Ask the Chauffeur

A fun story spotted in The Telegraph and reproduced here:

One of the most important figures in quantum mechanics was the German physicist Max Planck. After he won the Nobel Prize for physics in 1918, he undertook a lecture tour of Germany.

“Naturally enough the lectures he delivered to the various audiences were more or less identical, a fact that was noticed in due course by his chauffeur.

One day the driver said to him: “Professor Planck, I’ve heard you give the same lecture on quantum mechanics so many times that I now know it by heart. It must be very boring for you, so for tonight why don’t we swap roles? I’ll deliver the lecture and you sit in the audience and wear my chauffeur’s cap.”

Planck agreed and that evening the driver got up on stage and delivered the lecture flawlessly. Then a member of the audience stood up and asked an incomprehensible question about quantum mechanics. Without hesitation the chauffeur said: “I’m surprised that someone from the renowned city of Munich could ask such a basic question. I will leave my chauffeur to answer it.”

Charlie Munger, Warren Buffett’s business partner, often tells this story. He uses it to illustrate the difference between real understanding of a subject – “Planck knowledge” – and the mere appearance of it, or “chauffeur knowledge”.

The “chauffeurs” of this world often distract attention from their shortcomings by putting on a great show. They may have a commanding presence, a way with words, huge self-confidence. In every walk of life – politics, business and, yes, journalism – you get both types of knowledge.

And of course you get both in fund management. Almost all fund managers can persuade you that they are a suitable person to entrust your life savings to. Sadly, the facts show many aren’t up to the task.

Choosing the right fund manager is one of the most important financial decisions we’ll ever make. Being able to distinguish those with chauffeur knowledge from those with Planck knowledge would be a huge help.

How can you tell them apart? Here are a few suggestions.

  • First, can they explain what they are doing in simple language? It’s the chauffeurs who seek refuge in jargon and obfuscation.
  • Second, do they ever admit that they don’t know the answer to a question? It’s the Plancks who have the self-confidence to admit ignorance when the circumstances call for it.
  • And the third, related test is whether they are aware of their own “circle of competence” and avoid being tempted to invest in areas that they are not properly familiar with.

Finding the right fund manager is hard. Fortunately, though, probably not as hard as quantum mechanics.”

You can of course replace fund manager with any other sort of manager! I appreciate that in practical situations admitting ignorance may easily be viewed as a weakness. I guess it works provided that you have the opportunity to clearly demonstrate your strengths so that people can get a rounded and balanced picture.

There’s an interesting discussion of chauffeur knowledge by Tim O’Reilly who points out that:

The point of the story was that there are two types of knowledge, the kind of rote knowledge that the chauffeur had, and the deep knowledge that Planck had. (What Munger didn’t say: the chauffeur had some Planck knowledge of his own, being clever enough to turn that question around! But it’s a great punch line — and a great concept.)

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