December 3, 2016 - Comments Off on Commonplace #0041

Commonplace #0041

Two general principles about relations between human group size and innovation or creativity: First, in any society except a totally isolated society, most innovations come in from the outside, rather than being conceived within that society. And secondly, any society undergoes local fads. By fads I mean a custom that does not make economic sense. Societies either adopt practices that are not profitable or for whatever reasons abandon practices that are profitable. But usually those fads are reversed, as a result of the societies next door without the fads out-competing the society with the fad, or else as a result of the society with the fad. In short, competition between human societies that are in contact with each other is what drives the invention of new technology and the continued availability of technology. Only in an isolated society, where there's no competition and no source of reintroduction, can one of these fads result in the permanent loss of a valuable technology.

Innovation proceeds most rapidly in a society with some intermediate degree of fragmentation.

The ways you think and operate must involve time-tested values.

Good judgment comes from experience, and a lot of that comes from bad judgment.

See’s Candies was acquired at a premium over book (value) and it worked. Hochschild, Kohn, the department store chain (in Baltimore), was bought at a discount from book and liquidating value. It didn’t work. Those two things together helped shift our thinking to the idea of paying higher prices for better businesses.

Grahamites realized that some company that was selling at 2 or 3 times book value could still be a hell of a bargain because of momentum implicit in its position, sometimes combined with an unusual managerial skill plainly present in some individual or other, or some system or other. And once we’d gotten over the hurdle of recognizing that a thing could be a bargain based on quantitative measures that would have horrified Graham, we started thinking about better businesses.

The investment game always involves considering both quality and price, and the trick is to get more quality than you pay for in price. It’s just that simple.

Businesses logically are worth far more than net tangible assets when they can be expected to produce earnings on such assets considerably in excess of market rates of return.

Leaving the question of price aside, the best business to own is one that, over an extended period, can employ large amounts of incremental capital at very high rates of return. The worst business to own is one that must, or will, do the opposite – that is, consistently employ ever-greater amounts of capital at very low rates of return. See’s sold 16 million pounds of candy in 1972. In 2007, it sold 31 million pounds. That’s a growth rate of about 2% annually. Yet the business created tremendous value. How? Because it generated high returns on invested capital and required little incremental investment. Growth creates value only when a business can invest at incremental returns higher than its cost of capital. The higher return a business can earn on its capital, the more cash it can produce, the more Value is created. Over time, it is hard for investors to earn returns that are much higher than the underlying business’ return on invested capital.

There are actually businesses, that you will find a few times in a lifetime, where any manager could raise the return enormously just by raising prices—and yet they haven’t done it. So they have huge untapped pricing power that they’re not using. That is the ultimate no-brainer. Disney found that it could raise those prices a lot and the attendance stayed right up. So a lot of the great record of Eisner and Wells came from just raising prices at Disneyland and Disneyworld and through video cassette sales of classic animated movies. At Berkshire Hathaway, Warren and I raised the prices of See’s Candy a little faster than others might have. We bought See’s Candy in 1972, See’s Candy was then selling 16 million pounds of candy at a $1.95 a pound and it was making 2 bits a pound or $4 million pre-tax. We paid $25 million for it—6.25 x pretax or about 10x after tax. It took no capital to speak of. When we looked at that business—basically, my partner, Charlie, and I—we needed to decide if there was some untapped pricing power there. Where that $1.95 box of candy could sell for $2 to $2.25. If it could sell for $2.25 or another $0.30 per pound that was $4.8 on 16 million pounds. Which on a $25 million purchase price was fine.

The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.

Buy commodities, sell brands.

When we bought See’s Candies, we didn’t know the power of a good brand. Over time we just discovered that we could raise prices 10% a year and no one cared. I bought it in 1972, and every year I have raised prices on Dec. 26th, the day after Christmas, because we sell a lot on Christmas. In fact, we will make $60 million this year. We will make $2 per pound on 30 million pounds. Same business, same formulas, same everything–$60 million bucks and it still doesn‘t take any capital. And we make more money 10 years from now. But of that $60 million, we make $55 million in the three weeks before Christmas.

