1. A reality-based model
A model is an idea that can help us understand the laws of the world. Models can explain the results and answer the questions of "why" and "how". We need to learn, understand and use great ideas and universal principles to explain the laws of things. In the last article, we have used many models and principles in life science, physics, mathematics and psychology to explain phenomena and problems, thus helping us to grasp the viewpoint of the problem more clearly and find the essence of the problem.
Charlie. Munger once said that it is best to ask yourself this question: "How can we make our life better and our thinking more agile?" The answer he gave us was: "What we should do is to get into the habit and master various models from the display as much as possible. This model must be rooted in real life? "
What is a useful model? Ask yourself: What is the basic philosophy? Do I know how to apply it in real life? Does it help me understand the world? How does it work? Under what circumstances is it effective? How reliable is it? Where are the limitations? What's the connection with other models?
Models from natural science and engineering are the most reliable in the world. A valuable model can provide a meaningful explanation, and at the same time, it can predict the possible future results, thus avoiding the great risk brought by the wrong consequences. The model should also be easy to apply and embodied in daily life. Here, we recommend a basic thinking model of WeChat logo: Captain Dahui's behavior design, which is currently outputting 10 1 thinking model, and explain each model in detail, explaining the applicable scenarios of the model.
In order to help us see the overall situation clearly, we might as well use multidisciplinary knowledge and viewpoints. Most problems require us to start from multiple angles of things. Charlie. Munger said: "The answers to many difficult problems must rely on interdisciplinary important ideas, not just limited knowledge." For example, there is some useful knowledge in business: how scale changes behavior, how systems fail, how supply affects prices, and how incentives guide behavior.
When learning some important ideas, you can use Feynman's A Classic. "Which sentence expresses the richest information with the least words?" Example: In psychology, there is a saying, "You get what you reward." There is a saying in physics that "energy can neither be created nor disappeared? Can only be converted from one form to another. " There is another way for us to learn models and better cope with reality, that is, to pay attention to the things around us with wide eyes and ask ourselves "why" this will (or will not) happen, that is, to get to the bottom of it and ask what happened? Why is this happening?
2. Significance
Empty words, definitions, suggestions, expressions or goals are useless to us, and we must understand their inner meanings. Just like knowledge, its value can only be revealed on the basis of mastery.
Understanding the "meaning" of a thing requires us to observe and ask some basic questions. Example:
? Meaning of words: What do these words mean? What is this? Does it make sense? Can we turn these words, opinions or expressions into everyday and enlightening explanations? An expression is often relative, so it is necessary for us to judge and measure with another thing as a reference.
? Meaning of the matter: What effect did this matter have? How to explain what happened in everyday language? What is its process and result? Under what circumstances did it happen? Is there any other significance in this matter?
? Reason: What's the matter? Why is this happening? Did it work? Why is it effective (or ineffective)? Why is this happening? Why does it work here and not elsewhere? How did it happen? What is the root cause of the incident? What is the reason?
? Revelation: What is the result of this observation, event or experience? What does it inspire us?
? Purpose: Why should I do this? Why do I want it to happen?
? Reason: Why is A better than B?
? Usability: What is its applicability? Can you help me achieve my final goal?
Danish physicist Ni? Bohr said: "Clear thinking will lead to clear expression." To describe a thing, we must seek truth from facts, use popular language and familiar views. Einstein said, "If you can't explain it in simple language, you don't fully understand it." Get to the point. Ask yourself: What do I want to express? One of the reasons for misunderstanding is that a word means one thing to you and another to others.
The ultimate example 1: What is making money? What does it mean to make money? The so-called making money means that the funds recovered in the future are higher than today's investment. What determines the return on investment of economic assets? The price of investment in that year, the funds recovered, and the opportunity to withdraw funds. The value of economic assets is influenced by interest rates. If the interest rate changes, the value will also change. Ben. The principle of margin of safety emphasized by Graham is the most critical factor for the success of investment.
Example 2: Entropy in chemistry: Entropy is to calculate how much energy is released or the range of release? Physical variables at a specific temperature. Explain the nature of energy: Why doesn't coffee keep warm? This involves spontaneous physical or chemical events in our lives. The temperature in hot drinks is attributed to the rapid movement of molecules. They collide with slow-moving molecules in a (relatively cold) environment, prompting the latter to accelerate their movement. In this process, energy is also released from the hot liquid into the cup and the air, and it is transmitted to a long distance through the circulation of air. If there is no external resistance, energy will be released and begin to diverge. The divergence of energy explains why metals rust and things wear and break. Because energy is always concentrated and slowly dispersed, physical and chemical systems will gradually decline, collapse or destroy.
simplify
Jack, former CEO of General Electric Company? Welch said: "The real strong is the simplest."
