The benefits of curiosity

Curiosity may have killed the cat but offers redemption for investors

Have you ever wondered why there are 60 minutes in an hour and 60 seconds in a minute? The answer lies with the Babylonians, who used a sexagesimal system - base 60 - rather than base 10 or 12. The reason? Sixty is divisible by 1, 2, 3, 4, 5, 6, 10, 12, 15, 20, 30 and 60. If you’re building a hanging garden, for example, it made on-the-fly calculations easier.

The Babylonians also excelled in astronomy and mathematics, enabling them to map out the night sky. Centuries later the sexagesimal system was used to divide hours into minutes and seconds.

The point for investors is not one of bases or sums but of the benefits of worldly curiosity, of happening across something and wanting to dig deeper and find out more. There are three reasons why being curious can make us better investors.


First, because curious people seek out new information, they tend to have a deeper understanding of how a company or industry functions. They follow up on unusual items in an annual report, pursue odd phrases dropped into management commentary and investigate consumer opinions of their products.

Philip Fisher, a great value investor, called this ‘scuttlebutt’. Fisher would visit stores, talk to customers and suppliers to find out as much as he could about a company. Another famous investor, Warren Buffett, used scuttlebutt to buy into American Express when it was in the midst of a scandal perpetrated by a client that threatened to send Amex bankrupt.

With the shares falling heavily, Buffett visited businesses in Omaha and sat and watched as customer after customer used their Amex cards. With company issues deemed fixable and its core business operating normally when everyone thought it was collapsing, Buffett bought a 5% stake at a very cheap price.


Second, curious people want the truth and are prepared to invest the effort to find it. If a company reports a result that doesn’t look right, they ask ‘why?’. That can make and save them a lot of money.

In 2013, private equity floated Dick Smith at a price five times what it was bought for 12 months earlier. Could an electronics business really be worth that much more in a year? My colleague Graham Witcomb analysed the float and thought not (see here). That time and effort paid off when the company entered administration in January 2016.

Thirdly, because curiosity fosters new ideas, curious people develop a broader range of skills that help their investing activities. A basic understanding of behavioural psychology, biology, physics and history can all nourish the value investor’s flame.

Charlie Munger, Berkshire Hathaway’s Vice President, says he was born innately curious. That led him to learn from major disciplines like psychology, maths and engineering (he was a lawyer originally). He applies these big ideas, or ‘mental models’ as he calls them, to his investment process.

How can we become more curious? It’s easy: ask a lot of questions and search for the answers. Read widely and identify those skills in which your proficiency falls short, remembering to keep the learning fun. Over time you’ll become more interested in the world, have a better understanding of how it works and become a better investor.

The Babylonians also defined a circle as having 360 degrees, based on their understanding of a year having close to 360 days. These world-changing scientific discoveries were achieved through a curious mindset. The history of value investing, from Ben Graham to Seth Klarman, shows the financial benefits of it, too.

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