Alfred Korzybski and… Warren Buffett
A little something different in this post --
* General semantics - power tools for critical thinking
* My acceptance speech for the S.I. Hayakawa Book Prize
* Alfred Korzybski and... Warren Buffett (excerpt)
Over the weekend I was in New York City for the Institute of General Semantics Symposium.
What is general semantics? It’s one of the most powerful critical thinking tools I use.
General semantics can be an elusive idea to summarize succinctly, partly because the name itself is not helpful and partly because it is a subject of great breadth and depth. Alfred Korzybski (1879-1950) created the meta-discipline and he spent more than 800 densely packed pages, with a lot of math and footnotes, describing what it is all about.
Nonetheless, forced to come up with some sort of working description of what it’s all about, I like Wendell Johnson’s description from his fine 1946 book about general semantics titled People in Quandaries:
“General semantics is not ‘the study of words’ or ‘the study of meaning,’ as these terms are ordinarily understood. It is more nearly correct to say that general semantics is concerned with the assumptions underlying symbol systems and the personal and cultural effects of their use. It is concerned with the pervasive problem of the relation of language to reality, of word to fact, of theory to description, and of description to data – of the observer to the observed, of the knower to the knowable. It is concerned with the role of language in relation to predictability and evaluation, and so in relation to the control of events and to personal adjustment and social integration.”
That’s a good working description of general semantics’ chief concerns, if still a bit windy.
I like how he uses the phrase “symbol systems,” because too many people seem to want to reduce general semantics to a discussion only about words – and their meaning and use. But “symbol systems” includes mathematics, signs, images, etc. And general semantics also deals with the “un-sayable” – the world “out there” in all its glorious details that defy our ability to put accurately into words what is going on.
Forced to boil it down further, I’d say general semantics is largely concerned with the underlying assumptions behind words and symbols, and how they match up with what they really aim to describe. What you find when you study general semantics is just how confused our use of symbols is and how this pollutes our ability to think in a rational and sane manner about the world around us.
I am also partial to Bob Pula’s description, included in his excellent A General-Semantics Glossary. Pula taught general semantics for many years and seemed a wise and affable fellow with a good sense of humor. Pula called general semantics “a set of propositions which… can serve as the best tool we humans yet have for making sense of the otherwise baffling buzz of stimuli, noises, ‘movements,’ etc. that beset us from every side in all our days.”
Making sense, or at least talking/thinking less nonsense, gets to the heart of why study general semantics at all. In Korzybski we have a gentle and wise “epistemological knight-errant” (to borrow a phrase from Korzybski’s biographer, Bruce Kodish).
(If you’ve not read anything on general semantics, I’d humbly recommend you fill this hole. I’m willing to bet you’ll be very happy you did so. Time spent here could be life changing. I give plenty of recommendations in my bibliographic essay in How Do You Know?)
Now, back the to symposium…
At this year’s dinner, the IGS presented me with the S.I. Hayakawa Book Prize for my book How Do You Know? My book attempts to apply general semantics to investing. (The prize gets its name from this fellow, who was a US Senator and wrote a popular book on general semantics titled Language in Thought and Action). The prize comes with a nice plaque and a $1,000 check, which I donated back to the IGS.
Here is an edited version of my brief acceptance speech…
S.I. Hayakawa Book Prize Acceptance Speech
I am thinking of something one of my heroes, Buckminster Fuller, said…
Bucky, by the way, has many ties to the IGS. He gave the Alfred Korzybski Memorial Lecture in 1955 and lectured at IGS summer seminars in the 1950s. And he cited Korzybski in his magnum opus Synergetics.
Anyway, he used to say, “Dare to be naïve.” Which I did in writing this book – in thinking that people would want to read about general semantics applied to investing… I remember when I first pitched the idea to a publisher; I got a lukewarm reception, to say the least… They didn’t think it would sell and… they were right.
But money is hardly the measure of all things… This reminds me of Martin Pawley, the architecture critic, who interviewed Bucky in 1970 and, basically, called Bucky a failure. And I always loved Bucky’s response. He said, in part: “Failure is a word invented by humans. There is no failure in nature.”
To Bucky there were only opportunities to learn and experiences to be had. I think Korzybski would’ve agreed. Bucky also said there were no failed experiments, only unexpected outcomes.
Well, I can certainly say that winning this award – heck, even being nominated for this award – was an unexpected outcome. I am certainly honored to receive it. Thank you very much.
Alfred Korzybski And… Warren Buffett
[During the Symposium the next day, I gave a talk titled “Alfred Korzybski And… Warren Buffett.” The title is inspired by a book of essays titled Alfred Korzybski And… in which contributors compare AK with various thinkers…
Below is an excerpt from that speech, which is itself part of a longer paper I plan to submit to the Institute’s journal, ETC. The speech was for a non-financial audience, so I tried to keep things simple].