Simplify complex problems and start from the perspective of easy solution. Remove weeds and leave the essence. Break down the problem into several components, but consider the problem comprehensively. Firstly, the main problems are summarized, the main factors are listed on paper, and the relationship between the factors is analyzed. Proceed from the problem itself, not from the solution, and only adopt the most effective method. Why? Because what matters is the result, not the solution to the result. It's better to make fewer decisions. Why? Because it forces us to pay more attention to every decision and reduce the chance of making mistakes.
Sometimes, the available information is often overwhelming, including wrong information or information that can't help us to explain and predict. Sometimes, we pay too much attention to details or those irrelevant unknowns, and sometimes we ignore the obvious facts. Focusing on the key points will make us clear our priorities. Sometimes a limited number of action steps can achieve great results. Therefore, there are only a few really important decisions. Today, we get more information, but at the same time, we also have more opportunities to contact the wrong information. Charlie. Munger said: "Sometimes the harder you work, the more confident you are, but you may be working in the wrong direction."
Avoid noise or irrelevant factors and look at the overall situation. Ask yourself, "Why would I do that? What is the most important thing? What are the key factors to achieve the goal? Will more information affect my decision? " Don't collect information at will. You should ask yourself first: Why do you need this information?
Know what you must avoid in life. Instead of constantly exploring the road to success, it is better to know the fields, occasions and people that you must avoid first, which will help reduce mistakes and make more effective use of time. In addition, prevention beforehand is simpler than treatment afterwards.
Before solving the problem, you might as well ask yourself: Is this problem worth your time and energy? Warren. Buffett for himself and Charlie? Munger's Success in Life and Management explains: Before making a decision, there are two questions you must ask yourself: 1. Is it knowable? 2. Is it important? If it is unknowable, it will pass, because we know that there are many important but unknown things in the world. Besides, if it is unimportant, it makes no difference whether it is known or unknown. We passed by, too.
How to judge the quality of an enterprise: Does it always bring big problems to management? Still can always bring some satisfactory decisions without thinking.
Asking a question is often more important than solving a problem. Because solving a problem may be just a mathematical or experimental skill.
? Albert. [Name] Albert Einstein (Jewish theoretical physicist)
It is not enough to ask the right questions, but also to find the right direction and ask the right people.
If we can cool the problem for a period of time and let the subconscious begin to move, we can often solve a problem better and get more inspiration.
4. Rules and filters
What can be done to help avoid problems or guide decision-making behavior? We should formulate a set of rules of "what to do" and "what to avoid" according to our own understanding of reality and everyone's situation.
After understanding our goals, we need some standards to measure various options. Ask yourself: What is the most important (and knowable) factor to achieve a goal or avoid a problem? The standard of judgment should be based on facts and have proper predictability, that is, we can rely on it appropriately. The criteria for judging things must be the most necessary and concise. Then sort them according to their importance and use them as filters. Set decision thresholds to reduce the possibility of false alarms and losses. Consider the consequences of the wrong decision.
Buffett uses four criteria as a filter for how to evaluate a new business idea:
Can I understand? If possible, take the following;
Does it have a sustainable competitive advantage? If yes, take the following measures;
Has the management gathered many capable and honest people? If yes, take the following measures;
Is the price reasonable? If we can finally pass this filter, let's start writing checks.
In addition, the list program is a good tool. But don't rely too much on the list. When designing the list, the following questions should be considered:
Different questions need different lists.
? The list should include every key item to ensure "safety" and avoid "accidents". So we don't have to rely on memory to search for items that can be checked.
Simple and convenient to use.
In line with reality.
It is often more reasonable to act according to our pre-set principles, filters and lists than to act according to passion. But it is not advisable to make too many rules, filters or mindless things, and always know your ultimate goal.
5. Objectives
The setting of goals must be related to the task you expect to accomplish in the end.
Meaningful goals need to be supported by reasons, so as to test whether we have set the right goals. So setting goals must meet the following requirements:
There is a clear definition.
Focus on results.
Realistic and reasonable? What can I do and what can't I do? The goal is too low to play my own level. If the goal is unrealistic, it may force us to achieve it through deception.
Quantifiable.
Meet everyone's needs.
Can be changed in time (flexible). Ask yourself: what is the best step according to the current goal?
Goals need deadlines and control systems, so it's easy to check the completion progress of goals.
People often ask this question: What kind of results do I need? What is the main reason for this result? What factors have a significant impact on the results? Which single factor will have a significant impact? Do I have the necessary variables to achieve my goal? What is the best way to achieve the goal? Have I ever considered that my actions will have other effects besides the final result?