The informational advantage of brands is hard to beat.  And your advantage of scale can be an informational advantage. If I go to some remote place, I may see Wrigley chewing gum alongside Glotz’s chewing gum. Well, I know that Wrigley is a satisfactory product, whereas I don’t know anything about Glotz’s. So if one is $.40 and the other is $.30, am I going to take something I don’t know and put it in my mouth – which is a pretty personal place, after all – for a lousy dime? So, in effect, Wrigley, simply by being so well-known, has advantages of scale – what you might call an informational advantage. Everyone is influenced by what others do and approve.  Another advantage of scale comes from psychology. The psychologists use the term ‘social proof’. We are all influenced – subconsciously and to some extent consciously – by what we see others do and approve. Therefore, if everybody’s buying something, we think it’s better. We don’t like to be the one guy who’s out of step. Again, some of this is at a subconscious level and some of it isn’t. Sometimes, we consciously and rationally think, ‘Gee, I don’t know much about this. They know more than I do. Therefore, why shouldn’t I follow them?’ All told, your advantages can add up to one tough moat.

Over the years the power of a brand when combined with commodity inputs has created a powerful combination.

In 1972, See’s sold 16 million pounds of candy, and 35 years later, it stood at 32 million, meaning it gained just 2% a year, but it’s profit rose by 9% a year.

The ideal business is one that takes no capital, and yet grows. Two factors helped to minimize the funds required for operations. First, the product was sold for cash, and that eliminated accounts receivable. Second, the production and distribution cycle was short, which minimized inventories.

If you are willing to buy a business that has volatile profits from quarter you may find the purchase price to be a bargain since others may be frightened by what they deem as “risk.” Munger has said this is a considerable willingness to accept volatile results from quarter to quarter is a considerable advantage in investing.

The most important task in capital allocation for Buffett and Munger is to take cash generated by a company like See’s Candies and deploy it to the very best opportunity at Berkshire. Charles T. Munger, Berkshire Hathaway’s vice-chairman, and I really have only two jobs… One is to attract and keep outstanding managers to run our various operations. The other is capital allocation.

Advice shouldn't come with expectations.

In a world of hyper-competition and nonstop disruption, playing it safe is the riskiest course of all.

Risk means more things can happen than will happen.

In order to win, you must first survive.

Uncertainty about the future does not necessarily equate with risk, because risk has another component: Consequences. In the real world, risk = probability of failure x consequences. Knowing the outcome does not teach you about the risk of the decision, even after you know the outcome. All we can do is make intelligent estimations, work to get the rough order of magnitude right, understand the consequences if we’re wrong, and always be sure to never fool ourselves after the fact.

November 25, 2016 - Comments Off on Commonplace #0040

Commonplace #0040

The people who stand before kings may look like they did it all by themselves. But in fact they are invariably the beneficiaries of hidden advantages and extraordinary opportunities and cultural legacies that allow them to learn and work hard and make sense of the world in ways others cannot.

First mover advantage is exacerbated by the fact that technology companies enjoy compounded growth. Building organizations takes time. Incorporating, fundraising, recruiting, and shipping and marketing a product can easily add up to many months of work. If you’re second to market, your competitor will have been scaling their user acquisition machine while you’re still scrambling to ship your product. They’ll acquire resources at an exponential rate that allow them to reach even more customers before you do, and you’ll be stuck trying to explain to users how your product is different from theirs. Most of the time, that means the death of your company.

I need thy presence every passing hour.

Each of us human beings, for example, is the product of an enormously long
sequence of accidents, any of which could have turned out differently.

The self is a relation that relates itself to itself.

Self-forgiveness is a misconception. The only people who can forgive us are those we have sinned against, those we have harmed.

Kierkegaard observed that you don’t change God when you pray, you change yourself.

Make the most of your regrets; never smother your sorrow, but tend and cherish it till it comes to have a separate and integral interest. To regret deeply is to live afresh.

This idea of fundamental laws plus accidents, and the non-linear second order effects they produce, became the science of complexity and chaos theory.

We own our business, and it is ours to lose.

The rule for decision making in life and business goes like this: The fewest blind spots wins.

