The Power Of Reading In Wealth Creation: Ideas From Naval Ravikant, Charlie Munger, and Warren Buffett

“In my whole life, I have known no wise people - over a broad subject matter area - who didn’t read all the time – none, zero.”

— Charlie Munger

A love for reading is a competitive advantage. And it can help you learn how to build wealth.

If you’re a regular reader of this blog, you already have a head start against those who don’t read. And even more importantly, you have a competitive advantage over your former self.

Because reading strengthens and changes your brain. And over time, if you read the right stuff, you won’t recognize that person you were before you read Poor Charlie’s Almanack, The Almanack of Naval Ravikant, The Black Swan, or weekly Wealest articles!

Here are some ideas about how to build your destiny through books.

Reading can show you the path - at least it has for me. Then, you must walk it for yourself.

What You Learn Compounds Over Time.

Your goal each day should be to go to bed smarter than when you woke up. And reading is a great way to do it.

This is one of my favorite Charlie Munger quotes:

“Spend each day trying to be a little wiser than you were when you woke up. Day by day, and at the end of the day - if you live long enough - like most people, you will get out of life what you deserve.”

Reading daily is a superpower. If you commit to learning something useful every day, no matter how small, your learnings will compound quickly.

Writer James Clear shows us what this looks like over the course of a year if you get just 1% better every day:

You are a whopping 37 times better at the end of the year than when you started. This is why reading daily is such an advantage. Imagine doing this year after year for decades.

Remember, the greatest gains come at the END of the compounding period. So while it may not feel like your knowledge is compounding, by the end of your life, you will have passed everyone who doesn’t read regularly.

So keep learning. If you strive to get better each day, as Munger says, you’ll eventually get what you deserve!

Naval Ravikant: “Read What You Like Until You Like To Read.”

It’s never too late to develop a love for reading. The trick is to read what you love first. I read fiction for a decade before I started reading non-fiction.

And according to Naval Ravikant, this is actually a really good way to build a love for reading. Here’s what Naval says about reading on his podcast, How To Get Rich:

“Everybody I know who reads a lot loves to read, and they love to read because they read books that they loved…So you may start off reading fiction, then you might graduate to science fiction, then you may graduate to non-fiction, then you may graduate to science, or philosophy, or mathematics or whatever it is, but take your natural path and just read the things that interest you until you kind of understand them. And then you’ll naturally move to the next thing and the next thing and the next thing.

This is basically the path I followed. In my teens and early 20s, I read fiction every day.

Then, at the age of 26, I realized I had no idea what to do with the small amount of money I had saved up.

So, I put down my fiction book and picked up Poor Charlie’s Almanack, and then Warren Buffett’s letters to Berkshire Hathaway shareholders, and then Felix Dennis’ How To Get Rich, and so and so forth before I got so excited I started an entire website about the models of wealth creators!

And it all started with a love of reading fiction.

So, follow Naval’s advice and read what you like until you like to read. Once you get bored, pick up something else and keep reading.

Read Broadly Across Disciplines.

I love reading so much that I’ll read the back of the shampoo bottle if I forget my phone in the bathroom. It’s also the reason why I have to be very careful on Twitter. I can spend hours jumping from random thread to random thread and not learn anything useful.

But reading broadly is actually a great advantage.

Here’s Munger again:

“I don’t think you can get to be a really good investor over a broad range without doing a massive amount of reading. I don’t think any one book will do it for you.”

Munger is a successful billionaire business owner, but much of what he talks and writes about is not really about “business.” He covers topics like:

mathematics (combinations and permutations)
accounting
statistics (Gaussian distribution)
engineering (backup system, breakpoints)
physics (critical mass)
biology (natural selection, evolution)
psychology (the psychology of misjudgment)

And the power of the internet is that all of these topics are available to you almost instantaneously. You have the entire history of literature literally at your fingertips. There has never been a better time to be an avid reader.

Warren Buffett is much like Munger. He will read anything that comes across his desk if he thinks it’ll be useful:

“Well, I think you should read everything you can… I know by the time I was ten — I’d read every book in the Omaha Public Library that had anything to do with investing, and many of them I’d read twice. So I don’t think there’s anything like reading, and not just as limited to investing at all. But you’ve just got to fill up your mind with various competing thoughts and sort them out as to what really makes sense over time.” - Warren Buffett

So, read across disciplines. Don’t just read self-help books or investing books or accounting books or fiction. Read them all and sort out for yourself what works and what doesn’t.

