The best investment book I read this year didn’t come from a Wall Street whiz or hot shot finance professor, rather it came from Jiro Ono, a Master Sushi Chef. Yes, “the Jiro”, the one from the acclaimed documentary “Jiro Dreams of Sushi.”
While in Japan this past September I picked up his book titled “Jiro Philophosy” and was quite surprised. Unlike most investment books, Jiro doesn’t talk about investing at all. In fact, it isn’t even an investment book. Rather Jiro Philosophy simply describes Jiro’s personal work-ethic.
As I read this book, I quickly came to realize just how closely Jiro’s philosophy mirrors that of Warren Buffett, Charlie Munger, and Ben Graham. It was quite surprising to see that the same principles which lead to mastery in Sushi can also lead to mastery in investing.
As a result, I have distilled the book “Jiro Philosophy” down to its 12 core principles and relate each one to the investment philosophy of Buffett, Munger, and Graham.
1. Stick to the fundamentals. Stay grounded.
“If you stray from the fundamentals – say, trying to set yourself apart from other chefs – you will completely stray off track. I believe that by adhering to the fundamentals and continuously striving to create delicious flavors, you will be able to be innovative.”
“If you continue to do things the right way, it’s a given that your sushi will turn out delicious.”
Market manias and bubbles all have two things in common; an abandonment of fundamental investment principles and an endless series of rationalizations.
Ben Graham understood the immense rationalization power of markets very well. He experienced it first hand during the lead up to the great depression. It was his understanding that as markets move higher, investors don’t become more reserved, but rather they invent knew valuation metrics to justify paying any price whatsoever. As been Graham observed, “We can find no evidence that…investors as a class have sold their holdings because PE ratios were too high.”
Consequently, Ben Graham developed an immutable investment philosophy based on strict fundamental analysis to keep investors from “completely straying off track”. And much like Jiro Ono, investors who have stuck to Ben Graham’s fundamentals of investing have delivered “delicious” results.
With this, I’m reminded of Lou Manheim ‘s advice to Bud Fox in the movie Wall Street, “Stick to the fundamentals…good things, sometimes take time.”
2. Gain Mastery.
“You’ve got to master some skills to reach the next stage.”
“You won’t advance to the next level all on your own. You need to train properly up to a certain point. In the case of Jiro, after a decade of training, a craftsman will have mastered everything from preparation to making sushi. He will be ready to strike out on his own.”
Warren Buffett pursued and achieved mastery over Ben Graham’s investment philosophy before advancing to the next level. Warren’s path to mastery took on the following steps:
- Discovered Ben Graham’s book “The Intelligent Investor” at the age of 19.
- Read Graham’s 700+ page book, Securities Analysis, at least 12 times.
- Attended Columbia so that he could study under Ben Graham.
- Worked for Ben Graham at his investment fund.
- Invested using Ben Graham’s investment principles at the Buffett Partnership.
3. Put Knowledge into Practice.
“People will teach you new things and ideas, but if you don’t try them out you will not change.”
“No matter how good the teaching, unless you actually put it into practice, you won’t be able to progress. You will only have the knowledge. People passionate about their work are always trying to improve upon what they’ve made. It’s enjoyable and rewarding.”
“Because of this, we can keep trying new things every day.”
Throughout his life, Warren Buffett has shown an amazing willingness and ability to put knowledge into practice. This includes applying the teachings of Ben Graham as well as the four hour educational interview he had with GEICO executive Lorimar Davidson in 1950.
Much of Warren’s success simply boils down to seeking out the best knowledge and putting it into practice. Warren recommends you do the same thing:
“You need to fill your mind with various competing thoughts and decide which make sense. Then you have to jump in the water – take a small amount of money and do it yourself. Investing on paper is like reading a romance novel vs. doing something else. You’ll soon find out whether you like it. The earlier you start, the better.”
4. Improve upon what you’re taught. Otherwise you will always be an apprentice.
“Just doing as you’re taught is the same as being an apprentice. I tell my young apprentices that they should think about how to achieve good flavor on their own, improve it and then experiment. I always tell them if they don’t, they will be apprentices for life.”
