually’.
It has been immensely useful for me, so maybe I should. I mean, I read history just because I’m interested. . . . But I don’t consider history to be a field. It’s just all the stuff that’s happened so far. . . It’s something everybody should know.
It’s the experimental data about what works and what doesn’t. That’s what history is. How can you get anything done without knowing experimental data about what worked and what didn’t in the past?
For someone who studied a lot of history, it’s easy to believe that large organizations were just this temporary blip. Because someone who has no sense of history, like people who know nothing about history, all of the past is basically the same. Everything from about 1900 in the past was, like, ladies in castles, and people were riding around on horses and knights or something.. . But if you know far enough back, you know historically the large organization is such a short-lived thing. It’s still written in pencil really. It’s still on trial. It’s still at a trial acceptance.
In Summary: The Main Uses of History for Business and Investing
- We cannot predict the future, but we can learn from the past. Learn what worked and what didn’t and why.
- History tends to repeat itself in cycles. These cycles of trends are ever-present in fashion, finance and monetary matters, business, dating, just to name a few categories.
- Study history and you will see how societies build up gradually to the point of collapse. No society ever survives intact. All fiat money systems have failed after a certain amount of time. All systems of country-wide governance fall apart from chaos caused internally due to unfairness or softness from prosperity and prolonged hedonism, or they fall in war.
- The interesting and unpredictable thing is what happens during the collapse–of an area, industry or country– and during the transformation that follows. Sometimes there is no transformation; only a reversion to previous conditions.
- You could view history as a set of explosions and implosions, scattering and gathering in constant flux.
Scroll back to the top for the cool questions.
And let me know if you have something to add.
And here is a good quote by him: “I try to remind people, whether you have a growth manager or a value manager, you’re going to go through cycles where you think you have a village idiot.” ↩