“If one would give me six lines written by the hand of the most honest man, I would find something in them to have him hanged.” — Cardinal Richelieu in 1641

How we perceive the world and how we act in it are products of how and what we remember. We’re all just a bundle of habits shaped by our memories. And to the extent that we control our lives, we do so by gradually altering those habits, which is to say the networks of our memory… Our ability to find humor in the world, to make connections between previously unconnected notions, to create new ideas, to share in a common culture: All these essentially human acts depend on memory. Now more than ever, as the role of memory in our culture erodes at a faster pace than ever before, we need to cultivate our ability to remember. Our memories make us who we are.

In the late 1800s, “Buffalo Bill” Cody created a show called Buffalo Bill’s Wild West Show, which toured the United States, putting on exhibitions of gun fighting, horsemanship, and other cowboy skills. One of the show’s most popular acts was a woman named Phoebe Moses, nicknamed Annie Oakley. Annie was reputed to have been able to shoot the head off of a running quail by age twelve, and in Buffalo Bill’s show, she put on a demonstration of marksmanship that included shooting flames off candles, and corks out of bottles. For her grand finale, Annie would announce that she would shoot the end off a lit cigarette held in a man’s mouth, and ask for a brave volunteer from the audience. Since no one was ever courageous enough to come forward, Annie hid her husband, Frank, in the audience. He would “volunteer,” and they would complete the trick together. In 1980, when the Wild West Show was touring Europe, a young crown prince (and later, kaiser), Wilhelm, was in the audience. When the grand finale came, much to Annie’s surprise, the macho crown prince stood up and volunteered. The future German kaiser strode into the ring, placed the cigarette in his mouth, and stood ready. Annie, who had been up late the night before in the local beer garden, was unnerved by this unexpected development. She lined the cigarette up in her sights, squeezed…and hit it right on the target.

Many people have speculated that if at that moment, there had been a slight tremor in Annie’s hand, then World War I might never have happened. If World War I had not happened, 8.5 million soldiers and 13 million civilian lives would have been saved. Furthermore, if Annie’s hand had trembled and World War I had not happened, Hitler would not have risen from the ashes of a defeated Germany, and Lenin would not have overthrown a demoralized Russian government. The entire course of twentieth-century history might have been changed by the merest quiver of a hand at a critical moment. Yet, at the time, there was no way anyone could have known the momentous nature of the event.

Managers can grow and retain top talent by helping their employees articulate long-term vision for their careers.

Investing is about owning a partial stake in a real business. You must understand whether the actual businesses in which you own stock earns a return on capital to be a successful investor. The more different types of businesses you understand in this way, the more skill you will acquire in understanding another new business.

The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.

We have to have a business with some inherent characteristics that give it a durable competitive advantage.

The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.

Risk comes from not knowing what you are doing.

If there are no barriers to entry, you won’t be very profitable.

If customers have all the power, and if rivalry is based on price, you won’t be very profitable. Producing the highest-quality products at the lowest cost or consolidating their industry is trying to improve on best practices. That’s not a strategy.

All human activities can be described by five high-level components: data, prediction, judgment, action, and outcomes. For example, a visit to the doctor in response to pain leads to: 1) x-rays, blood tests, monitoring (data), 2) diagnosis of the problem, such as “if we administer treatment A, then we predict outcome X, but if we administer treatment B, then we predict outcome Y” (prediction), 3) weighing options: “given your age, lifestyle, and family status, I think you might be best with treatment A; let’s discuss how you feel about the risks and side effects” (judgment); 4) administering treatment A (action), and 5) full recovery with minor side effects (outcome).

Being able to cross-pollinate the flow of ­information is amazing

Entrepreneurs and risk takers succeed or fail not so much on their ability to talk, explain, and rationalize as their ability to get things done.

People who are good “doers” and people who are good “talkers” are often selected for different traits. Be careful not to mix them up.

I write to dream; to connect with other human beings; to record; to clarify; to visit the dead. I have a kind of primitive need to leave a mark on the world. Also, I have a need for money.
I’m almost always anxious when I’m writing. There are those great moments when you forget where you are, when you get your hands on the keys, and you don’t feel anything because you’re somewhere else. But that very rarely happens. Mostly I’m pounding my hands on the corpse’s chest.

I write entirely to find out what I’m thinking.

November 8, 2016 - Comments Off on Commonplace #0039

Commonplace #0039

A good plan violently executed now is better than a perfect plan next week.

