First Principles – cooking and investing

Fri 27 Nov 2020

By Brian Dennehy

Access Level | public

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French ChefThe French Chef.

But she also had some interesting things to say about thinking, and I want to draw on what she said in an investment context, after all, great cooking and great investing aren’t so different.

Before getting stuck in, thank you to the Farnham Street gang for bringing this to my attention.  It’s a blog about how to think, and you can subscribe for free – highly recommended.

Julia said there is a big difference between knowing how to follow a recipe and knowing how to cook – basically, if you can master the first principles you will make much more progress.

Following a recipe will probably get you the results you want, but doesn’t teach you anything about how cooking works at a basic level. Or what to do when something goes wrong. Or how to come up with your own recipes when you open the fridge in the evening and there are a lot of random ingredients and leftovers. [I’m not sure you can improve on good leftovers, but I digress]

Sticking to recipes will only get you so far, and it certainly won’t result in you coming up with anything new or creative, or something which is particularly designed for you.

People who know how to invest understand the basic principles – so do great chefs.  They know what makes food taste, look and smell good. They have confidence in troubleshooting and solving problems as they go along.  They can adapt.  Occasionally they might refer to recipes, but can confidently change them to suit taste – literally.

Not knowing how to improvise is a real problem when unexpected things can happen.

We can draw a strong parallel from cooking to thinking generally, and investing in particular.

I’m sure you will immediately recognise the problem for many investors.  Too often they will try to solve quite complex problems, either without knowing the first principles, or in the heat of the moment do not recall them or refer to them.

How about if every time you are considering an investment opportunity, you break it down into the most basic first principles, and then see how it stacks up?

I recall watching a cookery program not too long ago. The chef was touring the Isle of Skye looking for ideas and local produce. He bought some fresh fish, as well as other bits and bobs from the greengrocers. At the next stage, sitting midst some rocks overlooking the sea, he turned this into the most amazing fish bisque, cooking with what seemed to be a Bunsen burner and a rusty saucepan. And he smiled at every effortless stage.

When was the last time you smiled as you considered your investment opportunities?  Is your furled brow your thinking face?  Frustration?  Or fear?  When you invest you literally buy uncertainty, so there should naturally be a little fear. 

This is how it began for Julia.

At first she tried to teach herself to cook at home, but it was frustrating. She never knew whether she would find success or failure when she opened the oven door, and, worst of all, she didn’t know why one recipe worked and another did not.

She then sought expert guidance and started taking cookery classes three times a week at a renowned cooking school in California. But that didn’t help much either.  The results still weren’t consistent.  She still didn’t feel she had that depth of understanding.

Then she and her husband moved to Paris, and only then did her encounters with French cooking make her realise that what she needed was an understanding of first principles. Trying to follow recipes without understanding the underlying logic, the first principles, was never going to provide the most consistent and delicious results. She needed to learn how food actually worked – the science. At the age of 37 Julia enrolled at the famous Cordon Bleu School of cooking and it changed her forever.

She learnt at school to break down every dish into its smallest step. None of this came effortlessly but she could do it. Most importantly, she now understood for the first time the principles governing why a recipe worked as it did – even the most basic recipes.

In the years following she developed her own recipes, all based on the science of cooking. If they didn’t agree with those first principles she binned them. The similarity to investment decisions here are uncanny. We should all have a process and gameplan in place, and yes, we may be naughty here and there and stray away from it. But in the main we have an objective(s) and all of our investments are bought, and indeed sold, with that end goal in mind. If an investment doesn’t meet our criteria, then we simply don’t include it in our personal investment recipe book.

As time went on she grew frustrated with recipe books whose instructions she knew couldn’t work e.g.  recipes calling for temperatures she knew would burn particular ingredients, or where key ingredients were omitted.

It was clear that few so-called experts bothered to test anything before they wrote it down. [Sounds very familiar] She was determined to fill this gap, and not to make the same mistake.

Mastering the Art of French Cooking came out in 1961. She also ended up with a TV show which was hugely popular because people loved the way she explained why she did something.  They also liked her spontaneous capacity to adapt to unanticipated outcomes. Usually each program was taken with just one shot, so she needed to keep going with whatever happened midst live filming.

She believed anybody could cook with distinction from scratch, and that’s what she was trying to prove.  Julia discovered first principles, and wanted to pass that on.

Looking for those principles in any field is a commitment to thinking about and understanding basics before acting.  Once you have done that you can then begin to learn more advanced concepts, and apply what works for you. 

The journey which Julia went on reminded me of the four stages of your investment journey which I covered off in “Embrace your mistakes”.  There are certainly some first principles in “Investing fundamentals – will it be all right on the night?”.  If you believe there is more we can do in pulling the latter together, myself and the team would love your feedback.


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