Korzybski’s great book was Science and Sanity, which was published in 1933.
Buffett did not write a great book, but had a very influential teacher named Benjamin Graham who did write a great book called Security Analysis published in 1934.
Both books are big, fat and intimidating, published only a year apart and still cited – and presumably read - by followers of each today.
Science and Sanity, of course, pioneered general semantics. Security Analysis was a seminal text for so-called “value investing,” a kind of investing focused on the systematic and logical analysis of businesses, which was new at the time.
These philosophies have some similar ideas.
Korzybski’s key phrase “the map is not the territory,” means, essentially, that our representations (words, phrases, ideas, symbols, etc.) of the world “out there” are just representations. The world “out there” is filtered through our nervous systems and the resulting representations cannot be objective and always leave things out. The metaphor doesn’t encapsulate everything about general semantics; but it seems a core tenet…
Buffett, while he doesn’t use the phrase, understands the map is not the territory. In fact, I’d argue this is a core part of his whole investing process.
The market is full of companies and people trying to portray themselves as something they are not. Tesla wants you think of it as a tech company, not an auto manufacturer because tech companies are much more valuable than auto manufacturers in the marketplace. WeWork wants you to think of them as a “lifestyle” company not as a landlord for the same reason. Similarly, there are banks that don’t want you think of them as banks, but as financial services companies. And so on and so on... The first way to deceive is to get people to accept a label.
Successful investors must pierce these linguistic veils, and dispel the neuro-linguistic fog created by Wall Streeters hawking whatever it is they are selling at the moment…
Labels proliferate on Wall Street – growth stocks, value stocks, mid-cap, large-cap, small-cap, mutual fund, index fund, bull market, bear market, etc. As “maps” all of these terms hide complexities and nuance, and often smooth over important differences.
Both Korzybski and Buffett show great sensitivity toward linguistic clarity and the influence our words have on how we think.
Buffett for example takes issue with headline writers that treat market declines as “bad events.” His view is that investors should rejoice when stocks decline because it allows you to purchase shares at lower prices:
“So smile when you read a headline that says, 'Investors lose as market falls.' Edit it in your mind to 'Disinvestors lose as market falls-but investors gain.' Though writers often forget this truism, there is a buyer for every seller and what hurts one necessarily helps the other. (As they say in golf matches: 'Every putt makes someone happy.')"
Risk is another word that comes up repeatedly in Buffett’s letters and at which he is at odds with academics:
“Academics… like to define investment 'risk'… [as] the relative volatility of a stock or a portfolio of stocks -- that is, their volatility as compared to that of a large universe of stocks. Employing databases and statistical skills, these academics compute with precision the 'beta' of a stock -- its relative volatility in the past -- and then build arcane investment and capital allocation theories around this calculation.
“In their hunger for a single statistic to measure risk, however, they forget a fundamental principle: It is better to be approximately right than precisely wrong.
"For owners of a business -- and that's the way we think of shareholders -- the academic's definition of risk is far off the mark, so much so that it produces absurdities. For example, under beta-based theory, a stock that has dropped very sharply compared to the market -- as had Washington Post when we bought it in 1973 -- becomes 'riskier' at the lower price than it was at the higher price. Would that description have then made any sense to someone who was offered the entire company at a vastly reduced price?”
Again, Buffett shows he is not one to accept labels, even those backed by Nobel Prize winners, etc.
An important part of Korzybski’s approach is to avoid categorical thinking. Buffett, too, is very good at this. For example, airlines for a long time were categorized as terrible businesses. Many investors would never even look at them as a serious long-term investment. Buffett was among those who heaped scorn on the industry. This is from his 2007 letter:
“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”
Buffett himself held preferred stock in US Air, which went bankrupt. He quipped that if you want to become a millionaire, you start with a billion and buy an airline…
But the industry changed. Now airlines are quite profitable. They have credit card operations that contribute a lot to profits. They have control of certain routes in ways they did not before. And so he owns a bunch of airlines now… Something similar happened with Railroads years ago, Buffett recognized date-bound opinions and did not allow them to ossify into dogmatic opinion.
There are pages of this kind of thinking in Buffett’s letters, which amount, really, to a kind of neuro-linguistic analysis about the use and misuse of words, how they impact how we think. Instead he provides a different way to speak about what happens, which in the end, I think, is the most important similarity between these two great thinkers.
Another earnings season is upon us and I look forward to seeing how my portfolio companies are progressing. We’ll take a look at a few in future posts.
Thanks for reading.
Published October 15, 2019
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