Write it down
And summarize
“All knowledge is cumulative.” — Mohnish Pabrai
A short ~10 min read today. And a little off-topic vs. our usual posts.
Housekeeping first
The substack app tells me a lot of you guys read the email article rather than click the link and use the website via browser, or use the mobile app.
Don’t fret. It’s completely your call. Choose your own adventure.
But… be aware I recommend the site/app for one reason: I have a habit of editing things. Sometimes I find a stupid grammatical error, sure. Other times, I read my work a day or two later and decide to re-write a couple paragraphs for clarity, or to provide better factual detail. Nothing nefarious, I swear. My goal is to make what are sometimes complicated businesses into something as straightforward as possible. In that process, sometimes I look back and think the writing’s clunky and tough to follow. I’m trying to improve, but sometimes I don’t quite find the right way to explain how rising interest rates should impact AUM growth at certain parts of KKR’s business but not others, for example. Investing is hard and complicated, and the ability to turn it into a digestible and internally consistent narrative is certainly a skill.
Note that I do not change the investment reports uploaded. If I update my reports, etc., I would upload a new copy and a new post. You can always track our ideas vs. the original thesis, and all the reports in our articles are the originals as of the time they were posted. I have those in my own files, too. They help me track investments vs. the original thesis and to revisit facts. E.g., sometimes I re-read them when a big change happens at a company. That helps me better understand the implications of changes.
Which brings us to today’s topic.
Writing
Ideas and thoughts in the mind are often ephemeral. Or they’re not quite fully-formed. Or they feel kind of wonky, like a Picasso painting. Writing them out helps make the abstract concrete and realistic.
Many people, myself included, get a lot of value out of writing. We can find the inconsistencies in how and what we think, and figure out how to resolve those tensions, for example.
The Mechanism — How and Why Writing Helps
I’m a big proponent of mental models and first principles. And of using these to then interpret facts and data. I want to understand how things work, not just that they seem to work. I don’t just want to know that X correlates to Y. I want the causal links. In my opinion, once you have a good model for how something works, you can match the facts and data (i.e., reality) to the model and use it to predict how things should work in future situations, and to adjust the model. Models are how the brain organizes and “knows” things. We ride a bike, and the brain builds a model of the bike’s behavior and how it responds to us as we steer it and such. We build models whether we like it or not, so we might as well use this power.
Funny enough, this is basically the scientific method, and I try to follow it.
So… let’s start with a decent model for writing, memory, and understanding.
Neurologically, the way memory works in the brain is by association. The more associations you have with an event or a fact or some such, the easier it is to recall. E.g., if you went on vacation, you’re more likely to remember that day at the beach if you remember what the cool water felt like on your ankles, how the wet sand felt as it squelched under your toes, what the salty air smelled like, and how excited your partner was to be there with you. The more vivid the picture you can paint, or the more things you can relate it to, the easier it will be to remember in the future.
The brain works this way physically. It has nearly 100 billion neuron cells. Each of these brain cells is typically connected to 1-10 thousand others. The connections are called synapses. The connections don’t exactly touch each other, but come really close, and then exchange signals with different chemicals, and each chemical sent has a different “meaning” to the receiving side. It works kind of like two wires close together, where you then apply a current and you get a little electrical arc — a DIY lightning bolt — between them. The brain is essentially a massive network of these cells, their connecting synapses, and the communications going on between them. (Surrounded by fat cells and fluids for protection and insulation.)
So, It’s not the case that one neuron stores a memory. Instead, when many of them are wired together a certain way, that is what “stores” it. A bunch of neurons are “wired” together and “fire” together physically, which then manifests in the mind as some impulse — a thought, an emotion, or an impulse to act on something.
You Can Influence This Machinery
By focusing and making something vivid, like that day at the beach above, what happens physically is that we wire up more neurons together with their synapses. This deepens our understanding and improves our ability to recall it at will.
The human brain is “plastic” and can be molded and changed. As we age, we lose 2% of the brain’s mass per decade. The brain is continually trimming synaptic connections and allowing some neurons to die. However, millions of new synapses are also being formed, and we do grow new neurons, even in adulthood (“neurogenesis” is the medical term if you’d like to research it). We also repurpose neurons.
The brain network is always in flux. (There’s truth to that saying: “If you don’t use it, you lose it.”)
And… maybe now you can see the punchline coming: writing has an impact on this process.
Think of studying. If you just read a textbook, how much would you retain? If you read the textbook and you also took notes, do you retain more, or less? Finally, if you read the textbook, took notes, did some example problems on your own, and talked to a colleague about what you did and didn’t understand, do you retain more, or less?