Although Warren Buffett began his career as Ben Graham’s apprentice, he did not simply stick to his teaching. Rather he modified and improved upon Graham’s teachings over time. As Charlie Munger describes it:
“If we’d stayed with the classic Graham, the way Ben Graham did it, we would never have had the record we have. And that’s because Graham wasn’t trying to do what we did.”
5. Practice Beginner’s Mind. (Shoshin)
Shoshin (初心) is a concept in Zen Buddhism meaning “beginner’s mind“. It refers to having an attitude of openness, eagerness, and lack of preconceptions when studying a subject, even when studying at an advanced level, just as a beginner in that subject would. (Wikipedia)
“That said, once they’ve become independent they should still pursue improvement just like an apprentice.”
“Feeling you can still evolve is important.”
Both Warren Buffett and Charlie Munger are enthusiastic learners who enjoy the process. In fact, Charlie has said that he and Buffett are “dissatisfied with what they know.” As a result, they are always seeking to learn, adapt, and evolve.
Charlie further explains the importance of this mindset,
“Warren Buffett has become one hell of a lot better investor since the day I met him, and so have I. If we had been frozen at any given stage, with the knowledge we had, the record would have been much worse than it is. So the game is to keep learning, and I don’t think people are going to keep learning who don’t like the learning process.”
6. The way you do the small things reflects how you do the big things.
Through Jiro’s Philosophy, he stresses the importance of the small things. From cleanliness, to hot towels, to the preparation process, rice, etc. All the smallest details are given the greatest care. The way you do the small things reflects how you do the big things.
Likewise, Buffett has a keen eye for detail as displayed by the following two stories:
Buffett also liked Cathy’s attention to detail. “When I asked her on the phone how many employees she had, she replied ‘504.’ I love this,” said Buffett. “Not ‘about 500.’ I think she has 505 now and is doing considerably more business. She won’t be happy until she has 100 percent market share.” (From the book “The Women of Berkshire Hathaway: Lessons from Warren Buffett’s Female CEOs”)
The following is an excerpt from the Q&A session at the 2016 Berkshire Hathaway Annual Meeting:
Warren Buffett: Yes, sloppy thinking in one area probably indicates there may well be sloppy thinking elsewhere. I have been a director of 19 public corporations. I’ve seen some very sloppy operations and I’ve seen a few really outstanding business operators, and there’s a huge difference. If you have a wonderful business, you can get away with being sloppy. We could be wasting a billion Dollars a year, at Berkshire, you know $640m after tax, that would be four percent of earnings, and maybe you wouldn’t notice it….
Charlie Munger: I would.
Warren Buffett: Charlie would notice it… It’s the really prosperous companies that well….the classic case were the tobacco companies many years ago. They went off into this thing and that thing, and it was practically play money because it was so easy to make. It didn’t require good management, and they took advantage of that fact. You can read about some of that in ‘Barbarians of the Gate’.
7. Listen to good advice.
“I take customers’ advice when it makes sense.”
“Even when you think you are right often that’s not the case. No matter what kind of business you are in, if you only work in an inflexible way, you won’t find success.”
“If (a customer’s advice) makes sense, I will adopt it, otherwise I will never evolve.”
Warren Buffett and Charlie Munger have exhibited an open mind and willingness to listen to good advice throughout their careers. In fact, if it weren’t for some timely advice they might not have bought See’s Candies. As Charlie Munger recounts,
“[Munger’s friend] Ira Marshall said you guys are crazy — there are some things you should pay up for, like quality businesses and people. You are underestimating quality. We listened to the criticism and changed our mind. This is a good lesson for anyone: the ability to take criticism constructively and learn from it. If you take the indirect lessons we learned from See’s, you could say Berkshire was built on constructive criticism.”
8. Preserve your main asset…You.
In his 40’s, Jiro recognized that his most critical asset as a Sushi Chef was the sensitivity in his finger tips. As a result, he began wearing gloves in order to preserve the long-term integrity of his hands.
This might seem like a mildly trivial matter, but for anybody looking to achieve and maintain success in their profession, follow Jiro’s example: Identify the physical or mental attribute that is necessary for success in your field and take measures to preserve it.
