All learners are different, and all rising to a great place, as Francis Bacon tells us, is by a winding stair.1
Consider the story of Bruce Hendry, born in 1942, raised on the banks of the Mississippi north of Minneapolis by a machinist and a homemaker, just another American kid with skinned knees and fi re in the belly to get rich. When we talk about self- made men, the story often sounds familiar. This is not that story. Bruce Hendry is self- made, but the story is in the winding stair, how he found his way, and what it helps us understand about differences in how people learn.
The idea that individuals have distinct learning styles has been around long enough to become part of the folklore of educational practice and an integral part of how many people perceive themselves. The underlying premise says that people receive and pro cess new information differently: for example, 131
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some learn better from visual materials, and others learn better from written text or auditory materials. Moreover, the theory holds that people who receive instruction in a manner that is not matched to their learning style are at a disadvantage for learning.
In this chapter, we acknowledge that everyone has learning preferences, but we are not persuaded that you learn better when the manner of instruction fi ts those preferences. Yet there are other kinds of differences in how people learn that do matter. First, the story of Bruce, to help frame our argument.
Active Learning from the Get- Go
Part of the secret to Bruce is his sense, from the earliest age, of being the one in charge of Bruce. When he was two his mother, Doris, told him he couldn’t cross the street because a car might hit him. Every day, Bruce crossed the street, and every day Doris gave him a spanking. “He was born aggressive,” Doris told friends.
At eight he bought a ball of string at a garage sale for a dime, cut it up, and sold the pieces for a nickel each. At ten he got a paper route. At eleven he added caddying. At twelve he stuffed his pocket with $30 in savings, sneaked out of his bed-room window before dawn with an empty suitcase, and hitch-hiked 255 miles to Aberdeen, South Dakota. He stocked up on Black Cats, cherry bombs, and roman candles, illegal in Minnesota, and hitched home before supper. Over the next week, Doris couldn’t fi gure out why all the paperboys were dropping by the house for a few minutes and leaving. Bruce had struck gold, but the paper route supervisor found out and tipped off Bruce Se nior. The father told the son if he ever did it again he’d get the licking of his life. Bruce repeated the buying trip the following summer and got the promised licking.
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“It was worth it,” he says.2 He was thirteen, and he had learned a lesson about high demand and short supply.
The way Bruce fi gured, rich people
were probably no
smarter than he was, they just had knowledge he lacked.
Looking at how he went after the knowledge he sought will illustrate some of the learning differences that matter. One, of course, is taking charge of your own education, a habit with Bruce from age two that he has exhibited through the years with remarkable per sis tence. There are other signal behaviors. As he throws himself into one scheme after another, he draws lessons that improve his focus and judgment.
He knits what he learns into mental models of investing, which he then uses to size up more complex opportunities and fi nd his way through the weeds, plucking the telling details from masses of irrelevant information to reach the payoff at the end. These behaviors are what psychologists call “rule learning” and “structure building.” People who as a matter of habit extract underlying principles or rules from new experiences are more successful learners than those who take their experiences at face value, failing to infer lessons that can be applied later in similar situations. Likewise, people who single out salient concepts from the less important information they encounter in new material and who link these key ideas into a mental structure are more successful learners than those who cannot separate wheat from chaff and understand how the wheat is made into fl our.
When he was barely a teenager, Bruce saw a fl yer advertising wooded lots on a lake in central Minnesota. Advised that no one ever lost money on real estate, he bought one. Over four subsequent summers, with occasional help from his dad, he built a house on it, confronting each step in the pro cess one at
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a time, fi guring it out for himself or fi nding someone to show him how. To dig the basement, he borrowed a trailer and hooked it up to his ’49 Hudson. He paid 50 cents for every load his friends excavated, shovel by shovel, and then charged the own er of a nearby lot that needed fi ll a dollar for it. He learned how to lay block from a friend whose father was in the cement business and then laid himself a foundation. He learned how to frame the walls from the salesman at the lumber yard. He plumbed the house and wired it the same way, a wide- eyed kid asking around how you do that sort of thing.
“The electrical inspector disapproved it,” Bruce recalls. “At the time, I fi gured it was because they wanted a union guy to do it, so I popped for a union guy to come up from the Cities and redo all my wiring. Looking back, I’m sure what I had done was totally dangerous.”
