Thursday, February 09, 2012
Leaders, You Should Read History
Fortune recently interviewed Bob Rodriquez, CEO of First Pacific Advisors. He explained the best advice he ever received. The guidance came from Charlie Munger of Berkshire Hathaway, when he visited a class Rodriquez was taking at USC in the 1970s. Rodriquez said, "After the class was over, I walked up to Charlie and asked him if there was one thing that I could do that would make me a better investment professional. His answer was, 'Read history, read history, read history.' And so I became a good historian, reading both economic and financial history as well as general history.What I learned is that people relate to the crises they have experienced. So when the crisis of 2008 came, it felt like an old friend to me because it had so many similarities to the banking crisis of 1907. Asking Charlie's advice and then reading history allowed me to put those things in context." I agree wholeheartedly. However, I would note that one must scrutinize historical analogies very carefully. We have a tendency to focus on similarities and ignore differences when drawing historical analogies. For more on reasoning by analogy, I highly recommend the work of Ernest May and Richard Neustadt - great book called Thinking in Time.