The latter tends to produce the best result for many of us, doesn’t it? It’s precisely because it creates the most new associations in the brain. Heck, we even learn when we teach: as we teach, we are hammering those ideas into our mind, thereby building and reinforcing the relevant synaptic network.
Another example. Consider that as Alzheimer’s disease progresses, the memories and abilities patients lose first are the ones they have weak associations to. Unimportant events. Acquaintances they haven’t talked to for years. Skills or methods they only used a few times. Things like their mother tongue (if they know more than one language) and the names of close family hold on tight and are the last to go. Their first language is tied to everything in their life, all the way back to childhood and early learnings. And they saw close family every day for many, many years and so have loads of connections with and memories of them. A lot of brain matter is devoted to that language or that family member.
As the brain deteriorates and some of the brain matter dies or stops functioning, there is still plenty of other matter in the related network, which still holds part of those memories, skills, etc. So, it sticks for longer. Things with few connections are the most likely to die off completely as the Alzheimer’s-inflicted brain degenerates.
In the last few months of his life, my grandfather only spoke Croatian. This is why. Croatian was more deeply embedded in the network than English was.
So, wire your neurons together.
The very action of moving your hands to type something up or write something down creates sharper memories and more/better associations than if your hands were not involved (e.g., you just listen to quarterly conference calls but you don’t take notes). The more of your senses and your body are engaged and the more you have to focus, the more brain activity is going on, and so the more you are firing neurons together via their synapses. You’re wiring them up. This will improve your skill/understanding at whatever you’re doing, and improve your recall. This is part of why I write up my investments, even when they’re just for myself. And I take notes. By doing this, my brain has no choice but to use more of its capacity, and produce a better result.
If you’re going to have it, Alzheimer’s disease can begin more than a decade before you or anyone you know even notices any signs — changes in behavior, forgetting things, lost memory. The brain’s network is very, very deep, with many thousands of connections per neuron, like we said. Maybe one way we could think about this (that isn’t medically robust) is something like: if a neuron loses a couple synapses out of 5,000, that’s not really going to be noticeable to the network. If we have wired things up really well, it will take aging and neurodegenerative disease a long time to undo the work we put in.
Writing Makes Ideas Robust
Furthermore, when I write something up for myself or someone else, I have to make it coherent. Our investment reports have to make sense, otherwise they’ll seem silly and inconsistent. When I proof-read a report, I might see: “what I said on page 3 about the industry isn’t consistent with page 10 regarding how I think the company’s margins should move.” Or someone else might notice this and point it out. This then points me toward more work to do, or something to think through.
All our reports also tend to follow many of the same formats and frameworks (e.g., a Porter’s 5 Forces competitive analysis, an analysis of the value chain and the incentives of each player, etc.). This makes it easier for us to understand our ideas. We also know these frameworks work, so it makes our analysis more robust as we pass the data through useful filters. It’s like sifting gold specks out of sand at a riverbank.
I think I understand my investments better precisely because I take a lot of time to organize the information in an internally consistent way, using useful tools and frameworks.
Writing Creates Accountability & Discipline
Writing things down puts goal posts in the ground.
I can’t go back on my Citi thesis. The report says what it says. Either my thesis is tracking against what I believed should happen, with Jane Fraser implementing the necessary changes, or it isn’t. It’s like a business plan or a corporate budget. Are we tracking vs. plan, or not? Why or why not? Do we need to adjust or re-evaluate anything, or not?
This makes it much easier to follow my investments with time, and to prevent things like “thesis creep.”1
Noticing Patterns and Change
Writing stuff up is data itself. We can compare notes we took now to a report we wrote 4 years ago. What has changed? What conclusions can we draw from the changes? Is the thesis tracking above or below plan? Is there any action needed?
If you just hold this stuff in your head, it doesn’t work quite as well for most people. Being forced to take the action and make the effort of putting it all together makes a big difference to the quality of our work.
Part of why I started this Substack is because it’s a cheat code for improving my investing skills. I have no choice but to raise the bar, otherwise you and I will look at my work and say “man, this isn’t very good.” For example, writing has forced me to do a better job of tracking quarterly and other company developments. Otherwise, someone’s going to email me, text me, or DM me, and say “what do you think about XYZ change?” I’ve noticed my quarterly work (“maintenance due diligence”) has gotten a lot better ever since I started regularly updating the state of the banking and alt. asset management industry, for example. And even though I’ve followed the alt. asset managers and other businesses for years, I feel like I understand them better now because I’ve been forced to explain many different facets of them to you.
So write. It’s good for you.
Chris
That’s where you sneakily (sometimes unconsciously) change your interpretation of the facts to match what’s currently going on. That’s often how many people justify holding a stock even when their thesis broke ages ago. We trick ourselves and move the goalposts.