Always remember you are braver than you believe, stronger than you seem, and smarter than you think.

Having users make the rules confers several advantages. First, they are closest to the facts on the ground and best positioned to codify experience into usable rules. Because they will make decisions based on the rules, they can strike the right balance between guidance and discretion, avoiding rules that are overly vague or restrictive. User can also phrase the rules in language that resonates for them, rather than relying on business jargon. By actively participating in the process, users are more likely to buy into the final rules and therefore apply them in practice. Firsthand knowledge also makes it easier to explain the rules, and their underlying rationale, to colleagues who did not participate in the process.

Giving is an act of worship.

be greedy when others are fearful and fearful when others are greedy. One of the best times to invest is when uncertainty is the greatest and fear is the highest. I want fear. I want to buy things when people are afraid of it, not when they think it’s a gift being handed down to them.

To make money, you must find something that nobody else knows, or do something that others won’t do because they have rigid mind-sets.

Successful investing is the search for the mistakes of other people that may create a mispriced asset. In other words, one person’s mistake about the value of an asset is what can create an opportunity for another investor to outperform the market. This search is best done by people who are curious and hard working. Great investors hustle, have a huge scuttlebutt network and read constantly.

Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a 10% chance of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten. We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs.” “In business, every once in a while, when you step up to the plate, you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.

If something is already consensus then money will have already flooded in and the profit opportunity is gone. And so by definition in venture capital, if you are doing it right, you are continuously investing in things that are non-consensus at the time of investment.  And let me translate ‘non-consensus’: in sort of practical terms, it translates to crazy. You are investing in things that look like they are just nuts.” “The entire art of venture capital in our view is the big breakthrough for ideas. The nature of the big idea is that they are not that predictable.” “Most of the big breakthrough technologies/companies seem crazy at first: PCs, the internet, Bitcoin, Airbnb, Uber, 140 characters. It has to be a radical product. It has to be something where, when people look at it, at first they say, ‘I don’t get it, I don’t understand it. I think it’s too weird, I think it’s too unusual.

Don't settle for the little dream. Go for the big one.

What we call following our gut, is really us being subconsciously guided by every piece of information we’ve ever consumed, shaping our instincts and ideas and forming us.

The power which has always started the greatest religious and political avalanches in history has been, from time immemorial, none but the magic power of the word, and that alone. Particularly the broad masses of the people can be moved only by the power of speech… Only a storm of hot passion can turn the destinies of peoples, and he alone can arouse passion who hears it within himself.

In the morning and during the day it seems that the power of the human will rebel with its strongest energy against any attempt to impose upon it the will or opinion of another. On the other hand, in the evening it easily succumbs to the domination of a stronger will.

The person who says he knows what he thinks but cannot express it usually does not know what he thinks.

Don’t start a company unless it’s an obsession and something you love. If you have an exit strategy, it’s not an obsession.

All else being equal, the fastest company in any market will win.

October 26, 2016 - Comments Off on Commonplace #0038

Commonplace #0038

The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. One should, for example, be able to see that things are hopeless yet be determined to make them otherwise.

Thinking – especially thinking in words and sentences – is a form of internal communication. In thinking, you-in-the-present communicates with you-in-the-future. But though thinking is a private and covert activity, it is influenced by external interactions – in particular, by how you communicate with others. Communicative patterns become mental habits. The implication is that counterproductive – closed, oblivious, disconnected, narrow, hermetic, rigid – ways of communicating are thereby internalized and become counterproductive ways of thinking.

If you want to think differently, first learn to act differently.

I’m always looking for some kind of competitive advantage, like some type of unfair ability to compete in the marketplace.

The fact is, few business school professors have ever managed anything, and their lack of hands-on experience shows in their students. Medical school faculties, in contrast, are comprised of the best and most respected practicing physicians.

We take other men’s knowledge and opinions upon trust; which is an idle and superficial learning. We must make them our own. We are just like a man who, needing fire, went to a neighbor’s house to fetch it, and finding a very good one there, sat down to warm himself without remembering to carry any back home. What good does it do us to have our belly full of meat if it is not digested, if it is not transformed into us, if it does not nourish and support us? — Montaigne in The Complete Essays (“Of Pedantry”).