In the process of solving problems, or in the case of clear goals, we must focus on solving some problems. What should we do first? Ask yourself: How serious is the problem? Can it be solved? What is the most important question? Is the assumption behind the question correct? Have you considered the interaction between various problems? What are the long-term consequences?
Because of the serious impact? For better or worse. It is the result of the optimal utilization of some factors or the synthesis of many factors, and we should make use of all the necessary factors that are conducive to achieving our goals.
6. Multiple choice
Personal opportunity cost is often used to measure the advantages and disadvantages of each choice. Everyone's time and money are limited. If you decide to do one thing, you have to give up another. Because every minute spent on this matter means giving up the use of another matter, and our funds on one investment opportunity will not be used on other investment opportunities.
Decision-making means cost, and even understanding requires opportunity cost. If you take the time to understand one thing, you will undoubtedly give up the opportunity to understand other things.
The limited resources we spend on something, such as time, energy and money, can be measured by the highest value or opportunity (assuming the same goal can be achieved) among the abandoned options, that is, opportunity cost.
Each of us has many things we cherish: partner, work, house, family and so on. When we decide to make a change, we often need to compare the changed situation with the best situation we have at present.
In addition, we can also use a complementary filter to evaluate the many choices we face, that is, list the advantages and disadvantages of each item and compare them with each other. Warren. Buffett used this to tell us what kind of partner we should look for: "Look for the other half who can love you unconditionally and silently encourage you to do better than you think."
Not all decisions are important, but some decisions can dominate our lives. A decision that can affect our future life 10 is much more important than a decision that can only affect our present life. Such as partner, occupation, friends, investment, education and so on.
7. Results
In the economic field, the most important thing is that no matter what others say to you, you always ask "then what?" This method can be applied to almost all other fields. Therefore, you must always ask, "Then what?" ? Warren. Buffett (male name)
Consider the secondary and long-term consequences of an action. Don't forget to weigh the consequences when we decide on policies, take actions or evaluate opinions. Therefore, there are four key factors in the action:
1. Pay attention to the whole system. Focus on direct and indirect effects.
2. The results are hidden, or may bring more results, some of which are not what we want. Although we can't predict all possible outcomes, we should at least be alert to one negative outcome.
3. Consider the influence of feedback, time, grade, repetition, key indicators and restrictions.
4. In terms of costs and benefits, different choices have different results. Predict the actual effect of time and analyze whether it will help to achieve the ultimate goal.
When taking action, we must fully consider the short-term and long-term results, because the impact of an action is a long-term and gradual process.
8. Quantify
If there is substance, it must be reflected in quantification. ? Alfred. North? acne miliaris
In life, we often rely on our ability to quantify and understand patterns, relationships, propositions or quantities. What is the function of mathematics? It helps us to predict the result and evaluate the meaning of things.
Once things can be represented by numbers, we can compare them easily. How to evaluate the wisdom of a decision without an important quantitative standard?
Some things can't be measured accurately, so it is the best choice to divide them into a numerical range. As Keynes said, "Rough correctness is better than precise error." Don't pay too much attention to what mathematics can calculate, and don't ignore what can't be calculated.
Example: Can high-yield enterprises attract us at once? Profits have increased from less than $8 million to $72 million, which looks surprisingly perfect? But you must not think that this is its true colors. First of all, you must ensure that the income in the base year is not bleak. If the income is closely related to the investment of capital, we need to consider a key question: how much additional capital is needed to generate additional income.
We should understand the meaning behind the numbers. Warren. Buffett said: "initial return on equity" is also "the best way to measure one year's performance." Using this standard, we also need to understand many other factors, such as accounting policies, asset value creation over the years, financial leverage and industry conditions. "
Enterprise value is determined by the time and quantity of future cash flow.
Don't forget to quantify the results when making an acquisition. Consider the statements and balance sheets of the acquiring company and the target company. According to the changes of employees, suppliers, customers and competition, the capacity, price, cost and invested capital of the merged company are estimated. We should seek truth from facts and consider the change of enterprise value. The farther away from the cash flow on which our valuation depends, the greater the possibility that something we don't want to see will happen in the future, and the greater the uncertainty of expected returns.
What factors can drive future value? What is the inspiration for today's figures? Is it reasonable to check the growth, profit, profit rate, market size/capacity growth rate, market share and competitive advantage in the past investment records? What are the main factors that affect the future cash income and value? What factors will change this situation? Under what circumstances will the company lose its advantage?
9. Evidence
Evidence can help us confirm what may happen in the future, or help us distinguish between true and false. Evidence comes from facts, observations, experiences, comparisons and experiments. ? Bertrand? Russell
In fact, it is nothing more than two things: science and opinion. The former produces knowledge, while the latter produces ignorance.