He was nineteen and a university student the summer he traded the house for the down payment on a fourplex in Minneapolis. It was a simple premise: four apartments would generate four checks in the mail, month in and month out. Soon, besides his studies at university, he was managing the rental property, paying on the mortgage, answering midnight calls over broken plumbing, raising rents and losing tenants, trying to fi ll vacant units, and pouring in more money. He had learned how to parlay a vacant lot into a house, and a house into an apartment complex, but in the end the lesson proved a sour one, yielding more headache than reward. He sold the fourplex and swore off real estate for the next two de cades.
Out of college, Bruce went to work for Kodak as a micro-fi lm salesman. In his third year, he was one of fi ve top sales-men in the country. That was the year he found out how much his branch manager was making: less than Bruce made as a salesman, if he factored in his company car and expense account. It pays better to be a rainmaker than a manager:
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another lesson learned, another step up Bruce’s winding stair.
He quit to join a brokerage fi rm and sell stocks.
From this new vantage point, more lessons: “If I brought a dollar into the fi rm in trading commissions, half went to the fi rm and half of the remaining half went to the IRS. To make real money, I had to focus more on investing my own money and less on making sales commissions.” Oops, another lesson: investing in stocks is risky. He lost as much investing his own money as he earned in commissions selling investments to his clients. “You have no control of the down side. If a stock drops 50 percent, it has to go up by 100 percent just to break even. A hundred percent is a lot harder to make than fi fty is to lose!” More knowledge banked. He bided his time, casting his eyes about for the insight he was after.
Enter Sam Leppla.
As Bruce tells it, Leppla was just a guy who roamed the Minneapolis skyways in those days, from one investment fi rm to another, talking deals and giving advice. One day he told Bruce about some bonds in a distressed company that were selling for 22 cents on the dollar. “There were twenty- two points of unpaid back interest on these bonds,” Bruce recalls,
“so when the company came out of bankruptcy, you’d collect the back interest— in other words, 100 percent of your investment cost— and you’d still own a paying bond.” It amounted to free money. “I didn’t buy any,” Bruce says. “But I watched it, and it worked out exactly like Sam predicted. So, I called him up and said, ‘Can you come down and tell me what you’re doing?’ ”
Leppla taught Bruce a more complex understanding of the relationships between price, supply, demand, and value than he’d learned from a suitcase full of fi reworks. Leppla’s modus operandi was drawn from the following precept. When a company runs into trouble, the fi rst claim on its assets belongs not
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to its own ers, the shareholders, but to its creditors: the suppli-ers and bondholders. There’s a pecking order to bonds. Those bonds paid fi rst are called se nior bonds. Any residual assets after the se nior bonds are paid go to pay off the ju nior bonds.
Ju nior bonds in a troubled company get cheap if investors fear there won’t be enough assets left over to cover their value, but investors’ fear, laziness, and ignorance can depress bond prices far below the worth of the underlying assets. If you can ascertain that actual worth and you know the price of the bonds, you can invest with very little risk.
Here was the kind of knowledge Bruce had been seeking.
Florida real estate investment trusts were distressed at the time, so Sam and Bruce started looking into those, buying where they could see that the fi re- sale prices signifi cantly discounted the underlying values. “We’d buy these for 5 dollars and sell them for 50. Everything we bought made money.”
They had a good run, but market prices caught up with values, and soon they were in need of another idea.
At the time, eastern railroads were going bankrupt, and the federal government was buying their assets to form Conrail and Amtrak. As Bruce tells it, “One day Sam said, ‘Railroads go bankrupt every fi fty years and no one knows anything about them. They are real complicated and they take years to work out.’ So we found a guy who knew about railroads. Barney Donahue. Barney was an ex– IRS agent and a railroad buff. If you’ve ever met a real railroad buff, they think it, they breathe it, they can tell you the weight of the track and they can tell you the numbers on the engines. He was one of those guys.”
A central tenet of their investment model was to discover more than other investors knew about residual assets and the order in which the bonds were to be honored. Armed with the right knowledge, they could cherry- pick the underpriced ju-nior bonds most likely to be paid off. Donahue checked out
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the different railroads and decided that the best one to invest in was the Erie Lackawanna, because it had the most modern equipment when it fi led for bankruptcy. Hendry, Leppla, and Donahue dived in for a closer look. They traveled the entire length of the Erie’s track to check its condition. They counted the equipment that remained, looked at its condition, and checked in Moody’s transportation manuals to calculate values. “You just do the arithmetic: What’s an engine worth?