Why, within Eurasia, was it Europeans who conquered the world and colonized other people, rather than the Chinese or the people of India or the Middle East? Why was China chronically unified, and why was Europe chronically disunified? Why is Europe disunified to this day? The answer is geography. Just picture a map of China and a map of Europe. China has a smooth coastline. Europe has an indented coastline, and each big indentation is a peninsula that became an independent country, independent ethnic group, and independent experiment in building a society: notably, the Greek peninsula, Italy, the Iberian peninsula, Denmark, and Norway/Sweden. Europe had two big islands that became important independent societies, Britain and Ireland, while China had no island big enough to become an independent society until the modern emergence of Taiwan. Europe is transected by mountain ranges that split up Europe into different principalities: the Alps, the Pyrenees, Carpathians — China does not have mountain ranges that transect China. In Europe big rivers flow radially — the Rhine, the Rhone, the Danube, and the Elbe — and they don't unify Europe. In China the two big rivers flow parallel to each other, are separated by low-lying land, and were quickly connected by canals. For those geographic reasons, China was unified in 221 B.C. and has stayed unified most of the time since then, whereas for geographic reasons Europe was never unified. Augustus couldn't do it, Charlemagne couldn't do it, and Napoleon and Hitler couldn't unify Europe. To this day, the Europe Union is having difficulties bringing any unity to Europe. Europe's fragmentation was a great advantage to Europe as far as technological and scientific innovation is concerned. Innovation proceeds most rapidly in a society with some intermediate degree of fragmentation.

October 26, 2016 - Comments Off on Commonplace #0037

Commonplace #0037

Boil things down to their fundamental truths and reason up from there as opposed to reasoning by analogy.

The CEO who misleads others in public may eventually mislead himself in private.

The world is much more interesting than any one discipline.

The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action. The guiding policy specifies the approach to dealing with the obstacles called out in the diagnosis. It is like a signpost, marking the direction forward but not defining the details of the trip. Coherent actions are feasible coordinated policies, resource commitments, and actions designed to carry out the guiding policy.

Culture eats strategy.

Something not worth doing well is often not worth doing at all.

If you would persuade, appeal to interest and not to reason. The man changed his view when his incentives made him change it, and not before.

To the man with only a hammer, every problem looks pretty much like a nail.

I specialize in simple problems.

It’s not bringing in the new ideas that’s so hard. It’s getting rid of the old ones.

Curiosity. Concentration. Perseverance and self-criticism.

Better roughly right than precisely wrong.

You can get in way more trouble with a good idea than a bad idea, because you forget that the good idea has limits.

The Feynman Technique:

  1. Choose a Concept
  2. Teach it to a Toddler
  3. Identify Gaps and Go Back to The Source Material
  4. Review and Simplify

October 26, 2016 - Comments Off on Commonplace #0036

Commonplace #0036

The writer Umberro Eco belongs to that small class of scholars who are encyclopedic, insightful, and nondull. He is the owner of a large personal library (containing thirty thousand books), and separates visitors into two categories: those who react with “Wow! Signore professore dottore Eco, what a library you have. How many of these books have you read?” and the others—a very small minority—who get the point is that a private library is not an ego-boosting appendages but a research tool. The library should contain as much of what you do not know as your financial means … allow you to put there. You will accumulate more knowledge and more books as you grow older, and the growing number of unread books on the shelves will look at your menacingly. Indeed, the more you know, the larger the rows of unread books. Let us call this collection of unread books an antilibrary.

When you buy a book, you establish a property right in it, just as you do in clothes or furniture when you buy and pay for them. But the act of purchase is actually only the prelude to possession in the case of a book. Full ownership of a book only comes when you have made it a part of yourself, and the best way to make yourself a part of it— which comes to the same thing— is by writing in it.

Why is marking a book indispensable to reading it? First, it keeps you awake— not merely conscious, but wide awake. Second, reading, if it is active, is thinking, and thinking tends to express itself in words, spoken or written. The person who says he knows what he thinks but cannot express it usually does not know what he thinks. Third, writing your reactions down helps you to remember the thoughts of the author.

Reading a book should be a conversation between you and the author. Presumably he knows more about the subject than you do; if not, you probably should not be bothering with his book. But understanding is a two-way operation; the learner has to question himself and question the teacher. He even has to be willing to argue with the teacher, once he understands what the teacher is saying. Marking a book is literally an expression of your differences or your agreements with the author. It is the highest respect you can pay him.

