Communicating and allocating capital are miles apart. Completely different topics. But look around, and the two are constantly paired.
Warren Buffett is a great writer. Paul Graham is a great writer. John Bogle is a great writer. Howard Marks is a great writer. Josh Brown is a great writer. Brent Beshore, Seth Klarman, Joel Greenblat, Ben Graham – the list goes on.
None of this is a coincidence. These aren’t just great investors who happen to be good communicators; their ability to communicate well helped make them great investors.
The post focuses on the importance of clear and effective client communication. However, I would argue that great investors often make for great writers because great investing and great writing both require clarity of thought. Parsimony is a beautiful thing.
In writing, the ultimate example of this is Hemingway’s “six word novel.” Here it is in its entirety:
For sale: baby shoes, never worn
Those six words evoke an entire lifetime of experiences and emotions. You could write a thousand page novel about the death of a child and you would struggle to make the impact of the six word Hemingway story. Why? The six word story contains only the most important parts. Your thousand page novel is going to contain all kinds of extraneous crap. And that extraneous crap dilutes the emotional impact of the most important parts.
Likewise in investing, you need clarity of thought to identify the key drivers of a situation. Most great investments hinge on two or three key drivers. Everything else is noise. You get lost in the noise at your peril. In Margin of Safety, Seth Klarman tells the story of an analyst who (badly) missed the forest for the trees on Clorox:
David Dreman recounts, “the story of an analyst so knowledgeable about Clorox that ‘he could recite bleach shares by brand in every small town in the Southwest and tell you the production levels of Clorox’s line number 2, plant number 3.’ But somehow, when the company began to develop massive problems, he missed the signs… .” The stock fell from a high of 53 to 11.
The analyst knew a lot of crap about Clorox. But he wasn’t thinking clearly. All that extraneous crap he knew about Clorox blinded him to what really mattered. So knowing all that crap about Clorox was irrelevant to the outcome.
Elsewhere, Charlie Munger has commented on how important clarity of thought is at Berkshire Hathaway:
Our ideas are so simple. People keep asking us for mysteries, but all we have are the most elementary ideas.
I have this pet theory that you should be able to go through a portfolio and summarize every single investment thesis (as a falsifiable statement, of course!) in just a couple of lines. If there are things you can’t do that for, you probably shouldn’t own them.