When In Doubt, Read Lindy Books.

There’s a simple trick to help guide you on what to read next. The Lindy Effect is the idea that the older something is, the longer it’s likely to be around in the future.

So Lindy books are books that have been around for a really long time. And because they’ve been around for a really long time, they are likely to be around for a long time in the future.

And that means the ideas in them are robust and important. They’ve withstood the ultimate filter: time.

These are what Naval Ravikant calls foundational texts. Here are his ideas around what to read:

“It is important that you read foundational things. And foundational things, I would say, are the original books in a given field that are very scientific in their nature. For example, instead of reading a business book, pick up Adam Smith's ‘The Wealth of Nations.’ Instead of reading a book on biology or evolution that’s written today, I would pick up Darwin’s ‘Origin of the Species.’ Instead of reading a book on biotech right now that may be very advanced, I would just pick up The Eighth Day of Creation by Watson and Crick.”

This isn’t to say that newer books can’t also provide incredible value. In fact, Eric Jorgenson’s recently released book, The Almanack Of Naval Ravikant, is one such new book. So, don’t assume new automatically means bad. It doesn’t.

But the general idea stands. Read source material so you can build up your knowledge from the foundational level. That allows you to build on top of a really solid base. And filter new information through time-tested ideas.

Reading Gives You Mental Models To Test Against Reality.

The first piece of non-fiction I read that really changed the way I see the world was Charlie Munger’s speech, The Psychology of Human Misjudgment. In that speech, Munger walks through 25 mental biases that affect human decision-making.

I read that speech and was astonished that no one had taught me these biases before! There hadn’t been a single class through high school or university that talked about things like:

Incentive bias - You are controlled by visible and invisible incentives.
Authority bias - You have a natural tendency to follow the leader.
Association bias - You’re easily influenced by associations.
Social proof bias - You think and act like the people around you.
Scarcity principle - You value something more if it’s scarce.
Confirmation bias - You interpret evidence in a way that confirms your prior beliefs.
Reciprocation tendency - You naturally reciprocate favors and disfavors.
Commitment & Consistency bias - You are reluctant to change courses once you’ve committed to one.

After watching these at play in reality, they become critical in understanding why people do what they do!

The power of reading is that if you read the right stuff, you’ll get all sorts of models and ideas that you can test in the real world.

Charlie Munger calls this acquiring elementary, worldly wisdom. Here’s Munger from his speech, A Lesson on Elementary, Worldly Wisdom:

“What is elementary, worldly wisdom? … You've got to have models in your head. And you've got to array your experience—both vicarious and direct—on this latticework of models…

What are the models? Well, the first rule is that you've got to have multiple models—because if you just have one or two that you're using, the nature of human psychology is such that you'll torture reality so that it fits your models, or at least you'll think it does.

And the models have to come from multiple disciplines—because all the wisdom of the world is not to be found in one little academic department.”

So, reading lets you acquire mental models from different disciplines about how the world works. Then you hang your experience on the models to make sure they are sound.

But you must test the models! They are worth nothing if reality doesn’t align with the model you’ve picked up.

Testing The Model of “Leverage.”

I learned about the power of leverage from Naval Ravikant. These are the robots that work for you while you sleep and magnify the impact of your judgment.

So, I tested out this idea by building a website and trying to make the Google search algorithm work for me for free. I tried to build leverage. The results have been staggering:

I now have thousands of visitors to my website per month with very little effort.

The takeaway? Leverage works.

So, read about models from across disciplines and then test them against reality. If they work, use them to improve your life. If they don’t work, discard them.

Reading Is Great. Action is Better.

Reading is a wonderful way to spend your time. And I read for pleasure regularly.

But, if you want to use it to change your life, you must transform what you’ve learned into action. And it turns out that’s really hard.

Here’s Munger again:

“We read a lot. I don’t know anyone who’s wise who doesn’t read a lot. But that’s not enough: You have to have a temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them.”

Once you start testing your models with action, get used to failing regularly! Failure is necessary to find out how the models really work. It’s the cost of entry to “Elementary, Worldy Wisdom.”

So, don’t just read about leverage - try and build it.

Don’t just read about rational optimism - try and become it.

Don’t just read about compound interest - try and capture it.

It’s not what you read that will change your life. It’s what you choose to apply.

Keep going.