October 26, 2016 - Comments Off on Commonplace #0035

Commonplace #0035

Originality depends on new and striking combinations of ideas.

An idea is nothing more nor less than a new combination of old elements and the capacity to bring old elements into new combinations depends largely on the ability to see relationships.

Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while. That’s because they were able to connect experiences they’ve had and synthesize new things. And the reason they were able to do that was that they’ve had more experiences or they have thought more about their experiences than other people. Unfortunately, that’s too rare a commodity. A lot of people in our industry haven’t had very diverse experiences. So they don’t have enough dots to connect, and they end up with very linear solutions without a broad perspective on the problem. The broader one’s understanding of the human experience, the better design we will have. While education is important for building up a repository for which you can connect things, it’s not enough. You need broad life experiences as well.

To be, or not to be: that is the question: Whether ’tis nobler in the mind to suffer the slings and arrows of outrageous fortune, or to take arms against a sea of troubles.

Every man is the sum total of his reactions to experience. As your experiences differ and multiply, you become a different man, and hence your perspective changes. This goes on and on. Every reaction is a learning process; every significant experience alters your perspective.

A man must choose a path which will let his ABILITIES function at maximum efficiency toward the gratification of his DESIRES.

We take other men’s knowledge and opinions upon trust; which is an idle and superficial learning. We must make them our own. We are just like a man who, needing fire, went to a neighbor’s house to fetch it, and finding a very good one there, sat down to warm himself without remembering to carry any back home. What good does it do us to have our belly full of meat if it is not digested, if it is not transformed into us, if it does not nourish and support us?

October 26, 2016 - Comments Off on Commonplace #0034

Commonplace #0034

If You’re Not Hungry Enough to Eat an Apple, Then You’re Probably Not Hungry. Eat All the Junk Food You Want as Long as You Cook It Yourself. Eat Only Foods That Have Been Cooked by Humans. Don’t Eat Anything Your Great Grandmother Wouldn’t recognize as Food. Stop Eating Before You’re Full.

Absorb what is useful, discard what is useless and add what is specifically your own.

Biological systems tend towards what is comfortable.

If you do what everyone else does, you’ll get what everyone else gets.

Listening is among the scarcest of all human skills. Listening requires concentration, skill, patience, and a lot of practice. But such practice is a very sound investment.

What the pupil must learn, if he learns anything at all, is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and aligning with those realities. If we do not let the world teach us, it teaches us a lesson.

Remember that everyone we deal with has their own goals, feelings, aspirations, and motivations, many of them not always immediately obvious. We must construct human systems with human nature in full view, fully harnessed, fully acknowledged. Any system of human relations that doesn’t accept this truth will always be fighting the world, rather than getting it to work for them.

The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamored with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might choose to impress upon it. If those two principles coincide and act in the same direction, the game of human society will go on easily and harmoniously, and is very likely to be happy and successful. If they are opposite or different, the game will go on miserably, and the society must be at all times in the highest degree of disorder.

In the great chess-board of human society, every single piece has a principle of motion of its own.

Ramo believed that tennis could be subdivided into two games: the professionals and the rest of us.
Players in both games play by the same rules and scoring. They play on the same court. Sometimes they share the same equipment. In short the basic elements of the game are the same. Sometimes amateurs believe they are professionals but professionals never believe they are amateurs. But the games are fundamentally different, which is Ramo’s key insight. Professionals win points whereas amateurs lose them. If you choose to win at tennis – as opposed to having a good time – the strategy for winning is to avoid mistakes. The way to avoid mistakes is to be conservative and keep the ball in play, letting the other fellow have plenty of room in which to blunder his way to defeat, because he, being an amateur will play a losing game and not know it. If you’re an amateur your focus should be on avoiding stupidity.

It’s the strong swimmers who drown.

October 26, 2016 - Comments Off on Commonplace #0033

Commonplace #0033

Eliminating stupidity is easier than seeking brilliance.