? Hippocrates
The scientific process includes the following steps:
Any questions or comments? We always try to solve problems. When we encounter a problem or observe a phenomenon, we will investigate the truth and internal causes of the matter (note: what is most important is what happened, not the superficial phenomenon).
Guess why? We can try to find a possible solution or explanation (hypothesis about the occurrence and process of things), and then test whether this hypothesis or method is true through experiments or observations. In addition, some laws or models may help to solve problems or answer observed phenomena. Our hypothesis must be well founded and conform to the laws of nature and proven evidence.
Predictive results? Reasoning logically according to previous assumptions and predicting results.
Check? "What's the impact?"
We don't just observe some behaviors, we observe them with purpose, theoretical guidance and background knowledge, and we also need to know what are the important factors that affect observation. The same is true when searching for information. Charlie. Munger said: First of all, we must be clear about why we need to look for these materials. You should generate your own ideas on the basis of analyzing the actual situation, and then check whether your ideas conform to the basic thinking structure.
Occam's razor: Don't add entities unless necessary.
10. Reverse thinking
Reverse thinking allows us to decide what kind of behavior we should avoid. In order to know what to avoid, we must first think of what it is. If you want to warn others about something that should be avoided, you might as well expect from them.
Suppose we have achieved our goal, and ask ourselves: What is the purpose? Is this what I want? If the answer is yes, where did I start to reach the finish line? What are the necessary factors to reach the finish line? After thinking like this, we will start thinking from the beginning. Through this kind of reverse thinking, we can see the feasibility of things at a glance.
The application of reverse thinking in other aspects includes: studying evidence contrary to common sense and asking "why" more. Use the "negative provocation" method? Tell others what not to do. Practice zero-based thinking? The thinking method of returning thinking to the original point and starting from scratch: if we didn't do this at that time, what is the best way to achieve our goal?
1 1 risk
Only after considering all the potential negative factors can we determine whether an idea is effective. The wrong cost includes not only actual loss, but also opportunity cost.
What are the necessary qualities of an excellent long-term investor? People who are naturally able to identify and avoid major risks, even risks that have never been seen before, think independently, have stable emotions, and have keen insight into human nature and organizational behavior. These are all factors that make a long-term investment successful.
In the process of investment, these factors are more important: understanding the potential value of enterprises, not using leverage, choosing companies with effective management and integrity, and leaving a huge safety margin when investing. If you know a business? Can see its future clearly. Obviously, the margin of safety you need is not high. On the contrary, the more things happen in the future, the lower the certainty, the more fragile the enterprise, the higher the probability of enterprise change, and the higher the safety margin you need.
Munger's thoughts on value and style of doing things: "One should go all out. Don't lie. What you promised will be accomplished, and no one will care about your reasons. Prepare well before the meeting, and don't be late, but if you are really late, don't bother others with many reasons, just apologize? Call me back quickly. And say it in five seconds? No? . You must make up your mind quickly and don't let others wait for you. "
attitude
Be happy when you are alive, because we will die for a long time. ? Scottish proverb
The length of life depends on how we use it.
People only have one life, so we should actively enjoy life. Comedy master George? Burns said, "Do what you love or love what you do. I don't think there are other options. "
Everyone has 24 hours a day, and we can't save time. The difference is whether we use it wisely or squander it foolishly. How to use our time? What do we expect from life? Can the current lifestyle help us move towards our goals? The shorter the list, the more we can focus on the important things. Know what you want and what you don't want. Do we act according to our inner calling, or just out of the expectation of others? What is the most important person and thing in life? Do we feel the meaning of life?
Do things that conform to our personality and specialty, foster strengths and avoid weaknesses, and strive to establish (and follow) some values.
Having a correct attitude towards life is part of avoiding misjudgment and improving our quality of life. People are different, so there is no panacea strategy. Each of us must develop our own style, but there are guidelines that apply to everyone.
Stick to the activities within your ability. Know what you know and what you don't know. Therefore, the scope of this ability is not important, the key is to know where your edge is.
Charlie. Munger said: "Good conduct means high efficiency. If you trust others, your system will be easier to build. Therefore, good conduct will bring great efficiency, and bad conduct will be the opposite. "
Be friendly to others if they are not sincere to you? No grudges? Just try to avoid them in the future. Follow Charles? Darwin's advice is: avoid arguments.
Be curious and open-minded. Always ask "why?" Thomas? Henry. Huxley said: "Just like a child facing the facts, he is always ready to give up his preconceived ideas and listen to the guidance of nature humbly, otherwise, you will get nothing."