Warren Buffett identifies the most important trait of an investor as “emotional stability”. As Warren explains,
“To be a successful investor, you don’t need to understand higher math or law. It’s simple, but not easy. You do have to have an emotional stability that will take you through almost anything. If you have 150 IQ, sell 30 points to someone else. You need to be smart, but not a genius. What’s most important is inner peace; you have to be able to think for yourself. It’s not a complicated game.”
Similar to Jiro’s practice of wearing gloves to protect his hands, here are some routines and strategies which Buffett uses to maintain emotional stability, inner peace, and independent thought.
- An alert and fresh mind:
- Warren gets good sleep and takes naps when necessary
- He plays bridge many hours every week.
- A temperament uncorrupted by outside influences:
- He Lives in Omaha
- Maintains a Clear Schedule
- Keeps a quiet office where he can think.
- “My diet, though far from standard, is somewhat better than usually portrayed. I have a wonderful doctor who nudges me in your direction every time I see him. All in all, I’ve enjoyed remarkably good health — largely because of genes, of course — but also, I think, because I enjoy life so much every day.”
Furthermore, Warren explains the importance of preserving and enhancing yourself through life:
“Imagine that you had a car and that was the only car you’d have for your entire lifetime. Of course, you’d care for it well, changing the oil more frequently than necessary, driving carefully, etc. Now, consider that you only have one mind and one body. Prepare them for life, care for them. You can enhance your mind over time. A person’s main asset is themselves, so preserve and enhance yourself.”
9. Be a craftsman. Pursue work to satisfaction.
“Pursuing work to satisfaction is the pride of a craftsman. No matter how time consuming, I will leave no task to others. I will do them all myself until satisfied. Even as I get older, I still do all the work, even if it’s bothersome. I feel very pleased when I develop and create something from a new idea of my own.”
Likewise, Buffett takes pleasure in doing all the investment analysis himself. He does not have a team of analysts working for him.
10. Be passionate about what you do.
“People who love their work passionately want to continue working. I’m no exception. Although I’m 90 years old, I’d like to keep on going. That’s why I don’t find investing time in my work troublesome.”
At 86 years old, Buffett still tap-dances to work. He derives great enjoyment from researching different companies. He compares it to researching different species of animals.
11. Adapt to changing circumstances.
“Since all sushi toppings are changing, sushi craftsman must now factor this in when working out flavors.”
“The oceans are quickly changing. For example, the season for katsuo (skipjack tuna) now starts six months later. But we have to serve the best of what’s in season. Fish and shellfish were tastier in the past and it is difficult to find their intense flavors. The next generation of sushi chefs will face challenges in trying to find ways to bring out and enhance fish flavors.”
Likewise, in investing you cannot wish for something which doesn’t exist. You must play the hand that you’re dealt.
When Warren Buffett started investing, he could find net-net investments everywhere. But the investment ocean quickly changed and he had to adapt to the circumstances. Over the years, Buffett has invested in a broad range of investment classes including, bonds, common equity, preferred stock, warrants, options, commodities, and special situations. He doesn’t wish for something that doesn’t exist, rather he adapts himself to whatever asset is on sale below his intrinsic value.
At the same time, Warren will never abandon his core principles and rationalize new investments. During the “Nifty 50” stock market, he declared that he couldn’t find any cheap stocks and refused to invest. Later Buffett refused to invest in tech stocks during the tech boom of the 90’s. In each case Warren has been rewarded for his patience and sticking to the fundamentals.
This leads to a crucial point. Although you must adapt to changing environments, you must also remember to stay true to the fundamentals. As it says in rule number 1, “If you stray from the fundamentals…you will completely stray off track.”
So remember: Adapt, but do not abandon.
12. It’s never too early to prepare
“It’s never too early to prepare. You can start preparation way in advance.”
Jiro began working at a local restaurant from the age of seven.
Likewise, Warren Buffett recalls his youthful experience: “By the age of 10, I’d read every book in the Omaha public library about investing, some twice.”
Furthermore, Buffett said he read the 10Ks of IBM for fifty years before ultimately making an investment in the company. That’s fifty years of “preparation.”
Jiro Philosophy: Distilled