Understand deeply. Don’t face complex issues head-on; first understand simple ideas deeply. Clear the clutter and expose what is really important. Be brutally honest about what you know and don’t know. Then see what’s missing, identify the gaps, and fill them in. Let go of bias, prejudice, and preconceived notions. There are degrees to understanding (it’s not just a yes-or-no proposition) and you can always heighten yours. Rock-solid understanding is the foundation for success.

Make mistakes. Fail to succeed. Intentionally get it wrong to inevitably get it even more right. Mistakes are great teachers — they highlight unforeseen opportunities and holes in your understanding. They also show you which way to turn next, and they ignite your imagination.

Raise questions. Constantly create questions to clarify and extend your understanding. What’s the real question? Working on the wrong questions can waste a lifetime. Ideas are in the air — the right questions will bring them out and help you see connections that otherwise would have been invisible.

Follow the flow of ideas. Look back to see where ideas came from and then look ahead to discover where those ideas may lead. A new idea is a beginning, not an end. Ideas are rare— milk them. Following the consequences of small ideas can result in big payoffs.

Change. The unchanging element is change— by mastering the first four elements, you can change the way you think and learn. You can always improve, grow, and extract more out of your education, yourself, and the way you live your life. Change is the universal constant that allows you to get the most out of living and learning.

can extract from human history a couple of principles. First, the principle that really isolated groups are at a disadvantage, because most groups get most of their ideas and innovations from the outside. Second, I also derive the principle of intermediate fragmentation: you don’t want excessive unity and you don’t want excessive fragmentation; instead, you want your human society or business to be broken up into a number of groups which compete with each other but which also maintain relatively free communication with each other. And those I see as the overall principles of how to organize a business and get rich.

Look for and study natural experiments, the more controlled, the better. I propose to try to learn from human history. Human history over the last 13,000 years comprises tens of thousands of different experiments. Each human society represents a different natural experiment in organizing human groups. Human societies have been organized very differently, and the outcomes have been very different. Some societies have been much more productive and innovative than others. What can we learn from these natural experiments of history that will help us all get rich? I propose to go over two batches of natural experiments that will give you insights into how to get rich.

Competition between human societies that are in contact with each other is what drives the invention of new technology and the continued availability of technology. Only in an isolated society, where there's no competition and no source of reintroduction, can one of these fads result in the permanent loss of a valuable technology.

The principle that really isolated groups are at a disadvantage, because most groups get most of their ideas and innovations from the outside. I also derive the principle of intermediate fragmentation: you don't want excessive unity and you don't want excessive fragmentation; instead, you want your human society or business to be broken up into a number of groups which compete with each other but which also maintain relatively free communication with each other. And those I see as the overall principles of how to organize a business and get rich.

Shine on you crazy diamond.

October 26, 2016 - Comments Off on Commonplace #0032

Commonplace #0032

Great men are almost always bad men.

Developing the habit of mastering the multiple models which underlie reality is the best thing you can do.

If you have more than one model, you can look at problems from a variety of perspectives and increase the odds you come to better solutions.

The Creativity Question published in 1976, preserves Wallas’s “Stages of Control” and presents his model of insight: (1) preparation; (2) incubation; (3) illumination; and (4) verification.

Intuition is the use of patterns they’ve already learned, whereas insight is the discovery of new patterns.

Stories are a way we frame and organize the details of a situation. There are other types of frames besides stories, such as maps and even organizational wiring diagrams that show where people stand in a hierarchy. … These kinds of stories organize all kinds of details about a situation and depend on a few core beliefs we can call “anchors,” because they are fairly stable and anchor the way we interpret the other details.

One of my favorite questions to probe thinking is to ask what information would cause someone to change their mind. Immediately stop listening and leave if they say ‘I can’t think of anything.’

Let me think about that for a bit and get back to you.

Acquiring knowledge may seem like a daunting task. There is so much to know and time is precious. Luckily, we don’t have to master everything. To get the biggest bang for the buck we can study the big ideas from physics, biology, psychology, philosophy, literature, and sociology. Our aim is not to remember facts and try to repeat them when asked. We’re going to try and hang these ideas on a latticework of mental models. Doing this puts them in a useable form and enables us to make better decisions. A mental model is simply a representation of an external reality inside your head. Mental models are concerned with understanding knowledge about the world. Decisions are more likely to be correct when ideas from multiple disciplines all point towards the same conclusion.